Gene Inger's Daily Briefing . . . for Monday April 18, 2011:
Good evening;
'Raise the Debt Ceiling or Risk Global Recession' . . . were the President's words on Friday. Similar to the 'firewalls' being breached by major money-center banks in 2007; there is no point to a firewall if you give it a waiver when there is a fire; nor to a ceiling if you disregard it when the limits are reached. On the other hand, National default would be a more devastating event than the earthquakes this world has recently witnessed.
America's debt is a function of poor leadership; and I don't primarily mean the current crowd (actually 'the Bernanke' inherited a horrible situation acquiesced to by Chairman Greenspan as you know); although this Administration shoved-through a 'double-down' bailout package using the same panic approach the former Administration did, led often by the very same individuals. The bad choices include terribly reckless overall policies. I'll address this subject more in the first of two videos this weekend, and next week too.
As members know . . for months we have contended that GDP growth rates would be insufficient to justify the lofty S&P prices (based on 'fuzzy math' figuring of multiples on non-existent earnings expectations, which we said all year were too optimistic for now), and hence that big-cap stocks were increasingly less opportune. We believed that the Fed helped facilitate banking leverage that enable the extension. That's not excusing my persisting concerns; because we were long the market's best sectors (Oil & Silver).
Further, we called this winter / spring pattern as I'll also reflect on in the first video. As we approach what some 'think' will be a quiescent week of holiday observations, we think they better focus on Persian Gulf (particularly Syrian) developments closely too.
Discussions about Keynesian economics and risk of fiscal extinction..are topics that I assessed in the weekend report, and is available to all who sign-up (total privacy and nobody ever in my 40 years has had access to our member or subscriber databases) at our website this week. There is also an introductory ‘special’ for the new Daily that you’ll find interesting (includes a week of my intraday commentary). I'll denote topics we've addressed this week; then a discussion about the unusual earthquake activity in Nevada right now; followed by the weekend's videos:
Fusing our services . . . has been quite a project internally these past weeks; but it’s all ready to go (we think) starting with the Monday report. Both MarketCast and Daily Briefing will use email delivery; (text and video) eliminating user names & passwords forever; thus allowing members to know when we’ve posted the nightly report simply by checking their email inbox. Thanks to all helping test this, as it’s sort of a Web 4.0 version of The Inger Letter, since we first took it ‘online’ with CompuServe, then AOL (within Decision Point’s financial forum), the ‘hotline’ to complement print and online services, and then www.ingerletter.com , which focused on video chart analysis, and now is the sign-up location to join us. Oh! iPhone and iPad compatibility’s on the way (forthcoming soon). And we thank you for your loyalty and responses during the brief preview. (Members received the new Daily Briefing format Friday. Visitors who click an ‘opt-in link’ on our site will too, as I’m making this full issue with video available as an introduction to our analysis and video delivered directly, with webview if desired.)
What’s not compatible, are the optimistic viewpoints about a market ‘popping higher’, and a sobering review of realism as prevails today. China’s having a plunge in house prices (Beijing off 27% in a month; not exactly the ‘boom’ allowing bailing-us out; but it is just what I’ve warned of that they intended doing in recent months; slowing things down). Tensions in the Middle East are ramping up (noted yesterday that we thought Oil was about to go up again; recovering about 70% of what was given back after the premature Goldman bearishness, which then induced short-covering by those who shorted, not just buying anew), with Syrian officials (Tuesday we warned it was just collapsing as Army troops were firing on their own people, and now) families of high level government leaders and officers are evacuating Syria, quite rapidly, reputedly.
Late Friday Citi issued warnings about ‘significant downside risk for the Dollar and for the Japanese Yen ‘if’ the market begins to price-in unsustainable debt risk’. Another way to put this might have been to say ‘if the Fed won’t or can’t’ (rest in full report).
Finally maybe the CBO (Congressional Budget Office) saying that ‘by 2020 our whole deficit will be a result of the interest on accumulated debt’ will (redacted). Thus a very dangerous game of ignoring growing debt service has been very short-sighted to say the least, and fraught with peril to say the most. Our exposure to near-term shock is compromised, and the Treasury and Fed inexplicably (what it creates in full report).
Many of these issues I have warned about for four years; so are not merely reacting; at the same time it is perplexing to hear Congressmen concur, but then do nothing to ‘really’ redress the situation; much less impose reforms upon the financial sector that have some real teeth. The ‘securitized derivatives’ toxic debt mess remains unabated to this day; and even I, who said this would take years, am amazed at the slowness.
In memoriam: it was with great shock that one of Wall Street’s stalwart (and flexible) analysts passed away suddenly on Thursday. Joe Batepaglia was a fine guy; a true to his work analyst, jovial to chat with on occasion, and a gentleman. He’ll be missed.
Shielding Americans
All I just noted (a large segment of the full report) is how we should have ‘shielded’ the taxpayer, not just bankers. The way they did it will, as I postulated four years ago, prolonged the agony and delayed full or reasonable recovery of American prosperity. Furthermore this delay (even very staunch banking advocates must agree) has multiplier effects on deficits or U.S. debt.
My takeaway (on the deficit/debt/Budget fracas) is that proposed ‘cuts’ proposed are insignificant relative to the challenge. So as much as I did enjoy the articulate rhetoric of this President (unmatched recently by anyone other than Bill Clinton, or simplified by Ron Reagan); President Obama’s program hardly tackles ‘out-year’ problems yet.
Middle East: you’ll recall I minimized the impact of Libya or all the guys saying Oil is heading lower because of a ceasefire there. Well first of all we said Libya is important but a sideshow compared to the ‘real’ Middle East, and that Oil wouldn’t go down lots before resuming upside ‘if’ anything else develops over there (balance via full Daily).
Technically . . . in our videos we discuss where we envision S&P’s potentially going; with realization there are many variables in the world right now, making it difficult to define precise risk. Much of that (more so than usual) will hinge on the Oil & Dollar. However regardless of magnitude, we believe (reserved); continuing for some weeks.
On the fundamental side; I have noted slowing GDP prospects; margin compression concerns; and slowing ‘global growth’, which many bulls persisted in claiming existed even after Japan’s horrific experience on several fronts. I expected not only April risk, but corporate guidance fairly broadly to indicate less optimism for Q2 and beyond. All this was rather evident before the so-called cyclical bull market top; with light residual buying (mostly short-covering pulses) into early April before the storm hit as forecast.
MarketCast (intraday analysis & embedded Daily Briefing audio-video). . . remarks forecast increased risk given nearly unanimous analyst optimism prevailing after what had been a remarkable upside run. Remember back in early 2007 I denied 'liquidity' momentum as a canard; believing housing only the first asset bubble to deflate. The ‘global instability, fragility, and chaos’; forecast before this series of events; continue. (Major text segments, plus videos and charts; available to introduce our new format.)
Daily Briefing Technical-Corner MarketCast Video
Just over 4 years ago I reversed from 4 preceding years of bullishness, to projecting an 'accident waiting to happen'; affirmed historically after long-duration periods of free money (Gilded Age mentality). Now an extended cyclical bull within a secular bear is struggling with post-rebound ‘distributions’, in a restructuring economy, and in a world that’s increasingly ‘chaotic, and has shown ‘fragility’; both figuratively and literally.
Enjoy the weekend!
Gene
Gene Inger,
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