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

Stock-Markets / Stock Markets 2011 Dec 01, 2011 - 02:27 AM GMT

By: Nadeem_Walayat


Diamond Rated - Best Financial Markets Analysis ArticleThe 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.

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Source and Comments:

By Nadeem Walayat

Copyright © 2005-2011 (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.

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

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


dr ray
01 Dec 11, 09:02
hyperinflationary depression


Thank you for this article

You have been right about the stock market as a whole although anyone putting money in financials and retail will have lost money.

Weimar experience was that stocks retained value better than cash or bonds but this is thought to be due to devaluation making exports cheap. Initially I suppose there was domestic crack up boom which kept the factories busy too.

The difference now is that the hyperinflationary depression is affecting most developed economies so I can't see how manufacturing and commerce can be supported after the initial crack up boom.

Do you think stocks are a short term trade or are you suggesting this as the way through the hyperinflationary depression. Is your stategy to trade stocks until the SHTF and then move to PMs to get you through the firestorm?

Jas Singh
01 Dec 11, 10:42

Hi Nadeem

In relation to your $1 Quadrillion derivatives market, surely the vast majority of this market will never rear it's ugly face?

For example, A lot of these derivatives are related to Government debt, and mortgages. If these assets are made good (i.e QE, Bailouts), then the vast majority of the derivatives market will never need to be monitised, because the payout event will never unfold?

Thus, we can get out of this, without complete hyperinflationary currency collapse?

Your thoughts

Best regards

01 Dec 11, 13:29

Hi Nadeem,

In light of your recent views regarding shorting Gilts, could you please let us know what do you think will happen to the value of pound in the near to medium term?



01 Dec 11, 22:03
the power of people/protest

Dear Nadeem : I agree on theory of mega inflation is a possibility. But in NO WHERE u have taken into account the power of people taking to streets....u have not taken UNEMPLOYMENT into picture...people loosing homes & jobs...It will be a shame if people doesn't start a revolution soon as the politicians/bankers will keep doing what u have mentioned in the article.

Please note -- Government can't create JOBS, pay bills of people even though they can print limitless paper...

I want to thank u for trying to make one point crystal clear from your side...follow the PRICE action of stocks/ is all noise... I don't care if the market goes up or down, I just want to make money & price action with techincals is starting to help me a lot in my trading.

Last but not the least, a revolution by common people is around the corner -- all over the world..whether its few months or years away, only God knows & time will tell.

Also, would love to know when this cycle of printing "u think" will have a logical end...because it cannot go forever. Also, then request u to write on will touch 5,000 dollars soon then.

Best Regards,


01 Dec 11, 22:35
Stock Market Panic Buying

Hi All


We are in an inflationary depression not hyperinflationary, hyperinflation is what happens at the end it may be a year away or a 100 years away, can't tell until its imminent.


This is worst case scenerio if the euro / banking system collapses, which I don't expect to happen, because it will be a total disaster, talking about 15% loss to GDP virtually overnight.


Volaility is extreme, if euro goes pound strengthens, if euro is secured then pound weakens. Like i said in the article, I don't see the euro collapsing (less than 5% chance) which implies the pound should weaken.


I factored unemployment in at length, which is why governments will print money to buy votes /jobs.

I will look at gold (time permitting), my long standing target dating back to Nov 2009 is $2000.



Ram Sharma
01 Dec 11, 23:40
Euro, USD & Gold during Santa Rally

Nadeem, many thanks for coming out with new article earlier than you normally post. You can't imagine how badly your articles are awaited. Thanks for sharing your hardwork!!!

Q#1: Do you think that USD has hit the bottom or you stand on your projection of 69-70 as mentioned inflation mega trend 2011 book? Is Timing/target has yest to be achieved? OR we are done with the bottom@73 in May'11 and continue rise from there?

Q#2: Do you think if Gold is better instrument than equity (DOW/S&P) because it will provide cusion against all that money printing? Do you see that Gold will rise until 2014? During previous housing/credit bubble busts - Gold fallen badly after ~7 years of economic recovery while achieve peak/bubble....Do you see Gold will repeat the pattern by 2015-17? I think many of us would love to hear your views or Gold and potential rough targets/timelines.

02 Dec 11, 04:01
bull markets

Dollar, will habe to do analysis to determine trend.

Gold / Stocks - Stocks have been in a bull market for 2.5 years, Gold 11 years, Stocks are a far better place than gold.

The dynamics are good for stocks and gold, but gold has had a very good run.



02 Dec 11, 14:33
secrets of a successful trader


I know you are extremely busy but you promised to publish your secrets to being a successful trader before year end. Is this still going to happen?

02 Dec 11, 23:34
Trading book


Unfortunately, Ive not even started it yet, so not making any promises.


Shelby Moore
03 Dec 11, 06:05
gold FUBAR?

Nadeem, came back to pesker you one more time :) Hope you don't mind.

We haven't had the mania yet for gold. The repeating pattern is for gold / DJIA ratio to drop to 1 or 2, so $6000 - $12,000 gold. Gold mania will be when everyone you know is talking about rushing to buy or sell gold. For now, most people still look at me bewildered if I mention gold.

What would be your view of gold if the financial system goes F.U.B.A.R.? That would be with war throughout the Middle East, shutoff of oil from the Middle East, hyperinflation over forced devaluation, govts grab all paper accounts with capital controls to force them to invest in sovereign bonds, as the wheels come off the entire financial system.

My view is the only way to abate the runaway inflation and chaos that we are plunging into, is to reconstitute the reserve currency with a (at least partially weighted) fix to gold. The reason is that even if western society defaulted on all the $trillions of debt, the politics of the demographic reality would immediately create more debt. The west is demographically bankrupt, so there is no reset.

So I am thinking it is going to be a decade(s) long fight of the society against gold investors (but the blowoff mania in price could come at any time perhaps sooner). Gold investors will win (defaults must be occur and public debt must be purged and not restarted), but perhaps only those who large holders who control the knobs on the fiat system, and thus can shield themselves legally. Readers can refer to my prior most popular article, "End Game: Gold Investors Will be Destroyed":

Perhaps FOFOA is correct. We end up with a gold backing on the new reserve currency (i.e. your scenario of Germany breaking away from the main EU bloc), then the govts that can't adhere to the necessary austerity, get a floating exchange rate (to that reserve currency, e.g. perhaps SDRs) and thus suffer repeated bouts of hyperinflation and bust, as their demographics are insoluble. The regional currencies of the 10 kings will be floated perhaps to this gold backed reserve currency.

Disclaimer: The above expressed opinions and citations are my own and not necessarily endorsed by this site. My opinions and citations are shared as alternative perspective for your entertainment only. I cannot prevent you from deeming that my writings are educational. I am not a professional advisor, thus I claim safe harbor and I am not responsible for any outcomes, mental state, decisions or actions you experience or make after reading this essay or cited sources.

03 Dec 11, 07:11
DOW 30

I enjoy your analysis. I think we are at a critical juncture here and I applaud you for supporting your own theory regarding rises through money printing.If the DOW goes above 13,000, then I will be converted to your theory in the short term. My preference,however,is to agree with the bearish point of view. I think the FED are all noise and they know you can't keep printing tons of money and society keeps ticking over. It never has worked before and I can't see it working now.

Big Ben
03 Dec 11, 08:46
Santa Rally

Hi Nadeem,

I have been a follower of your brilliant forecasts on the market direction since March 2009 . So far you have been uncanny accurate with your predictions so you deserve high respect for that.

I like to believe you on this call but both my gut feeling and technical analysis tells me that it will be very difficult for the market to break into new high by year end or even the first half of next year. I believe we are in a bear market now and currently the market is in a corrective phase before breaking down and leaving no doubt once the 4th October low has been taken out.

We will find out soon whether this is the case. I look forwards to your next forecast.

Best regards,

04 Dec 11, 03:40


I don't see how we can be in a bear market when we have not had a bull market bubble, bull markets usually tend to end with bubbles.

The news has been virtually all bad for the duration of the stealth bull market.

If your not convinced, I would strongly advise against going short, at least if you stay on the sidelines you won't get hurt ;)



Jimmy Jones
04 Dec 11, 15:00
Bank Holidays


I am getting increasingly concerned that we are close to a situation where "they" will close the banks (bank holiday) and devalue the currency overnight in possibly a number of countries going forward. Capital controls are just a part of this process as Shelby refers to above (wise man imho). We have seen how they have gone after private citizens who have tried to protect themselves in Swiss accounts and now we are seeing this extend to certain Greek citizens. Is there no end to their deceit?

My question therefore arises whether your analysis for new stock market highs revolves (in part) to the fact that we could see a number of rapid devaluations in the near future (a boom for stock markets), or the fact that you still think Germany will allow the ECB to take on trillions of euro debt? The media and BofE of late have been portraying an apocalyptic picture with regard to the euro and the financial system and I have heard there will be a number of layoffs in the financial sector next year. Do you believe these dire predictions, or do you think investors should take a contrarian view?

As I mentioned above, if we were to see bank holidays followed by devaluations, this would be very dire for most people, but conversely good for stock markets. Do you anticipate this happening?

Alternatively, do you think we will get a mixture of the ECB, FED and IMF coming to the rescue and printing trillions of euros to bail out these countries which would again be good for stock markets?

What are the chances the markets will turn on the UK in the not too distant future and we see the BofE printing billions to fend off said attacks. Could we here in the UK see a major devaluation in the not too distant future?

Our currency has seen almost a 50% debasement against world currencies over that last few years. Is this the end of it, or just the beginning. I refer (in particular) GBP in relation to CHF,AUD,CAD,NZD and so on. Not the obvious currencies such as USD or EUR.

Please advise.

(p.s. I would like to hear Shelby's comments also, if he felt like contributing)

Many thanks,


05 Dec 11, 00:32
Stockmarket 2012


Any thoughts on the prospects for stocks during 2012? Especially europe,


05 Dec 11, 04:34
Stock Market 2012


Taking that I am expecting no blow up in the euro-zone, I think the stocks bull market looks set to continue during 2012, will workout exactly how much in a future indepth analysis.

I also think the US economy is stronger than it looks.


The US market leads europe by perhaps 6 months, the best opp I see is in Germany.

Exchange rates

The rates are just volatility in the different rates of decent, inflation is destined to go higher no matter what happens to exchange rates, I am working on an inflation mega-trend article which I will post this week.

Stocks are leveraged to inflation, and yes the ECB will print trillions.



12 Dec 11, 04:28
fyi nice article link

Dear Nadeem -

My thinking matches this article. I hope I am proven wrong.



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