Is there an easy way out for the financial markets?
Posted on 10 September 2010 with 2 comments from readers
The September bounce in stock markets after the worst August in a decade is naturally encouraging some more optimistic thinking. The March 2009 low is a long time ago and the long rally since then has been impressive.
Could it now bring a quiet period for markets with a narrow trading range, or even a gentle upward slope? It is unlikely because Mr Market is not a creature of calm disposition. The world is either ending or looking unbelievably good, such are the swings of human emotions that carry Mr Market.
Market direction
He also likes to flash warnings by tracing out chart patterns that have been seen many times before and usually with the same conclusion. What is being said right now?
This chart is from Mike Swanson, a sensible market commentator who perhaps suffers a little from liking to face both ways at the same time. What you see is a giant head-and-shoulders formation:
This is also seen in almost all the major stock markets of the world right now. The head-and-shoulders is about as bearish as you can get in a chart. It indicates a change of direction. Could that change be to the upside? It is hard to make a case for that in the current global economic environment.
Surely it is far more likely that we have another shake-out to come before the recent global financial crisis is really done. Asset values still look far too high in many classes and this just has to be resolved before a true bottom can be called. These are how the stages of the asset cycle work – again from Mike Swanson – just spot the head-and-shoulders top:
But what about that US jobs data? Does that not put us in the clear? Not really it turns out that nine states did not file their data to the Labor Department in Washington because of a federal holiday, and as a result California and Virginia estimated their figures.
Mr Bond to the rescue?
The big hope for equity markets is that bond markets reverse direction and smoothly pump all that money back into stocks. This is certainly going to happen at some stage. It always does in market cycles. But a collapse in the bond market would be a highly disruptive economic event and hardly positive for stocks in the initial stages.
The bears still seem to have Mr Market in their grasp even if he might have escaped for a few days.
2 Comments posted by readers:
By the time the developed countries begin to make a dent in the huge amount of debt that has been recklessly created during the last two decades, the amount of cheap, easy to produce oil will be starting to rapidly decline. There will still be plenty of oil left in the Earth, but it will be INCREASINGLY expensive to produce. That will be THE critical future economic problem. I believe that will be the major economic challenge facing humanity for the rest of this century.
The prosperity of the developed countries during the last century has been largely enabled by cheap energy in the form of liquid hydrocarbon fuels. Cheap oil energy did more than computers, or lasers, or even antibiotics, to raise living standards since Standard Oil and Shell first starting making huge quantities of affordable oil available to the world. When that begins to change during the latter part of this decade, the age of abundance we have known will quickly disappear. The only way to avoid a rather rapid decline in living standards would be the development of some new energy source, which is a very long shot, although not impossible.
If I had to guess which country would have the best economy beyond 10 years in the future (other than a few big oil exporters that will have more money than they can spend) I would guess that it would be Brazil. With a combination of the subsalt oil finds in the Atlantic, and the ethanol they make from sugar cane (which is the only energy positive plant that you can use to make the stuff), they should be self sufficient in energy. They have plenty of farmland, a mild climate, tremendous hydropower resources, all the fresh water they need, few natural hazards, no need for large military spending, and a young population. I wish I could come back in 60 years to see how Brazil turned out. Good government, and the rule of law are their biggest challenges.
I will probably be wrong, and everything will be running on hydrogen made from electricity produced by the the traveling wave nuclear reactor, or the thorium nuclear reactor. You can make hydrocarbon fuels, if you can produce cheap enough electricity. That will be a big ‘if’.
So you see, the current financial problems are trivial, when compared to those that await us. Finance is a human construct that we can manipulate. Energy is physics. Try changing that.
Now CNBC TV has some National Football League (an illegal monopoly, except in sport, thanks to our ‘money talks’ US Congress) owner complaining about the cost of union labor. That, from a guy who is probably the recipient of millions in taxpayer subsidy for the stadium that his team makes his money playing in. Some folks might want to read up on the history of the French Revolution for when the oil does start to run out. I doubt that the steel workers will get blamed by the mobs. But I could be wrong.
RE: But what about that US jobs data? Does that not put us in the clear?
Over the past 15 months, I’ve monitored and analyzed the monthly jobs data reporting. I believe that the official unemployment data is now made up on the fly, for political reasons.
Reasonable Proof:
There were 7 states where estimates were made by the BLS: DC, Illinois, Idaho, Hawaii, Oklahoma, Michigan, and Washington; two other states, namely California and Virginia, provided their own estimates (after “coordination” with the BLS).
Let’s consider the nature of government bureaucrats, their fears, their propensities, and the fact that their superiors are always putting a positive spin on everything, because they believe the American public is not capable of handling the truth (Flashback to a great movie: “A Few Good Men”, with Jack Nicholson).
When viewed in this light, it’s not difficult to conclude that bureaucrats will invent estimates that are always “better” than they really should be. While the Bureau of Labor Statistics (BLS) data has always been only an estimate, based on their so-called “Birth-Death” model, private studies of 20 year BLS data have proven that this model is seriously flawed, since it has always underestimated unemployment during recessions and always overestimated employment during the boom years.
The most disturbing aspect of all this is that these so-called “public servants” know that their model is flawed, but they perpetuate the lie anyway. Their actions (and their mandate, too) are deliberate. And now that Pandora’s Box has been “opened” even wider by the false reporting from individual states, methinks economic data reporting within the US will now be skewed to an even greater degree.
As ZeroHedge stated recently: US economic data reporting has just entered the twilight zone.
Reference: http://www.zerohedge.com/article/nine-states-did-not-file-initial-claims-data-due-labor-day-hundreds-thousands-estimates-data