Barclays Warns of a Financial Storm

Good Morning!

Its another red morning on Wall St. I expect I fairly quiet day today. I was listening to Art Cashin from UBS who is one of the best traders on the street, and he had some interesting comments on yesterdays drop and how the markets usually react in a short term bottoming process.

He basically explained that when all of the DOW components are below their moving averages, you usually have a consolidation day on Friday followed by a period of capitulation the following week that sets the bottom for at least the short term. This is the historic pattern seen in similiar situations in history.

He also explained that oil is the wild card here, and if it rises sharply today things could get ugly.

I discussed the VIX in the forum last night predicting that the selling in this market won't be over until the VIX(fear level) rises sharply on strong selling volume. Bloomberg dicussed this today. Watching the VIX is the key to finding a bottom IMO. We still have some downside in this market folks.

Barclays warns of a financial storm

If you thought my commentary on the Fed yesterday was harsh, then you need to read this Barclays warning from the Telegraph.

Some highlights:

"Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall "below zero".

"We're in a nasty environment," said Tim Bond, the bank's chief equity strategist. "There is an inflation shock underway. This is going to be very negative for financial assets. We are going into tortoise mood and are retreating into our shell. Investors will do well if they can preserve their wealth."

Barclays Capital said in its closely-watched Global Outlook that US headline inflation would hit 5.5pc by August and the Fed will have to raise interest rates six times by the end of next year to prevent a wage-spiral. If it hesitates, the bond markets will take matters into their own hands. "This is the first test for central banks in 30 years and they have fluffed it. They have zero credibility, and the Fed is negative if that's possible. It has lost all credibility," said Mr Bond.

Mr Bond said the emerging world is now on the cusp of a serious crisis. "Inflation is out of control in Asia. Vietnam has already blown up. The policy response is to shoot the messenger, like the developed central banks in the late 1960s and 1970s," he said
.
"They will have to slam on the brakes. There is going to be a deep global recession over the next three years as policy-makers try to get inflation back in the box."

Quick Take:

Here I thought I was a little tough on the Fed yesterday. The Telegraph puts the Feds credibility at below zero! I expected this type of reaction from Europe. As the Telegraph explains, the Fed faced their first crisis and 30 years and totally dropped the ball and blew it.

Oil rose again today. The Fed is killing consumers all over the world via inflation with this weak interest rate policy. The only people benefiting from this policy is Wall St. I think this is disgusting as we all continue to suffer with soaring prices.

So how bad do we feel as consumers?

The consumer sentiment report was released today and uhhh we are feeling pretty crappy.

We hit a 28 year low today as reported on CNBC.

"U.S. consumer confidence fell more than expected in June, hitting another 28-year low as surging prices and mounting job losses sapped sentiment, according to a survey.

The Reuters/University of Michigan Surveys of Consumers also said five-year inflation expectations remained steady at the peak of 3.4 percent reached in May, which was the highest in 13 years.

The Surveys of Consumers said the final June reading for its index of confidence fell to 56.4 from May's 59.8. The June reading is the lowest since 51.7 in May 1980, which was also the lowest reading ever."

Quick Take:

As you can see consumer sentiment is close to hitting its all time lows in its history. This report has been compiled since 1952.

Hey remember though guys: The Fed tells us inflationary pressures should be declining in comings months!! Yeah right. Pigs will be flying by my window before inflationary pressures recede.

Financials:

Losses, losses, and more losses. Merrill and AIG are the culprits today. Click on each company for the story. I find it funny how all of these analyst keep downgrading each other. As if any of them have any credibility anymore. Its like watching the blind leading the blind.

Give me Meredith Whitney on the financials and I will do just fine. I have no need for these other A** clown financial analysts.


Bottom Line:

The losses in the markets are accelerating as I write to you. The DOW is now down 75 points and the Nasdaq is minus 13.

If oil moves forward today could get ugly again. The markets have zero confidence and if a bomb drops sometime today we could easily see another selloff. A panic could be triggered at any second.

I wouldn't want to hold stocks heading into the weekend. There is a very good chance of heavy selling pressure early next week according to the pros. Invest at your own risk!

As I have said many times before, I want no part of this market on the long side.