I have to wonder when that portfolio snapshot was taken.

While I believe that they’ve made some very astute investments, it’s likely that they’ve now dumped their shares of JPM, after climbing over 65% since March 2009 on “vapor profits.”

Among all the big banks, JPM is perhaps the most vulnerable to fail, with hundreds of billions in near-worthless derivatives. For example, JPM’s total credit exposure to derivatives is over 350% (yes, percent!) of its risk-based capital!!

P.S. Shhh! Don’t tell the traders; they’re still trading in fantasyland.

2% in JPMorgan Chase? That makes no sense. Unless maybe a blue indicates a short position …?

FRED HICKEY

Barron’s: You really nailed it in January, Fred, when you predicted a 40%-50% rally like the “little bull market” that followed the Crash of 1929. Please tell us history won’t keep rhyming.

Hickey: The parallels are eerie so far, but what happens next is complicated. The market has rallied about 40% off its lows, led by the riskiest stuff. A selloff is coming because the fundamentals don’t match Wall Street’s perception. Retail sales were terrible in May; two-thirds of companies reporting came in below forecasts. The rebound in stocks has been based on inventory restocking, but end markets haven’t improved.

That’s because consumers are afraid to spend.

The savings rate rose to 5.7% in May, a 14-year high. Gasoline is up in recent weeks by about 40 cents a gallon. People are losing their jobs. Housing prices haven’t stopped falling. Mortgage delinquencies and foreclosures are up. One of every 10 homeowners is in trouble. A year ago we were handing out $90 billion of rebate checks; that’s over, too.

If things were to follow the “little bull market” pattern, stocks would fall to single-digit price/earnings multiples. That would mean 4,000 or 5,000 on the Dow, versus 8,800 now. But that won’t happen; the variables are different today.

Fred Hickey’s Picks
6/10/09
Company Ticker Price
PRECIOUS METALS
Market Vect Gold Miners ETF GDX $40.80
SPDR Gold Shares ETF GLD 93.86
Agnico-Eagle Mines AEM 56.57
Yamana Gold AUY 10.16
TECHNOLOGY
Microsoft MSFT 22.55
Verizon Communications VZ 29.53
Source: Bloomberg
That’s a relief. Isn’t it?

In the 1930s the money supply was falling even as the Federal Reserve cut interest rates. Now not just the Fed but other central banks are pumping money into the system like madmen. China’s money supply has grown by 25%. The money isn’t going into the economy; it’s going into asset prices. Oil has doubled from a $32-a-barrel intraday low. Copper is up 80%. Russian stocks have rallied 80%. The situation is reminiscent of the past 14 years, when the Fed primed the pump and created bubbles everywhere.

Recently there have been some signs the insanity might be ending: The dollar has fallen, and yields on U.S. Treasuries have risen dramatically. But to short assets in the next six months would be suicidal. I haven’t been short since October, even though the long-term direction is down. How much longer will the Chinese be willing to sit on $800 billion of Treasuries and $2 trillion of mostly dollar reserves and watch our currency drop and our government spend $2 for every $1 it takes in?

At the moment, the alternative might be worse.

Not printing money and letting the system cleanse itself would be very painful. It would mean a great recession — not something politicians like. Therefore, the discipline will have to come from an external source — the Chinese. Ultimately, the dollar will collapse and we will be forced to defend it, as happened in the 1930s. Or, we will have horrific inflation. But we have put off the day of reckoning.

In that case, tell us what to buy in the next six months.

Buy value, and protect yourself against the threat of the dollar’s collapse and the return of inflation. I’ve been riding the gold wave for a decade, and the major secular bull market in gold isn’t over. I’m twice as adamant now as in January about the need to own gold. I continue to like the mining companies. The GDX, or Market Vectors Gold Miners ETF [exchange-traded fund], is a diversified fund of some 30 mining stocks. I still like Agnico-Eagle Mines , and bullion, which you can own through the GLD, or SPDR Gold Shares ETF. My favorite gold miner is Yamana Gold . It is based in Canada but operates in Brazil, Mexico and Chile. It trades on the New York Stock Exchange. It rallied to 11 a share from 4, but is down from a year-ago peak of 19, even though the price of gold has recovered to almost $1,000 an ounce. The P/E is reasonable. The company has new mines coming on, and it is benefiting from lower costs.