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Three Reasons Why 2012 Is Shaping Up to Be a Disaster
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.
1) Volume has fallen from awful to absolutely horrendous.
Stocks traded roughly nine billion shares on the second trading session of 2012. This marks a 36% decrease from trading volume for the second day of 2011 (nearly 14 billion shares).
Put another way, stocks are levitating on lower and lower volume. Indeed, volume on Monday of this week was the lowest volume of the year so far, even lower than that of last week.
This flies in the face of conventional market action (bull markets are marked by increasing volume) as well as the usual start of the year buying. And it serves as a major red flag that all is not well with the financial system.
Indeed, one wonders what the market would look like if volume were to pick up (hint every time that it has in the last year stocks have collapsed).
2) Bonds are forecasting an event worse than 2008
As I’ve noted countless times before, the bond market is much larger, much more liquid, and much better at forecasting developments than the stock market.
With that in mind, I’d like to point out that US Treasuries have in fact already exceeded their all time highs established during the 2008-2009 Crash. In fact, they’ve bounce off of their former all-time highs, indicating that former resistance is now support:
Mind you, Treasuries aren’t the only “safe haven” bond to be exploding higher: German bonds have actually gone negative indicating that investors are actually willing to pay to have their capital parked with the German government, based on it reputation for fiscal strength.
By the way… this has never happened before.
3) The likelihood of more juice coming from the Fed is getting lower by the day.
The number one driving force behind every stock market rally in the last two years has been the assumption that the US Federal Reserve will pump the system with more liquidity.
The only problem with this assumption is that it’s been dead wrong for over six months. Indeed, not only has the Fed disappointed at every FOMC since July (while always promising to do more, the Fed has in fact done next to nothing), but as far back as May 2011, Bernanke himself admitted that QE has become less “attractive” as a monetary policy.
See for yourself…
Q. Since both housing and unemployment have not recovered sufficiently, why are you not instantly embarking on QE3? — Michael A. Kamperman, Waco, Tex.
Mr. Bernanke: “Going forward, we’ll have to continue to make judgments about whether additional steps are warranted, but as we do so, we have to keep in mind that we do have a dual mandate, that we do have to worry about both the rate of growth but also the inflation rate…
“The trade-offs are getting — are getting less attractive at this point. Inflation has gotten higher. Inflation expectations are a bit higher. It’s not clear that we can get substantial improvements in payrolls without some additional inflation risk. And in my view, if we’re going to have success in creating a long-run, sustainable recovery with lots of job growth, we’ve got to keep inflation under control. So we’ve got to look at both of those — both parts of the mandate as we — as we choose policy”
http://economix.blogs.nytimes.com/2011/04/28/how-bernanke-answered-your-questions/
Pessimistic Bernanke Fed Admits QE Has Failed In FOMC Statement
In its latest FOMC statement, the Bernanke Fed has admitted the economy continues to remain depressed, essentially admitting that both programs of long-term asset purchases, or quantitative easing, have failed to prop up output after what has been the worst recession since the Great Depression.
“Monetary policy can do a lot, but monetary policy is not a panacea.” -- Ben Bernanke 9/29/11
U.S. "close to faltering," Fed ready to act: Bernanke
Asked whether another round of bond purchases, known as quantitative easing, was in store, Bernanke was noncommittal.
"We never take anything off the table because we don't know where the economy is going to go. We have no immediate plans to do anything like that," he said.
http://www.reuters.com/article/2011/10/04/us-usa-fed-bernanke-idUSTRE79337C20111004
Central banks may need to burst bubbles: Bernanke
Federal Reserve Chairman Ben Bernanke said on Tuesday that central banks may need to resort to monetary policy to combat asset bubbles, although regulation should be a first line of defense.
http://www.reuters.com/article/2011/10/18/us-usa-fed-bernanke-idUSTRE79H5IR20111018
Look at the progression there. As far back as May 2011, Bernanke admitted the benefits of QE were less attractive. He’s since not only admitted that asset bubbles exist (something Greenspan never admitted) but that Central Banks may even need to “burst” them!?!?
And somehow, the Fed is going to reverse this attitude and unleash some mega-new QE effort… during an election year in which the Fed has become one of THE hot topics for the GOP?
The reality is that the financial system is once again teetering on the brink of collapse. The only thing holding stocks up is misguided hope that EU leaders will somehow solve a debt crisis with more debt (how’d that work out the last two years?) or that the Fed will somehow be able to print our way to growth (again, how’d that work out over the last two years?).
Look at the bond markets: they’re forecasting something worse than 2008. Look at commodities: they’re breaking down just as they did before the 2008 Crash. Look at stock market volume: it’s falling dramatically during rallies just as it did in 2008.
And people still believe that things are alright?
The reality is that we are rapidly heading into a Crisis that will make 2008 look like a picnic. It could erupt tomorrow or next week, or even in a month’s time. But the fact remains that there is no possible happy ending for the current EU Crisis. Interbank liquidity is drying up and banks are parking record amounts of cash at the ECB in anticipation of widespread bank failures.
Many people will lose everything in this mess. Yes, everything. However, you don’t have to be one of them. Indeed, my Surviving a Crisis Four Times Worse Than 2008 report can show you how to turn the unfolding disaster into a time of gains and profits for any investor.
Within its nine pages I explain precisely how the Second Round of the Crisis will unfold, where it will hit hardest, and the best means of profiting from it (the very investments my clients used to make triple digit returns in 2008).
Best of all, this report is 100% FREE. To pick up your copy today simply go to: http://www.gainspainscapital.com and click on the OUR FREE REPORTS tab.
Good Investing!
Graham Summers
PS. We also feature four other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s my proprietary Crash Indicator which has caught every crash in the last 25 years or the best most profitable strategy for individual investors looking to profit from the upcoming US Debt Default, my reports covers it.
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those who played the bond market in 2011, did they do better than stocks and PMs...? Just asking...
LOL Burned-my-wanky says 'QE has failed'. Failed to do what? All smoke and mirrors - in front of the cameras Ben will try to look like he's growing a hawkish beak, behind them he's all lovey dovey. How much do you need? Ok. Why don't you just triple it!
Thank you and come again soon my friend!
Anyone who thinks that inflating our way out of this mess isn't the goal of the Fed is smoking some kind of new fairy dust. This doesn't mean that they won't fail. It just means they are after inflation so prices can 'catch' somewhere 'reasonable' so balance sheets can float the massive ships to the moon. It won't matter that the real buying power of the USD will have dropped by a factor of two or three. I think this is the thing that people are missing the massive dollar drop, and still the actual values of things (i.e. real-estate) are dropping in USD as well. It comes back to the same theme I'll probably keep talking about. Just not enough cash flowing around in the economy to service the asset values on the books. Notice the Fed only got a 2.6% return on what roughly 2T in assets? This is telling us that capital to service debt is drying up quickly turning previously productive assets (wern't they paying 4-5%/yr before going into 'default') into non-productive ones. Oh and any cash the Fed is sopping up with their balance sheet is just another 'sucking sound' on the economy as a whole since that money will end up being sucked down the Treasuries poop shoot (i.e. govt spending). And even after that the US will still have to up the debt ceiling.
Yep and the following for all the web data trolls.. Everything is fine, the sky is blue and Walmart still has chinese goods, food to buy and low, low, low prices. Everyones mom can get a job working for food credits at the local street corner. A good hotdog will keep her warm if she's cold.! Life's great, buy stocks, buy bonds, heck buy everything! IT'S ALL GOOD. lol. The only bubble popping sound being made is the romping going on in the back alley by the 16 year old starting her new career on her knees.
l8r,
OldE
Bernanke is waiting at least until after the election which is why Zirp was already extended 'til 2013.
I can't figure out why so much is riding on this election or any election for that matter. The political class has to get over itself. They're just not that important in this oligarchy.
...or we could just read what The Bernank himself said in 2002 he'd do, if appointed Fed Chairman, and the US were to, ya know, hypothetically go into a deflationary tailspin in the fictitious future (crazy, I know):
http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm
Quite a laundry list of trick plays he'd run. Funny, it seems he's run them all. In *precisely* the same order he said he'd run them. Well, except for the last, REALLY trick play. A forced currency devaluation - and that might just mean that long-awaited, and much-needed bank holiday. All work and no play does make a person get a wee bit edgy.
There's plenty more reasons than three. How about Italy and Spain having to roll 400bn in 2012 while the EZ double dips and Greece... well, continues to be Greece.
How about them EZ bank deposits? http://chart.ly/3mwhbit Yes, that's the sound of smart money you hear.
I expect the ECB will print when confidence disappears again. Another global stimulus ahead.
The stock market should not be used as an indicator of national or personal prosperity in this climate.
www.techtrades.blogspot.com
"Many people will lose everything in this mess."
too bad that doesn't include banksters....they aren't people so they are excluded on that basis alone.....
Unless Apple manages to launch the Ipad3 version this year which will boost GDP with at least 50%
Tasty, too.
Todays not that day. Maybe next Tuesday? Maybe the day after next month?
Bernanke: "I simply won't do QE3 and save the banks. I won't. I won't! I won't!!! ...unless I really have to."
Anyone who thinks Bernanke is going to channel Volcker is smoking the hashish.
Witg elections comming up next year in the US, QE3 might be delayed quite a while actually
Greatest Depression Bitchez!
you don't read the MSM moguls, they all predict S&P to 1400 and PMs to 2000 for gold. Inspite of euro melt down. Usa, Usa!...is their cry for 2012, no Mayan apocalypse for them.