Phoenix Capital Research's blog

To picture how a cutback in social programs will impact the US populace, consider that in 2011, 48% of Americans lived in a household in which at least one member received some kind of Government benefit. Over 45 million Americans currently receive food stamps. And 43% of Americans aged 65-74 are Medicare beneficiaries. Consider the impact that even a 10% reduction in these various programs would have on the US populace.

Let’s cut the BS here. The Fed has maintained a more than highly accommodative stance for three years now and U-16 unemployment, food stamp usage, home prices, and virtually every other economic metric indicate that they’ve done little to boost the US economy in any meaningful way. QE has and always will be about boosting asset prices in the hope that the Fed can stimulate a recovery by getting the S&P 500 to some level.

At some point, the market will force the issue of whether or not the ECB is going to be monetizing everything or not. Germany, having already seen the ultimate outcome of monetization (Weimar) has already made it clear that it will not tolerate this.

So… are stock investors smarter than everyone else… or are they just gunning the market on low volume yet again regardless of reality? We’ll find out this week once we get past the Fed FOMC and Europe’s decision on Greece.

Folks, just a few months ago, no less than the IMF, Bank of England, and others warned that we were facing a global meltdown and the worst financial crisis in history. Do you really think a few liquidity programs have solved all of this?

The Fed spent $600 billion on QE 2 and had at most three months’ of improved economic data as a result (QE 2 was announced in November and the US economy rolled over in February 2011). The public is well aware of this as well as the fact that QE 2 saw inflation exploding higher.

I believe it’s only a matter of time before Germany walks out of the EU. When this happens the Euro will collapse a minimum of 20-30% and we will see numerous sovereign defaults. When the smoke clears the EU in its current form will be broken and we will have passed through a Crisis far worse than 2008.

Truthfully the only reason to be long stocks right now is in anticipation of more QE from the Fed at its January 25 FOMC meeting. However, the likelihood of more QE being announced at that time is slim to none. For starters, interest rates are already at record lows, so the Fed cannot use that excuse. Secondly the latest economic data out of the US, while heavily massaged, is showing some signs of improvement, which negates the need for more QE. And finally, Bernanke and the Fed are far too politically toxic for the Fed to begin another massive round of QE (the last one of $600 billion accomplished nothing) just for the sake of it.

The EU, in its current form, is most certainly in its final chapter as both the political environment and market conditions have rendered all proposed “solutions” to the crisis moot.

In plain terms, both the IMF and Germany have stated they will help Greece if and only if Greece agrees to various measures… which they KNOW Greece cannot agree to. And so the Greek issue has become a kind of “hot potato” that no one wants to keep holding. Meanwhile, every day that this issues doesn’t get solved, the EU as a whole moves closer to systemic failure.

I’ve received a number of emails regarding the fact that stocks continue to rally despite Europe being on the verge of Collapse. Once again, investors are forgetting that stocks are the most clueless asset class on the planet.

Indeed, here are three reasons why this latest stock market rally isn’t to be trusted.

Against this highly deflationary backdrop, the one primary prop for the markets is hope of more juice/credit from the world Central Banks. However, even that prop is losing its strength: the gains of the last coordinated Central Bank intervention lasted just a few weeks.

European nations need to roll over hundreds of billions if not trillions of Euros’ worth of debt in 2012. And this is at a time when even more solvent members such as France and Germany are staging weak and failed auctions.

Consider the Central Banks’ coordinated intervention to lower the cost of borrowing Dollars three weeks ago. Remember, this was a coordinated effort, not the Federal Reserve or European Central Bank acting alone.

And yet, here we are, less than one month later, and European banks have wiped out MOST if not ALL of the gains the intervention produced.

The Fed can’t possibly claim it’s trying to lower interest rates with the short end of the curve essentially offering 0% and Operation Twist 2 focusing on getting the long-end even lower (at a time when the 30-year is already under 3% and the 10-year under 2%)?