Friday, July 16, 2010

Market Drops as Fears of a Double Dip Rise

Gotta love Opex days.  They are always full of surprises.  Stocks fell sharply today as poor earnings from BAC, Google, and GE increased fears that the economy may be headed back into recession.

A collapse in consumer sentiment added to the fears that a double dip is on the way:

Consumer sentiment was way below consensus:

"July 16 (Bloomberg) -- The Thomson Reuters/University of

Michigan preliminary index of consumer sentiment fell to 66.5 in
July from 76 a month earlier.
The gauge was projected to fall to 74, according to the
median forecast in a Bloomberg News survey of 62 economists.
Estimates ranged from 71 to 78."

My Take:

As you can see this was a huge swing and a miss.   Should we be surprised?  You know my answer.  I have been preaching for weeks that the consumer is dead until he deleverages his or her balance sheet.  Folks this process is going to take years and years not months or a few quarters.

The Fed served it up to you on a silver platter this week:  They are predicting that it will take 5-6 years for this deleveraging process to work itself out.  I predict it will be much longer than that but I will save that argument for a later day.

The staggering losses that have to be taken in housing will only exacerbate dire situation that the consumer faces.  When the sheeple actually realize how much they have lost on their homes I expect that they will start hoarding their cash as they become increasingly worried about both their debtloads and job security(that is if they have one).

The consumer data today tells you that this hoarding process might have already started.

Folks, all signs are telling us that the economy basically hit a wall in the May/June time frame.

This reminds me of the way the economy stopped in late 2008.  The consumer is once again about to disappear after temporarily spending since the lows last March.

Making matters worse for the consumer is the fact that unemployment benefits are starting to run dry.  I believe over 1 million people have run out of unemployment benefits in the last couple months.

This will make the double dip feel even worse this go around because we didn't have this issue back in 2008.

The Bottom Line

Things are bad and getting worse. 

Another thing to note also note here is the continuing unwind of the USD.  I warned about the possibility of this earlier in the week.  Yesterday the dollar got crushed.  The FOMC minutes was the trigger for the selloff according to most of the media outlets.

The perception out there in the credit markets is that Europe is heading in the right direction via austerity at the same time the USA is heading in the wrong direction via continued stimulus and the risk of a potential QE2.

The bankers are addicted to easy money and the Fed has shown zero signs of changing this.

The problem is the rest of the world is heading in the opposite direction.  This is a huge problem for the Fed because then FX markets are now hammering the dollar as a result of our financial recklessness.

I double dog dare Ben to attempt a QE2 at this point after seeing what the FX markets did to the dollar this week following their wimpy statement.

Remember folks, crushing a countries currency is just as damaging as refusing to buy it's debt(treasuries).

In either scenario the Fed will be forced to raise rates because they will not be able to fund their spending. 

Rising rates would then flush the banks and their worthless balance sheets right down the toilet.  It's pretty much game over at this point.

Let's all pray the Fed doesn't attempt another QE.  As you can see the shills on CNBC are already begging for it:

Expect to hear more QE2 bubble talk from the bankers in the coming weeks.

Can't you just hear the desperation in their voices?  THEY KNOW THE PARTY IS OVER WITHOUT MORE EASY MONEY VIA QE FROM THE FED.

We CANNOT let them do this!

The government MUST say NO.  We risk an outright currency collapse if we attempt more easing when the rest of the world is heading in the other direction.  The the bond and currency markets could very well throw us right under a bus in response to this!

Stay the hell out of this market until we get some clarity here.  This thing could unwind in a hurry if Bernanke continues to risk the solvency of this country in an attempt to save the financial elite in this country.


getyourselfconnected said...

It is always funny to watch a few days of a greta rally and all the bulls and posers trotting around talking smack how awesome things are and the gloomers are all dumb. One doen day (3%) and they pee their pants and start screaming for assistance. Bunch of babies.

Jeff said...

Perfectly said Get

I wanted to vomit when I watched that CNBC piece.

Art cashin was saying today that if we couldn't get back over 1100 on the S&P then the bears would likely take over.

He turned out to be dead on as usual.

getyourselfconnected said...

Well said, poorly typed!

Check the Hungary news, this will be big before long.