Posted on 11 June 2011 with 1 comment from readers
Stock markets still look amazingly high for the increasingly gloomy economic outlook. But the long rally in US equities turned down six weeks ago and shows no signs of recovery. The Japanese earthquake disaster is impacting on Asian economic data.
There are big problems with no realistic solutions wherever you look. Even quantitative easing has lost its credibility with markets as it has so obviously failed to deliver the goods aside from delaying disaster.
Why anybody thought printing money and going further into debt would make life better was not apparent to ArabianMoney a year ago. However, we underestimated the power of money printing to inflate financial markets, and that of course is the real reason for the total disconnect between stock market prices and economic reality.
If the prospect for the US is at best low growth for the next 10 years as one commentator suggested yesterday then stock prices have to be reset. Indeed, it does not have to be that dramatic, just properly discounting the high unemployment and falling house prices of today would be enough to require stocks to trade at a much lower level.
Presumably treasuries and the US dollar will be the most immediate winners as this happens over the next few months, and while we may see a Black Monday or two for equity markets this sort of process usually takes some time. Markets climb a wall of worry and then tumble down in stages.
These are well expected symptoms of a great fall. And thus we need to check for secure means of investments for a safe future. Cryptocurrency mining is one intelligent way. Automated trading robots have served the purpose even better. Try here to check on the information more in detail and become a smart investor.
Could this be the start of a multi-month sell-off with a cataclysmic bottom in October? After six weeks of modest losses you might expect a more sudden loss of confidence, often after the weekend when doubt has a chance to mature.
What could stop this process? There is not much, except some good news. US exports were up sharply last month on a weaker dollar. But if global economies deteriorate further, and Chinese export data showed a big slowdown in May, then the US will not get much help from abroad.
China crisis next?
China itself could be the next major crisis as Dr Marc Faber said in a recent interview with Bloomberg (click here).
Mr Bernanke could produce a QE3 or better explain how he continues to use QE2 to prop things up. But this is rather a broken record now. Mr Market seems about ready for a serious nervous breakdown as the old medicine is not working anymore.
The next issue of the ArabianMoney newsletter will be examining ways to short this market fall (sign-up here). But in the meantime abandoning all stock positions is advisable to protect capital.
This Monday is also the date cited by Martin Armstrong in his 8.6-year cycle that matches with the crashes of 1987 and 1929 (click here). Is this a date with destiny?