Monday 17 September 2012

Quo Vadis?

The 1st meaningful economic data after Helicopter Ben announced QEinfinity  was the empire manufacturing  index and it was a disaster.  It was at its lowest level since 2009, dropping to a minus 10.4 reading. No wonder Ben sees something which we don’t and he is very afraid. At the same time, it is like a mad professor unwilling to accept that what he is doing is not working. In his mind, QE must work even if by work he means risk assets going up along with commodities. And I think the 4th qtr. GDP reading will come at 1% or below.  ECRI is defending its call that USA is already in recession.

From Early last week, ECRI notified clients that the U.S. economy is indeed tipping into a new recession. And there's nothing that policy makers can do to head it off.

ECRI's recession call isn't based on just one or two leading indexes, but on dozens of specialized leading indexes, including the U.S. Long Leading Index, which was the first to turn down — before the Arab Spring and Japanese earthquake — to be followed by downturns in the Weekly Leading Index and other shorter-leading indexes. In fact, the most reliable forward-looking indicators are now collectively behaving as they did on the cusp of full-blown recessions, not "soft landings

And yet we expect the stock market to reach somewhere near 1600 in SPX. It’s so eerily similar to 2007-2008. On one hand I see the market price action following the Presidential cycle pattern. The following chart is from Bespoke:

On the other hand I see that OEXA200R is at the top of the range and historically there is not much room to run higher.

And then there is so much liquidity in the market, at least $85 billion a month from here till Nov.

So which way folks? We know economy is tanking but we also know that liquidity trumps at least in short term.

In situations like this I turn to my cycles and crystal ball for direction and they are saying that we most likely will follow the Presidential cycle. Which means we will possibly find a correction by end of September and a final push to new highs by the election?  2013-2014 will definitely be nasty unless the Fiscal Cliff thing has been worked out by then. But given the deep political divide between the two parties, any compromise looks very unlikely. Just look at the following secret video of Romney.
May be he is telling the truth but telling truth is never a strong quality of a politician. That’s why Obama was so successful in the 1st place. His occupational training had prepared him to avoid truth in any kind or form. But what do I know of politics and my ill advised head butting in politics is of no use in finding what the stock market will do.  

We had a little bit of a correction today some of which was somewhat covered in the last few minutes. I think this week we will see the markets going back and forth and a test of the high by Friday, the triple witching day. If the market fails to make a new high by then, most likely we will see a 5%-7% correction which will be a buying opportunity.

Lets see how things work out.

Thanks for sharing my thoughts and reading World of Finance. Join me in twitter (@BBFinanceblog) and share with your friends.


  1. Welcome back!

    So end of the word become little bit closer, yeah? :)
    I like the style: 12 paragraphs about completely meanningless indicators and political bs and then one small tiny bit of useful information in the last one :)
    Btw, have you seen how crude was nuked today? Apple is the next one. Probably tomorrow all analysts will upgrade it to 999.99, haha.

    1. :) Glad you found that one small paragraph useful.
      Ya, Crude dropped below $95 but the sudden drop happened with copper & silver.
      But the indicators are not meaningless. They help confirm the bias.

  2. With qe infinity wonder why would oil start dropping so soon???? Any ideas BB.....and thx for the post

    1. Gravity?
      Just kidding! We know that there is no demand to support $100 oil. How long speculation can keep the price high?
      But not time to short yet.