Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Credit Crisis part 2 or another reprieve?

Stock-Markets / Credit Crisis 2011 Dec 15, 2011 - 08:01 AM GMT

By: Clif_Droke

Stock-Markets Best Financial Markets Analysis ArticleRecent investor disappointment is being blamed on the Federal Reserve and the fact that it didn’t announce another round of stimulus at its latest meeting. Recent market action can also be chalked up to a continuation of the lingering disappointment from last week’s EU summit meeting. Participants are upset that the European Central Bank (ECB) refuses to engage in a major bond buying program to provide liquidity and bolster investor confidence.


Investors lately have also been reacting to the warning by major ratings agencies that European leaders hadn’t done enough at last week’s EU summit to tackle the debt crisis. The euro currency, which is the primary barometer of the debt crisis, plunged to its lowest level in almost a year on Tuesday.



Around the world markets are concerned about the same thing: while the major central banks have pledged to tackle the eurozone debt problem, neither the ECB nor the Fed appear willing to aim the proverbial bazooka at the financial crisis. I’m referring to a coordinated monetary stimulus, a global QE3 if you will. This is the narrative that we’ve been discussing for the last couple of months and one that will set the tone for 2012.

The wait-and-see approach of European and American political leaders and central bankers is reminiscent of the reticence these same leaders displayed in 2007 on the eve of the 2008 credit collapse. In December 2007, Fed Chairman Bernanke looked the brewing credit storm in the eye and gave a shrug when he announced the Fed lowered its target for the Fed funds interest rate by a (at the time) miniscule 25 basis points. The Dow plunged over 300 points for the day in response to the news and this proved to be a major turning point in the crisis. Within a month the Dow had fallen over 1,000 points and the credit crisis was well on its way to becoming a major conflagration threatening the very survival of the U.S. banking system.

The lesson that policy makers should have learned by heart during the 2007-2008 experience is that the financial market is a merciless judge that waits for no one. Policy makers dragged their feet throughout the year 2007 until the U.S. was the edge of the abyss and only when the economy began its headlong plunge into the abyss did the Fed and the Treasury Dept. take serious action. By then of course it was too late, although a case could be made that without the Fed’s aggressive intervention the banking system may not have survived.

Now Europe finds itself staring into the face of a fiscal crisis not unlike the one the U.S. faced four years ago. The crisis began in Greece last year before spreading to Ireland and Portugal. Now it has spread to the European mainland and threatens to spread even further overseas. Yields on Italian bonds have approaching 7 percent recently, which is widely considered to be the tipping point for sustainability given Italy’s massive debts. Meanwhile ratings agency Standard & Poor’s is expected to strip France of its AAA rating after a review that found the country has large outstanding loans to Italy, Spain, Greece and Ireland.

Germany’s Chancellor Angela Merkel is at the center of the growing euro crisis. She has steadfastly refused to issue euro bonds to quell the crisis, calling them “not needed and not appropriate.” Instead she has persistently called for greater austerity measures to force debtor nations to reduce their debts. Debt reduction is an admirable goal but is something that nations can only pursue during times of economic normalcy. Desperate times call for desperate measures and a debt reduction program during a deflationary cycle is tantamount to widespread deflation.

Unless Merkel and other European leaders want a global financial crisis on their hands they would do well to consider that the U.S. Great Depression was the result of the Federal Reserve’s failure to fulfill its role as a lender of last resort. Instead of pursuing a monetary easing policy by cutting interest rates and buying bonds, the Fed tightened and thereby fed the fires of deflation. The result of this was a catastrophic chain reaction of bank failures, which in turn caused the money supply to shrink and economic output to collapse.

It’s clear that the debt storm currently brewing in Europe will turn into a full fledged hurricane next year if aggressive monetary action isn’t taken soon. Europe has received several reprieves in recent months but hasn’t been granted an actual pardon. The financial market will judge the debt-plagued eurozone just as harshly in 2012 as the U.S. was judged in 2008 if aggressive policy action isn’t quickly forthcoming. The European debt crisis is the narrative we’ll be following from here on out until the problem is resolved and how it plays out will profoundly impact U.S. markets.

In late 2007 and early 2008 when the U.S. credit crisis was approaching the tipping point, gold rallied while the stock market declined. Investors in those days were treating gold as the preferred safe haven in the early stages of the crisis. It wasn’t until the credit collapse was in full swing during the summer of 2008 that gold was liquidated along with everything else in a desperate frenzy by investors to raise cash. This time around it appears that investors are circumventing gold and heading straight for cash whenever euro-related fear increases. It’s my belief that unless Europe’s leaders agree to an all-out monetary policy attack by early 2012, the problem will establish downside momentum in the euro and, conversely, more upward pressure in the dollar which will prove very difficult to reverse – as U.S. policy makers discovered in 2008.

A dollar rally which is gaining traction is a dangerous development for the global economy since it has been largely predicated on a weak dollar for the past decade. A sustained rise in the value of the dollar underscores the developing undercurrents of deflation, especially as we draw closer to the 60-year/120-year cycle bottom scheduled to bottom in late 2014. An important tool for monitoring deflationary pressures in the U.S. and world economy is the dollar index in relation to its 120-day moving average. A good proxy for the dollar is the PowerShares U.S. Index Bullish Fund (UUP). The 120-day moving average has been an excellent intermediate-term trend indicator as well as acting as a support/resistance at critical turning points along the way. Whenever the 120-day MA develops an upward bias for three months or more and the UUP price line is above it, investors can assume that deflation risks are increasing.



Accordingly it will be of paramount importance for us to monitor the ongoing situation in the eurozone and the market’s response to it. Until Europe’s leaders commit to a serious solution to the crisis investors should consider maintaining a conservative approach to the markets due to the heightened volatility risk.

Cycles

Over the years I’ve been asked by many readers what I consider to be the best books on stock market cycles that I can recommend. While there are many excellent works out there on the subject of technical and fundamental analysis, chart reading, etc., precious few have addressed the subject of market cycles. Of the relatively few books on cycles that are available, most don’t even merit mentioning. I’ve read only one book in the genre that I can recommend – The K Wave by David Knox Barker – but even that one doesn’t deal directly with stock market cycles but instead with the economic long wave. I’m pleased to announce, however, that after nearly 10 years of research and one year of writing, I’ve completed a book on the subject that I believe will meet the critical demands of most cycle students. It’s entitled, The Stock Market Cycles, and is available for sale at: http://clifdroke.com/books/Stock_Market.html

By Clif Droke
www.clifdroke.com

Clif Droke is the editor of the daily Gold & Silver Stock Report. Published daily since 2002, the report provides forecasts and analysis of the leading gold, silver, uranium and energy stocks from a short-term technical standpoint. He is also the author of numerous books, including 'How to Read Chart Patterns for Greater Profits.' For more information visit www.clifdroke.com


© 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