Groundhog Day

Investors love when the Central Banks print money to help solve the sovereign debt and banking crisis. As investors we have seen this many times before.  Looks like a scene from the movie groundhog day as the actions have been repeated time and time again without any real lasting solution to the main economic issues.  Will companies expand or borrow money to create jobs? No. Are savers being wiped out by low interest rates compared to inflation. Yes. Any answer to high unemployment rates in the U.S. and Europe?  No.  Is the short-term stock market artificially inflated by these actions? Yes.  Is the long term world economy being hurt by these short term actions? Yes. The world eeconomy will be facing even more headwinds as the ECB and the Fed drains the liquidity added. Investors need to be careful what they ask for on Groundhog Day. Just as a reminder, the Fed has offered dollar swap lines and the amount has been increasing since May up from $22 to $30 billion. The Euro problem is worse not better as these lines are not zero and heading higher again. Look at the link by the New York Fed required for full disclosure to taxpayers. http://www.newyorkfed.org/markets/fxswap/fxswap_recent.cfm. In my opinion this is the last great time to exit the market. We have seen this movie before.

Just looked at the S&P 500 chart and noticed the crossover of the MACD 12/26/9 and Slow Stochastics 18/10/10 indicators I use.  Look for a major decline starting now. The Exponential moving averages are now rolling over 20/30/50 providing additional resistance.

Ban on Short Seliing in Spain and Italy

Now that the financial markets are under pressure, leaders in Italy and Spain decided to announce a ban on legal short selling.  Just another attempt to regulate in a depression. 
I believe that short selling provides future buyers in a declining market.  The attempt to regulate trading will likely backfire as investors decide the market is a rigged game and not participate.  At least in Las Vegas, I know a slot needs to pay off sometimes. 
It is O.K. if short sellers get caught in a short squeeze, but not alright if they profit from mismanagement of companies.  Does that sound fair?   The reason I like the VIX as a hedge to a declining market is it soared today is that regulators cannot attempt to control volatility.  Volatility is a natural reaction to further panic by investors. Look for future attempts by leaders to continue to ban, regulate, manipulate, and control the economic winners and losers.  However, the public is smarter this time and may revolt to further attempts to save savers and investors at the expense of all taxpayers.

I think one foot's off the edge of the cliff. Look out below!

Recently I was invited on a consulting assignment and now back in Iowa.  Sorry for the lack of posts recently, but to me nothing has changed with the market.  The stock rally has been minor on no major news events.  The Wall Street spin on earnings releases and weak guidance appeared to be falling on deaf ears in most cases.  A few stocks were pounded on the earnings misses recently.

Pay attention to the riots starting in Spain with the long term bond yield now over 7.2% in the country.  No bread no peace!
With the U.S. corn crop now appearing to be really bad, the outlook for more strain on the U.S. consumer has started.  The deflation process should now weaken end demand further ex food, and while I cannot predict a drought, the end deflationary environment for items other than food will likely lead to prices falling faster now.  As far as positions I recommended, I would look to exit UUP on a move on the Euro below $1.19 to the dollar. Do not hurry and take your time as Italy will be next in line for funds causing more pressure on the Euro.

The VIX looks poised for a move sharply higher.  The index has performed well despite the stock rally.  I am buying the XVZ to participate in the stock decline I see straight ahead. 

As a further note, if any firm would like to hire me for my services, I am in the market.  Of course that has been the case for a while. Feel free to contact me with a post.  However, as the way Wall Street works "bears are not invited" to the party.  I will love to turn into a bull someday, but 2012-2013 will not be a pleasant experience for most of my former associates/co workers.  All my friends on Wall Street I wish good luck and I may see you in the unemployment lines soon. I know many of you have expressed a desire to leave the business and I can understand why.  You are the real heroes as you continue to try to help clients in a depression.   

EFSF or ESM snag?

Well the devil is in the details as bank investors holding preferred and certain debt of Spanish banks will be wiped out before the funds from the EFSF are released.  In Germany, the issue has gone to court to stop the disbursement of the funds.  The ruling will not be for 90 days. 

J.P Morgan is set to discuss the "whale trade" tomorrow.  Stay tuned in! 

The Cliff

Got a chance to see Dark Shadows over the weekend and a few loved ones were falling off the cliff who could not break a witches spell! 
Feel like the economy is like that right now right at the edge of the cliff under a spell of easy monetary policy by the world's central banks!  On Friday, the market fell sharply as employment numbers in the U.S. remained weak, the German economy appears to be slowing along with China.  Spanish rates jumped sharply to above 7% as European leaders said they have not reached a agreement to release the $100 billion to Spanish banks before July 20th. 
In Germany, Merkel appears to be not only in hot water with other European leaders, but when she got home was blasted by other politicans.  I was reading that Holland's leaders are not in favor of bailing out weaker European countries to hurt their credit ratings.
What we have is a cliffhanger!

Let the Battle begin

I have followed the stock market since 1975, and I have never witnessed the type of event that occurred the last two days in the stock market.  Either investors are all now bipolar (one day euphoric/next day in depression) or the governments/central banks around the world want to make sure they print all the money they can and give it to the world banks to prevent a global meltdown due to bad consumer and business debts.  While I believe government officials want to prevent a meltdown of the world banking system, I believe the capitalist system as a result of these policies is under severe attack.  The outcome will be total government control as the private sector has given up and left the mess for leaders to clean up. I did not experience the "New Deal" and feel I am too old to pick up a shovel and fix up the national park system when private businesses cannot or will not hire.

In the United States and the E.U., the printing presses have being running full blast since the 2008 peak printing money to buy all kinds of debt.  The money supply has tripled in both regions.  The best G.D.P. growth is behind us as interest rates have fallen.  Unemployment in the United States and Europe remains high by an historical measures.  When the Central banks will need to liquidate the MBS, Treasury, Sovereign debts) on their balance sheets who will be the buyer of last resort?  Sorry, the private sector is tapped out.  I would not look at the corporate balance sheet strength either as the cash as a percent of annual depreciation looks in-line.  Yes, cash is at record highs but so are expenses.

Watch for a quick reversal during the summer and the market to head sharply lower.  If not the government bought another couple of months.  Sorry, as an umpire I need to call it as I see it. Out! not safe! I heard the crowd booing now!