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Stock-Markets / Financial Markets 2010 Aug 01, 2010 - 01:19 AM GMT

By: Nadeem_Walayat


Best Financial Markets Analysis ArticleMany market analysts were left scratching their heads as the stock market ignored bad news the whole week from ECRI recession data to worse than expected U.S. GDP data by closing up on the week at 10,466 (10,425), with the Dow continuing its meandering trend towards a target of 10,700 which will more than likely be achieved this coming week. Last weeks newsletter (Stocks Bull Markets Generate Economic Growth) proved an opportune reminder to readers to remember asset prices drive economic growth which is contrary to the consensus view.

The graph below from the Inflation Mega-Trend Ebook (FREE DOWNLOAD) continues to illustrate my overall trend expectations for the year. We still have to get through the seasonally toughest period of the year for the stock market so at this point I can't envisage a breakout to new bull market highs this side of October.

DOW Stock Market Forecast 2010

The bottom line the stock market has so far not doing anything to negate the stealth stocks bull market scenario that continues to play out where many if not most investors remain too afraid to invest. Unfortunately the BlogosFear is full of so much bearish commentary right from the birth of the stocks bull market in March 2009 ( Stealth Bull Market Follows Stocks Bear Market Bottom at Dow 6,470 ), so it is highly likely that the bull market will remain in stealth mode all the way to new all time highs and probably beyond. My recommendation is always to do your own research into what the analyst you may be reading has said before at least during the past 12 months to gauge against what has actually transpired, and then you will know if someone is perma-clueless that espouse the virtues of some voodoo methodology when all they really have is something that has no more value than a coin toss, which applies to all technical tools and economic theories.

Gold - Bounced from a new early week low of $1155 to close at 1181, down by $8 on the week. Despite Fridays strong rally, Gold continues exhibit a trend that targets $1140, though now there is not much distance between $1155 and $1140.

Economic Coin Flips

Economic analysis is not a science or an art but the calling of a series of coin flips (as is stock market analysis), the actual determining item that flips into a final conclusion may be something inconsequential on its own, realising this will put analysts ahead of the curve. The Grand Media Star Wizards that propagate the press and academic institutions use formulae's and theories as smoke and mirrors to try and persuade you otherwise, but still at the end of the day come out with statements such as there is a 50/50 chance of a double dip recession, 50/50 chance of deflation, 50/50 of..... However without firm actionable conclusion such statements are pretty much worthless.

WikiLeaks Disintegrating Government Control of Information

First we had a U.S. Fed Board Member telling the masses to ignore bloggers on economic theory that was contrary to their own propaganda. Now we have had wikileaks releasing 91,000 pages of the actual facts on the War on Afghanistan. This is a continuing manifestation of the disintegration of the mechanisms of government to exert control over the thoughts of masses by means of security services and the mainstream press with much overlap between the two.

For decades if not centuries, the only real source of truth as to what is actually going on has been the markets, as the governments cannot hide the truth from the markets. If you want to know what is really going on with an economy, a war, then always look for the truth in market trends. Which is now being increasingly supplemented by the likes of the blogosphere and sites such as wikileaks.

Whilst wikileaks may not survive being targeted by U.S. security agencies, the internet being what the internet is, it will likely be replaced by a 100 similar sites.

Your analyst glad he does not have to sleep with one eye open.

Comments and Source:

By Nadeem Walayat

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02 Aug 10, 20:49
This and That

Hi Nadeem,

I was reading your speel on how the stock-market drives GDP rather than the other way around - I agree with that and I've actually already made that point although not as explicitly as you did (I don't know if you saw my argument on how in USA particularly the bubble in house prices did too, although going forwards that's not necessarily how it will play).

You and I appear to be in agreement again and I'll always remember the calls that you made on the S&P, although our approaches are quite radically different.

I got a lot of stick on Seeking Alpha for suggesting that ECRI was driven by the S&P 500, one guy called me "a pompous ass", funny how rude jibes from people who won't even reveal their identity...hurt.

Anyway, just thought I'd send a note saying how refreshing it was to read your recent newsletter.

Best regards


02 Aug 10, 21:12
This and That

Hi Andrew

Read your last 3 articles, you specifically asked for my take which I don't usually give for obvious reasons, so here goes -

> U.S. Outbound Travel Expenditure Says No Double Dip Recession

I see all analysis as a series of flipping between positions until one settles on a certain outcome. Your travel passengers would be a case of flipping towards continuation of growth implying zero chance of a double dip. though it would take 20 or so contra exercises for me to arrive at a final conclusion and trend map.

> Has Economics Run Out of Ideas?

I don't follow any economic theory, as above, I flip between individual economic indicators and let them lead the way towards a final conclusion. I don't want to know about Keynes or mises or hayek, not because they were right or wrong, but because I don't want to discount the probable.

2: A housing bubble is not “production” either.

I agree with the wealth effect and that people have short memories, and are sentiment driven. I don't read krugmen or any of those in the press so don't know or want to know what they are stating, all I am interested in is ridiculing the Bank of England for its worthless inflation forecasts.

Hmm I think I disagree on bubbles pushing people away i.e. "suck out jobs", I see them more as attracting wealth and jobs like black holes that eventually go big bang.

I don't track U.S. house prices though did make a forecast a couple of years ago that needs updating now.

$100,000 tax breaks to home buyers will result in much higher inflation, but would result in an nominal rising trend but no boom until house prices start rising in real terms.

> Will U.S. House Prices Drive The 4.8% “Consensus” Nominal GDP Growth Forecast?

Again real trend is what sparks the sentiment driven booms, nominal trends don't they result in stagnation. I agree housing leads economic growth, housing real terms gains leads economic booms.

UK house price dynamics are significantly different to that of the US. Yes US housing is dirt cheap, I contemplate instead of buying a mini mansion in the UK to go an live in the US in a mega mansion for the same price.

At the end of the day the strongest conclusion I have is that of a multi-decade inflation mega-trend, which means rising prices both consumer and asset. I am also a bubble supporter as that is the best way to accumulate wealth by hopping from bubble to bubble before it goes pop!


P.S. I'm not a good reader am I ?


Shelby Moore
02 Aug 10, 21:32
Final Bubble

Nadeem commented:

"I am also a bubble supporter as that is the best way to accumulate wealth by hopping from bubble to bubble before it goes pop!"

Agreed, buy fear, sell greed.

But how does one survive the reset of a currency in hyper-inflation, if one will be taxed at hyper-inflated nominal values?

In that case, there is no asset that one can buy that won't also take the tax hit.

That is the methodology by which the banksters wipe out the middle class and the millionaires entirely:

That currency wipeout cycle has repeated numerous times in history. The only way to avoid it has been to expatriate before the capital controls to stop it when it becomes obvious to all.

You had better get your plans in place now, if the banksters plan such a reset. I think they do.

02 Aug 10, 21:46
Hyper inflation

I am not seeing signs for hyper inflation.

If or when signs of hyper inflation start to become more probable then I will have to adapt to such an outcome.

But at this point, I just don't see hyper inflation i.e. along the lines of 10% to 20% inflation per MONTH.

Yep banksters and governments defraud the middle classes by means of inflation. It is hard work maintaining ones overall purchasing power.

Shelby Moore
02 Aug 10, 22:12

The nature of hyper-inflation is that 99.9% do not see it until it is too late. Also hyper-inflation is caused by the stampede of the public once they realize the government is insolvent.

The western govts are all insolvent, and there is no level of austerity that can fix it without hyper-inflation.

Because any shift to austerity is going to plummet tax revenues and send debt servicing spiraling. More austerity will worsen the debt service as a % of GDP, until it exceeds 100%. The govt either allows sovereign default or it prints money in a runaway spiral.

The point is the runaway spiral is mathematically unavoidable now. It is a certainty.

We are only waiting for the market to realize this. The banks are very busy kicking people out of mortgages in USA, as they prepare to take the assets and leave the govt holding the mortgages.

Once the pin prick is heard round the world, there won't be any time to prepare.

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