A/O 11:05 pm
Gut Feeling
I dunno why, but I feel like we are about to experience a big move in the markets (in 3 weeks max). My hunch is that the dollar is in a retesting phase and that this will be another medium (perhaps major) bottom.
There are way too many risks out there and complacency is just ridiculous.
“$100 oil won’t be enough to derail the recovery” is the main sentiment of investors…
The VIX plunged 10% today despite Saudi Arabia’s stock market free-falling as the Day of Rage comes up. Furthermore, just look at the VIX level now (considering a MAJOR oil producer is in danger of riots and oil delivery disruptions) versus the level it achieved when Greece was going down….this comparison bring the obvious conclusion that investors are not paying attention to the worsening situation in the Middle East.
A Whistling Pressure Cooker
I wrote about the possibility of a political event actually being the match the lights the dynamite back a couple of months ago.
Dangerous imbalances remain and the more the poor are squeezed, the more unrest you will have. Pursuing zero-rate/QE policies will only serve to send commodity and food prices higher, until the whole damn system short-circuits. It will be shades of summer 2008 all over again.
Back to the Future (Circa 2008) --- (Click here)
While the Fed has had success in raising asset prices, denying my forecast for 2010, this whole strategy is destined to fail in my point of view because as the recovery progresses, it will simply be met with higher commodity and oil prices until the whole system short-circuits (think summer of 2008 when oil prices were at $130). When is the 64MM dollar question.
Does China have a real estate bubble on its hands?
It may all be about the psychology of investors at this point.
It all depends on whether they feel that the government will not step in and prop up prices. If that psychology begins to permeate the market place, watch out.
It’s all about moral hazard for governments.
Perfect Example of a "Moral Hazard Bubble"
(Click on the article above)
Congratulations officials…you’ve succeeded in setting up the most dangerous investment climate ever….BRAVO!!!
This confirms my worse fears that this whole recovery in the markets is based on hope and moral hazard (ie the government will always come to the rescue). Sure the economy has been recovering, but the recovery has been extremely lackluster and is VERY vulnerable to ANY negative shock.
At this point, any time you have some government pondering the idea of withdrawing support, you’ll get this. It’s happening in the Eurozone and it’s happening here.
But guess what…it may continue…because every day the market goes up, more air is being blown into the bubble and the more painful the crash will be. Officials will do everything in their power to keep it going until there’s some sort of political event that pops the whole damn thing.
Who knows when the whole house of cards comes crashing down, but be assured that it will be riduckoulus. It may be worse than 2008.
CAUTION IS WARRANTED! — RISK OFF.
So, the Ireland bailout is signed and a done deal. Unfortunately, the Euro has continued to fall and worse, Spanish, Italian, Belgian, and Portuguese bond yields have begun to rise at an alarming rate. At this point, it is clear that the bailout has not alleviated contagion issues.
But…but…how? Well, taking care of a debt problem by issuing more debt is just plain stupid. Unfortunately it’s how we’ve been papering over the structural problems that have been present since the recession started in 2007. The structural issues have NOT been dealt with.
At this point, I would seriously consider taking off risk. This scenario is quite reminiscent of when Bear Stearns went under and the problems were papered over by authorities. The risk of a systematic melt down is becoming more elevated by the week as market participants are beginning to realize that bailouts are not the answer.
Maybe something will happen where the issues disappear, authorities once again are able to snatch victory from the jaws of defeat, however, those jaws are very big and sharp and I believe that it would be very prudent to pair back risk at least.
Market reaction to the Ireland bailout announcement is not good, at all. Trichet and Eurozone officials must be sweating bullets right about now. Click on the pic for a story on how all these bailout packages are just accelerating the process of infecting the core of Europe. Is the end game at hand? Portgual and SPAIN are next in line. Note in this article how it points out that a Europe slowdown would weight on the US (near the end). This is what I mean by a negative exogenous shock sending the US back into a very unexpected recession. (Chart Courtesy of freestockcharts.com)
