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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (50295)	5/21/2004 1:09:39 PM
From: macavity	Read Replies (1) \| Respond to of 74559

A cloud with every silver lining. What is the Fact du Jour? I will suggest Inflation. Why? Rates are going up, Oil is going up, cost of lapdancers are going up (http://news.bbc.co.uk/2/hi/americas/3736249.stm) yada-yada-yada! The path of maximum pain for The Markets now is The Deflation Trade: Stocks/Gold/Commodities Down and Dollar UP. (Bonds not sure but I think up - Government Bonds that is) I am not saying it will happen, as for me to be certain I think that the Long-Term charts need until end of Q3-2004 to 'confirm', most likely by year end. IMO the markets are now primed exactly for hyper-inflation or deflation. We will find out which by the end of this year. Apologies but I cannot predict which. My Issue is this: The best economic indicator - The Stock Market - is playing around with the idea that the economy may not be in good shape. Quarterly lows have been broken on the $SPX but not the Nazz, and there is a lot to suggest that unless we go up soon, we may go down. This recent decline may be a simple Intermediate term pull-back in a Cyclical bull, but the $SPX and $NDX need to tread carefully right here. If both break their respective 55wk EMAs it would not be a positive. We could have a rally in stocks to new highs but I believe it would require a massive injection of liquidity/confidence and this would lead to higher rates that could cause problems. Now here is the rub. The Rock and The Hard Place. Can Messrs G and B allow The Economy to have higher long-term rates? I doubt that they can. If they allow higher rates they kill the Housing-Market-as-ATM trade that has been supporting the economy since 2000/1. The Consumer will get tapped out. S/He will stop buying all those SUVs as a true patriot should. It would be up to The Corporate and Government sectors to keep The Economy afloat - Keynesism at its best. I personally doubt The Corporates would join in in a rising rate environment so that just leave Uncle Sam with other people's money. This is the Inflationary Trade - The Fed prints money to keep Long Rates from rising, while Uncle Sam issues bonds to keep The Economy going. The Dollar goes down the pan and Gold goes to The Moon! This is what I believe The Markets are expecting. It may well happen. So imagine if The Economy starts to fail here and The Stock Market turns down. This means that Mr G and B will be pi$$ing in the wind. They would have run out of bullets. If The Stock Market does turns down here, and The Economy follows (as per script 6 months later) then we have The Deflationary Trade. Is this possible? Well if the one engine of world growth - China - does dry up then I see very little to support things apart from more liquidity (see above Inflation). This 'Defaltion' is from a lack of end demand to keep The Economy going. This is analogous to Japan. I appreciate that with the Jobs data and all the economic mumbo-jumbo things look good, but The Stock Market ($SPX) crossed its 55wk EMA in May2003 when all the economic data looked really bad. In short forget the data and look at the technicals! If we can stay above it - fine - inflate away! If not then forget any economic reasons and get ready for a continuation of the 2000 decline. If we do cross it the data will look superb and everyone (CNBC) would be calling The Market irrational. In this scenario I see The Stock Market falling and the Dollar finding a good bid possible upto $USD=98-100. Gold falls as well. This scenario is completely unexpected by The Majority. For the deflationists: 1) The Oil price has not been confirmed by The Oil Stocks. 2) Despite 30Yr bonds breaking last years lows, the long-term trend for 30Yr yields can still considered down. For the inflationists: 1) Long-term rates are rising. 2) Gold is in a massive bull market & Oil is going up. A little something for everyone I guess. Just found this. He says the same thing only better. gold-eagle.com -macavity