This page has been archived and commenting is disabled.

Nic Lenoir Of ICAP Sees The S&P At 380, Or Wall St. Vs. DC Round II

Tyler Durden's picture





 

Submitted by Nic Lenoir of ICAP

Yesterday I thought that for no particular fundamental reason the market was possibly going to temporarily base as technically it seemed we had a few important supports and exhaustion signals. That call looked good overnight until 6.30AM when S&P futures turned South and broke the 200-dma support, followed by AUDJPY which is a key risk barometer dropping through the key support at 76. At least from a day trading standpoint the game plan was clear: sell the break! Levels as clearly established as these tend not to turn out to be headfakes and today was no exception with AUDJPY trading down to a 72 handle.

The medium term trend, and I want to clear about this, remains down. I have argued for this for a while now, and risk appreciated so much from March 2009 until April in the case of US equities that the correction will run for a lot longer than this. I ultimately think we will see new lows in equities and I stand by my target of 380 for the S&P (I came up with that one in 2007, I looked stupid then, I still look stupid now, just a little less).

Short term, we have a monster support at 9,830/9,880 in the DJIA. If we break through this we trigger a big H&S in a very unstable environment and this time it won't prove a false break like it did in June 2009 when the market was still quite oversold. This level can be put in parallel with the USDCLP inverted H&S. I would also like to draw attention on the Trade Weighted Euro.

We are back at the levels seen at the bottom of the financial crisis 1.0 (we are experiencing 2.0: debt deflation takes over government support, 3.0 will be the final insult with hyperinflation once the markets have cleared at absurd lows but that's a few years down the line). Anyways, back to our observation on the EUR and USDCLP or the approaching Dow support, we are at key levels here. EUR for all intents and purposes held today, and USDCLP rejected the break out. Part of it was helped by intervention from the SNB and the BIS in the market (look up EURCHF if you need proof) which basically held the FX market. EURUSD is quite oversold (though we are still above the lows in momentum/RSI observed in 2008) here so as long as we stay above the 1.2440/1.2300 congestion (see EURUSD 10 minute chart) the risk could be that we bounce further, whether it is driven by intervention or short covering. On the upside there is no real resistance until 1.2760 and more importantly 1.3170/1.3200 which would be a big resistance if we bounce there. It seems audacious but in September 2008 we bounced from 1.38 to 1.48 in a matter of a few days before dropping 25 figures.

Equities are a bit more ambiguous than FX here. We have long said that Washington is completely bipolar/schizophrenic. The US economy works as long as the upticks in financial assets allow the wealthy to create service jobs for the not so wealthy and not so educated. So we need stocks going up at all costs under that model. However overhauling the financial industry and putting constraints on leverage is drastically bearish stock. Let's pause for a second: we are in the middle of debt deflation with horrible difficulties in the USD funding market. Putting limits on bank leverage will kill lending, and that is only going to make matters worse. Therefore we are fighting fire with fire, and I don't think there is a way to resolve this problem other than more debt deflation and asset devaluation. Stocks responded exactly along those lines to today's votes into the close and after hours with renewed selling pressure. It seems central banks are not only fighting a liquidity drought, they also have to fight the consequences of the political witch hunt against the financial system. Yes there are a lot of reforms needed, but I am just saying that you need to pick your poison. Here Washington has placed a higher priority on its vendetta against Wall Street as it has to the path our economy is on: buyers beware.

Since the financial industry overhaul is long term a big negative for the US, I feel we could see a bit of a correction for the USD, which won't be sustained because of the debt deflationary forces at work. But that could be were stocks keep underperforming while the FX market does not validate this weakness for a few days. Fixed Income markets also indicate Treasuries are on resistance levels and exhibit some exhaustion but are waiting for a catalyst to correct.

If there is a bottom line tonight it is that politicians have been setting up the very system they are fighting right now, not realizing that our workforce is not educated to compete, burried in debt, our costs are too high, and that for demographic and structural reasons our  economy is in terrible shape. With the decision made to pin the housing excesses and the excessive leverage in the system on Wall Street, the government has set up the stage for deflationary forces to work their way eating up the value of financial assets in a way that people are greatly underestimating. Wall Street needed a cop, but it got a dictator.

Good luck trading,

Nic  

 

 


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Thu, 05/20/2010 - 17:48 | Link to Comment anynonmous
anynonmous's picture

I saw Tice on Bloomb earlier - he stands by his 400 call (great day for him to be holding court at Lexington Ave)

Thu, 05/20/2010 - 17:53 | Link to Comment ghostfaceinvestah
ghostfaceinvestah's picture

I was just wondering about what Tice is saying - thanks.

Thu, 05/20/2010 - 17:48 | Link to Comment spartan117
spartan117's picture

S&P500 at 380?  Um, damn.  The only thing I'd be buying at that point would be bullets.

Thu, 05/20/2010 - 17:58 | Link to Comment jdrose1985
jdrose1985's picture

S&P500 at 380?  Um, damn.  The only thing I'd be buying at that point would be bullets.

 

If you don't have bullets already you might not make it to see 380 ;) And don't forget the spam.

 

Don't worry; it's not the end of the world

Just TEOTWAWKI

Fri, 05/21/2010 - 05:05 | Link to Comment jeff montanye
jeff montanye's picture

the u. s. stock market already had an 80% decline in real terms from 1965 to 1982 and bullets weren't needed.  same for 1929 to 1932 and they didn't have food stamps.  however this time does give me a queasy feeling nonetheless.  one reason is the elites are even more corrupt and feckless than formerly.

Thu, 05/20/2010 - 18:04 | Link to Comment mikla
mikla's picture

Actually, I'm with him on that.

Recap:

  • Long term:  down.
  • Medium term:  down.
  • Short term:  ? (depends on how much Viagra Ben put in his coffee this morning, but I think the market is picking up steam [true capitulation] and is probably down also)
  • Wildcard:  MASSIVE printing ==> Hyperinflation (may be years away).

We are STILL massively over-bought, no one can service their debts, are leveraged up to their eyebrows, and we still need to see the unwind in positions (like a quadrillion in derivatives).

Here's the acid test:  Would you give $1 to GM, thinking that they could earn a profit on it?  (Not a chance.)  Similarly, would you give $1 to the S&P500, thinking they could earn a profit on it?  (Not a chance.)  That means you need to sell until the answer is "yes".

Thu, 05/20/2010 - 18:05 | Link to Comment HFT1
HFT1's picture

Mr Spartan I believe bullets are good but my pic explains what you should try to obtain for now. And for all you gold crazies it will hit 680 during deflation and then CRAZY inflation somewhere around gold 500-600 area. Another 150 pips last pm and I would be watching aud/usd as well as aud/jpy and ignore the euro. Reason being when the 400mm buy cam across the desk I can only say I am glad I was FLAT, no position. I do believe this is inviting a Soros type trade to force it to even steven with the $. That 400mm is intervention and i want no part of it yet...

Thu, 05/20/2010 - 17:48 | Link to Comment Pure Evil
Pure Evil's picture

There is a very easy way to return from a casino with a small fortune: go there with a large one." ~ Jack Yelton

Thu, 05/20/2010 - 17:56 | Link to Comment mr brincq
mr brincq's picture

calculate this: s&p div yield is 1.9%....average div yield over 100 year period till 1982 was 5%...Do the math and you end up with +/- 400 for the S&P 500....380 makes a lot of sense

Thu, 05/20/2010 - 18:00 | Link to Comment rich_maverick
rich_maverick's picture

That assumes that the cash flows to pay the dividends will be there.  If the economy tanks, profits and cash flows will suffer.  As a consequence, dividends will also suffer.  We may have yield of 3% and S&P 400 and still believe the market is too richly priced.

 

Rich

Thu, 05/20/2010 - 18:05 | Link to Comment mr brincq
mr brincq's picture

you are absolutely right.....for more long term information i suggest to go to www.dshort.com....it is now getting late in Amsterdam...midnight.....watch the market slide the slope of hope

Thu, 05/20/2010 - 18:36 | Link to Comment Quantum Nucleonics
Quantum Nucleonics's picture

The problem with that analysis is taxes.  Lowering of capital gains taxes, which were 20% in '82 from nearly 50% in the late 70's, created a huge incentive not to pay dividends which were taxed at marginal rates.

Thu, 05/20/2010 - 17:58 | Link to Comment HFT1
HFT1's picture

Cash Bitches!!

Thu, 05/20/2010 - 18:35 | Link to Comment abalone
abalone's picture

Who's your daddy! King Dollar

Thu, 05/20/2010 - 18:01 | Link to Comment faustian bargain
faustian bargain's picture

3.0 will be the final insult with hyperinflation once the markets have cleared at absurd lows but that's a few years down the line

I'd be interested to learn how the 'few years' estimate is arrived at. (Not joking...I have no idea but would have guessed it to happen sooner).

Thu, 05/20/2010 - 18:36 | Link to Comment legerde
legerde's picture

I believe a few years because I think the majority of society is not aware.  American "Idle" has a few more years before it gets cancelled.  

In seriousness, when a fiat currency used to get created, it might last 20 years (See John Law).  The Fed has been fighting gold since its inception and we are approaching 100 years.   The central bankers are smart and can spin many plates on sticks.  I think they are losing control of things but they have a printing press and lots of power so I have confidence that they can keep the plates spinning a while longer.

 

Thu, 05/20/2010 - 19:27 | Link to Comment cougar_w
cougar_w's picture

Hyperinflation is always a failure of confidence, unlike it's cousin inflation which is a monetary tool. It takes a while for people to lose confidence; they have to lose a lot of other things first. Their faith in money is the last thing to vanish.

So how far are we from having losing confidence? Well there is a lot to vanish on the way there. Freeways, restaurants, television, ice cream sundaes. Stuff like that hanging around gives a sense of normalcy. Even petty crime is normal and reassuring. But once "strange shit" starts to happen and "normal shit" doesn't work, the bloom is off the rose.

Thu, 05/20/2010 - 18:02 | Link to Comment jal
jal's picture

Will the S&P break with its trend and be down on monday?

jal

Thu, 05/20/2010 - 19:12 | Link to Comment JW n FL
JW n FL's picture

I agree, I see the piggy backers / trendies getting caught this go round... but to be clear mostly just to insure Congress and the Senate get the message... you see the algos did everything they could this afternoon, but could not hold the line... I am laughing while typing!

 

Wake up calls all around, smart people getting punished...

 

Or, to the moon and everyone gets a free ride and The Congress and Senate are to be trusted by Wall Street?! Still laughing!

Thu, 05/20/2010 - 18:17 | Link to Comment ZackAttack
ZackAttack's picture

Good thing that didn't happen a year ago because S&P 380 would pretty much end all the insurers with annuities linked to the S&P.

Thankfully, a year later, they're in such good shape that they could pay back the TARP, so you just *know* they were smart enough to take all this risk off their sheets.

Thu, 05/20/2010 - 18:29 | Link to Comment Rainman
Rainman's picture

An S&P of just 750 would be enough to knock the snot out of the public pension funds. Even they couldn't paper over a disaster loss like that over 30 years. They've been sniffing those speculative green shoots for years and they'd be buyers on the way down for sure.

Thu, 05/20/2010 - 18:47 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Dow Jones fair value 1182.40

Thu, 05/20/2010 - 19:15 | Link to Comment silvertrain
silvertrain's picture

and the s&p @ $17.70

Thu, 05/20/2010 - 19:51 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

73.90?

Thu, 05/20/2010 - 20:09 | Link to Comment AccreditedEYE
AccreditedEYE's picture

Awesome point. And they'll be no running to the States to fill the holes. It's time for a very hard reality to start setting in.

Fri, 05/21/2010 - 18:30 | Link to Comment JW n FL
JW n FL's picture
by ZackAttack
on Thu, 05/20/2010 - 17:17
#364200

Good thing that didn't happen a year ago because S&P 380 would pretty much end all the insurers with annuities linked to the S&P. Thankfully, a year later, they're in such good shape that they could pay back the TARP, so you just *know* they were smart enough to take all this risk off their sheets.

ZackAttack,

                  Paying the TARP monies back to the American Tax Payers, the 10% interest money! by using the 0% FED window... is not good for the Tax Payer(s) and is NOT! us getting paid back... We had 10% interest comig in now we have 0% interest going out...

 

its a not a 105 repo scam, BUT IT IS WORSE!

 

Fucking GREAT! Deal for us! Thank God for the Lobby!

 

The Banks are using profits to pay for their Lobby? not the 0% Fed Window?

http://www.wired.com/threatlevel/2009/08/bank-lobbyists/


**** "In the first three months of 2009, the financial sector spent $104.7 million to lobby Congress and the administration, down 8% from the same period last year" ****

http://online.wsj.com/article/SB124640640747376775.html

So that I am clear... 2008 was a vintage year for Banks? they made soooooooooooooooooooooo much money on 2008 that in the first 3 months of 2009... they could drop $104.7 MILLION DOLLARS?

http://en.wikipedia.org/wiki/Emergency_Economic_Stabilization_Act_of_2008

 

Thu, 05/20/2010 - 18:27 | Link to Comment hambone
hambone's picture

Nic,

380 on the S&P does sound pretty stupid...but only because human greed allowed 1500 on the S&P which should have never happened.  Greed and fear (or leverage and par) represented in their ultimate numerical values.

Thu, 05/20/2010 - 18:29 | Link to Comment Psquared
Psquared's picture

The markets will be shut down and we will have extended holidays long before we reach 380. I am thinking by summer's end we will be looking at SnP <900 and then rally in the fall. Of course, I am assuming a lot of things don't happen that could happen which would make SnP 380 very possible.

Thu, 05/20/2010 - 18:35 | Link to Comment Duesco
Duesco's picture

Helicopter Ben will personally kill thousands of traders before he lets the S&P get to 380.

Thu, 05/20/2010 - 23:05 | Link to Comment Dr o love
Dr o love's picture

Coming soon to a theater near you.

 

Thai c.bank declares Thursday, Friday bank holidays

 

http://www.reuters.com/article/idUSSGE64H0A120100519?type=marketsNews

 

Thu, 05/20/2010 - 18:29 | Link to Comment gimli
gimli's picture

Are we going to bounce tomorrow from...........

a. ppt

b. Short covering

c. OE chicanery

d. None of the above --- straight to the bottom of the oily Gulf of Mexico

Thu, 05/20/2010 - 18:47 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Washed up like oil.

Thu, 05/20/2010 - 18:42 | Link to Comment HarryWanger
HarryWanger's picture

I went long SDS 33.15 and sold my long equities, as I said yesterday. I believe we will see a bounce off the /ES at 1055ish overnight. I may sell if we bounce at the open on Germany vote and/or bank reform solidifying. 

However, I firmly believe we are going lower after a bounce to 1100 area. My target is 850 by September before rallying to end of year.

Thu, 05/20/2010 - 18:54 | Link to Comment Coming Down in ...
Coming Down in Powdery Sparks's picture

You are truly a cretin.  You've been long the whole way down...

Thu, 05/20/2010 - 19:31 | Link to Comment akak
akak's picture

"I went long SDS 33.15 and sold my long equities, as I said yesterday. I believe we will see a bounce off the /ES at 1055ish overnight. I may sell if we bounce at the open on Germany vote and/or bank reform solidifying."

Harry, your wife told me in bed today that in the last ten years you have never been long even once.

But speaking of your wife, and a bounce ....

I sure do like her head and shoulders, and her double top, and her smooth and supple trendlines.

For her part, she seemed to appreciate my ascending wedge and parabolic blowoff!

 

Thu, 05/20/2010 - 20:39 | Link to Comment SteveNYC
SteveNYC's picture

Faaaarrrrkkkk me!!!! I just spat Lindt chocolate and Spanish red from the Riojas region on my screen. Akak, that was pure fukin gold!!

Thu, 05/20/2010 - 21:38 | Link to Comment Takingbets
Takingbets's picture

You dog!!, I blew soda from my mouth to my iPhone reading your whitty post. Lol!!!!!!!

Thu, 05/20/2010 - 22:57 | Link to Comment Village Idiot
Village Idiot's picture

Hey TB and Steve -

Are you guys married? No matter what you may think of the guy - don't bring a man's wife in to the mix - unless he invites you to.  Stupid.

Thu, 05/20/2010 - 23:11 | Link to Comment Takingbets
Takingbets's picture

Well in my heterosexual marriage I happen to be the wife, and yes I thought it was funny!

It's a joke and we all know Harry has very thick skin, if he dident he wouldent have been posting his ridiculous bull market commentary on this site, IMHO.

Thu, 05/20/2010 - 23:19 | Link to Comment akak
akak's picture

I just hope that Harry is willing to return the watch I left on the nightstand.  Damn, that's like the fourth time I've done that!  You'd think I'd learn by now!

Sorry for getting the sheets messed up too, Harry --- l'amour has a way of doing that.

Fri, 05/21/2010 - 00:09 | Link to Comment Village Idiot
Village Idiot's picture

That's what I get for speed reading. AKAK, Steve and TB aren't the turds in the punch (my apologies) - you are.  Hey big man, if you think you are being funny on a website, I dare you to take your act to a local bar of your choice and try it out. You won't be laughing - guaranteed.  Grade A punk.

Fri, 05/21/2010 - 00:12 | Link to Comment akak
akak's picture

Wow, are you trying to live up to your moniker here?

It's called a JOKE --- as in humor. You know, "h-u-m-o-r"?

Try it sometime, you may like it.

Fri, 05/21/2010 - 00:16 | Link to Comment Village Idiot
Village Idiot's picture

Just the village idiot, buddy. You are just a freakin' idiot if you think that kind of talk is a joke.  The guy is a target - his wife is not. Have nice day.

Fri, 05/21/2010 - 00:55 | Link to Comment akak
akak's picture

You seem to be overstressed.

Have a drink, go for a walk, or play with one of your kids or your dog.

I can't understand why you are getting so bent out of shape over a harmless and absurd little joke.  And worse yet, I see there are four other prudes who agree with you.

Some people just have NO sense of humor!  I'm guessing you're from the Bible Belt.

Fri, 05/21/2010 - 00:58 | Link to Comment Village Idiot
Village Idiot's picture

You don't get it.  Walk on.

Fri, 05/21/2010 - 00:08 | Link to Comment Village Idiot
Village Idiot's picture

TB, glad you responded - I lumped you in when all you did was laugh.  My apologies.  But seriously, that one goes too far, at least that's the way I feel. Isn't it interesting that a man might take more offence than a woman - guess it's a man thing.

Fri, 05/21/2010 - 00:56 | Link to Comment akak
akak's picture

Or a cuckold thing.

Fri, 05/21/2010 - 08:02 | Link to Comment Takingbets
Takingbets's picture

Thanks but I really dident need an apology.

I only have one question, do we actually know if Mr Wanker is even married? If not, your getting upset about this is all for not.

Fri, 05/21/2010 - 09:27 | Link to Comment Village Idiot
Village Idiot's picture

Call it a matter of principal, then. I don't think there are very many people on this site that really would want to see the conversation digress into personal attacks on one's family life.  I know I woudn't want to. keep that popcorn coming - gonna be another fun day.  Cheers.

Thu, 05/20/2010 - 18:45 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Walled St runs DC.

The movements have never been more volitile.  Silver is saying it wants to run for the hills, and dow looks like it is donzo. 

Good luck trading!

Check out the move from 10:30

Silver wants out like Germany.

http://www.kitco.com/charts/livesilver.html

Thu, 05/20/2010 - 18:53 | Link to Comment Kina
Kina's picture

Had one colleague follow me into cash back in Feb/Mar and another follow me into cash just last week. Another however was listening but did nothing, now he his concerned about doing something.....a bit late for him, he is still all in.

Have been telling relatives that I am in cash and PM but they believe the market is up so all is good. This past week will cause them some angst.

Have been telling people to take their gains since Feb/Mar.

Thu, 05/20/2010 - 20:40 | Link to Comment SteveNYC
SteveNYC's picture

Good advice, you're a trooper Kina.

Thu, 05/20/2010 - 18:55 | Link to Comment Rider
Rider's picture

380 SPX Sounds fair, however if we have a major run to the banks, violent civilian unrest, and bond vigilantes visit to America, 2XX are possible on the within next 6 years or so.

Thu, 05/20/2010 - 19:27 | Link to Comment Windemup
Windemup's picture

I don't see 400 for a while yet. My cycle studies (Kitchin and Kondratieff) suggest a top sometime from Jan to May 2011. Then I see a continuation of the K-wave down to 2018 plus or minus a few years. That will be the depression trough. I think the banksters will dump another trillion or two on this market as desperate banks are now lined up at the trough. If we don't feed them they will pout. So, they get fed and we go on our merry way for one more venture into the unknown and over the oil supply cliff. I do see 400 but not until they have exausted us, er I mean, their opportunities to generate a recovery.

Regardless of what I think, I remain short until the trend has changed.

 

 

Thu, 05/20/2010 - 19:20 | Link to Comment Fazzie
Fazzie's picture

QE 2.0 bitches!!!

Thu, 05/20/2010 - 19:33 | Link to Comment cougar_w
cougar_w's picture

Nothing to say they can't try. However I think the air has gone from under the wings of this contraption, and there is no lift.

Thu, 05/20/2010 - 20:42 | Link to Comment SteveNYC
SteveNYC's picture

Agreed Maine Coon. Yes, Ben is a one-trick pony. QE 2.0 will be like the Euro bailout, a quick jolt upwards, then disaster.

I totally concur with Nick, 300 +/- here we come.

Thu, 05/20/2010 - 20:09 | Link to Comment JonTurk
JonTurk's picture

dont agree with nic.. there is a problem with his precedence of the stages.. hyperinflation never follows deflations -- just look at Japan.. its more than possible that we will see an inflationary period before deflation with CBs gone mad printing..  (besides who gives a damn shit about the chilean peso!!)

his fair value is also a bit optimistic.. 150 to 250 S&P would be a more reasonable target in a perfect deflationary storm.. when the ponzi scheme collapse it will take the whole system down to ground zero.. this is a 30 year bubble, prices should see pre-bubble levels in 80s, the bottom of 87 crash would be a good base to reset the system..

but not now.. don't underestimate these guys, they still have the upper hand in this shit.. with all the Europe went bankrupt news and political mambo-jambo since April they set the stage for another mega meltup.. 

looking at the S&P chart, omitting the fat finger bar in may 6 or just looking at the line chart w/ closes, the price action seems like a zigzag (abc) correction.. and now the all important 200 MA taken out, long positions stopped and new shorts came into the table -- signaling a big bear hunt is around the corner..

Thu, 05/20/2010 - 20:03 | Link to Comment Lord Peter Pipsqueak
Lord Peter Pipsqueak's picture

380 S&P?I just can't see it,BennyBoy would print and print well before that,the PPT and the printing press would mean a drop below the sign of the beast is virtually impossible in my opinion.

Thu, 05/20/2010 - 20:45 | Link to Comment Pimp Juice
Pimp Juice's picture

Agree, my Lord. No friggin way the helicopter pilot lands and lets the knives fall.

Fri, 05/21/2010 - 18:33 | Link to Comment JW n FL
JW n FL's picture

I LOVE the way you said that! and nice avatar? is that a Gold? GoldCup?

Pee's thru superior fire power...

Thu, 05/20/2010 - 20:47 | Link to Comment Pimp Juice
Pimp Juice's picture

Dupe

Thu, 05/20/2010 - 21:04 | Link to Comment Me XMan
Me XMan's picture

LOL! Great lines!

Thu, 05/20/2010 - 22:05 | Link to Comment lawton
lawton's picture

Education has nothing to do with our employment problem. We have too many so called educated people for what an economy needs actually. Japan is proof that can be the case also. Lack of common sense is a problem for much of the population but we have too many educated people - more than is needed actually and its been that way for years now.

Thu, 05/20/2010 - 22:53 | Link to Comment FischerBlack
FischerBlack's picture

You'll know the bear market is over when Dow/Gold bounces off 1. That's it. It doesn't matter what level that is. Dow 5000, 3000, 9000, who cares? Just own gold and gold miners and plenty of cash and get ready to reposition to stocks when it happens.

Fri, 05/21/2010 - 00:13 | Link to Comment Grand Supercycle
Grand Supercycle's picture

 

For several days I warned of EURUSD buying support as detected by my indicators - and this has been confirmed by the recent Euro break out.

The proprietary indicators I use can identify trend changes before they occur.

http://stockmarket618.wordpress.com

http://www.zerohedge.com/forum/latest-market-outlook-1

Fri, 05/21/2010 - 00:33 | Link to Comment Joe-the-Farmer
Joe-the-Farmer's picture

I am going to nimbly take a step out on the plank here, but I think we are looking at a bizarre situation only possible in Wonderland - called de-re-inflation, or some derivative of it. At the consumer level, prices havent budged much and continue to rise, albeit at a "reasonable" pace. Groceries, Utilities, etc. still cost more than they did a few years ago. Do I think a loaf of bread is going to cost less in a year? No. Same with anything that I go to the store and buy. If anything I expect that prices for physical assets will continue to rise.

On the other hand, there are massive deflationary forces in financial assets. S&P 380 is completely possible, and I think if a poll was taken of the readers of ZH, most people would put fair value of S&P below 800, maybe below the previous low. Mortgage bonds, Soveriegn bonds, Equities, etc. all need to take a massive haircut to reflect their true value. Printing money and throwing into a balance sheet black hole is not initially, or inherently, hyperinflationary. If there wasn't a black hole, and CB's were still printing the vast sums of money that they are, than an argument could be made for hyperinflation.  Of course, the risk is that too much money is printed, black hole is filled, and we're off to the races - but not for a while longer.

As for what all of this means, I'm betting that it all ends in tears. A massive reduction in accumulated wealth, coupled with stagnant incomes and a rising cost of living, is not a recipe for success. My strategy has been to liquidate financial assets and exchange them for physical assets that can help hedge my cost of living: PMs, Farmland, Off-Grid Energy, Heirloom Seeds, Livestock, Weapons, Ammo, etc. In other words, my theory is that if I can directly control the production of basic necessities like food and energy, I can avoid the physical asset inflation / paper asset deflation trap that will destroy quality of life for anyone caught in it, which appears to be the vast majority of the global population.

Sometimes I feel like I've gone completely crazy, but I sleep at night. He who panics first, panics best.

Fri, 05/21/2010 - 00:42 | Link to Comment Apostate
Apostate's picture

Hyperinflation only happens, as far as I can see it, if prop traders are allowed to liquidate their positions.

Hell, as the hedgies unwind, that has implications for the value of the dollar. 

I have no idea what happened in Germany. Do they just seize the securities, mark them to model, and then use them to "pay down the deficit?"

Is that what will happen in the US?

That'd be truly evil genius territory.

1. Sacrifice GS on the altar (employees will find safe landings).

2. Seize the umpteen trillion in derivatives.

3. Declare financial WMDs defused.

4. The Raw Deal

Nah, they're not that brilliant... are they? No way... they wouldn't be that brazen. They couldn't pull it off in this era.

Fri, 05/21/2010 - 07:37 | Link to Comment No Hedge
No Hedge's picture

well...people like this make mi sick...have one in my office...analyst...she is always full of ideas...and you know that when someone has 5 investment ideas every day quality of those are at least questionable...

but if time shows that she was right in one of ideas...they will not stop telling "told you so" for at least week

 

so is this ICAP guy...I bet his money is not where his mouth is...it is cheap for him to make wild predictions...and if time shows he was right...he will proclaim himself investment guru..and that makes me sick...shame on you Nic

Fri, 05/21/2010 - 15:50 | Link to Comment mkkby
mkkby's picture

380 is a stupid prediction.  What is with you people?  A lousy 10-15% correction of a major bull move and you morons are talking canned peaches and bullets.  I'm bearish myself, but you guys are wackos.

Do NOT follow this link or you will be banned from the site!