Wednesday, January 12, 2011

Deny Deny Deny

Sorry it's been a few days folks.  Too be honest I haven't really seen anything worth talking about when it comes to the markets. 

We are in a period right now where all of the news is good.  Any bad news is either papered over and hidden by the Fed's printing press or it's spun positively.

Today's Portugal bond auction was a perfect example:

The market rallied this morning on news that the auction was successful and saw very high demand.  However, Portugal refused to give any details around the auction.  Know one knows who bought what.  My guess is China and the ECB were the ones providing all of the demand.

Nonetheless, our permabull media took the story and ran with it without giving the details. 

The Bottom Line

Basically, what's going on right now is the governments of the world have decided to print over their mistakes and pretend that everything is Hunky Dory. 

The problem is the debts from our masive credit bubble are still there and they aren't going anywhere. 

Today's price action was interesting:

The market had every reason to zoom higher today:  Europe settled down thanks to Portugal, the Treasury had a very strong 10 year bond auction, the Fed continues to pump POMO "funny money" into the banks,  and earnings reports have been strong. 

Despite all of this, the market has only managed to rally 83 points after being up triple digits earlier in the session.   Some may say the market is digesting recent gains.  I personally believe the rally looks tired.

That being said, over the shorter term stocks are likely to keep rising without a significant downward catalyst.  The issue for the bears is it doesn't appear that the Fed is going to allow any such fuse to be lit for now because the "recovery" is too fragile.

They will continue to print money in order to ignore our structural problems and kick the can down the road.  Unfortunately, our children and our grandchildren will be the ones who will end up paying for this tragedy.

Nothing has changed folks.  The problems are still there and things are getting worse.  Eventually, spending money we don't have is going to crush our currency and when it does our world will never be the same.

The dollar's status as the worlds reserve currency will eventually end.  China looks like it's already preparing the renminbi to take it's place:

"Bank of China, one of the country's main state-owned lenders, is now allowing American clients to open accounts in renminbi and trade in the mainland's currency, another step in China's introduction of the renminbi to the world stage.

''China sees the global financial system as too U.S.-centric and dollar dependent,'' said Robert Minikin, senior currency strategist at Standard Chartered in Hong Kong. ''That created issues during the financial crisis.''


Now, he said, the country is trying to take a step away from that dependence. ''Conditions are in place for sustained yuan appreciation against the U.S. dollar,'' he said, predicting that it would increase by 6 percent this year to 6.20 per dollar.

Take Continued:

The longer we sit here and do nothing to solve our problems the more vulnerable we become.

4 comments:

Anonymous said...

And the bull charges on! I'm waiting a little longer for the party to continue but I may have to get some shorts soon. My first thought when the fed announced QE2 that I better buy up after seeing what happened the last time and sure enough, my question now is will the market march percentage wise as high as it did back in 09 when QE was instituted? It sure is nice watching more portfolio increase in value daily, kinda reminds me of the '90s but this is becoming lunacy in my opinion.

Jeff said...

Anon

I hear ya.

I havent pressed the short button yet.

I think we will see a correction as spring comes around and the end of QE2 looms.

Until then I will watch and wait. Capital preservation is what it's all about IMO.

I dont think there is that much left on the upside. COuld we go up another 10% or so? Sure. The downside risk simply isn't worth it when this all unravels.

getyourselfconnected said...

Indeed the portugal thing was surreal. Japan buying Euro debt is another laugher that is bullish!? I have no idea and am just doing smallish fast trades for a few bucks on technicals. Not a godd macro environment at all.

Jeff said...

Get

I know. I have some inflationary protection and dividend stocks that I want to buy but they look too pricey up here.

I need a pullback before considering anything. It's frustrating.