Global equity markets saw little movement on Monday which was not a big surprise given the recent market action. Markets have ran into resistance with full speed and all casualties have not been counted as of yet.
The market action or lack thereof is normal given the two-day FOMC meeting which starts today with the announcement on Wednesday. The last three trading days are filled with heavy economic data which will impact market action in one way or the other.
Should the bulls prevail they will charge right back into resistance which will not be broken and should the bears decide that now the time is right for a heavy counter-strike they have a lot of room to push.
FOMC meeting…who really cares? This one really doesn’t matter at all…
The ‘Septic Tank’ and his crew will lower rates by 25 basis points and signal that this will be the last cut as they will focus on inflation and inflationary pressures…too late Ben…you already set the stage for the worst possible economic scenario.
The Fed could announce anything and the bulls will try to continue to feed their ‘Rally to the Slaughterhouse’.
Here are the three possible announcements:
1. A rate-cut and an option for more to come. Bulls will rally as they will argue that the Fed will continue to ‘depress the economy’ (the bulls believe that the Fed will help the economy hence the rally…bulls only realize that they were wrong after it is too late).
2. A rate-cut and a clear statement that this was the last one. Bulls will rally as they will argue that the economy is better than expected and therefore the Fed stopped this ‘destruction process and now inflation with slow growth a.k.a. stagflation can haunt the economy for the next decade’ (bulls claim inflation is non-existent and the economy is secondary to anything they believe in).
3. Rates will be kept steady and a clear statement that the next move will be a rate-hike. Bulls will rally as they will argue the economy has weathered the storm and the Fed will now combat inflation to ensure future economic growth…sorry bulls…too late (bulls are very short-sighted at the moment due to the size of the herd).
Could the Fed announce a rate-hike in the next 24 hours?
No!
Why?
The Fed has no intention to even attempt to do what is necessary in order to ensure long-term sustained economic growth but became the female canine of equity markets and the ‘Septic Tank’ chose to do what is simple (ensure economic deterioration) rather than what poses a challenge (ensure long-term sustainable economic growth)…he just wants to be remembered for something and he at least seems to have enough intelligence to know that he is not competent enough to hold the current post which clearly explains the monetary actions taken by him…the guru of all die-hard bulls.
The least sophisticated professional market participants (and unfortunately all their clients) and the least intelligent central banker on the same side…why would anyone be surprised about that?
The ‘Septic Tank’ leaks feces and all his die-hard followers open their mouth and try to catch it…but than wonder why they get what they deserve…which is absolutely nothing.
Over the past six months nothing has changed in a positive way for the economy or for the markets but quite the opposite has developed…the situation has deteriorated further.
More and more call for an end of the crisis…but since when has a baseball game only three innings?
The first 800,000 checks from the ‘Economic Destruction Package’ have been sent out on Monday (Rebates start landing in bank accounts: How will we spend?; Associated Press).
The package was designed to add another $160 Billion in debt to the government’s balance sheet and provide no economic stimulus.
That sounds like something the destruction package will be able to accomplish.
How?
The first part is a given and can’t be argued over. The package costs about $160 Billion.
The second part is very simple. The original idea behind the ‘Economic Destruction Package’ was that consumers will use that money and spend it on goods and services.
The assumption behind the idea is that the general population is even less intelligent than the ‘Septic Tank’ whose IQ ranks below that of a stone.
The checks will be welcomed and since the reason for the package was a continued deterioration of the economy and since this deterioration is far from over the checks will not be spend on the economy…just look at what happened to Japan…interest rates at 0% and nobody wanted the free money which translated into more than a decade of economic problems which have not been solved to this day.
The situation in the U.S. is slightly different than what happened in Japan but the outcome will be similar.
In addition food and energy prices have risen drastically and will continue to do so and most of the money from the rebates will be spend on essentials and therefore the hoped for positive economic impact is nothing more than an illusion…a desperate attempt which will back-fire and do more harm than good.
Another ‘triple-bad’ for housing a.k.a. more evidence that the worst is far from over
‘Vacant homes set new record high in first quarter’ (Associated Press)
‘Homes facing foreclosure more than doubled in 1Q from 2007’ (Associated Press)
‘Home price index sinks at record clip in February’(Associated Press)
The three reports need no further comment…but do keep in mind last week’s lousy reports on the housing market as well.
Do you still want to hold on to the hope and believe that the worst is over or that there is nothing to worry about?
Fine, continue to ignore the problems…nobody cares anyway…nobody besides your portfolio but hey, do not worry as you probably accomplished the easy task to ‘subscribe’ to the least sophisticated professional management teams (a.k.a. mutual funds) and pay a small fee to them in order to experience wealth destruction.
How about this?
Even Warren Buffett, the hero of all mutual fund managers, does not agree with what they all think he thinks (Buffett says recession may be worse than feared; Reuters).
Here is the funny part:
Most mutual fund managers favor Buffett’s approach but they don’t even know anything about his approach. They all think that he is well diversified which is absolutely wrong (just as all their idiotic valuation cases). Buffett is not well diversified, he is focused.
Diversification, which in most cases leads to over-diversification, is reserved for those individuals who do not seek wealth, a.k.a. the entire mutual fund industry and its clients, but rather want to have the illusion that they participate in equity markets when in reality they do nothing at all.
Sure, they can attempt to hold a conversation about investments at the cocktail party of their wife’s boss but that is about all they can do (and they will even fail at that).
Commodity prices and the effect on inflation and the economy are 100% irrelevant in ‘Fed Land’…
… But for the rest of the planet they do matter (Gas hits $3.60 a gallon, crude nears $120 on supply outages; AP).
There may be a short-term pull-back but why would you expect any drastic changes?
Wake up, face reality. Oil prices at $110 per barrel or $125 per barrel…same difference. Consumers and companies will struggle at either price…oil at $100 per barrel…won’t make much of a difference and won’t bring the type of positive economic change the majority hopes for.
The U.S. Dollar has found some short-term strength but given the sharp drop this is not a surprise and definitely not the start of a trend reversal.
The bulls may get what they desperately seek from the Fed tomorrow…a short-term extension of this bull rally within a bear market and the price they have to pay for it…a decade of stagflation at best…what a bargain…
What price tag would you accept for an ultra short-term rally?
Is the rally tomorrow guaranteed?
Of course not since the bears can launch the counter-strike at any time and tomorrow may be the spark they have waited for...so:
Is your portfolio safe or smart?
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