Testy Tuesday - Gentle Ben vs. Reality
Tue, Jun 8, 1:26 PM ET, by Sabrient.com
By Phil at Phil’s Stock World
Behold the power of prayer!
We had a wild ride in the futures in the last 16 hours as they were up 1% and now are barely holding flat at 7:30. Our catalyst was Dr. Ben Bernanke who, as we expected, attempted to boost the markets in a scheduled speech where the Fed chairman said he is hopeful the economy will gain traction and not fall back into a “double dip” recession. “My best guess is we will have a continued recovery, but it won't feel terrific,” Bernanke said.
Bernanke didn't offer new clues about when the Fed would reverse course and start to tighten credit. However, he did say the Fed won't be able to wait until the jobs market is fully healed before it pushed rates up. Observing the economy, Bernanke said the news so far is “pretty good.” Both consumers and companies are spending sufficiently to keep the recovery moving forward. The private sector, he said, is “picking up the baton” as government stimulus, which mainly powered the recovery in its earliest stage, starts to fade. n relations between the United States and China, Bernanke said there is a real desire between the two superpowers to work together to ease trade and economic tensions. Both countries sort of understand there is a “co-dependency relationship,” Bernanke said. The United States snaps up Chinese goods and the Chinese is a major buyer of the U.S. government's debt.
Wow, really Ben? I guess that's some “good” kind of codependency and not the actual definition of codependency, which is: “A tendency to behave in overly passive or excessively care-taking ways that negatively impact one's relationships and quality of life... Codependency may also be characterized by denial, low self-esteem, excessive compliance, and/or control patterns.” According to Mental Health America: ”Codependency is an emotional and behavioral condition that affects an individual's ability to have a healthy, mutually satisfying relationship. It is also known as "relationship addiction" because people with codependency often form or maintain relationships that are one-sided, emotionally destructive and/or abusive.” Gee, he's right – we DO have a codependent relationship with China!
Even more interesting is the way the MHA links codependency to Dysfunctional Family Structures, saying:
A dysfunctional family is one in which members suffer from fear, anger, pain, or shame that is ignored or denied. Underlying problems may include any of the following:
- An addiction by a member to deficits, military and other entitlement spending, credit card spending and unrealistically low interest rates.
- The existence of legislative, judicial, or executive abuse.
- The presence of a 24-hour media that tells us we are suffering from a chronic and terrifying ailments and conditions while offering no solutions and no hope that causes the viewers to lose their will to live so they sit there all day and watch more TV in an intellectual downward spiral that ends up with the viewer almost caring who wins American Idol or believing what they hear on Fox “news.“
Dysfunctional families do not acknowledge that problems exist. They don't talk about them or confront them. As a result, family members learn to repress emotions and disregard their own needs. They become "survivors." They develop behaviors that help them deny, ignore, or avoid difficult emotions. They detach themselves. They don't talk. They don't touch. They don't confront. They don't feel. They don't trust. The identity and emotional development of the members of a dysfunctional family are often inhibited
Attention and energy focus on the family member who is ill or addicted. The co-dependent person typically sacrifices his or her needs to take care of a person who is sick. When co-dependents place other people's health, welfare and safety before their own, they can lose contact with their own needs, desires, and sense of self.
Does this sound like any G20s you know? I altered the bullet points, but you get the idea! I also re-ran my January post entitled ”Hayek vs. Keynes – An Economic Smack-down“ this morning as we are rolling into the Keynesian endgame I predicted back then (as well as my 2010 outlook from December) and Anthony Crescenzi of Pimco agrees with me, saying: “Nations have reached a "Keynesian endpoint" as exhausted balance sheets leave policy makers with few options to bolster economic growth. Time, devaluations, and debt restructurings might be the only way out for many nations." Crescenzi wrote this in an e-mailed note titled "Keynesian Endpoint" that referenced the Great Depression era economist John Maynard Keynes. Debt-fueled spending programs aimed at combating the global financial crisis of 2008 are among policy tools now "being seen as a magic elixir that has morphed into poison.”
My follow-up commentary on Keynes in Member Chat this morning was: “Right now we have a battle between US Keynesians and the Hayek crowd in the EU. Europe followed Keynes after WWI and ended up with hyperinflation and WWII while the US followed Keynes but the fact is that we were heading into another disaster UNTIL WWII kicked off our manufacturing and sent 20M unemployed people overseas, where they sent their paychecks home to add to household savings (which were partially forced by rationing). The US government was able to finance a massive debt cheaply by issuing bonds (war bonds!) as well as the global investment flight to the relative safety of the US. Putting women to work put more and more money in people's banks and, after playing war games for 4 years, the boys came home and everyone could afford new cars, new homes and appliances and that put even more people to work and led us to a pretty good quarter-century of growth. THAT'S the only reason the Keynesian solution worked. Otherwise, as Europe painfully learned in the 30s, the hangover isn't worth the party.”
We are dangerously close to replaying that 1930s scenario with our great circle of Fiat Currency Failures coming all the way round to the UK this morning, after moving rapidly from the PIIGS to Eastern Europe and now coming into the home stretch where the US faces, first a failure of individual states, and then the whole ball of wax is in danger:
I'm actually encouraged that things are moving so rapidly, with economic hitman and rating agency, Fitch,warning that: “The scale of the United Kingdom's fiscal challenge is formidable, it warrants a strong medium-term consolidation strategy — including a faster pace of deficit reduction than set out in the April 2010 budget.” To which I say “Well, duh!“ The warning came one day after Prime Minister David Cameron told Britons to expect years of spending cuts, while the European Union pledged tougher sanctions on governments that break deficit rules.
At this point, this is nothing more than what we call hyena attacks, which happen when the bearish investors send their media hounds out to attack any weak prey in an attempt to foment a very profitable panic in a stock or a currency and you will often see them at key turning points, as it's often the bears who are panicking as they reach the bottom and they are desperate to get out of their short positions before the situation turns around. This does NOT mean that we go contrarian to the Hyenas, though – we learned in 2008 just how effective these attacks can be but they are a good sign that a stock or, in this case - a country, is under attack.
The world needs predators, of course, they thin the weak out of the herd. In fact, hedge fund manager Ray Dilio is a proud hyena, who made $780M (just his commission!) in 2008 playing for the Dark Side. Yes the hyenas server their purpose but, just because they bring down one slow gazelle – it doesn't mean that gazelles have a fundamental design flaw, does it? The same is true about stock, countries and currencies: Right now the whole global herd is being stampeded into the canyon and the hyenas smell blood and they are attacking any weakness that they see but, as investors, we shouldn't be fooled into thinking we have to bet on the fact that no gazelles will be caught, we can bet that the herd will survive. Will A global government come crashing down and default on it's debts? Very likely. Will 2 or 3? Possibly. Will they all? No. As I pointed out in my weekend report: “The Worst-Case Scenario: Getting Real With Global GDP,” it's a big world out there and ALL of the countries we pay attention to are only about 1/3 of the global GDP and if the ENTIRE Western World collapses and our economies sink to the level of Mexico – 75% of the Global economy would still survive (and arguably do better without the top 20% sucking up 75% of the wealth).
Despite all the gloom and doom in the MSM, we continue to steer more bullish at PSW. We have been dipping our toes in the water and bargain-hunting blue-chips and even this morning I posted a long on both oil and Dow futures, which are both up nicely at 9:15. We got a nice penny spike on copper futures yesterday (and that's plenty for copper!) and we added longs (well-hedged still) on BRKB, HMY, VLO and TBT and, after hours, I laid out a nice SSO (ultra-long S&P) option spread that has 700% upside if the S&P can hold 1,050 through January.
We are below our break-down points but we didn't expect to come back yesterday. We do, however expect to come back by tomorrow and if we don't make AT LEAST our weak bounce lines by then – we're going to have to consider another layer of disaster protection.
So, nothing about fundamentals this morning – the World is still spinning and that's bad news for the bears, who are betting heavily that it won't continue...
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SDI Glossary: "Debt" Definition
SDI Glossary: "the Fed" Definition
SDI Glossary: "GDP" Definition
SDI Glossary: "Stock" Definition
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