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FreeMarkets (39.54)

We're In the Eye of the Storm



March 04, 2011 – Comments (8)

With so much excitement, the bulls have exalted in the 110% gain in the S&P 500 over the past two years.  They act as though the bears have been caught with their pants down, and maybe some like Robert Prechter have been, but this bear (that's me) and many others have not.  We've been predicting the inflationary rise in stock prices and a false recovery since QE Zero was launched by buying out trillions in bad loans.

Many have said that we're in a new paradigm, that we're in uncharted territory.  HOGWASH!   Just because the trades are more technical and complicated than in the past, we've seen the results of bailing out the privileged and printing currency many times before.  The end will be ugly, but that end may not occur for another fifty or a hundred years - assuming we don't get our act together first.

The real concern for you (the reader) is how can you use this information to help you make money.  Let me take you back only 8 short years ago to April 2003.  The NIKKEI had just hit a bottom around 6,900 and over the next four years it nearly tripled by April 2007, only to lose almost all those gains in the following 12 months.

The point - Central Banks are making decisions to avoid recessions.  For a while it worked, recessions weren't as severe and didn't last as long.  But they are occurring far more often than the normal business cycle would expect and they are getting more severe.  Faith is the only thing holding the house of cards from collapsing, yet faith can be very strong and even ignore the facts staring us right in our face.

This has created a world (yes, a world, not just the U.S.) where malinvestment isn't being properly cleansed from the system.  Too many inefficiencies exist in world economies and in the U.S.A. the incentives for working hard are shrinking.  Coming tax increases to pay down the debt will only further reduce these incentives.

So what's next?  As I've said before I'm still bullish that this FED induced stock frenzy will continue for the next two to three weeks.  I'm expecting a correction between the end of March and the end of June of at least 10%, but 20% wouldn't surprise me.

I then believe the bull run will start again, only to peter out in early 2012, when a long consistent deciline in stocks will begin (in nominal terms, as there is always the possibility that the FED will hand out a trillion dollars to any financial institution willing to lend it with 100% U.S. taxpayer backing should the loans go bad).

I firmly believe we're in the eye of the storm.  Right smack dab in the middle, about 12-18 months from facing the demons we're creating.

8 Comments – Post Your Own

#1) On March 04, 2011 at 10:54 AM, EnigmaDude (50.56) wrote:

Thanks for the warning.  I don't disagree entirely, just the part about the "long consistent decline" in stocks.  Bonds may start looking like a good investment again in 2012.  But I'm still liking stocks as a long-term (15-20 years+) investment.

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#2) On March 04, 2011 at 3:58 PM, rfaramir (28.63) wrote:

Bonds won't be good investments until they are loans in "real terms" to protect them from fiat inflations. I.e., gold bonds.

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#3) On March 04, 2011 at 8:58 PM, rexlove (99.72) wrote:

If you've been "predicting the inflationary rise in stock prices and a false recovery since QE Zero was launched by buying out trillions in bad loans."  then why did you red-thumb all the ultralongs back in July 2010. 

Sorry - I just don't buy it.  

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#4) On March 04, 2011 at 9:11 PM, AvianFlu (< 20) wrote:

I agree that when anyone refers to a "new paradigm" we are in for trouble.

However, calling a specific time frame is risky. I sold out of all technology a year before the bubble burst. During that year I really started to wonder if I had made the wrong move. Ultimately I was very relieved, of course. Same story for the financial meltdown. Events always seem to take longer to play out than I would guess.

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#5) On March 05, 2011 at 3:58 PM, FreeMarkets (39.54) wrote:

#3 - I play the game differently then what I really think.  Read my past blogs for confirmation.

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#6) On March 08, 2011 at 9:21 PM, zzlangerhans (99.82) wrote:

Then if we don't get a correction of 10% by the end of June, have you officially been caught with your pants down?

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#7) On March 09, 2011 at 9:00 AM, FreeMarkets (39.54) wrote:


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#8) On March 10, 2011 at 4:12 AM, ryanalexanderson (< 20) wrote:

The eye of the storm has been called several times before - but I think you're right on this one. PIMCO is now completely out of US Treasuries, suggesting that a lot of smart, connected people don't believe QE3 is going to happen.At least right away.

You don't even need an oil crisis to see some serious problems coming up. 

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