Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Gold Price Long-term Trend Analysis Forecast 2020 - 26th Feb 20
Fake Markets Are on Collision Course with Reality - 26th Feb 20
Microsoft is Crushing the S&P 500, Secret Trait Of Stocks That Soar 1,000%+ - 26th Feb 20
Europe's Best Ski Resorts For The Ultimate Adventure - 26th Feb 20
Samsung Galaxy S20+ vs Galaxy S10+ Which One to Buy? - 26th Feb 20
Gold Is Taking on $1,700 amid Rising Coronavirus Fears - 26th Feb 20
Is This What Falling Through the Floor Looks Like in Stocks? - 26th Feb 20
Gold Minsky Moment Coming - 26th Feb 20
Why Every Student Should Study Economics - 26th Feb 20
Stock Market Correction Over? - 26th Feb 20
US Bond Market Yield Curve Patterns – What To Expect In 2020 - 25th Feb 20
Has Stock Market Waterfall Event Started Or A Buying Opportunity? - 25th Feb 20
Coronavirus IN Sheffield! Royal Hallamshire Hospital treating 2 infected Patients, UK - 25th Feb 20
Dow Short-term Trend Analysis - Coronavirus Trigger a Stocks Bear Market? - 24th Feb 20
Sustained Silver Rally Coming? - 24th Feb 20
Should Investors Worry about Repo Market and Buy Gold? - 24th Feb 20
Are FANG Technology Stocks Setting Up For A Market Crash? - 24th Feb 20
Gold Above $1,600 Amid FOMC Minutes and Coronavirus Impact - 24th Feb 20
CoronaVirus Pandemic Day 76 Trend Forecast Update - Infected 540k, Minus China 1715, Deaths 4920 - 23rd Feb 20 -
Ways to Find Startup Capital - 23rd Feb 20
Stock Market Deviation from Overall Outlook for 2020 - 22nd Feb 20
The Shanghai Composite and Coronavirus: A Revealing Perspective - 22nd Feb 20
Baltic Dry, Copper, Oil, Tech and China Continue Call for Stock Market Crash Soon - 22nd Feb 20
Gold Warning – This is Not a Buying Opportunity - 22nd Feb 20
Is The Technology Sector FANG Stocks Setting Up For A Market Crash? - 22nd Feb 20
Coronavirus China Infection Statistics Analysis, Probability Forecasts 1/2 Million Infected - 21st Feb 20
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Was The Preview To The 2011 Blockbuster

Stock-Markets / Stock Markets 2011 Apr 11, 2011 - 02:04 AM GMT

By: Tony_Pallotta

Stock-Markets The world is evolving a lot faster than I suspect most realize. The Fed has created the aura of a V shaped global recovery in the form of continually rising equity markets. Bernanke has created the mirage of prosperity. The unemployment rate has fallen below 9% as more disgruntled workers leave the work force. Paper stock wealth is up nearly 100% in two years. Indeed the Russell 2000 is up 43% since QE2 as the chairman has so eloquently declared.


The similarities between 2008 and today are very real with a few exceptions. In 2008 the US Treasury market was far healthier, government austerity was a few years down the road and there was no global revolution. In reality 2011 is far more dangerous than 2008. Government is no longer a source of stimulus. The measly $38.5 billion, or 2% of the 2011 deficit that was cut is a negative stimulus. $110 oil today is driven by speculators as in 2008 but also by wars in the Middle East. That was not the case in 2008 (Iraq oil was flowing freely). In 2008 interest rates were falling as the Fed lowered short terms rates very aggressively. Today they are rising.

In 2008 housing prices were still falling but programs like tax credits and HAMP where there to stem the slide. Today home prices are falling again yet those programs are no longer available. Today, a true free market is the only source of price discovery aided by dwindling bank credit. FASB accounting prevented a major run on bank balance sheet capital levels in the spring of 2009. Today there are few if any accounting games left.

The bond market is teetering on a new bear market causing a potential spike in rates across the entire yield curve. With a $15 trillion national debt, a 100 basis point rise in yields would cost the Federal government an additional $150 billion annually. That's 4 times the amount "cut" this past week to avert a government shutdown. Imagine rates going back to more historic levels. Imagine rates truly pricing in not only inflation but the probability of default. Can the US handle a 200 basis point rise or $300 billion in additional debt payments? Did you know we roll our debt every four years. $15 trillion every four years. An astonishing and scary fact.

The third largest economy is off line. Market "pros" will argue the damage is minimal and government stimulus is actually a net positive for the global economy. Did they factor in the reality of Japanese exports being halted in countries like India due to radiation fears? Did they factor in the disruption of industries like fishing in Japan as millions of gallons of radioactive water are dumped into the ocean. Did they factor in the emotional impact on Japanese citizens and the resulting impact on spending habits? Did they factor in the 20% electrical grid being removed and rolling blackouts facing the country?

The eurozone is yet another issue that is evolving quickly. After months of saying they needed no help, Portugal finally admitted the truth. What's scary is Spain just came out and said they require no help. Ireland and Greece did a similar PR stunt before requesting a bailout. Iceland is showing the world how defaulting on debt and starting anew is a great way to jump start an economy. Bankruptcy is part of a healthy economy. It was written into the US constitution. Resetting the system is no different than a forest fire where waste is removed and new, prosperous growth begins. French and German banks alone have nearly 1 trillion exposure to Ireland, Portugal, Greece and Spain. This is not a PIIGS problem.

History may show that Friday April 8 was truly a watershed moment in the global economy. Facing a government shutdown, US leaders failed the world again. They bickered over pennies, in fact 2 cents on a $1 deficit. What they failed to understand is their inaction was the impetus for a key selloff in the US dollar and breakout in precious metals. The new global currency has begun to change hands. As the US dollar fades, prices and rates will rise. This was not a headwind in 2008 but it is in 2011.

The market can rise another 20-30% or more. To think it will rise indefinitely is a dangerous game. Now is the time to begin planning for the future. If you missed the 2008 crash and were forced to watch your hard earned dollars disappear, 2011 presents an opportunity to reverse that balance sheet transfer. The time to become more diligent is upon us I truly believe. This is not fear mongering. This is not uber bear blogging. This is the reality of looking at the world we live in. The reality of watching events unfold, new headwinds formed and a system that never truly confronted the issues it faced in 2008.

Ignoring the past is not a solution for the future.

By Tony Pallotta

http://macrostory.com/

Bio: A Boston native, I now live in Denver, Colorado with my wife and two little girls. I trade for a living and primarily focus on options. I love selling theta and vega and taking the other side of a trade. I have a solid technical analysis background but much prefer the macro trade. Being able to combine both skills and an understanding of my "emotional capital" has helped me in my career.

© 2011 Copyright  Tony Pallotta - Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules