Friday, June 24, 2011

QE2 Goes Out With a Whimper....Get Ready for Deflation

I'm baaaaackkk:)

I had to chuckle to myself as I watched CNBS ignore QE2 today.  Any rational objective financial news organization would have designated several hours to discuss the ending of the greatest monetary printing stimulus ever seen. 

In typical bulltard fashion hardly a word was said about it on this ridiculous network.  I finally turned it off after hearing 3 shills call our current slowdown a "soft patch".  HA!  What a joke.  It reminded me of "the green shoots" crap from 2009.

"Soft Patch" my ass is my retort.

You would think that the immenent ending of QE2 would have been discussed on as stocks puked for a 3rd day in a row.   Why anyone still watches the buffoons on this network is beyond me.

Folks, the most concerning thing that I see right now is the bond market.

The 10 year bond soared once again today as the smart money piled into treasuries as they prepare for the shitstorm that is about to strike the Western World:

This chart should keep you up at night.
I mean think about it:  Bond traders are piling into bonds despite the end of QE2 which is supposed to be horribly bearish for bonds.  What this tells you is the big money would rather sit in bonds that yield nothing and may end up being worthless instead of sitting in the stock market.

Ummmm Hellooooo...RED FLAG ANYONE?????  Could there be any larger red frickin flag than this????

Here is some more data on our little soft patch/speed bump:

The Bottom Line

As you can see above folks the unemployment situation is getting worse and more hopeless by the year.  It's flat out dire at this point.

Without a huge influx of jobs our economy is only going to get worse. 

The stock market now realizes that at least for the time being the Fed does not have their back.  This makes them extremely scared and they have every right to be.

They are afraid for many reasons:

Will Greece unravel?
Could they take the rest of the PIIGS down with them? 
Could the US get sucked right down with them?

There are many unanswered questions.  One thing is for sure:  The bailouts in Europe are not working and the situation continues to worsen.  Papering over losses is not the answer because the problems are still there. 

So what should we do as investors?

For now you need to play the market for deflation until the Fed steps back in and blows up the dollar with QE3.

IMO(let me reiterate this) IMO that means shorting stocks and going long the US Dollar.  I have done both and it's been working well.  I actually went short the Euro versus the USD via EUO as my dollar play and its been paying off recently although it's been a very volatile trade.

Holding cash here is also a good idea until we see what the markets look like without the Fed throwing money into the market via POMO injections.

I don't like the metals here because I think the USD is going to rise although I still hold onto some gold as a hedge.  I am compeltely out of silver at this point.

The bottom line here folks is the time to be long stocks has passed us.  At the very least I see no problem sitting in cash and waiting for much cheaper buying opportunities.

Technically we are sitting right on the 200 moving day average so don't be surprised if the bulls defend vigorously here.  If the market closes below 1250 on the S&P the bulls are in deep trouble and they know it.

Hold on tight folks.  Expect lots of volatility as the market digests the huge slowdown in the economy combined without the help of the Fed.

I don't see how this doesn't all end in tears. I wouldn't be surprised to see us back in a recession within the next 4 quarters.

Without QE3 this market is toast and I fully expect that the Fed will come back with it after we suffer for awhile.  Once they do the inflation trade will then again have to be turned back on because it's going to put massive strains on the USD.

For now expect Deflation which means lower stocks, lower bond yields, and a soaring USD.

Be careful out there and enjoy the show.  It's going to be quite a spectacle.