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Stock Market Panic Buying As Bear Market Goes Up in Smoke on Dollar Printing for Euros

News_Letter / Stock Markets 2011 Dec 14, 2011 - 07:43 PM GMT

By: NewsLetter

News_Letter The Market Oracle Newsletter

December 1st, 2011 Issue #23 Vol. 5


The Market Oracle Newsletter
December 1st, 2011            Issue #23 Vol. 5

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

Stock Market Panic Buying As Bear Market Goes Up in Smoke on Dollar Printing for Euros

Stocks Stealth Bull Market 2011 Ebook Direct Download Link (PDF 2.8m/b)

Interest Rate Mega-Trend Ebook Direct Download Link (PDF 2.3m/b)

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

Dear Reader

The past 6 months has seen a very volatile trading range as the stocks bull market has attempted to end its correction and resume its trend to new bull market highs, which has been held back by increasingly worsening debt crisis news out of the Eurozone as the Euro currency block continues to fight to hold itself together whilst it's fragmented political structure ensures that there is always a long delay in policy reaction to bond market crisis events that has had a negative fallout across the worlds banking system and financial markets.

One of the most dangerous manifestations of the euro-zone debt crisis is in the freezing up of the inter bank market, with banks reluctant to lend to one another given the rising risks of default as illustrated by the LIBOR rates rising across the world as investors / lenders sought to pull deposits and loans from first euro-zone banks and then from any other bank due to contagion risks in advance of the increasing risks of sovereign default that would not only bankrupt many banks but threaten a collapse of the Euro.

The credit crisis is manifesting itself in the LIBOR markets as the dollar and other currencies such as sterling rates rise as investors dump euro deposits in exchange as illustrated by the LIBOR graphs below.

The worlds major central banks led by the U.S. Fed re-acted to the credit crisis yesterday by flooding the banking system with dollars to satisfy demand from euro-dumpers, swapping their toxic Euro's for new crisp liquid Dollars (printing dollars for euros) which has had the effect of relieving building pressure that was fast accelerating towards a potential Euro-zone Lehman's event (which was probably no more than 10 days away), at best this can be seen as just buying time, a few weeks at most, as it does not change the fundamentals of the inherent flaws in the Euro-zone which i recently covered at length in (Eurozone Being Swallowed by Expanding Debt Black Holes, Mega Bond Market Profits and Default Booms ). In this respect there is Euro-heads meeting in about 10 days time, which will probably do what needs to be done to kick the can well into 2012, which will give the BULL MARKET time to do what bull markets do. I would not be surprised if the oft speculated on Euro-bond actually materialises over the coming weeks, though I don't keep a too close a eye on developments out of the Europe as each country has its own long list of talking heads thus making 90% of what comes out just confusing noise.

All that matters is this - No matter what happens to the Euro, its collapse threatens a collapse of the worlds banking system therefore it will not be allowed to collapse, which means the worlds reserve currency will be printed in the trillions to mop up the flood of euro's in exchange for dollars thus ensuring there is no collapse in the euro for which we have just had a small taste of what would come to pass, its simple - print dollars and all other currencies for euros which means all currencies collapse together but at a shallower pace with the mainstream press pumping out propaganda that the Euro has actually risen when in fact they have all fallen sharply together, now you tell me if all this will not be highly inflationary?

The worlds central banks can and do print trillions as and when they chose to. There is no limit. This is the only real lesson they learned from the Great Depression, so instead of having a Deflationary Depression, we are having an Inflationary Depression.

The ECB WILL start to MONETIZE PIIGS DEBT, the ECB WILL BAILOUT the European banks, probably this month. Though what the ECB does not know is how bankrupt the European banks really are, because neither do they! The derivatives market is estimated at $1 Quadrillion, nowhere have I read in any official statistics anything that comes close to addressing this. What happens to the value of currencies if this needs to be monetized ? I know Zimbabwe was printing 100 trillion dollar notes at its money printing peak, this is what lies in store because ALL fiat currencies are trending towards HYPERINFLATION (don't worry I'll let you know when).

Remember countries can only go bankrupt if they cannot print money, if they can print then you cannot go bankrupt because they stealth default on their debts by means of high inflation, I will cover this in my next article in-depth.

The Stock Market Soars

So if all the news is bad why is the stock market rallying? The Dow closed up near 500 points at 12,045, barely 6% away from its bull market high.

The mainstream financial press, populated by journalists that constantly refers to academics will NEVER understand what drives the markets, which is why the likes of the BBC's Chief Crisis reporter, Robert Peston stated recently in response to stocks rallying in the face of relentless crisis news :

"The behaviour of the markets seems to be slightly odd, because markets have stabilised and share prices have risen a bit, and its quite difficult to see why that would be, plainly investors are taking comfort from the noises out of athens that this referendum may be off and may not happen. but lets be clear that the spectacle of these frantic negotiations is not exactly evident of a stable government, is altogether plausible that this government will fall, and in a general election where Greece will stick with the bailout plan is all up in the air".

"I find it slightly peculiar why investors are seeing this as good news"

And remember this guy from a couple of months ago ?

"know the stock market is finished.".... yeah, certainly looks finished, standing about 10% higher since he spoke in late September.

So what is it that approx 90% of the media and 99% of the academics are missing ?

If you have been reading any of my articles over the past few years then you should know the answer, which is that the primary driver for all economies and especially those that are the focus of my analysis, UK then US is the INFLATION MEGA-TREND that over the long-run inflates asset prices exponentially (as measured in free falling fiat currencies).

Stock Market Technical Picture

My last look at the stock market (27 Oct 2011 - Stocks Stealth Bull Market Pounds the Crash is Coming Bears with Euro-zone Hammer ) re-iterated why investors should be on guard against the perma-bears and the blogosfear who barely a few days ago were claiming that the a new bear market in stocks (at least for the 10th time in 2.5years) was now definitely in play and that investors should position themselves accordingly. Instead my view has remained constant that investors should view the ongoing corrective trading range as opportunities to accumulate for the long-run at deeply discounted prices on each reaction towards the bottom of the range in anticipation of the resumption of the bull market as part of the Inflation Mega-trend where the objective is to hedge against inflation by means of investing in consistently dividend increasing stocks.

The technical picture remains in that the stock market is now trading towards the upper end of its range pending a breakout higher. In terms of probabilities for breakouts, November is a good month for breakouts higher, which the market failed to follow through on this year, however December is an even stronger seasonal month (santa rally), so the probability is even stronger for the Dow to break to new bull market highs during the next few weeks.

There is little point in doing an in depth analysis at this point in time as the conclusion would probably be little different given the seasonal factors and existing trading range. However, I will leave you with my more precise thoughts in that my longstanding expectations remain for new bull market highs before the end of this year, which remains possible as illustrated by the trajectory of the trendline which extends to a new high just prior to year end.

So whilst the perma-bears, blogosfear and mainstream financial press all are continuously regurgitating noise on imminent financial armageddon in an endless feedback loop, the actual facts are that all investors / traders have had ample opportunities to accumulate at deep discounts in advance of the eventual breakout to new bull market highs by virtue of the fact that dividend increasing, and many other stocks are leveraged to the inflation mega-trend, i.e. they have first call on inflation before consumers.

Ensure you are subscribed to my always free newsletter to get my next analysis in your email in box.

Source and Comments: http://www.marketoracle.co.uk/Article31855.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.

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