Monday, December 20, 2010

Morning Update/ Market Thread 12/20

Good Morning,

Equity futures are up this morning as the buildup of tension on the Korean Peninsula with ongoing military exercises has fortunately so far not resulted in another spat of violence. The dollar is unchanged, bonds are higher, oil is flat, and gold is higher.

Expect light volumes and tons of POMO money this shortened holiday week, a week that is traditionally bullish – pour tens of billions onto the fire and you can see food commodities, oil, and momentum stocks all moving straight up in a ridiculous and reckless manner. Sentiment is far too bullish with most measurements near historic bullish levels, stochastic indicators are overbought on all timeframes through monthly, insider selling is still extreme as it appears that distribution is occurring in a wave 5 movement, and the VIX closed on Friday at the lowest level since last April which also shows that complacency is mounting:

The Chicago "Fed" National Activity Index fell further in the month of November, falling from -.28 to -.46. This negative report fails to backup other “growth” indicators that are being fluffed up by monetization and manipulation. Here’s a quick Econoday summary:
The Chicago Fed's national activity index slipped to minus 0.46 from October's minus 0.25 (minus 0.28 first reported). Three of four components fell in November including employment. The three-month moving average improved slightly to minus 0.41 yet still suggests that U.S. growth is below historical trend. Inflation indications point to subdued pressure over the coming year.

Gee, I guess we need to pump the POMO a little harder, eh?

Very little economic data is reported through tomorrow, then we’ll get the 3rd and final trumped up rendition of Q3 GDP, Existing Home Sales, then Durable Goods and New Home Sales on Thursday. All markets are closed on Friday but banks will be open.


With the Private banks running the country, the money pumping will continue as in their eyes inflation must occur for their “business” model to work. This monetization is slowly eroding confidence in our money and it is already dramatically affecting the major asset classes which are; DEBT, equities, real estate, and commodities. The dollar is at the center of the wheel as all these “assets” are priced in dollars:

So, commodities are already too high, debt is already far too high, real estate is a bubble that has already burst, and equities are at extreme real valuations manipulated higher by “Fed” intervention and flat out accounting fraud. As the money pumping continues through 2011, I think that we will see one or more of these “asset” categories exhibit extreme moves under extreme stress.

Which ones and in which direction? Again, I’m not a decision maker in this regard and you likely aren’t either… thus attempting to guess is an attempt to guess the actions of others who are in a position of power. For example, we all know that Bernanke is going to monetize come hell or high water, but yet even he could be put under pressure by other decision makers eventually, and thus it makes betting on any single outcome seem foolish to me.

Should he continue to print unfettered and the current trend of higher commodities continue, then you will see dramatic margin compression for businesses and for the cost of living. There is no free ride, one of these asset categories will give way… you can have higher equities, but the tradeoff might be that you force either the dollar lower, or you force the interest rates for debt higher (or both). So, I think we see wild swings and more volatility in reaction to the pumping and we are also getting closer to those “other events” that history shows appear within a decade of the beginning of the bursting of a credit bubble. This one began bursting in 2007, and thus it is very likely that significant “other events” occur before the year 2017 is over.