Other bad news is that Investors Business Daily has the market in a correction, and most of the members of the Palm Beach Stock Club that I belong to are bearish. The Contrarian continues to think, sideways correction, pretty shallow, stay invested, and hang in there for the coming rally.

I’m pleased that most of my holdings are hanging in there, and some, like Whole Foods are continuing to climb. Keep an eye on some techs which are dipping down, you might pick them up for a bargain within the next month, and they are GOOG, VMW, RAX, SPRD, NUAN, GLUU, and P(andora).

We turned the corner in the week just past. Not sure if you saw it, but some of us did.

When I started this blog in late December 2008, I said the market would turn around and it fortunately did two months later in March. In my 3rd or 4th blog, I asked my readers whether inflation would win or deflation and I strongly said inflation.

We had a couple of deflationary scares that spooked the market in the last 3 years, gold peaked at 1700, and most recently gas has hit 4 dollars – but those ghosts and goblins have left town. Pretty soon it will be deserted.

We have reached the tipping point for deflation versus inflation and inflation is going to win. The housing market supply has shrunk and the price bottom has been reached. The stock market just loves inflation. It thrives on it. And it’s going to be big for the stock market in the next 5 years.

I am a Keynesian. They have tried to repeal everything in the last decade that worked from the depression days – Glass-Steagull, 20% down mortgages, the Uptick Rule, you name it, and they even tried to repeal Keynes. The Austrian school would win out, austerity will work. Now the UK is swallowing a bitter pill, the dreaded double dip. Ireland has come up for air 3 times and they are still drowning.

Finally, the politicians are realizing, too late, that Hank Paulson was right, Tim Geithner was right, Ben Bernanke was right, and let’s give credit where credit is due, even Obama was right to back a policy of spending to get back on our feet again. To get healthy again, to heal again, before we take the bitter medicine of austerity which we will need in a few years.

In short, these guys believed in Keynes and it was the smart thing to do – if you believe in economic science and trust a guy who got us out of a depression, following the advice of a wise man, then maybe there’s hope.

In France they may be electing a moderate (they call them socialists in France) Francois Hollande over Sarkozy. The Romanian government has dissolved. Greece is practically going anarchic. In Spain there is finally a realization that they are not going to fight depression level unemployment of 23% with austerity. They need to grow out of this malaise. The only way to do that is with money.

The noose is closing around Angela Merkel’s neck. 90 years of adhering to the memory of German hyperinflation is going to yield to her conceding that she might have to start spending the mighty treasure of Germany to save the continent, the German economy, and her own skin.

She has been treating the southern european countries, the PIIGS, like profligate children – I’ll bail you out someday, but I’ll only write you checks when you start crying. The crying has become so loud that one politician has recommended that Germany leave the euro and improve the economic well-being of every other euro member. She might have to, heaven forbid, authorize Eurobonds so that the PIIGS can start enjoying the low interest rates like Germany enjoys. And Germans might have to open their pocketbooks and start buying things from the rest of the continent (and the US too).

And what about the United States? Aren’t we going to have to pay the price for austerity not taken? Aren’t we going to suffer from a horrible future, with a plunging dollar and lowered standard of living, and gradual degradation at the hands of mighty China the newly crowned future #1 economy in the world? Aren’t we going to suffer from Taxmageddon next year when Obama faces off once more against a tax cutting congress and has to raise taxes on not only millionaires, but the middle class as well?

In short, NO. Here’s the deal – After the marvelous 90′s we suffered not only a dot com bomb, but also the worst skirmish with depression since the big one in the 1930′s. In case you haven’t noticed, there’s been austerity going on in every state in the USA, California, Illinois, Florida, Nevada, New Jersey, you name it. The only reason it’s not worse is because of the Keynesian countereffect of the Federal govt. And that is all you hear in the financial news, the deficit, the deficit – what’s worse, all you hear is that tax cuts (ie more deficits) are the answer. This is the biggest crock ever perpetrated on the American people.

I really wish that the folks in Congress calling for more spending cuts to solve the deficit were there in 1980 to 1982 when Reagan said he’d solve it. I wish they were there when GW Bush cut taxes for millionaires, reduced the death tax to zero, gave away Medicare Part B, fought 2 wars without paying for them. NOW THAT WOULD HAVE BEEN AN IDEAL TIME TO MAKE CUTS! When we were sitting on the first balanced budget since Nixon, that would have been a good time to let the deficit shrink – Do you recall that pre-9/11, Alan Greenspan was worried that there would not be a need to even have a 30 year bond anymore. How quaint…

Will we ever solve the deficit ? In short, YES. There will be cuts. The demographic hemorraging will be solved. The economy will once again grow faster than the deficit – and that’s all we need – as long as GNP grows faster than the deficit, the US will do just fine. Any businessman knows that if your topline grows at a faster rate than your rent, you will do quite well. Why even Mitt Romney knows that.

In short as the economies of the world slowly turn around, the US horse, which was the first out of the starting gate, is going to do the best. I’m even starting to think that the old stock market maxim, “First of May, Go Away” may not be operational this year.

Forecast – Summer Rally Straight Ahead – Stay Fully Invested.

I think we’ve got a put under this market due to the fact that if any of the horrible stuff from Europe starts leaking out again, Ben Bernanke will step up to the plate with QE3 or some variant on Operation Twist to juice the economy during the election year. The only Fed Chief in my lifetime who didn’t play politics was Paul Volcker, and I think he will be the last.

I’m not going to give trading recommendations, you already know them, the 2x and 3x bull and bear ETFs like TYH vs TYP, FAS vs FAZ, ERZ vs ERY, DRN vs DRV, etc. If you care to make these risky bets, go ahead and play the oscillations.

Generally speaking you should just stick with your favorites that you have a lot of conviction about. Mine are well known, Google, Xtex, BRKB, Vmware, Whole Foods (WFM) etc.

If you have any new money to invest, when the current correction runs its course, start watching some cool new names for spots to enter – things like Pandora (P), Francesca’s (FRAN), Spreadtrum (SPRD), Nuance (NUAN), and Solar Winds (SWI).

To be honest I think one the best and safest investments for the next 6 months are the strong big caps that pay decent dividends. My German friend Roger has owned Munich Re a reinsurance company with 13% ownership by Warren Buffet that pays 6% dividends. That’s like taking the cream of Warren’s crop. I will research a few more of these in the next few weeks. If you have some of your favorites, please email me.

Long-term – US Economy is looking real good. Due to our technology leadership in Hydrofracking, we’ll be a net exporter of energy, so who knew. There’s so much cash getting invested now, people are getting negative interest rates due to the inflation we’re all getting but that the government doesn’t count. That’s going to change, Ladies and Gentlemen, and the big winners are going to be the stock market and gold.

Intermediate Term – We’re going higher next year no matter who gets elected. If Obama beats Romney, it’ll be higher. If Romney wins, there will be a jag down as he appeases his base, but he’ll flip-flop and both the stock market and the economy will get back on track.

Short-term – We will have one more major dip between now and June, either caused by the European issues (Merkel is dealing with profligate children, her PIIGS, and the I won’t give you any more money, oh you won’t buy my products, well here’s a couple more bucks will rock back and forth, but will be resolved. Or you could get an issue with Iran threatening the Port of Hormuz, but I think Obama will delay his sabre-rattling until, oh let’s say, October 1st. Short-term the best gains will be made by the end of summer, and the market will stagnate until the election, unless it’s really learned beforehand who’s going to win – ie like Clinton beat Dole, anybody could have called that one.

I expect that Jan 31 will be higher than Jan 1, so that is the only fly in my prediction for next year. Let’s hope I’m right.

Long-term (3-5 years) – looks pretty good if you don’t need a whole lot of money and are willing to stay sternly invested all the way through. The US has tipped from the world’s biggest oil user to an actual exporter. We’re going to lead the world in nat gas exploration and that’s going to give us an edge. Once the long-term deficits problem is fixed, and it will be, the US economy will be ascendant again.

Intermediate-Term (1-2 years) – the stock market will be marking time with ups and downs, with a final resolution of back to a recession if a Republican is re-elected, and back to boom times if a Democrat is re-elected. This isn’t my opinion, it is based upon a statistical survey of stock market history. If an independent gets in, I haven’t got a clue.

Short-term (3-6 months) – my instincts tell me that we are going to start off the year going down but will be up by the second quarter, then down in the summer and rise into the Fall. Unfortunately, it could be the exact opposite and you’ll get an inkling on January 3rd, by the end of week 1 and definitely by the end of January. The reason for my pessimism is Italy, and the unwillingness of the European Union to print euros. If the euro descends, the dollar goes up, the stock market goes down, but to a point where the psychology will change and support will come back to the US Stock market. If the Europeans actually do decide to print (inflation), or at the moment when some insiders get a whiff that the printing will begin, the global stock market will bounce to new highs. I imagine this tug of war will be resolved within 6 months, but it may last longer.

My current plans are to keep some cash around, invest in balanced mutual funds, dividend paying stocks and ETFs, and only maintain long positions in the strongest stocks like Google, Whole Foods, Xtex, and Bee. I aslo plan on weekly purchases and sales of bullish etfs at weekly bottoms (like financials FAS, Tech TYH, or energy ERX), or weekly purchases and sales of bearish etfs at weekly tops such as (financial bear FAZ, tech bear TYP, or energy bear ERY).

The market’s been a little dangerous lately and until some of these obstacles are resolved, the best thing to do is move to the sidelines and try to catch the ups and downs for your favor.

Yes, that’s the best I got. Happy New Year!

The market looks like it wants to probe the Stock equivalent of the Maginot Line or the September lows (down another 7-10%) and will probably be lifted by a concerted effort from the ECB, the Group of 20, or maybe even the Chinese, although they will wait until every western leader gets down on their knees and begs.

Anyway, I see panic ahead and I am hopeful we can get into a nice bounce – however if we break 2350 on Nasdaq (down another 200 points), just like when the original Maginot Line was broken, then look out below.

Don’t pay any attention to the doomsayers, this market is going much higher. If you had purchased some of my top picks, you’d be up between 20 and 30% in a few weeks. My hottest picks were SWI (up 18% today alone), FFIV up from 60 to 110, HOV up 50%, and TNH is up almost 20 points and it pays a 10% dividend. Look up some of the others I recommended 2 blogs ago, they are going much higher.

Sounds like the market is due for a rest, but fahgeddaboudit. Hang in there!