(Courtesy excerpts of the current Daily Briefing, published nightly at ingerletter.com; all primary forward technical analysis projections are provided by embedded videos.)
Gene Inger's Daily Briefing . . . for Monday November 16, 2009:
Good evening;
Complacency rules . . . while the majority ignore (if they’re even willing to notice) the brewing international crisis; and we don’t just mean the geopolitical tensions as rising (discussed thoroughly this week, as only hinted at here-and-there in the mass media) but also the trade issues nobody thinks about, because of China’s ‘peg’ to the Dollar. (Whether the Saudi armored response to Shia attacks from Yemen; the intelligence gathering of top Israeli, U.S. and Arab agency heads; or a missile silo crash program of building for war by Iran; virtually little or none of this is reported by the U.S. press.)
Sure, the President may hear a mouthful about that from countries like India and lots of other ASEAN members, whose trade among themselves has been crippled due to the unfair competitive advantage WE have given China beyond their already ‘looming large’ posture, by virtue of Dollar weakness. That impacts international regional trade, even where it has nothing to do with export-imports to the United States. Just another ‘unintended consequence’ of the soft-Dollar policy this Government won’t own up to.
Besides foreign ramifications (and a curiosity whether the soft-Dollar policy that all do presume is unwelcome by China, but actually helps their trade relationships through their region); there is a question as to whether further currency debasement here has or will soon go beyond the safety margin, before other ramifications start to intervene. More likely; the Dollar is in the process of attempting to find a transitory low; but that’s based on normal technical and economic assumptions, including that sanity prevails.
Last night’s comments about the seizing of several mosques in New York, California and Texas, as well as the high-rise at 650 Fifth Avenue in Manhattan; are just fodder to the already brewing high-stakes diplomacy (we won’t say ‘game’) underway just a bit below the surface. There have been meetings between Prime Minister Netanyahu and President Obama; as well as subsequent private meeting with France’s Sarcozy and there has also been a secret ‘intelligence summit’ between Israel, Egypt, Jordan, the United States, and possibly two countries in Europe (think France and Germany), with how to respond to an attack or indirect terrorism by Iran in-event of war. Further, the United States National Security Council has reportedly been told by the President before his departure for Asia, to prepare contingencies in-event a hot war breaks out. We do not mean to minimize the ‘insurgency wars’ we’re involved in; but there are a few aspects of conflict with the Islamic ‘state-run’ barbarians, that transcend it in risk. Fortunately), current U.S. naval and strategic air power isn’t as strained as the Army.
The stock market certainly does not require any of this ‘out of the blue’ (though would not be, even though reported as such; since we’re forewarning you) events to occur; in order to justify a retreat. Distribution under-cover of a strong Dow and S&P has for that matter been ongoing for a couple weeks, irrespective of irrelevant Dow highs (as not matched by the S&P incidentally). This remains a challenging market which more often than not (about 3 out of 4 days for a couple weeks running) has enable scalps (S&P intraday moves, primarily by shorting upside spikes and then adjusting as days wore on) of a profitable nature. There’s been no expectation of downside breakaway, at least yet most recently; and aside exogenous event-risk; that may prevail for a few more days, especially as we work into the nominal Expiration. However complacency remains a risk here; and that is something we need to emphasize. The question here is not if a correction begins in earnest, but rather when. If you wish to take the other side; let’s put it this way: some folks suggest the S&P capable of moving to 1200 this year still. We don’t concur. If it did that, it would be the ‘bearish alternative’ (explained by video also this weekend). If it did it later next year; that’s not necessarily bearish.
Daily action . . . will touch on a few points of the past week, then the weekend video.
Global economic salvation . . . doesn’t hinge on a media debate about free-market capitalism (which gets blamed for what really was a bipartisan reign of neglect for the last couple decades, during which failure of oversight and reasonable precautions as well as ignorant trade policies that favored everybody but Americans, ruled the roost); nor the very valid debate about the Justice Dept. monitoring website access without a requisite (even confidential if it involved criminals or terrorists) subpoena as disclosed (or at least as disclosed to those in the media who would dare explore the topic). Has it occurred to those debating the issues that we have to restore American basics; not simply maintain them. (Balance of this discussion provided in last Thursday’s Daily.)
At the same time, what really is of concern (and the Administration ‘says’ they get it); is the incredible debt levels, which absolutely are not sustainable for any further time or cumulative growth in obligations. By now we all understand the risks; the platitudes espoused by politicians and economic cheerleaders; as well as the paranoid warning shrills of the extreme bears, who have generally been inflexible for decades not years (of course it’s easier to be a permabear or permabull than being a flexible realist; with flexibility there will be major achievements, but short-term volatility is unavoidable).
In that area, we’re pleased to have properly (many say it’s pending; we say apparent already) observed distribution ‘under-cover’ of a strong Dow and S&P for some time. In the short-run while leaning bearish for corrective action; we have shorted the spike pops almost daily; and guess what (as an example); worked 3 out of 4 days this week (as forewarned that Friday’s action would not likely dovetail as did many prior days).
Hopefully they’ll try to bring it back alive again Friday; but might be more treacherous. All this talk about ‘slightly’ lower deficits or the like is laughable, since almost nothing Washington is doing or proposing is ample to attack the root of the problem or reform what needs reforming. The proportion of people working for government(s) is growing and that’s not a political stance; it’s fact. The number of people able to pay for all that without incredibly higher taxes (the bane of recovery) is shrinking; and that’s apolitical too by the way; it’s fact. Look at the actuarial tables for the next 20 years, and decide.
Oh; if you are a new member (welcome!); know that we suggested long ago that the entire recovery would be better served by cutting payroll taxes, rather than borrowing huge amounts of money from foreign sources that have their best interests at heart. I realize that tax cuts reduce short-term flow; but they don’t debase the currency, and I suspect they don’t even increase long-term indebtedness, because quicker rebounds in the ‘real’ economy would be probable, with the Treasury coffers dutifully refilled.
A final note before I forget is beware stories circulating about ‘the world out of Gold’, and all that sort of stuff. Just like the ‘stocks must go up because of sidelined cash’; it is the kind of stories you hear when they’re trying to perpetuate waning run-ups. Not to say Gold won’t be higher eventually; nor stocks too. But for either to do so now by any significant amount, would be counterproductive, and maybe flat-out bearish. With a correction of substance under-toe, proper preparation for new advances might be a possibility. However, frankly, we’re very concerned that the one contingency nobody is prepared for is something nastier than a pullback, (as outlined to our members).
Pathetic economic realities . . . are essentially banned from media or governmental discussions; at least to the extent surmised by those influenced by Washington. We’d dare not say this is inappropriate; as we understand the need to instill confidence as regards the future; or at least keep their chins up. However, by the same token a few brave souls continue to cover reality, as opposed to fantasy (as we discuss further).
A for-instance would be the Pew Center coming up with a ‘Beyond California: States in Fiscal Peril’ report; which very much amplifies the concerns we already expressed regarding this area. You don’t have to be psychic to observe and surmise that budget issues will increasingly be challenging, rather than improving, over the year ahead, or that anti-propaganda truths are not harmful to those with a genuine interest; (more).
While California’s problems are said to be ‘in a league of their own’; what goes for the (formerly) Golden State we have said before; tends to be a trendsetter for the nation, if history is any guide. The pressures that drove it toward fiscal disaster are wracking havoc in any number of states, aside those few which were (as additionally outlined).
On this day in which we honor our Veterans, it was a credit-absent session which for the most part went as desired. We knew that a short-sale over S&P 1100 was just a bit ‘too pat’, but suspected it would work for awhile anyway. And it did. Any day with a solid gain and no loss is a good day, irrespective of the Dow managing late recovery. It’s still a market on fumes; beyond the sudden flurry of discussions about Fed power, which we believe is valid, but still sort of circles the wagon circle without exploring the specifics (to wit: our ‘waivers of 2007’, which was the ‘smoking gun’) of their role in it.
While financial forensics might be helpful to divine the future death of the old rebound of course; I still see this as increasingly a lot of bearish money managers compelled by their standards (of keeping pace with their peers, rather than being heroic) to stay long against what we hear periodically is their better personal judgment. Maybe that’s a moral support for my stubbornness about the excessive staying-power of this move we initially targeted when others were bearish, but it is what I’m increasingly hearing.
The permabulls (or converted skeptics) believe speculative sprits will continue with a vengeance; while we believe the animal instincts were eight months ago; and this to us shows signs of distribution under-cover of a strong DJIA or S&P; fairly persistently.
There’s no disputing the Dollar-destructive collusion between the Fed or major banks overseas. There’s no disputing the inability of this Nation to stand-up for what’s right in relations with large trading partners who are also potential adversaries (hope that if able you saw ’60 Minutes’ last Sunday; with respect to cyber terrorism with oblique references to Communist China in particular and the danger to our infrastructure); at the same time as there’s no disputing that Iran (now buying mini-submarines from it’s reported the North Koreans) is hell-bent on destabilizing the region and raising risks. I will touch on the economic aspects a bit more in the video; but this is a high-risk time.
The FX pitch about shorting the Dollar’s way out-of-line at this point even to debasing it as has obviously transpired. Be real careful about believing the idea that currency is about to be overtaken by physical gold; there’s not enough (as outlined to members).
Absolutely I’m not defending what this Government has done to ordinary Americans; in fact we’ve railed against it through two Administrations, of both parties; whether we were bullish as we were in the ‘90’s and again from 2002-2006 or not. We base a lot of it on benign neglect, a moratorium on sensible trade policies, plus little oversight. The rest (which popped the bubble) was creative financial engineering both by banks and urged-on by Congress, which rarely owns-up to their role in setting the stage. As traders perceive that the Fed has given the ‘green light’ not to worry (reserved note).
True, as we wrote before the crash last year; the only way out of financial insolvency is to debase the currency and pay back creditors with depreciated Dollars. That’s the basis of the Dollar decline we forecast then; more recently we’ve allowed for it to end, or to be near an end (we’re often early; but then eventually the pattern proceeds later as it should). It’s so evident that they are reflating the asset side of the ledger while a debt side deflating occurs, that it obviously drains massive liquidity, and carries with it a willingness to pummel the currency, as occurred (what we need to do follows here).
That would be naturally stimulative, but require higher rates; a stronger Dollar; sound fiscal policies (oh my); transparent accounting (the opposite of letting banks bury their toxic asset holdings); and an environment for public policy friendly to repatriating our capital. Up to now (and this better change); Government acts hostile to U.S. growth in this sense, and has actually contributed to worsening certain problems, which may be part of why the market’s persisted (because there’s no where else for money to go). It is simplified by saying that’s a chasm between Wall Street and Main Street; but it is.
If instead the breakdowns continue, potential losses from Dollar weakness will grow. In a sense that will make diversification efforts riskier yet, because of the volume that would be needed to reweight reserve portfolios; and nobody emphasizes that detail.
Basically (and this was our warning over two years ago about the debasing postured as being Keynesian when it really wasn’t, due to our debtor status), the U.S. Fed has speculated on the demise of the American middle class; hence somebody need be (if not held accountable), at least shown a real price must be paid to overstay this play.
Conclusion: stabilization efforts notwithstanding; overall recession and deleveraging conditions will prevail (not may prevail) through this year, and probably into next year as well. Intervening rallies in markets will occur (some fairly wild), of limited duration. In event other developments unfold that could truly change prospects; we’ll evaluate.
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Bits & Bytes . . . provide investors ideas in a few stocks, often special-situations, but also covers an assortment of technology issues (needed for assessment of general factors in tech overall, or as compelling developments call for) that are key movers in the NDX, SOX or S&P, plus ideas ingerletter.com thinks might merit further reflection. (Individual stock comments generally are provided in the video overviews only; once in awhile I'll have some thoughts here, where something's particularly emphasized or of technical nature necessitating some discussion. Increasingly most all is via video.)
Thirty-two months ago I commenced projecting an 'accident waiting to happen'; affirmed historically after long-duration periods of free money (Gilded Age mentality). Now a market struggles with periodic rebounds as this economy tries to restructure.
Though enormous efforts have avoided systemic disaster on the banking front; there is no equivalent rescue of the overall economy besides perception; nor restoration of engines for sustainable growth. People are adjusting to lower expectations; which will never be a favored approach to American life. Actually we don’t see it as permanently alternating the future; but we still have major adjustments to work-through. That’s the reason we warn about chasing rallies; not to mention major ‘commercial’ adjustments as are ongoing. And as I’ve said; there are fairly visible new storm clouds gathering.
Enjoy the evening;
Gene
Gene Inger,
Publisher
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~Gene Inger’s MarketCast™ (Intraday audio updates emphasizing S&P futures and market action)
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