I think that's what Wall St is trying to figure out right now. Stocks were flat today as the battle at S&P 1000 rages on between the bulls and the bears. This was the 12th straight day that stocks have traded in a fairly tight range around the 1000 area.
I actually made my first trade in a few months today. I bought some August TBT PUTS before the 30 year auction results at 1PM on a hunch. I figured there was no way in hell the Ponzi machine was going to let a small $15 billion 30 year bond auction get in the way of the spring rally.
The FCB's don't participate much in auctions at the long end of the curve because of their fears around inflation so it was up to the Wall St to gobble up this paper and as usual the bubble boys did not disappoint. I sold my PUTS a few hours later at a nice profit as TBT tanked as a result of the strong 2.5 BTC on the 30 year auction.
For full disclosure: I still remain short treasuries over the long term. TBT is one of the holdings in my long term portfolio.
I continue to avoid trading this market. If you want to put positions on at this point you almost have to think like a criminal and play the bull tape. I also advise getting in and out quick because the stock market has once agin become a bubble for the 3rd time in 10 years. P/E's are once again insanely overvalued. Some forecasters have P/E's at over 100x earnings at this point.
We all know what happens to market bubbles folks. They often pop when you least expect it, and the resulting drop tends to be violent and very painful. If you go long be nimble.
Deutsche Bank Economist: The Exit Strategy Will Be Painful
Deutsche's chief economist Norbert Walter thinks the exit out of this stimulus by the Fed is going to be extremely ugly. I strongly advise you to watch this video. Norbert hits a home run here as far as I am concerned:
I loved this guys take on this. He sees a triple U shaped recovery as the economic world works through a series of ticking time bombs that are unavoidable at this point as a result of spending so much money that nobody has.
Norbert also warns of a currency crisis via the US Dollar if one or all of the BRIC's lose confidence in our ability to dig out of our deficits. I couldn't agree more. Lets face it folks:
THE FED HAS CREATED A MULTI TRILLION DOLLAR NIGHTMARE AS A RESULT OF BAILING OUT AMERICA!
How in the hell are we ever going to pay this money back? How can the Fed create an exit strategy when so many parts of our economy are insolvent or bankrupt? I PERSONALLY DON'T SEE AN EXIT STRATEGY HERE WITHOUT CREATING A DEPRESSION!
The problem here folks is if we don't have an exit strategy then the dollar is going to crash as we continue to dig ourselves deeper into debt as more and more companies need to be saved.
Norbert explained above that if the currency collapses, the government is going to be forced to raise rates in order to find buyers for our debt. This will absolutely destroy the banks and the housing market. If these two go down the crapper, the rest of the economy will most assuredly follow.
The reality here is this:
THE GOVERNMENT CAN ONLY BE THE BUYER OF LAST RESORT FOR SO LONG BEFORE IT BANKRUPTS ITSELF!
The economy must recover and the consumer must start to consume once again in order for the Fed to have a viable exit strategy. At this point, we so zero signs of this happening:
Foreclosures are still rising at a record pace:
"WASHINGTON (AP) -- The number of U.S. households on the verge of losing their homes rose 7 percent from June to July, as the escalating foreclosure crisis continued to outpace government efforts to limit the damage.
Foreclosure filings were up 32 percent from the same month last year, RealtyTrac Inc. said Thursday. More than 360,000 households, or one in every 355 homes, received a foreclosure-related notice, such as a notice of default or trustee's sale. That's the highest monthly level since the foreclosure-listing firm began publishing the data more than four years ago.
Banks repossessed more than 87,000 homes in July, up from about 79,000 homes a month earlier."
And the consumer continues to not consume:
"U.S. retail sales fell 0.1 percent in July, after gaining a revised 0.8 percent the prior month, the Commerce Department said in Washington. The median forecast of 76 economists in a Bloomberg News survey was for an increase of 0.8 percent. The Standard & Poor’s 500 Index fluctuated, swinging between a 0.7 percent gain and 0.5 percent loss."
The Bottom Line
As you can see above, the economy has not turned like the bulls expected it to. The consumer number was horrendous and I see no reason why the trend won't continue.
Jobless claims were also back up again this week as companies continue to shred jobs. This will only put more pressure on the consumer as they continue to fold like a tent.
The reality here folks is there is no exit strategy that does not result in the worst depression seen since the 1930's. My fear is it could be even worse than what was seen in the '30's because the size of the deficit is simply mine boggling compared to any other time in history.
Despite the obvious evidence that their policy is failing miserably, the Fed continues to try and reflate the debt bubble.
When are they gonna realize that bubbles don't reflate? Ben needs to pickup a history book on bubbles and then start thinking of an exit strategy that results in the least amount of economic pain that is possible.
Delaying an economic reset will only make it hurt that much more when the economy inevitably collapses.