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Stocks Bull Market Continues as Deflationists Remain Stuck in Debt Deleveraging Deflation

Stock-Markets / Financial Markets 2010 Apr 26, 2010 - 12:23 AM GMT

By: Nadeem_Walayat

Stock-Markets

Best Financial Markets Analysis ArticleThe stocks (stealth) bull market put in a new high with the Dow hitting 11,205 right at the end of the week after range trading between 11,150 and 11,000 for most of the week.


Stock Market Forecast Conclusions from my 2 pieces of in-depth analysis of the year -

02 Feb 2010 - Stocks Stealth Bull Market Trend Forecast For 2010

Dow 10,067 - Stocks Multi-year Bull Market that bottomed in March 2009 will trend Sideways during first half of 2010 attempting to break higher. The second half will see a strong rally to above 12,000 targeting 12,500 during late 2010.

23 Mar 2010 - Stocks Stealth Bull Market Trend Forecast Into May 2010

Dow (DJIA) March to May Stock Market Trend Forecast Conclusion - Therefore my specific conclusion is for a continuation of the uptrend into early to mid May, achieving the 12,000 target during this time period

So far the stock market trend remains UP and in line with forecast expectations, so still no need for an in depth update yet, I'll let the perma bear crowd SHORT the market rally all the way to Dow 12k, from past 7k, then 8k, 9k, 10k, and 11k. Time wise we will start to enter the forecast window for a significant top within the next 2 weeks so the price action during the next 2 weeks should prove interesting.

Dow Trading - Both continuation BUY Triggers mentioned last week were hit (Minor 10,065, Main 11,160). The primary SELL trigger is now at 10,970 up from last weeks 10,830.

Meanwhile deflationists persistently and continually argue the case that the financial crisis MUST mean that over leveraged economies MUST deleverage and hence DEFLATE. That is what the ivory tower economic models suggest 'should' happen.

But what the deflationists are clearly forgetting is that there are two sides to the leverage equation, i.e. the ratio of debt to capital. Therefore rather than decreasing debt what we are seeing is the INFLATION of Capital asset values that delivers DELEVERAGING without DEFLATION as the ratio of debt to capital goes DOWN.

Asset price inflation results in much stronger than expected economic growth as it allows for new collaterisation of securities which demand greater source material i.e. loans to be issued to enable packages to be sold onto investors and so begins a new cycle that perpetuates economic growth into a boom that off course will again eventually go bust.

Germany Conquers Europe as Bankrupt Greece Seeks German Bailout

The Greeks are seeking to fund their profligate lifestyle by means of perpetual German tax payer cash (loans) that they will NEVER repay. Off course despite the German press saying not to hand over the cash to Greece, this is how the Germans want it to be, as more of E.U. power gravitates towards Germany as they retain a firm grip over the whole of Euro land all without firing a single SHOT!

German economic power relies on bankrupt nations such as Greece being kept on life support so as to ensure that the EURO collective currency remains relatively weak against the likes of the Dollar, for if the Euro did not exist then the German Deutschmark would have shot through the roof which would have crippled Germanys export focused industrial base. This way Germany gets to sell its goods in Euro land and across the world at a relatively small cost of loaning out funds to countries such Greece that are becoming heavily indebted to a Germany that is all the while seen as the altruistic good guy, when the truth is that the benefits to Germany are far greater than the bailout costs of maintaining the Euro system where the Eurozone countries that cannot compete against Germany cannot competitively devalue and hence become a captured consumer market that will ever become poorer and poorer as Germany becomes richer and richer.

The leadership in the Reichstag must be wondering If only we could also get that stubborn little island floating off the coast of Normandy to join the Euro land, how much bigger the captured market would be for German goods and how that much more powerful German industry would become with another weak currency assimilated into the Euro. Thankfully Britain remains Euro skeptic and is not likely to make the same mistake as many others have and will pay the price for, for decades as they become economically weak satellite states of a Greater Germany.

Who Could be the Next Euro Land Economy to be Bailed Out?

My March analysis (Global Sovereign Debt Crisis, Country Bankruptcy Relative Risk of Default) suggested that Ireland could be making the headlines over the coming months.

Everyone is Running after Goldman's but what about Paulson's Hedge Fund?

From what I can glean from the facts of the Goldman Fraud allegations, the person that actually profited to the tune of over $1 billion was Paulson's Hedge Fund, so why is the SEC not going after Paulson? After all it was Paulson who was advising on the specific toxic sludge bonds that should go into the AMBAC CDO because Paulson was betting AGAINST IT, that to me sounds like FRAUD. I.e. investors being told to buy crap because it is a great product, meanwhile Paulson's is advising the firm creating the CDO to fill it up with hidden timed to explode toxic bombs that Paulson knows will explode and make him a billion from just a mere $15 million risk!.

The British Rich Got 30% Richer During 2009

The British rich enjoyed a bumper year during 2009 by recording largest increase in wealth in the Sunday Times Rich List 22 year history. The rich, who are mostly the smart money (if they were dumb they would have lost their money), managed to latch on to a significant part of the stocks stealth bull market (15 Mar 2009 - Stealth Bull Market Follows Stocks Bear Market Bottom at Dow 6,470) and other manifestations of asset price inflation by registering a record jump in their wealth by 30%.

UK Economic Recovery Continues.

UK economic growth for the first 6 weeks of 2010 came in at a disappointing 0.2% partially due to snowmageddon. However I expect the full Q1 results to be marked significantly higher just as at the time of 2009 Q4 growth data release of just 0.1% I stated that it would eventually be revised higher to 0.4% which it was several months later. Therefore Q1 2010 Growth will likewise be revised higher to somewhere between 0.6% and 0.9%, which is in line with my forecasts for a strong economic recovery during 2010. Off course it is all too late for Gordon Brown who was banking on better data on the 1st release in the region of 0.4%.

Your analyst,

Source: http://www.marketoracle.co.uk/Article18932.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-10 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

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Comments

Simon
26 Apr 10, 06:55
Rich and Poor

With your article today you make it quite clear how arrogant, nasty, and cynical you are. "The rich, who are mostly the smart money (if they were dumb they would have lost their money)" Thanks for pointing out that you think the rich are smart and the poor are dumb and that whoever lost money during the financial crisis must be really dumb. That is a nice, compassionate philosophy.


Nadeem_Walayat
26 Apr 10, 07:05

No THOSE are YOUR words added on as per your OWN thought process.

What I said relating to the 30% increase in wealth during 2009 as per the Sunday Times Rich List -

"The rich, who are mostly the smart money (if they were dumb they would have lost their money), managed to latch on to a significant part of the stocks stealth bull market "

I did not say what you added on. Because MOST people whether or not they are rich, lost money on assets held DURING the financial crisis.

The smart money have MADE money during 2009 by investing in reflation whilst the DUMB MONEY have LOST money by SHORTING the stocks bull market.


Simon
26 Apr 10, 07:37
What is your issue with Germans?

You are making Germany the bad guy in the Greece debt default drama, using world war II rethorics ('Germany conquers Europe without a single shot'). Are you alright? How is it Germany's responsibility that Greece has lived beyond her means, sweetened their books to be able to join the Euro, and that they have been intentionally hiding their debt? You make it sound like there is some dark German conspiracy going on to push the rest of Europe into the abyss and that the bad Germans are thrilled about Greece being in the doldrums and many Greek experiencing an agonizing time.


Nadeem_Walayat
26 Apr 10, 09:09
Germany / Greece

Greece is bankrupt, it should have defaulted on its debts, that is in the best long-term interests for Greece, Instead this 'bailout' NEW DEBT is in German and French SELF INTEREST which ensures Greece will suffer for decades !

Most of Greek debt is held by French and German banks.

Similarly, about 75% of PIIGS debt is held by French and German banks therefore the bailout is to prevent German and French banks suffering from a $1 trillion+ default.

Your right on Greece, but just because your German don't become blinkered into thinking that Germanys the good guy here, as they are all borrowing in the name of tax payers all are varying shades of grey.

For instance in the UK, after the election will David Cameron Greece style find an even bigger Labour hidden debt crisis ?


Paul
26 Apr 10, 16:34
yes Simon

Lose some money did you Simon?


MDS
28 Apr 10, 01:41
Dow ?

The stock market has dropped sharply, whats is the status of the rally you are forecasting ?


Nadeem_Walayat
28 Apr 10, 05:23
Dow rally status

Hi

The forecast remains intact, the sell signal is at 10,970 (as indicated). Yesterdays low was 10,974 so not there, todays early price action should prove interesting.

Best

NW.


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