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Wrote this another MB in June 10'...some of it right some wrong...but read the part about the europe...we paid them a favor in 08', now their turn...the new bear will be lead by europe imho.
on Identifying the bear market leadership 06/20/10 11:59 AM
Big Picture?
...sorry for long post.
1. For now deflation will win over inflation...remember all inflation/deflation describes is the true money supply, and in a fiat system we are talking about credit/debt and not actual money...M3 ROC has fallen off a cliff over the past few yrs..and now actual M3 is declining faster than it has over the past 80 yrs and is actually negative...loans are being defaulted on and banks arent lending...public isnt taking on irresponsible debt anymore either...this spells deflation...credit is contracting...over the next yr you will hear about people walking away from underwater homes not because they cant pay but because they refuse to pay on a negative equity loan anymore...psychology regarding this will change.
And people believe QE II or monetization will lead to hyperinflation right now but it wont...if QE worked why is the Nikkei trading down 75% from the peak still?...why havent home prices recovered in Japan?...if we truly had runaway inflation from the Fed money pumping the CRB, SPX/Dow and all metals would be making all time highs together right now in synchrony...but CRB is still almost 50% off from the high from 2 yrs ago...and Silver/Palladium/Platinum all made highs many months ago...only gold is making new highs because people are using this not as a commodity but rather a "true" currency or insurance policy...hence gold has decoupled from the USD.
2. europe will cont to implode...Spain is up next...listen to the people bringing up PIGS a yr or two ago now now...Italy will threaten to leave the EU as Germanys austerity measures on the EU will cause rioting in Italy/Spain next...Germans will prob protest that they are footing the bill for europes irresponsible spending..Greece is just starting to understand they are in a no win situation...you cannot demand to retire at age 50 during a world depression...the euro will cont to crash(although it is quite oversold right now hence a ST bounce will prob take place)...you wanna see a bullish/impulsive chart, look at the USD since Nov....the EU will most likely part ways with each other within next 5 yrs.
3. Atilla is right, if you want to short a sector, banks are a prime candidate...the banks are alive only because they convinced the "paid" lawmakers to get rid of mark to market...the banks arent lending because they need all the free money from the Feds just to stay alive...when you borrow at 0 % and there are products paying 2-3% its free money....but banks are sitting on 8-10 million homes in forclosure that they arent admitting to...this is the shadow inventory nobody talks about...they let people who havent paid rent for a yr to stay in their homes because they dont want the losses on their books..also, they dont want to have to write off the home equity lines and second mortgages on these defaulting homes if they were to go into foreclosure...more and more people are realizing this and just not paying their mortgages...hence you see people in restaurants and buying tv's at Best buy because this is free money for now...later this yr, you will see the 2nd wave of forclosures and RE will decline again...havent you recently seen more houses for sale again in your neighborhood?..I know I have.
4. There are no real jobs...it all fictitious govt census jobs making up 90% of the supposed new jobs...real unemployment is almost at depression levels near 22%...birth death model creating 100's of jobs according to the govt but we all know these are fake too...when the tent cities start to go up the govt and media will not be able to hide these facts anymore.
5. IMHO, a double dip is a very high high probability...the economic indicators I follow are rapidly declining...Im hearing about layoffs once again...just watch CBS marketwatch over the next 3 months...you will see it more and more...the so called recovery was a sugar high created by 2T being printed by the Feds and what did it buy?...not much...banks got rich and got bonuses but the avg Joe got nothing...people are waking up, they will start to vote out incumbents this fall and the media will not be able to make fun of the teapartiers anymore as they will be the majority soon.
Think about this guys, why are all the smart people moving out of the country?..why is Jim Rogers living in Singapore?...why is Atilla in Canada now?...and I bet Sol isnt that far behind him...are these guys stupid?...prob not...these guys know by the fundamentals or the charts/xtrends itself that we are in the early part of the GDII...govt can print a few trillion here and there...Feds can buy up a few trillions worth of govt treasuries here and there...but you cannot fight the tsunami of contracting debt and derivatives that are in the neighborhood of 1000T dollars.
There will come a time when the USD and the equity mkts completely decouple...the dollar will prob peak within the yr...then the dollar will start a big big decline but the equity mkts wont have a inverse relationship this time...people on CNBC will be hopeful all the way down to new lows...then there should be capitulation 2-3 yrs from now...after another 2-3 yrs, that will be the time to get long for the longhaul imho...by then we should have an SDR world currency backed by gold not because the IMF/World bank want this, but rather because the people will demand it.
And yes I believe QE II is coming...yes the Fed will prob monetize another 5-10T over the next yr or two but I dont think it will work this time as the bond vigilantes will demand interest rates so high it will in itself create stagflation/morphed depression where things you own will decline in price but things you need will increase in price.
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