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Euro Collapse, U.S. Debt Ceiling Default Armageddon Irrelevant to Stocks Stealth Bull Market?

Stock-Markets / Stock Markets 2011 Jul 25, 2011 - 12:31 AM GMT

By: Nadeem_Walayat

Stock-Markets

Diamond Rated - Best Financial Markets Analysis ArticleThe financial news is bad, very bad, don't see how it could get much worse with europe's debt default contagion spreading to Italy and Spain sending bond yields soaring to Euro life-time record highs, whilst in the U.S. there is talk of imminent debt default on failure to raise the debt ceiling prompting the mainstream press talking heads aided by the BlogosFear to once more iterate a busted flush that the stocks bear market is about to resume (just as has been the case for the past 2+ years).


Remember a month ago with Greece tottering on the brink of default and the Dow down 7% from its bull market high ?

What has happened since ?

The Dow has rallied by 800 points! So yes there has been a crash but it has been to the UPSIDE.

Lets stay with the Euro-zone debt crisis, yes the PIIGS are bankrupt, and they are not alone, so is Japan, Britain and the United States, that is nothing new, it is not news, it is the sovereign debt mega-trend which is driving the INFLATION mega-trend as I wrote about at length over 18 months ago, in that there is only one answer to the sovereign debt crisis of the west and that is INFLATION, to INFLATE the debt away, there is NO OTHER ANSWER, and NOTHING has changed.

The Inflation Mega-Trend will run for this whole decade and I have included some 50 pages of wealth protection strategies in the Inflation Mega-trend ebook that remain just as valid today (FREE DOWNLOAD).

Mainstream Media and BlogosFear

I am going to cut through the BS and tell you like it is. The mainstream press is populated by journalists who think they are economists, but wait its worse, they then regurgitate at length the views of vested interest academics who's models NEVER match reality. NEVER! EVER! Why ? Because they lack the most fundamental requirement for being able to generate accurate analysis and that is the market forces of profit and loss instead rely on funding to follow schools of thought. If there is no consequences for being wrong then that is all they will ever be for it is far easier to pump out commentary for print deadlines than to take the time to formulate strategies upon which ones hard earned cash is depending.

Another point to consider is that the mainstream financial press most of the time are having conversations with salesmen, be they CEO's selling their companies stock or, salesmen that just want to pump a service that they are forced to promote as a consequence of being unable to compete in the derivatives and commodities markets. Still worse are the media whores that tend to spend more time in TV make-up rooms than sat in front of market trading screens that they seek to commentate upon, whilst jumping from channel to channel.

FEAR

All of this is further regurgitated at length by the BlogosFear, a phrase that I coined some years ago as a consequence of the perma-doom mindset regardless of the reality of a situation. However, the media and the BlogosFear being ignorant of the facts is nothing new, for it is the human condition for those that seek to exert power over others to nearly always be pessimistic of the future which has its roots in Religion Driven Fear of what God will do to you if you do not obey those that purport to have a direct line to him, so we are talking about something ingrained in our genes that goes back hundreds of thousands of years.

Everything is driven by FEAR, Preachers use it (of all faiths), Politicians definitely use it, the mainstream media cannot get enough of it with 9 out of 10 stories being bad news, and off course there are the FEAR driven insane fanatics hell bent on killing as many innocents as they possibly can such as the Norwegian Nazi, though the real secret behind his craziness is probably more to do with him never having been able to get a girl friend and hence needed to find others to blame for his own inadequacies which over time resulted in mental illness and finally evil deeds.

The reality of the real state of the world is that of continuing global economic growth coupled with exponential innovation and technological advancement, 20 years ago few could foresee how the Internet would change the way we work and learn resulting in huge gains in productivity, as will technologies such as BioTech, Artificial Intelligence and Robotics change our world enormously over the next 20 years, resulting in a many fold increase in worker productivity, these good news mega-trends will rarely make it into your gloom and doom mainstream press that only knows how to sell fear, which is why most investors will miss these mega-trends.

The Eurozone Debt Crisis Reality

The bond vigilantes are heavily short illiquid debt markets i.e. Ireland, Greece and Portugal, which goes a long way to explain why Italy has been targeted as shorts are cashing out of illiquid markets and opening positions in Europe's biggest most liquid bond market, Italy!

This is reflected in recent bond market price action as yields for Italian debt are on the rise whilst yields in the likes of Greece have fallen a little, that is the reason for current price action, and NOT the noise you are hearing in the mainstream press about x,y,z - none of which reflects reality of bond markets price action.

The mainstream press focuses in on just one or two elements without comprehending the reality of the actual situation in that:

a. The PIIGS are NOT the whole they are one small part of the Euro-zone economy that is NOT contracting but growing with Germany literally booming as a weak Euro gives it a great comparative advantage both internally in the euro-zone and externally to the whole world that far out weighs the actual net costs of bailouts, even the FT's mighty Martin Wolf failed to get it as illustrated below:

Financial Times July 2010, Martin Wolf is worried that the concerted austerity of Germany, Britain and other industrialised countries may "destroy the recovery".

Germanys economic boom is the flip side of the PIIGS sovereign debt crisis as I have been mentioning since at least early May 2010 - Greece Economic Depression Resulting in INFLATION NOT DEFLATION Surge ) and again 09 Aug 2010 - UK Economy GDP Growth Forecast 2010 to 2015.

Bottom line - The large industrialised export orientated areas of the Eurozone such as Germany are going to BOOM! Therefore the PIGS sovereign debt crisis is old news. The U.S. looks set to experience sluggish growth.

He also failed to get that Britain is stealth defaulting on its debt by means of high inflation during some email exchanges with him over a year ago, I wonder if he has now changed his opinion after a year of high UK inflation?

The bottom line is that the mainstream press is good at looking in the rear view mirror and telling your what has already happened, but because they lack the fundamental mechanism of profit and loss in their analysis they will by wrong at least 80% of the time on any market or economic outlook, think about that, even a coin toss is a 50/50 proposition!

b. That the debt crisis calls for money printing, regardless of what the politicians and central bankers state this is what will follow as we are witnessing with the latest Euro 109 billion bailout of Greece that is a stepping stone towards a Euro-bond with all of the ramifications it will have for the core Euro-zone interest rates.

c. That the PIIGS will default on their debts, infarct Greece and Ireland HAVE defaulted because the borrowers are being forced to except longer terms and lower interest rates than the market interest rates, a so called orderly default is taking place.

The announced orderly default does NOT solve anything, because Greece is still left with a huge and growing debt mountain, so this is just another milestone on the path towards further defaults. All the Euro-zone has done is to buy some more time for Greece.

Therefore depositors need to continue to protect themselves against PIIGS defaults and the Inflation Mega-trend (see my last article of 29th June 2011), as bond holders are being marched towards loss of capital so will ultimately depositors, in one way or another, in the UK it is stealth default by means of high Inflation, in the likes of Greece it is in your face default.

PIIGS Lesson for U.S. and UK on Interest Rates

Central bankers in the US and UK have managed to get away with murder where interest rates are concerned that especially in the UK lag far behind even the highly suspect official CPI inflation rates. However as the soaring PIIGS market interest rates of as high as 30% illustrate that UK and US interest rates of 3% on 10 year debt is NOT sustainable especially as debt to GDP levels continue their inexorable trend to above 100% of GDP even after most of the real debt and liabilities have been excluded from the calculations, therefore official debt is just the tip of the ice-berg much as UK and US bank exposure to PIIGS debt is just the tip of the ice-berg of potential losses as it excludes derivatives positions such as CDS.

The experience of the PIIGS and history before them has shown that failure to get a grip on budget deficits, debt and future liabilities WILL result in sharply higher market interest rates even if the Bank of England and the U.S. Fed remain deaf dumb and blind to their own debt crisis as they point the finger at the likes of Greece today.

The problem is that most people won't realise how bad the current debt crisis is in the UK and USA until they actually have to face the consequences PIIGS style of soaring market interest rates even if the irrelevant official rates remain stuck at near 0%. This public reluctance to face reality of unsustainable deficit spending is manifesting itself in public sector workers demonstrating and striking against cuts without which the markets WILL force the governments hands who will respond with not 4.2% UK CPI Inflation but panic level of money printing that pushes inflation rates to above 10%.

Therefore the imperative remains for the UK and US government to focus on cutting the budget deficits asap whilst they have it in their means to do so rather than be forced to act by the markets.

U.S. Debt Ceiling Smoke and Mirrors Political Game

The mainstream press is telling you that a US default as a consequence of failing to agree on raising the debt ceiling will be catastrophic, well the only place your seeing this catastrophe being played out is in the mainstream press for it is invisible to the US stock and bond markets, after all the Dow is barely a couple of percentage points away from its bull market high!

As of writing there is no agreement between Obama and Boehner and apparently the deadline is imminent for action to ensure millions of cheque's do not bounce.

As ever, the name of the gave is managing your risk, and the greatest risk is to depositors who run real risks of loss of capital for a mere pittance in interest that is at half the rate of inflation and does not reflect the risk they are exposed to, so if you have not already done so, go see my last article on what depositors should do to protect their wealth.

Whilst U.S. Bonds may have rallied on the debt woes of others but ultimately bond bulls will lose, because bond holders are betting on deflation instead the opposite is true as you don't get deflation on a annual budget deficit of 11%, which is why stocks are rising i.e. as a manifestation of the inflation mega-trend NOT deflation mega-trend which would see the opposite to the be true aka early 1930's wipeout.

I just do not understand why so many people are fixated on a re-run of the 1930's for these past few years when the opposite has been transpiring as I warned of well over 18 months ago in the Inflation Mega-trend ebook. Instead the early 1930's chart gets rolled out with an amended start date because it has turned out to be wrong for over 2 years now and some 100% on the stock indices, so yes, this does mean there would need to be a 50% crash in stock prices just for the deflation fools to break even let alone make money on worthless calls such as the Dow falling to below 1000. At the end of the day perpetually shorting of stocks that these bear market fools are engaged in and propose to others to do, is an unlimited liability risk as the upside is unlimited i.e. 100%, 200%. 300%,. demanding perpetual financing of short positions for ever, whereas the maximum Long risk is always limited to 100%. Therefore I am always far more careful in the management of short positions than long positions given the risks, especially when virtually all trading activity is further leveraged by X10 upwards.

The bottom line is that the debt ceiling political show is just that, a show for the electorate and mainstream media talking heads, whatever happens is irrelevant to the long term megatrend's, and if there is any short-term panic, I will once more be seeking buying opportunities.

In fact if the debt ceiling talks do fail and the US government is forced to balance its books as a consequence of a freeze on spending, then that would be GOOD for the US Economy as instantly the federal spending will be cut by some 50%, so the market may take the opposite view on the future prospects for the US economy than that of financial armageddon being pumped out by the mainstream press and BlogosFear.

Gold and the Inflation Mega-trend

Gold breaking above and holding $1600 is evidence of continuing safe haven buying as capital seeks to escape to precious metals and lower risk emerging market currencies from all of the rampant money printing taking place.

I am no gold bug, for on face value it is not a good long-term investment, i.e. does not generate a return but demands a holding cost in terms of storage and insurance, but the gold bull trend of a near decade is a manifestation of the Inflation mega-trend that encompasses the loss of value of all fiat currencies that looks set to continue at an accelerating pace for the next decade, therefore so could the gold bull run also for for the duration of this decade long inflation Mega-trend. My long standing target as repeated in the Inflation Mega-trend ebook (Jan 2010) remains for gold to target $2,000 having achieved all of it's interim targets as mentioned in the ebook. I will come back to an in depth analysis of Gold at a later date as I favour investments in other commodities such as Oil over the likes of Gold and Silver, especially as an opportunity appears to be brewing in gold stocks over bullion.

Stocks Stealth Bull Market Update

In my last in-depth stocks analysis (13 Jun 2011 - Stocks Bear Market Rally is Over Mantra About to Get Busted Again?) I concluded in an imminent bottom to be followed by the stock market carving out a base into late June / Early July before trending higher to target a new bull market high during Mid August as illustrated by the original graph.

Subsequent stock market trend continues to support my expectations, with the Dow pending a breakout to a new bull market high by mid August 2011. Basically the stock chart trend illustrates what I have stated earlier in this article in that both the Euro-zone and U.S. debt crisis are irrelevant to the stock market which continues to behave as it should. Current support lies at Dow 12,290 and resistance at 12,755, therefore immediate price action in advance of an ultimate breakout higher looks set to be contained within this tight range, which suggests all news on the debt ceiling front will be good news for the stock market regardless of whether the U.S. defaults or not.

However should panic strike and support fail at 12,290, then the Dow would likely revisit the June 2011 low of 11,860, which would act to just delay the inevitable breakout higher, but would give all you lucky guys and gals another great panic driven buying opportunity.

Bottom Line - The bull market in stocks will continue to lead the Inflation Mega-trend. The Sovereign Debt Crisis Induced Market Volatility such as that afforded by the US Debt ceiling failure default would present Great Buying Opportunities into primarily U.S. and Emerging Market stocks, commodities and UK Internationals, and presumably likewise for other International European stocks. Remember September 2008 and how you could have made a killing out of a crisis by bargain basement buying, in which respect always keep a shopping list of stocks then when others panic - BUY! Though my expectations are that a major panic does not look likely, so your debt crisis buying opportunity looks to have come and gone during mid June.

To ensure you are in always receipt of my key analysis subscribe to my ALWAYS FREE newsletter.

Your debt crisis noise ignoring Mega-Trends investing analyst.

Source and Comments: http://www.marketoracle.co.uk/Article29471.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2011 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of three ebook's - The Inflation Mega-Trend; The Interest Rate Mega-Trend and The Stocks Stealth Bull Market Update 2011 that can be downloaded for Free.

Stocks Stealth Bull Market Ebook DownloadThe Interest Rate Mega-Trend Ebook DownloadThe Inflation Mega-Trend Ebook Download

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 600 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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 trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Diane Cleak
25 Jul 11, 05:46
Excellent Article

Hi Nadeem,

Great article, and very to the point.

I always enhoy reading your informative articles.

All best wishes,

Diane :)


Marc Horn
26 Jul 11, 06:46
Win Win Solution for Debt Crisis

I have been following your work for a long time now and find it extremely interesting and well thought out and love the directness.

I similarly feel unless solutions are rapidly coming forth that we face yet again another armagedon!

I really see it as a simple solution, but as always someone has to pay the price!

Would changing all the interest bearing bonds into non interest bearing not be a simple solution!

My reasoning is simple.

At the moment as we have already seen in Greece, investors are taking a haircut because of the default - So those with the bonds are loosing. Obviously this will just spread to other countries. The point is investors know they are loosing! They are not that stupid.

So by making the existing debt instruments non interest bearing you kill 2 birds with one stone!

How? A large proportion of government deficits is paying interest.

So you can achieve a situation where everyone wins?

What am I missing?

I would be extremely interested in your comments.

Regards,

Marc


Martyn
26 Jul 11, 06:47
keep telling us as it

Nadeem I am not an investor, have never invested, in fact I am a union representative that uses your insights at wage negotiations, but I would like to extend my thanks and gratitude to you, for your newsletter. It is truthful, thoughtful, thought-provoking, accurate and never dull. I genuinely look forward to every edition. Thank you, and keep telling us as it is. Martyn


Strike
26 Jul 11, 06:51
Euro Collapse

Nadeem, I enjoy reading your pieces but I really fail to fathom why your caption begins with "Euro collapse". Sure, you have been largely correct about the U.S. stock market but dead wrong about the currencies.

The fact is that the Euro is closer to its all-time high than all-time low, and this in spite of the U.S. media cheerleading of the U.S. Economy and the morbidly aggressive attacks on the Euro periphery. No mention of bankrupt California, bankrupt New Jersey, bankrupt New York and bankrupt Michigan which jointly constitute a far larger percentage of the Dollar economy than the PIIGS constitute of the Eurozone economy.

At least the Eurozone has a strong core. The U.S. has no strong core, no backbone and no future Empire.

Cheers,

Strike


Nadeem_Walayat
26 Jul 11, 07:26
Re: Win Win Solution for Debt Crisis

Hi

The market would still price the bonds in terms of the market yield.

and no one will buy future debt if the yield is zero or could become zero. This also means that maturing bonds would not be reinvested hence Greece would have no access to the credit markets without offering a yield.

Best

NW


Paul
26 Jul 11, 18:34
Norway

This pretty much sums up the early rush to judgment.

http://www.colbertnation.com/the-colbert-report-videos/393042/july-25-2011/norwegian-muslish-gunman-s-islam-esque-atrocity?xrs=share_copy

Can you clarify your comments made below? I get the general theme of your essay but in this part the wording confused me since it reads a little contradictory.

'...I will come back to an in depth analysis of Gold at a later date as I favour investments in other commodities such as Oil over the likes of Gold and Silver, especially as an opportunity appears to be brewing in gold stocks over bullion'

Many thanks

Paul


Nadeem_Walayat
27 Jul 11, 02:44
No Euro Collapse

No Euro Collapse (perhaps eventual split into two), I was taking a dig at the euro-collapse press headlines and blogosfear.


Nadeem_Walayat
27 Jul 11, 02:45
Gold clarification

Hi

If I had the time, I would be looking at gold stocks over bullion as those appear to be offering a better opportunity.

Best

NW


Chris
27 Jul 11, 04:02
EW

Your EW labelling is incorrect.


Nadeem_Walayat
27 Jul 11, 05:03
EW Theory

EW is just a theory not a law, only subsquent price action dermines if any particular count is correct.


Saket
27 Jul 11, 05:20
Excellent Article + Advice Needed

Hi Nadeem,

This is an excellent analysis. I have now become a regular visitor at marketoracle despite not having any finance background.

I need to ask you about investing in HSBC dynamic fund. I have just invested around £21K in the HSBC dynamic fund which has shown a growth of 36% over the last 2 years. Is that a good investment or should I think of other options?

Best Regards,

Saket


RM
28 Jul 11, 05:04
S&P Downgrade

Amazing read. Few questions if you dont mind?

1) Do US law makers have a choice but to increase the legal borrowing limit?

2) If they go ahead and do this is the S&P outlook going to move back to "Stable" or is a downgrade inevitable?

3) The euro naturally has a short term spike in strength every time the leaders have a brain-fart in delaying the greece demise. Surely, further to point 1, this is a great short term buying opportunity for USDJPY.

Thanks

RM


Jerry
29 Jul 11, 10:49
Dow

Nadeem

The dow has fallen to below your 12290 support level, so do you still expecting a new high mid august ?

Thanks

Jerry


Nadeem_Walayat
29 Jul 11, 17:47
Bull Market

It maybe mid August or Mid Sept.

Look, investing is simple, in a bull market one accumulates one's target stocks on corrections or panic events, that means at worst one is going to be wrong ONCE, rather than every month as many apparently are !

The bottom line - The only thing that counts is the price you sold less the price you bought, lubricated with RISING dividend income.

Now Trading that IS different, high risk for high reward, which I will leave for future ebook.

Best

NW


Jas
31 Jul 11, 04:50
Panics

Ah, but how does one know they are at the bottom of the panic? Do you use any indicators, or preferred TA?

Best Regards

Jas


Nadeem_Walayat
02 Aug 11, 04:36
Accumulating stock

Hi Jas

I have a long list of stocks / ETFs / Commodities where I have a price range at what I will buy at and sell at and then act accordingly.

i.e.

Cameco is Buy at $20, Sell at $50.

Microsoft buy at $20 Sell at $35

China FXC - Buy below 7000, No sell.

Silver - Buy $12, Sell $28.

The list gets updated about once a quarter or longer, so I don't waste time on close monitoring / re-analysis.

Best

NW


Bill
02 Aug 11, 22:59
Lucky Guys and Gals

Hi Nadeem, following today's panic, do you still believe we are "lucky guys and gals" from your update above that we are down to 11860 on the DOW? Thanks Bill


Farzooq
03 Aug 11, 08:18
Dow

Dow tests june lows of 11835

do you expect it to recover from here or fall further ?

Regards


Nadeem_Walayat
03 Aug 11, 08:24
Buying Stock

Hi

Ive been putting my money where my mouth is and buying stock today, specifically - BTEM, HSBA and BSKYB.

In fact if there were a little more panic then it will enable me to buy more stock as most of the stocks I track have net hit accumulation levels.

Best

NW


Chris
04 Aug 11, 06:15
dow

Hi Nadeem,

First of all, thanks so much for your analysis. I've made a great deal of money following your advice in the past, and I'm glad to hear you're buying.

We keep loosing 1250 S&P and 11860 DOW intra day / after hours. Do you think we'll break those support levels on a closing basis before heading higher? Can I also put you on the spot and ask when you would guess we're likely to see the lows and also what the intraday / after hours low will likely be?

I guess we all could just use an update :)

Thanks,

-Chris


Raj
04 Aug 11, 07:51
Buying Stock

Hi Nadeem,

When you buy stock do you already have a sale price in mind that you would like to achieve, if so what is your plan for the stocks you just mentioned,

Thanks

Raj

:-)


DaveH
04 Aug 11, 13:38
I guess we got the panic

As always your analysis has been spot on, certainly for as long as I have read it. A word of caution though to anyone who would blindly follow without doing their own analysis, even the greatest analysts are wrong from time to time, so be careful and control your risk.

As always thank you for your hard work Nadeem.


chrisitan pickett
04 Aug 11, 14:43
short term selling

not that i think this short term selling is a sign of things to come....the market has been bouyed very resiliently

but i take issue with you constant talk of the "blogosFEAR"

as if it is an ANNOYANCE to you that everyone isn't cheery and talking about green shoots. (you don't seem to differentiate between those that say you should prepare for another crisis and here's x. leverage y. derivatives z. a metaphor of a man on a unicycle juggling knives heading for a windtunnell.....sort of sums up the stability of such a internconnected overleveraged and inflated via stimulus/QE on a bed of fictious debt values and those that you deem "fear mongers" either because there ideas seem dire to you or they have been wrong for ten plus years .

do you have full faith and credit that the financial system will avert another crisis of confidence and asset values will not get hit as hard because 'gov'ts can always print" or they are "hell bent on inflation". I mean why else whould you seem to label anyone who isn't beating the green shoots drum as part of "blogosFEAR"

i mean look at the interconnectedness and corruption in the system shouldn't people be some what informed of its frailty


brain
04 Aug 11, 16:03
collapsing market

Nadeem, looks like you are wrong on your latest prediction. No way will see see 14000 any time soon.


Eph1
04 Aug 11, 20:04
SHare markets

Nadeem, you are to be commended for staying bullish on shares this past year, but what now? ASking since the support levels you highlighted have all been blown away, despite the market being "oversold" short-term , which is never a good sign. Also, IS there anywhere that you post your latest thoughts? MAny thanks.


Mawaja
04 Aug 11, 22:59
DOW 6000, Great Depression 2 by year's end!

Sorry Nadeem, DOW 14000 is a pipedream. Odds-on for DOW 6000 & the Great Depression 2 by the end of 2011!


Lewis
05 Aug 11, 01:50
Collapsing market

This sell off will be the start of the reasons for QE3 as the market gets manipulated I mean moves higher....


Sam
05 Aug 11, 01:50
Recession?

Nadeem, what do you think of the recent US economic data? Mainstream media is suggesting a renewed recession. I look at the initial claims for unemployment insurance (4 week moving average) and I don't think it's that bad (trend is going down). The July US PMI number of 50.9 (from June's 55.3) is a concern though. Let's see what today's non-farm payroll numbers are (expected to be weak).


andre
05 Aug 11, 01:54
hey nadeem

Please do an interim update nadeem...we look to be reliving 1987 here...any guidance would be great


Greg Larsen
05 Aug 11, 04:37
Question the Inflation Argument..

Nadeem,

I've been believing that the battle is clearly between inflation (money printing) and deflation (credit destruction / debt writeoffs), and I fully expect the market to swing each way depending on which force is currently "winning". Ultimately however, the vast amount of unmanageable/unpayable debt MUST be dealt with...and debt destruction is VERY deflationary...that's what's driving the markets down as investors finally are seeing this. Although we may bounce, I don't think we'll be done with this until we see some disorderly defaults, from banks up to sovereigns, to clear the air and do a full "system reset". The path there might be bumpy, but ultimately IMHO we won't go into a true new Bull market until this is dealt with. Good luck to you.

-Greg


Nadeem_Walayat
05 Aug 11, 06:02
Stock Market Ouch!

Volatility is high, I'll do an update during the weekend.

I did not buy anything yesterday, but did today (London), will update my buy list during the weekend, at this point in time my strategy remains the same as I have repeatedly iterated since the March 2009 bottom, in that the greater the deviation from the last high the greater the buying opp.

My response is to think of what to buy next, others are panicking but I feel NO panic, ZERO, Just trying not to feel Greedy as that could cost me later !

Just remember when the Dow was about 1500points higher everyone wanted to buy, now that its a lot cheaper no one wants to buy, instead sell.

I'll give today to the BlogosFear, - a minor temporary victory that they never capitalised upon because they lost all their money shorting several thousand points ago !

Best

NW


toby
05 Aug 11, 06:48
stocks

I reckon nadeem is correct in his analysis, the current crisis is a dip (buying opportunity) All the current crisis will do is speed up the next round of money printing which in turn will boost stock markets to new highs.


Robert
05 Aug 11, 07:00
Economist: 90% Stock Market Collapse Imminent‏

The above subject was from Weiss Research, do you think this 90% stock collapse is probable?

regards


Gabriel
05 Aug 11, 07:16
what about this idea ? more downside

Hi ,

here are some thoughts

The S&P 500 easily broke 1,223, the number needed to confirm a breakdown from the neckline at 1,263. That break establishes a minimum target of 1,143, but it is more likely that the ultimate bottom of this global sell-off will lie somewhere within the zone of last summer’s trading range at 1,040 to 1,130.

What do you think about this scenario ?

Best regards

Gabriel


sc
05 Aug 11, 07:40
Such fun

Now we know exactly why markets have two sides don't we .

Suchdisparate views on the economic climate that ultimately the market works within.

Technically when a market has been going sideways for so long and the urge to buy has been getting weaker and weaker it only needs a catalyst to trigger it and it will move a long long way.

Judging by the amount of money now sidelined it is a confidence issue primarily as a lot of real money wants to know when it invests exactly what shape policy is going to be applied and exactly what currency will it be returned in if it is held in euros.

You see fixed income have no problem holding bunds because they are in win win.I euro holds up they have been safe whilst policy was sorted out and if the euro fragments they gain presumably because bunds will be realised in amuch stronger currency.

Money is walking away from uncertainty predominantly in euroland and particularly risk effected by euro policy.

Unfortunately other marets don't stand in isolation from this crap so margin calls etc etc and we have what we have as uncertainty triggers volatility based margin calls. Losses/defaults will rise from here for a variety of reasons some simply from cashflow disruption.

I believe all things being equal there will be some good yield buys coming through ,but before we get to them policy inspired volatility ca create more damage than we have seen so far.


Bman
05 Aug 11, 07:51
The Herd

Spot on Nadeem, the herd looks to buy at the top and sell at the bottom. Stick to technicals, we're 12% down from the highs and we are going down the toilet by all accounts/blogsphere. Playing the "game" smart is the order of the day. Look forward to the update, my guess is this drop will delay the inevitable new high which I now put out to mid November


raj
06 Aug 11, 12:31
fear

looks like next week will be another week of fear after the US downgrade,

:-(


Zameer
07 Aug 11, 06:38
where is Nadeem when we need him

Nadeem

We need your take on the events that may unfold in the days and weeks after the S&P aftermath.

Keen to see your post / article.

Zameer


Alex
07 Aug 11, 10:21
Buy List

Nadeem,

You mention in your last comment that you plan to update your buy list over the weekend. Do you publish this anywhere?

I suspect your general analysis will be correct and this dip will prove to be another buying opportunity before the markets are pumped back up with some more QE.

Regards,

Alex


Sam
07 Aug 11, 16:38
Complete collapse of market-END OF BULL MARKET

Nadeem, despite your optimism,the bull market is dead. The S&P downgrade is just one more nail in the coffin (recession is the other big nail). This market is collapsing just like in 2008 now.


Nadeem_Walayat
07 Aug 11, 17:05
Dow Update

Just started work on it, take about 3-4 hours to do.

Best

NW


Marcin Strojny
07 Aug 11, 19:09
I am bear

Don't cry "Nadeem, help!". You know Nadeem is bullish, if you copy, then buy. I don't trade as other say and my rule is not to catch the low. What's been on my mind for many weeks is 'markets are turning'. What I see now : oil violated the trend line. Emerging markets, at least the most important, did the same and are headed south. FTSE and Allordinairies broke down from long formations, looking like tops. Market breadth : large mineral companies are holding indexes in a good shape, but most charts of great companies look disastrous. Fundamentally : credit inflation is a failure, besides we are in a sovereign default era = welcome back to 2008, marketwise. This is secular bear, so cyclical bull may end anytime scrapping in one month 3 month advance. Time will tell.


SamB
07 Aug 11, 20:51
S&P Dowgrade impact !!

Hi Nadeem,

Given the S&P downgrade, do you think the bull story remains intact?

Two possible scenarios exist

1. Last week's market crash was due to some 'insiders' - funds who knew the S&P downgrade was coming and hence started selling - if this theory is true then we can expect some fall in the market but not much now and so the market will rise in a short while

2. On the other hand, if this fresh news and hasn't been baked in the market, then are we expecting a deep new low and if so the end to the bull market that you are expecting in the near future

Regards,

Sam


Charlie
08 Aug 11, 14:35
Crystal Ball, Nadeem?

Hi Nadeem,

I don't understand how you can remain bullish despite a massive Indice downturn. Im guessing your'e best buddies with some super trader out there who can predict things? In short, why do you think we're heading up????? What is your basis for thinking such a thing?? Indice patterns are mega bearish-what do you know that we don't?????????

Best Wishes

Charlie


Parth V
08 Aug 11, 17:24
Bull market will survive- Printing presses being lubed up

Folks have you forgotten Helicopter Ben? QE3 very very soon and the Bull market resumes. Note this is the Presidential relection year coming up and the first few months we had a rising market. Historically this year will end higher due to these 2 facts. Ben Bernanke will make sure- stay in markets with confidence!


Nadeem_Walayat
09 Aug 11, 08:26
Stoclks 6 months from now ?

Ask yourselves where will stocks be 6months from now

If a lot higher then buy

if a lot lower then don't buy.

I am buying because I invest for yield.

Best

NW


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