Collective maneuvering by sovereigns is making it tough on the bear's vision of economic disaster and effectively putting a range bottom in the equity markets for the balance of the year. Only a significant impediment to the EU's ability to cover shared subsidization of EU debt problems will turn the market south. Extended upside action and the ultimate test of all time highs will be difficult however since generational choices on spending will limit job creation and the huge government stimulus tab of the last few years will be a drag on economic growth.
Yesterday's Supreme Court ruling on Obama Care may ultimately be the driver re-electing Obama since it will place in contrast a Republican endeavoring to take away future benefits during a recovering market from a general population who have lost twenty years of wealth in the last seven years. People may complain about big government, but when it comes to their own benefits such as Social Security, and now health care, it is not big government, its mine.
Friday, June 29, 2012
Monday, June 18, 2012
Sovereigns Enter The Markets
Sovereigns have been collectively fighting the battle of market confidence and are hoping to ultimately win the greater war threatening world economic growth. They have been engaged in direct intervention as we know in the credit and currency markets for some time but now appear to have entered into direct intervention into equity markets around the world where needed. Having clearly created an economic environment which Adam Smith did not envision, i.e, where the main economic market drivers come from a circle countries printing money because their own economies cannot support economic growth. This strategy of asset subsidization based on injecting massive liquidity into the markets in the hope that future growth will be able to pay for the radical costs is certainly dangerous.
The problem if this particular strategy fails to deliver the broad economic growth needed to eventually pay back the gambit is not clear but probably not good. Supporting assets may lead to a greater economic divide between those whose assets are being protected and those of the much broader population whose assets really are not. Social unrest could enlist a larger segment of the world seeking to reject current approaches. If Europe delivers on its propensity to cycle into world disasters, they will ultimately fail at pandering to the markets and panic would prevail.
One of the lessons learned in trading early on is that spreading into an additional position when the original positions is a loser almost always results in a greater loss than if one had just taken the loss in the first place. Unfortunately, real fixes could come from a rather unpleasant round of economic panics and a debt jubilee a gigantic proportions. But right now, sovereigns in the thick of a defensive battle whose end is not clear.
The problem if this particular strategy fails to deliver the broad economic growth needed to eventually pay back the gambit is not clear but probably not good. Supporting assets may lead to a greater economic divide between those whose assets are being protected and those of the much broader population whose assets really are not. Social unrest could enlist a larger segment of the world seeking to reject current approaches. If Europe delivers on its propensity to cycle into world disasters, they will ultimately fail at pandering to the markets and panic would prevail.
One of the lessons learned in trading early on is that spreading into an additional position when the original positions is a loser almost always results in a greater loss than if one had just taken the loss in the first place. Unfortunately, real fixes could come from a rather unpleasant round of economic panics and a debt jubilee a gigantic proportions. But right now, sovereigns in the thick of a defensive battle whose end is not clear.
Wednesday, June 6, 2012
European Fail Safe
Stocks continuing to sort out a range bottom as Wednesday's action traversed but did not confirm a bottom. After last Friday, many had worried that some of the broader indexes closing around the 200 day moving average meant something, let all concerned know ; i.e. the 200 day average never means anything in any market.
The fact the Fed is jawboning the upside along with a Walker victory in Wisconsin led to some kind of mutant Stimulus/Romney rally event. Bears got squeezed and there has been a thrashing to establish a range bottom.
Traders have learned each economic disaster since 2008 has also been a buying opportunity and the current European economic disaster seems at least to be following the same pattern of rewarding bad behavior. An important difference is European problems are largely out of U.S. control despite all the stimulus if needed winking professed over the last couple of days.
Europe has a long history of epic events spinning out of control right after reassurances from the most high. The partial collapse of the European economic system is about the only thing which would have the magnitude to wreck global interconnected banking. It would capsize not only the current weak recovery, but impact Federal Reserve efforts past, present, and future. A kink in economic activity would require the rest of corporate growth to recalibrate at a lower level. One more representative of the actual economic conditions reflected in the U.S.'s biggest industry, housing.
The usual three ground forces engaging the economic battle of the last five years has been spin, cash, and hope. Europe will deploy all of them. If it works, financial assets will outpace broader economic growth. If it fails and Europe blows it, financial assets will not be able to provide a fail safe any longer.
The fact the Fed is jawboning the upside along with a Walker victory in Wisconsin led to some kind of mutant Stimulus/Romney rally event. Bears got squeezed and there has been a thrashing to establish a range bottom.
Traders have learned each economic disaster since 2008 has also been a buying opportunity and the current European economic disaster seems at least to be following the same pattern of rewarding bad behavior. An important difference is European problems are largely out of U.S. control despite all the stimulus if needed winking professed over the last couple of days.
Europe has a long history of epic events spinning out of control right after reassurances from the most high. The partial collapse of the European economic system is about the only thing which would have the magnitude to wreck global interconnected banking. It would capsize not only the current weak recovery, but impact Federal Reserve efforts past, present, and future. A kink in economic activity would require the rest of corporate growth to recalibrate at a lower level. One more representative of the actual economic conditions reflected in the U.S.'s biggest industry, housing.
The usual three ground forces engaging the economic battle of the last five years has been spin, cash, and hope. Europe will deploy all of them. If it works, financial assets will outpace broader economic growth. If it fails and Europe blows it, financial assets will not be able to provide a fail safe any longer.
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