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

News_Letter / Financial Markets 2010 May 02, 2010 - 07:39 AM GMT

By: NewsLetter

News_Letter The Market Oracle Newsletter
April 26th, 2010 Issue #25 Vol. 4


The Market Oracle Newsletter
April 26th, 2010            Issue #25 Vol. 4

Commodities Currencies Economics Housing Market Interest Rates Education Personal Finance Stocks / Financials Real Gems

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

Inflation Mega-Trend Ebook Direct Download Link (PDF 3.2m/b)

Dear Reader

The 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 1,100 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 Germany 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 weal 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,

Comments and Source here : 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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