Wednesday, December 14, 2011

The Morning Call Clowns to the left of me, jokers to the right


Investors continued to demonstrate their disappointment in the new EU plan to solve its liquidity/solvency problems.

Their primary concerns being recession in Europe and spreading globally and creating deflation/disinflation pressures. In practical terms that means (1) the dollar strengthens as it becomes the safest refuge in a world filled with less safe alternatives and (2) slower growth/lower corporate earnings.


The dollar breaks out, technically speaking (short):
http://www.bespokeinvest.com/thinkbig/2011/12/13/us-dollar-breaks-out.html

The former explains the roll over in the price of gold, i.e. if the dollar is rising and prices are falling (deflation/disinflation) gold becomes less valuable. I still believe that the incessant money printing will ultimately lead to inflation. But right now, that is not what investors are worried about. So we need to collect our profit in this investment and live to fight another day.
http://advisorperspectives.com/dshort/guest/Shedlock-111213-Dollar-Soars.php

The latter explains our Market’s weakness. Of course, it wasn’t helped by

(1) really lousy weekly retail sales numbers and disappointing monthly retail figures. Those stats were offset by some pretty good October business inventory/sales data. Net, net, this continues recent trend of ‘mixed’ economic numbers--key component of our forecast; so I am not concerned at this point.

(2) the Fed which completed the last 2011 FOMC meeting yesterday. Interest rates were left unchanged. The accompanying statement was virtually unchanged from the prior meeting--with the only noticeable difference being an ever so slightly better description of economic activity.

Nevertheless, many investors had hoped for some signal that QE3 was on the way and that was not forthcoming. Even though I think that we will get QE3, I didn’t expect it at this meeting because the composition of the FOMC is about to change to a more dovish tilt at year end. So my assumption is that we will get easier money in 2012 once Bernanke has a more compliant committee.

(3) the House passage of the pay roll tax cut. The problem, of course, is that the bill contains provision approving the Keystone pipeline which the senate and the president oppose. If that isn’t bad enough, the government runs out of money on Friday and Obama and Reid have vowed that there would be no funding bill until the payroll tax cut is passed. So once again our elected representatives are doing everything possible to f**k the electorate. Shameful.

(4) the Iranian’s announced that they would close the straits of Hormuz as part of a ‘training exercise’. Training or not, such an action would likely be viewed by the rest of the world as act war; so the question is, are they jerking our chain or are they testing Obama? If it is the latter....well, I don’t want to think about it.

Bottom line: not to be outdone by the incompetence of the eurocrats, our own political class is now driving for the hoop; and just to put a cherry on top of this crap sundae, the nut jobs in Iran are trying the stick their finger in our eye. Small wonder, stocks were down yesterday; and unless some of these morons don’t discover reason as a thought pattern, we are probably looking at more downside. Of course, that just makes stocks more undervalued.

For all those who love the worse case scenario (medium):
http://www.marketwatch.com/story/our-decade-from-hell-will-get-worse-in-2012-2011-12-13?link=MW_story_popular

The value of doubting ‘consensus’ (medium):
http://www.minyanville.com/businessmarkets/articles/big-truths-sovereign-debt-investors-investing/12/13/2011/id/38357


Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.