Thursday, August 18, 2011

Does Mr. Market Have A Glass Jaw?

Mr. Market Took on the chin today. He has been taking quite a few shoots the last few weeks.
Whether Mr. Market has a glass jaw like he had in 2008 is to be seen. The major average were down anywhere from 3.69% for the DOW to a down 5.22% for the NASDAQ. The SPX was down 4.46%. This market got off easy today. Europe is a total mess and I just don't understand European Policymakers. The ECB is so afraid of inflation that they have sworn off expanding their balance sheet to tighten EZ Spreads. Merkel and Sarkozy are Elitist politicians just looking out for the rich and affluent in their respective countries.

http://tradersutra.blogspot.com/2011/07/simple-thought-on-european-debt.html

http://tradersutra.blogspot.com/2011/08/eurobonds-or-bust.html

So what we have here in Europe is a total abdication of governing power. Its kick the can down and over the cliff time in Europe. It is an absolute disgrace for Trichet to claim that the European Economy is in better shape than the US Economy. This guy has some serious balls. French & German banks are so knee deep in EZ Periphery debt that even a 50% haircut would render them insolvent. The US also has a major governing vortex as well but the US Banking Sector is structurally in much better shape than Europe's.

A Euro Bond program is the only feasible way to save the Euro and grand European Dream of unity. It still can be done but I fear that Europe just like the US is in a policy and administrative death spiral. They need to purge Trichet, Weber, Merkel, and Sarkozy just like we need to purge Geithner, Bernanke, Obama, and most of Congress. They will get to that proper policy choice but not before much more economic pain is administered.

The market correction we have seen over the last few weeks is just a massive failure by policymakers and politicians in Europe and the US. Central Bankers from both continents have failed the public while making sure their rich/elitist constituencies are taken care of. The programs that they have created have failed and meant nothing to the greater economies as a whole while putting the finances of the regions in greater peril. In short, they have cost us greatly while accomplishing nothing.

What this means is that the we will just bump around the bottom here in the US for the next several years. 1% or best case 2% growth, while Europe does their charade pretending to have a currency union with no fiscal policy. The global economy is grinding to a halt and these guys in Europe and US have their hands in their pants. All of this could and should have been avoided with proper policies to clean up the rotten to the core financial system, but Obama failed us all. He appointed the same arsonists who set the fire for the credit crisis to high ranking positions in his cabinet. Why are we all surprised at the results?

10 Year Treasury yields briefly saw a 1 handle today. That alone should alert people to where the US Economy is headed. The US government can borrow money at 2% annually over 10 Years and investors all around the world are still buying hand over fist. This is no longer the safety trade but the smart trade.

The question remains. Are we going into a recession? The answer is we are already in it. That doesn't mean it has to be a bad recession or like the one we were in 2 years ago. It can be just a run of the mill recession. Who knows? I believe housing has one more serious down leg, maybe 10-15% further correction. The banks have to get serious about taking losses and marking to reality. US Financial Institutions are not going out of business although they are all insolvent. They will be zombie institutions for a generation. The next time they all have a death spiral swoon will Obama & Geithner put the wood to them? Will they force restructuring? Will they force the banks to take proper marks? Will the banks purge their bad assets? These are all important questions that need to be answered. At the moment the US Banks are in better shape relative to European financials. European financials will all have to be nationalized when the haircuts and Eurobond proposals are dolled out. US Financials will then have a major competitive advantage and it is prime opportunity for our policy makers to fix our banking sector. If we take the pain now we can dominate later.

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