Last days of the rally for US stocks?
Posted on 03 November 2010 with 4 comments from readers
Americans will wake up to the mid-term election results and are likely to celebrate a Republican landslide by buying shares. However, reality lurks just around the corner in the statement on quantitative easing from the Federal Reserve which has been widely anticipated and used as a reason to push stocks higher.
This has all the making of a climax or inflection point. All the ‘good news’ will be in stock market valuations at this juncture. Every potential buyer that can be squeezed out will be in.
QE2
Then comes QE2 from Ben Bernanke. Anything short of $1 trillion will disappoint the market. Then again so many hopes have been built on QE2, which only comes because of the failure of QEI. Why should QE2 work this time?
For whatever the election results and money printing the reality of the depressed US economy does not change. The key consumer markets of housing and automobiles remain depressed. Unemployment is stubbornly high and not falling as it would normally be doing at this point in a recession.
Meantime, stock market valuations have been manipulated higher by the Fed to take the pressure off balance sheets. This is a house of cards and it has to fall down. Then QE3 will then come to the rescue. But a great deal of wealth destruction will take place before the cavalry arrives this time.
Go short young man!
This is surely the best possible moment to short global stocks. The US rally will come crashing down and bring all the stock markets of the world tumbling with it.
It is hard to know how far it will fall before the Fed tries its hand again at market manipulation. Can it control the market to that degree? Selling can get out of hand when it starts. This is not like stopping a car, more like applying a brake that might fail on a steep hill.
For those optimists who somehow Wall Street always seems to con out of their last dollar this is the end of the road. But you can bet your last dollar that the professionals will be going short, and that the surge of optimism will have sobered up by the close of play. After that it is all down into the abyss.
4 Comments posted by readers:
we have been watching the negative news since last 3 months but crooks taking market higher on every point of time…so be cautious they can even take market higher on the QEII. As Arch Crawford got fail in his prediction on crash before 1 nov. so one should not take risk to fight with these crook bulls, one should wait for a reaction before going short sell.
A wiser man than me once said “Markets can remain irrational longer than you can remain solvent”
And why bet against the Fed?
Asian and US stock markets all have had their rallies and turn around this last year? What happened to the Dubai market? Real Estate is still tanking and stock markets are still sitting around their lows barely moving up or down while Asian stocks are at new highs and the DOW is setting new highs as well. Economy in the US is up the Nile but the Stock Market has recovered and is recovering and so are Asian stock Markets. Dubai has a long way to go before they ever recover.
US Stock market would not have recovered had they not been printing money 24 hours a day to support the local stock market. Good or bad they are supporting which is a good sign and Asian markets are rallying as well off of support. In the UAE they government could clearly and easily done something to prevent stock market from crashing and real estate prices from tanking but instead they did not nothing and both basically went to hell. The past is the past and is over with but what is worrying now is that nothing has changed and the government has not changed its policies and neither have they paid their debts off either.
Best economy in the whole world now where growth takes place is in Asia period. If the US pulled the plug in the US where the economy did collapse the whole world would collapse with it with Europe being hit the worst. Most Asian countries would suffer a bit but not too much because their own local markets are huge as is and can support themselves.
It is hard to know how far it will fall before the Fed tries its hand again at market manipulation.
I can not agree with this comment, Peter. The US government’s PPT and POMO actions have occurred twice or thrice every week for a long time now. Next week (8 Nov – 12 Nov), the FED has scheduled POMO actions for every trading day; if this is true, as I believe it is, then next week will represent a key test of the market, as banks try to have profitable days for every trading day of the month (e.g. Bank of America has just reported that every trading day in October was a profitable one for them!!!).