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Strap in for a Wild Week
Monday Market Movement - Strap in for a Wild Week!
This chart from the NYTimes pretty much says it all:
The average annual inflation-adjusted return for the S&P 500 has been in decline since the late 90s, the decline only paused in the 00s and that fooled us into thinking it was a recovery but we only stopped getting worse for a while. Meanwhile, real personal income has been in decline since Nixon lifted the gold standard in the early 70s and that, like our real GDP adjusted for inflation, should certainly not be the "envy of the World" - even if we assume it still is.
$20Tn was pumped into our $60Tn Global Economy since the 2008 crisis and that is not including "stealth" stimulus like the estimated $8Tn handed out by our own Fed to their Bankster buddies as well as tens of Trillions handed our around the World by other Central Banks.
Like in the late 70s, my expectation is that we will see a bottoming of real stock returns over the next few years as the inflation train pulls into the station. The markets will do great on the surface but, underneath, they are not going to be able to keep up with the massive inflation that is likely to begin as the flood of money being used to "fix" the global banking system begins leaking out into the Global Economy.
Speaking of fixing the global economy - Merkozies are holding a press conference this morning to craft a "master plan" for rescuing the euro over the next three months. The two leaders gather in Berlin to flesh out a new rulebook for fiscal discipline negotiated at a Dec. 9 summit that seeks to create a “fiscal compact” for the 17-member euro area.
The German and French leaders have sponsored a plan to install new guidelines by March. A crisis that began in Greece more than two years ago has moved to the euro area’s core, and leaders are struggling to persuade investors they can contain the risk and assure the euro’s survival. “They urgently need to formulate and clearly communicate a vision for a sound and stable euro area that deserves the name fiscal compact,” said Thomas Harjes, senior European economist at Barclays Capital.
Meanwhile, the Euro fell to an 11-year low against the Yen and a 16-month low against the Dollar this morning ahead of the meeting but the Forex markets have since calmed down and we are back to where we were last week - which is just extremely low. “We’re going to see more ongoing political noise and that’s really just a distraction from the bigger driver of the euro, which is the relatively weak growth outlook,” said Mike Jones, a currency strategist at Bank of New Zealand. “As long as European growth underwhelms, the euro will continue to underperform the U.S. dollar, yen and probably also the rest of the major currencies.”
Why do we care so much about Europe? Well, for one thing, Corporate Profit growth is now at a 2-year low as the U.S. feels the EU drag, according to Bloomberg. U.S. corporations ended 2011 with the slowest profit growth in two years as the "mending" US economy was met by a European slump that vexed companies more tied to global sales. S&P companies may have earned $24.74 a share in the fourth quarter, according to analysts’ estimates compiled by Bloomberg as of Jan 6th. That would be the smallest percentage gain since September 2009. “Slowing global growth, some impairment of export activity to Europe and perhaps even the rise of the dollar collectively have begun to sort of work against the multinational story,” said Mark Luschini of Montgomery Scott.
Over the weekend, the Fed's Bullard fired the first bearish salvo of the week by saying QE3 is not likely to happen but qualified it by saying "given the data." As I pointed out last week when analyzing the Fed minutes (see this week's Stock World Weekly for all the notes), the data has done quite a reversal since their last meeting so you can interpret his statement as you like as we await the more negative words we are sure to get from Charlie Plosser Wednesday at 12:30 - just ahead of the 10-year note auction, when the markets are scheduled to give us the lows of the week.
Until then (and the Beige Book at 2pm that day), we will be watching and waiting to see which way things seem to be breaking. At the moment, we have placed our wages on both sides of the table but, unfortunately, last week's action ended up neither up or down, which is better for our large portfolios - where we are the house, but not so good for our smaller, short-term portfolio, where we are the suckers paying premium.
Lesson to be learned - never be a small investor! We always have a rougher time getting our virtual $25,000 Portfolios off the ground. Still, I think last week and today should be the calm before the storm, and we're expecting a pretty serious drop between tomorrow morning and Thursday so let's enjoy the morning pump while we can and take the opportunity to press our shorts!
We are still shorting the Dow Futures (/YM) below the 12,350 line (there now) with tight stops and SQQQ is still cheap at $17.72 as we only need a tech name to miss for a payoff there. Our $25KP trade idea was an aggressive short, selling 2 Jan $19 puts for $1.45 ($290) and buying 6 Jan $17/18 bull call spreads for .55 ($330) for net $40 on the $600 spread in the $25KP so let's call that our play of the week and see how it tracks!
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I never knew Dr. Suess did editorial cartoons.
Another plan to plan an economic plan to plan the stabiliaztion of the new plan. They don't know what to do.
Ben Bernanke can reverse inflation in 30 seconds if need be. Modern central banking and proper application of Keynesian principals have made inflation obsolete.
the Bernark has had his strap on on and screwing us ever since
Doesn't get much smaller than us and we've not only done great but are looking forward to powering through this year positively as well. Obviously we're staring at a downturn far greater than the Great Depression right now...so any talk of inflation is pure lunacy. Once the competitive devaluations hit it will be everything the Army can do to maintain employment...but they will cuz thnx to the worst expressed "retreat" in Foreign Policy history odds are we will be at war with Iran imminently. Thus I change your title Phil--to Strap On...cuz here it comes.
Another trend is the increased valuation in bitcoin from November 2011 to now. (Relative to the USD.) This is different than the early parabolic rise when it broke parity. Trading volumes have increased as well.
Good article. Looks more like Stagflation (or Biflation) every day.
ride it out in gold.
Tolerance... Love it
Tolerance
I am truly perplexed that so many of my friends are against another mosque being built in America.
I think it should be the goal of every American to be tolerant.
Thus the Mosque should be allowed, in an effort to promote tolerance.
That is why I also propose that two nightclubs be opened next door to the mosque, thereby promoting tolerance from within the mosque.
We could call one of the clubs, which would be gay, "The Turban Cowboy ", and the other a topless bar called "You Mecca Me Hot.."
Next door should be a butcher shop that specializes in pork, and adjacent to that an open-pit barbeque pork restaurant, called "Iraq o' Ribs."
Across the street there could be a lingerie store called "Victoria Keeps Nothing Secret ", with sexy mannequins in the window modeling the goods.
Next door to the lingerie shop there would be room for an adult sex toy shop, "Koranal Knowledge ", its name in flashing neon lights, and on the other side a liquor store called "Morehammered."
All of this would encourage the Muslims to demonstrate the tolerance they demand of us, so the mosque problem would be solved.
If you agree with promoting tolerance,as suggested, and you think this is a good plan, please pass it on...
http://covert.mypressonline.com
We should allow one mosque in America for every church in Saudi Arabia.
http://en.wikipedia.org/wiki/Christianity_in_Saudi_Arabia
"Strap in?"
Considering this market, perhaps preparing for a "strap-on" is sound wisdom.
The market has been following the same vapor volume Euro cose ramp job nearly every day for the past few weeks. Some big names have added 10% in value without any data to support the rise. Microsoft up 8% this week? Really, why? McD's above $100? I guess Mr. Market is trying to sucker in all the chump retail investors once again to hold the bag when it goes down. It doesn't matter how high a stock goes held by a 1%er if they can't unload it to a sucker to book the profit. The same goes for oil trading, just about every day oil takes a huge dump around 7am and then drives 1% higher around 10am. The moves of the algos are ver easy to see on vapor volume days. Like a strung out debt junkie the bots pull money from one card to pay off another while leveraging out the debt to try and win a big bet allowing the rest to be paid off. Retail investors know the game is riged and aren't playng because even two straight weeks of the exact same move played over and over just meand the same thing as 10 straight reds on a roulette wheel. While you sleep some leaked rumor based on nothing will wipe out all your gains before you even know it.
It's all about keeping the institutionals calm
Just how big do you have to be these days not to be a "small investor"?
Very nice. But of late I'm having trouble believing past doom guarantees future doom in chartology. Unless we can compile charts of past Fed ECB and other global fuckery/hopium/PM manipulations and compare them to present-day, it's all possibly tenuous. And yet my narrative is almost identical to yours and the above cited charts.........
As always Phil, thanks for sharing!