Crack-up boom on Wall Street to finish this long rally
Posted on 02 February 2011 with 5 comments from readers
Wall Street is going into crack-up boom mode as the mob seize on any slight glimmer of a recovery and ignore all the obvious problems, not least of which $100 oil and an unsustainable $1.5 trillion US deficit. Gold bug Jim Sinclair noted that the departure of Mubarak from Egypt would be like the Shah leaving Iran.
Perhaps then the announcement that President Mubarak intends to stand down at the next election should not be greeted as the end but most likely the beginning to a new era of instability in the Middle East. The King of Jordan rapidly replaced his prime minister and government yesterday.
Energy cost inflation
But our friends at The Daily Reckoning found a problem with the ISM manufacturing data yesterday that sent Wall Street higher, despite the sharp fall in durable goods orders reported the previous week.
‘The index for input prices soared from 72.5 in December to 81.5 in January, thanks to rising prices for energy, metals and chemicals’. That is the rising cost of oil beginning to squeeze US manufacturing margins.
Anyway the recovery of manufacturing does not look so impressive in this chart:
Stock markets are supposed to always be looking six to nine months into the future on profits, and what does a rising oil price portend? It is hardly good news, and more instability in the Middle East will keep prices high and could send them much higher. Jim Rogers sees $150 oil (click here).
What will that do for a weak and anaemic recovery? Plus we are going to get higher interest rates sooner than anybody currently expects or stock markets are discounting (see this article).
So Wall Street can party while it finds fresh fools to invest at the top of the market. But the more sensible investor will keep well clear because of the clouds growing on the horizon. Besides current stock market rises are being accompanied by a falling dollar, so the net effect is no gain.
5 Comments posted by readers:
Same old, same old; but it doesn’t seem to be happening does it?
One theory to dispute though is that much of your current fears revolve around the over supply of money and its potentail calamitous inflationary effects. Rising oil prices are actually deflationary therefore technically a force for good in the counter inflation argument.
I don’t think anyone should be surpirsed at Wall Street’s ability to continue this nonsense indefinitely
only a few months (or less!) to see which..i’m w/ A$..my theory – all sarcasm is allowable, especially when one eats his own words..the immediate future holds dramatic gains, a correction or collapse, & no man cares what another thinks..enjoy your prediction, stephen
Ed: “Stock markets are supposed to always be looking six to nine months into the future on profits. . . “
‘Tis true, Peter. But the FED has blind-folded the stock market and US corporations, courtesy of FASB’s revised ruling (mark-to-fantasy, etc.) can cook their books to show phantom profits that are merely a mirage.
These two facts suggest that the Wall St. banks will continue their fraud, corruption & manipulation games until the “patient” finally dies.
Your concern of the “increasing cost of energy, metals and chemicals used in the manufacture effecting the USA will surely effect the other manufacturing countries in the same way.
The real problem is that there is going to be a lack of customers in the USA as they have less consumable income (due to no pay rises and unemployment) that means the government will get less indirect taxes in on the sale of those goods and be paying more in benefits to the poor.
Stephen Corley, please excuse my ignorance but could you explain how rising oil prices are deflationary.