Bulls failed a key test yesterday when they were unable to push the Dow above 10719. All it would have taken was a measly 44–point rally, but the blue chip average never even made it into positive territory. What does that mean? Our hunch is that August will be a so-so month at best for the stock market. Using Hidden Pivot analysis, we explain why in a five-minute video, “Bulls Are Chickens Underneath,” that you can view at the bottom of this commentary. Our flat-to-bearish outlook is notwithstanding headlines earlier in the week that waxed optimistic about a global economic recovery. Those stories were based mainly on strong Q2 earnings reported by European banks, but banks in Euroland are no healthier than American banks, which only seem healthy because they were allowed to unload more than a trillion dollars of worthless paper on the Federal Reserve. The Government’s strategy is to sell the debt securities when the financial system gets stronger, but we don’t expect that to happen. Instead, we look for deflation to continue for at least a few more years – long enough that the Fed governors, the politicians and the spinmeisters will eventually be forced to acknowledge that the securities, which are mostly collateralized by real estate, will have to be written off.
In the meantime, Wall Street seems untroubled by the gathering storm. Yesterday, for instance, although the economic news more than hinted that the U.S. is slipping back into recession after a failed, multitrillion dollar stimulus, the Dow gave up a mere 38 points. That is surely no show of strength, as we have noted above, but it is indicative of the blissful and evidently widespread state of ignorance that has more or less inured stocks to bad news since March of 2009, when the Mother of All Bear Rallies began. Here are a few headlines from Tuesday’s edition of the Wall Street Journal — and judge for yourself whether traders may have been rash in propping up the broad averages: Home Data Slide Again; U.S. Slowdown Worse Than First Thought; Cautious Consumers Save More; and, Barnes and Noble on the Block. Concerning that last item, If Barnes & Noble is looking for a buyer, can its beleaguered competitor Borders be far behind? Picture both chains shutting down more or less simultaneously and it looks like nuclear destruction for malls across the land.
Whom to Believe?
A couple of other headlines in the Journal underscored the deflationary theme that we have been sounding here relentlessly and at the top of our lungs for years: “Score One for the Deflationistas,” read the headline atop Gregory Zuckerman’s MarketBeat column. And here’s another article from Zuckerman in the same issue: Big Investors [i.e., Bill Gross, Jeremy Grantham and Alan Fournier, to name three biggies] Fear Deflation. Welcome to the club, guys. You could have seen the deflationary bust coming ten years ago if you’d subscribed to any one of a score of financial newsletters that got it right — including the housing bust — instead of reading Forbes, Fortune and…The Wall Street Journal. The same newsletters are saying the global economic recovery is a fraud. Who’rya gonna believe this time?
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” WHOM TO BELIEVE”
” Everybody knows the dice are loaded, everybody rolls with their fingers crossed”. Leonard Cohn lyrics.
Everybody knows the stock market is the “best” indicator of our economy’s health.
Everybody knows the markets “lead” the economy up and down by six months.
Everybody knows the markets are the backbone for our “free” society.
What everybody does not know is “our” government, on a daily basis, has been using a few million well placed debt dollars to project and maintain the desired image of stability and recovery ; while at the same time they have been jackhammering the main supports with odious debt, phony healthcare reform, phony financial reform Etc. and planting “executive order” explosives all over the place.
As Rick Ackerman has pointed out many times , when the time is right, It will most likely start in Asia on a Sunday night and the U.S. will be down 500-800 Dow points at the open and in a few days we will be wiped out having had no opportunity to escape the sell off. Maybe then we will get a few more converts to the dark side of our caretakers.