By: Larry MacDonald

Sometimes you just want to slap Mr. Market around a bit. One week he’s in a selling panic; the next, he’s in a buying frenzy. Mr. Market needs a rest at Sunny Brook Farms. Call the people in the white coats.

I hadn’t quite finished deploying my cash balances when he began singing happy days are here again, taking the indexes up 20% in two weeks. He’s snatching away all my buying opportunities. Give that guy a Qualude, already.

Being constitutionally averse to buying while buying panics are in full flight, I am left asking: what, then, can one buy right now? Are there any asset groups with the prospect of good returns  — that haven’t had a sharp run-up and become overbought?

There may actually be one: inverse bonds funds – specifically those tracking government bonds such as the ProShares Ultra-Short 7-10 Year Treasury exchange traded fund.

The prices of inverse government-bond funds should be climbing too because of the inflation expectations unleashed by the Federal Reserve’s unprecedented creation of new money. Then there is the oversupply arising from massive fiscal deficits caused by more than a trillion dollars of government spending on bailouts, fiscal stimulus, and so forth.

But the rally has been delayed by the Federal Reserve announcing plans to buy several hundred billion dollars of long-term U.S. government bonds. In fact, they were set back sharply by the announcement. This was what I was waiting for and now that it’s out in the open, it’s time to look seriously at taking action.

At some point, the Fed will have to stop buying the bonds and their prices – now artificially held near their historic highs – should trend back down to more natural levels. The tsunami of new money should eventually goose the economy. Indeed, it may be like the stuck door that springs open suddenly after much hard pushing. A side-effect will be higher inflationary pressures and expectations. So, the Fed will in time lay off buying government bonds.