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Thursday, August 18, 2011

Red Sky At Morn - Be Forewarned!

Ok, I like cliches. Red sky at night, sailors delight; red sky at morn, sailor be forewarned.

Looks like we have serious economic troubles ahead.
Panic mode is fully back with stock plunging to Friday lows, while both gold and bonds are at records, 10 Year touching a record low 2.03%, the S&P plunging to Friday's lows and gold as is well known, back at all time highs. The catalyst: the same thing Zero Hedge reported yesterday, namely that one bank in Europe has a dire dollar squeeze (note not EUR) to the tune of $500 MM. The real market is thus now pricing in both hyperinflation and hyperdeflation at the same time, while the Fed's policy instrument, stocks, is now pricing in Lehman part deux (but don't nobody mention SocGen or the black choppers will come after you).
The market is now at a very simple crossroads: bonds are pricing in the hyperdeflation that the resumption of the global depression brings in, while gold is pricing in the central planning policy response to that hyperdeflation, which is nothing but print, print, print.
Elsewhere confirming that as expected the unemployment situation is deteriorating, with 408K initial claims printing, on expectations of 400K, and making sure we don't have a revised 19 out of 19 weeks of consecutive 400K+ prints was last week's revised 395K claims to, hold on to your seats, 399K. That's right: a 1K in jobs breaks the trend, huzzah! Just as importantly, those on EUCs and Extended benefits continued to plunge, dropping by 43K in the last week. And most frightening, the one year change in Americans receiving Emergency Compensation (EUC) has plunged from 4.7 Million to 3.1 Million. That's 1.6 million Americans who no longer even collect any benefits from the government.
"Risk adversion" is the only term you need to know right now.  Cash, treasuries and gold.


  1. Scary. So buy gold huh?

  2. Don't worry. Michelle Bachman is going to lower gas prices to $2.00 a gallon.

  3. What do you suggest if money is tied up in the market?

  4. To Carol: Yes and the only way to do that is to drive us into a depression. Remake America from the bottom up by tossing us all on the streets. Of course the top (the Rich) will stay comfy in their tax subsudized private jets.

  5. Anonymous at 8:58 - In his weekly chart packet, Goldman's high frequency strategist, David Kostin, who now changes his year end S&P targets almost as frequently as the firm's economic team changes its GDP forecast, once again gets decidedly fatalistic (very much like Citigroup did yesterday, and Morgan Stanley last week), and is now openly contemplating downside cases to his EPS forecast. And with 2012 EPS numbers thrown around like $91 based on what is certainly an upcoming (but for now still hypothetical) margin contraction, $82 based on a 2% drop (almost guaranteed) in GDP Y/Y, and $75 based on historical earnings plunges in a recession, it may be time to listen up, because apply a traditional contractionary multiple of about 9-10x, and you have yourself a tidy little range of 700 - 910 on the S&P in about a year, absent yet another round of fiscal and/or monetary stimulus.

    So the answer to staying in the market depends on whether you like to bet red or black on roulette (or choose to take your money off the table, where you know you cannot lose it based on the spin of the wheel).