|
There’s no longer any doubt. It’s not something the bulls can argue against. The global economy is fading fast — from one end of the world to the other. And many markets are rolling over sharply.
Just in the last several days, we’ve seen …
* Indian industrial production plunge 5.1 percent in October. That was more than four times the 0.7 percent drop that was expected, and the first decline since June 2009. The Indian rupee is plunging as a result, recently hitting the worst level against the dollar EVER!
* Brazilian economic growth slow substantially. The country was growing at a greater-than-7 percent rate last year. In the most recent quarter, it didn’t grow at all! Brazilian stocks are falling, and so is the currency, the real.
* Chinese export growth just slumped to 13.8 percent in November. That was the lowest in three years, and it followed weak news on manufacturing and auto demand. The Shanghai Composite Index, a benchmark domestic equity index, just tanked to its lowest level in 33 months!
You already know Europe is a basket case, so I don’t need to rehash that. But here in the U.S., the so-called economic recovery is also starting to peter out again. Retail sales rose just 0.2 percent in November, for instance. That was one-third the rise that was expected, and the weakest since June!
Next up? More problems in the housing market, and widespread layoffs among multinational corporations and retailers trying to bolster profits. After all, we’ve already gotten earnings warnings from Best Buy (BBY), DuPont (DD), Pentair (PNR), Altera (ALTR), Texas Instruments (TXN), and Intel (INTC). And more are coming down the pike!
Despite all the lousy economic news and slumping profit growth, the stock market somehow managed to hold up in early December. Why? The bulls didn’t want to give up on the idea of a “Santa Claus Rally.” They figured their fiscal and monetary policymaker buddies would come through and save their bacon.
But what happened instead? The bulls got a bitter pill to swallow …
A Triple Dose of
Policy Disappointments
First up was the European Central Bank (ECB). Like I detailed last week, it refused to kowtow to the Wall Street whiners and print money to buy sovereign bonds. Just as I expected, resistance stemming from the cultural and political history of its strongest backer, Germany, carried the day.
Up next were the fiscal policymakers in Europe. They announced what they claimed was a “Grand Bargain” — with many of the 27 countries in the European Union submitting to tougher fiscal discipline. They also said national central banks in Europe (but not the ECB) would funnel 200 billion euros to the International Monetary Fund (IMF) to help increase the size of the “firewall” against a debt market meltdown. And they moved up the date that the 500 billion euro European Stability Mechanism (ESM) would be put into place to next summer.
The big problem though? All of those were rehashed ideas that previously failed to stem the debt crisis! There was nothing new! Nobody in power over there has a solution to the dilemma that has doomed all the bailout programs from the start. Namely, that the AAA countries that are supposed to fund them are seeing their own debt costs surge as investors get ahead of the ratings downgrades they know are coming!
Despite those two huge European disappointments, investors weren’t ready to give up hope yet. They were still hoping earlier this week that their money-printing buddy Ben Bernanke would announce (or at least strongly hint at) yet another round of the failed policy of “quantitative easing.”
|
| The Fed decided it can do without more stimulus, which disappointed investors. |
But the Fed gave no hint whatsoever that a QE3 program was coming! Not only that. Policymakers also didn’t say they would alter their communications strategy about the future direction of interest rates. That was another thin reed that the bulls were clinging to, and Bernanke et al. just snapped it in half!
What to Do Right Away before
Markets Really Come Unglued!
Long story short, the global economy is slowing. The U.S. economy is about to slow further. And the fiscal and monetary policymakers that the bulls have been able to count on for so long are out of bailout solutions.
Nothing is working for more than a few days because the underlying problem has not been solved — too many countries and too many banks owe too much money — and defaults and deleveraging are inevitable!
I’ve shared several protective strategies for these troubled times with you over the past few months. But just in case you missed out, I’ll reiterate them again now:
- Take profits on long positions …
- Add inverse ETFs that rise in value as select assets fall …
- And for your more speculative capital, consider trades with more leverage, and therefore, greater profit potential.
If you haven’t taken these urgent actions, please don’t wait any longer.
Until next time,
Mike
{ 23 comments… read them below or add one }
But Mike, the market seems to still be holding up quite well? What gives?
Gary, From the highs of Oct 2007 through May 2008, were holding up “quite well”, if you didnt know what to be looking for you got crushed being long right after may 2008. The pattern during that period is very similar to what we are seeing from May 2011, to currnet market conditions. We have had a minor correction right now, it might just be the calm before the storm.
James, that’s true so I can buy that. What I can’t buy however, is how the heck are 10-year treasury yields down on a day when stocks are rising?! That’s got to be a first in recent history, no????
I agree. The next 3 months will be vital. In particular, if 11,200 is taken out in the next 4 weeks, then watch out below. If 12,284 is taken out on the upside, then expect more sideways to up action before the drop. In seems to me a crash now is on the cards. Its just a matter of how much more ‘can kicking’ can the market take before it looses heart that the current policies can not solve the debt problems in the world.
The big boys control the market. It is not safe out there for the small investor. If you don’t play they can’t take your money.
This one is easy. Too many trillions of US$$$ Euros Marks, etc. that have to find a home in “traditional” investment solutions. Millions of investors and investment “professionals” have a tremendous stake in keeping everything “just as it has been” for a hundred years. Oops….
Could it be that we are in the midst of a major global paradigm shift. Are equities now seen as being an investment capable of shrugging off all the usual bad news whilst maintaining value against all the odds. Apart from those who are prepared to tolerate the negatives of staying in cash (I am one of them) there may be a growing group of investors who look at solid profitable dividend paying companies as the ONLY viable investment category. Why not? First world government debt is an absolute no-no and if you are not happy with cash what are the alternatives. Will equities maintain value even in a scenario where a large number of the worlds big players revert to recession
Isn’t the Fed keeping interest rates far below actual inflation,a form of QE?What the Fed is doing is and will be very supportive of gold and all real assets.Housing prices now going up.All we need is for gasoline to start rising and overall inflation will really be on a tear.Went Christmas shopping at Sears,yesterday,and found some 50% off clothing items were from super high,jacked up,list prices.No deflation is sight.Just saw a video interview of Britain’s central banker,saying it wouldn’t be wise to try to bring inflation down,because it would raise unemployment.I think all central bankers believe they should manipulate the economy and not try to keep the currency honest.
We only have a couple of weeks to go before the Bush tax cuts expire. Perhaps economic activity was pulled forward into 2011 to avoid the depressing effects of tax increases in 2012.
expire my ass. You they’ll just find a way to “extend” it.
For those who know…the LIBOR is escorting Santa to town……
I love the LIBOR!!!!…..the LIBOR is barking at my wittle Boy Blunder….when ya know ya know…when ya don’t ya follow Mkey and Marty…
800 points…coooooming up!!!!!
well up or down?
Since Mikey is such a BIG, self-proclaimed “Bond guy”…I hope he has had all his followers in muni’s over the last 18 months\…they is a cooking at double digit returns this year….at least my little cache is….
“Bond guy”….how ridiculous….he hasn’t a clue…..
but…keep giving your money to someoen that you don’t know…never have met…never will…and have no personal contact with……NOW THAT’s SAFE INVESTING..
You guyz crack me up….giving yer money to people you don’t even know……
The gate is juuuuust about to lock up another herd of short sheep for slaughter…..
The last time MIkey and MArty were screaming the sky is falling the DOW was at 11,150…now they are at it again and its at 11,900…
keep on screaming….
Watch this space … Dow 9000 by June 2012. The markets are entering the final phase of highs before the crash. Ben B will not intervene until the Dow goes through 10,000. Then it will be to late for market confidence or for the FED’s credibility. It’s hilarious to watch CNBC and all the pundits talking about possible QE3 in the new year. They are 100% sure it will happen. As though QE can solve economic specific problems – who are they kidding? If it was that easy, Zimbabwe would be in the top 5 world GDP and Mugabe would be providing advice to congress on their budget problems. It’s a complete and utter joke. I’m not buying it one bit.
What field of study is Martin’s PhD? If in economics then why is his formal educational background never published? Does anyone know?
At this time of year with low volume trading markets are more easily manipulated/propped up with even lower volume futures contracts.
Equities will probably party over the trap door to hell for anywhere from 1-3 more weeks IMO. Although we have a good chance to rally higher, the floor may fall out any moment though.
I think we see fear come back with a vengeance. Remaining longs will begin to front run the crash (heading for the exits) and others will begin to notice and it will quickly turn to panic.
Central bankers will accelerate their plans for QE so leveraged bears will find themselves repeatedly raped by these attempts as their put contracts and 2-3x ETFs melt. If you’re not a day trader it will be best for you to sit out our buy the 1x short S&P (SH) as Mike Larson previously advised. I believe he will have his “I told you so” moment in Q1 of 2012.
The biggest warning sign I see is the sustained divergence between the Leading and Coincident economic indicators. The LEI keeps rising higher as the CEI remains low. That seems to mean that the economy does not *coincide” with what the leading indicators are saying — and hasn’t for 3 years. Emblematic of a “jobless recovery.”
Also, I’ve been struck by how empty the parking lots are this holiday season. I went to Target last Saturday morning. It looked like a regular weekday morning. I’ve been to the post office twice in the last 3 days. Looks like any other day of the year.
I don’t think we’re being told the truth.
QE3??? The biggest way to hurt rich people is to make them poor. The FED are fully aware that their tinkering with the markets may go a step too far. QE is a confidence trick and is best deployed in market panics to confuse and try to steady markets. This is what happened in 2008 with QE1. Now Ben has lost the plot, deploying QE2 in a market uptrend (bear market rally) ??? This was a big,big mistake. Now the markets are heading for a real crash – bigger than 2008. The FED, if it was to deploy QE3, is worried about the market reaction this time around. QE3 would be confirmation that QE1 and QE2 did not work. It would confirm the negative sentiment. We will not see stock markets going up this time. Instead, I predict panic and people running faster to the exits. The rich people will lead the charge. Why would they want to invest money in an economy with a mad scientist turning the cogs. This is what happened in Zimbabwe in the early days. All the business people and investors got out, leaving the economy in a downward spiral , eventually crumbling under the pressure and bankrupting its-self under hyperinflation or endless QE. In the end, rich people and poor people were brought down to the same level. This is why I predict no QE3 because rich people are turning the cogs and don’t want to be poor or see the dollar crumble whatever you may think.
Hey guys, please post your thoughts about anton kleinschmidt’s above question about dividend paying equities.
I agree many people must be buying those and just planning to “hang tough” through any roller coaster rides and just keep holding them and getting the dividend payouts. What’s the downside of that strategy?
Hey, Mikey!!….the ECB……. is starting to make massive “loans” (injections) into Banks….right on time….don’t worry though…..keep banking your subscribers on no one coming ot the rescue…
Just as I called it 45 days ago…and its only the beginning
Mike, You need to be careful here…you have been predicting the end of the world for quite some time now. But as I look around NONE of what you and your group has said has come true. The S&P continues to go up despite your apocolyptic view of the world. Something is happening here and it ain’t exactly clear. Mike, I think you are a brilliant analyst with the big banks and the Macroeconomics of the world. But, with all due respect, your market calls are doing terribly. To have followed you recently would only have insured finacial disaster…Short the S&P….Short the Russell 2000. Short the US 30 year treasury bond market. Is there a new paradigm that you need to be paying atention to? I don’t know? Please let us (your subscribers) know.
OMIGOD…Mike actually has recos out there to short the 30 yr Treasury?????…a “Bond Guy”..so…. it is true what I wrote 45 days ago..
Mike + PIMCO = Bagholders….
Unbelievable…..now I KNOW he knows even less about muni’s….yeah..he’s quite a bond guy….
Probably loves those leveraged ETF’s too???….
I have noticed his columns are getting shorter and shorter…..
Just wait till tomorrow’s SPY open meets the release of Mike’s Friday column…oh, man…..you ain’t seen nothing yet on the SPY….
Looks like I’ll be able to buy the last of my grandkids the car she wants afterall….
Santa just put a lump of something in Mikey’s stocking….I am so gonna enjoy my coffee tomorrow AM>..
Did the Republicans finally approve a Democratic lead tax cut…..Mercy me….