Friday was interesting – a spike up in the futures with the jobs number and then it sold off. I think once people absorbed the news about NET unemployment going higher 9.4% and also seeing the huge revisions over the last year – that while the number short-term may shows that the it is not as bad as it is, it is still bad. The “less bad news” is not always good news. What is interesting is when I heard people on Bloomberg or CNBC talking “bullishly” about the -375,000 jobless claims vs. the 500,000+ jobless claims, need we forget that during the previous recessions that jobless claims never got over 350,000? So we are still at massive all time highs – but I guess the good news is it is not 500,000 or 600,000.
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Deflation, Inflation, now Stagflation
The early talk was about deflation, which to me never held too much water – it might SEEM like it but that was just a surface review. Inflation was the hidden trump card that was going to surface. Last week even Bernanke warned Congress and the Administration to stop spending so much money (they Fed is drowning in printed money and is buying treasuries at an alarming pace).
http://www.bloomberg.com/apps/news?pid=20601087&sid=axq3ToKyUXnE
But there is an interesting problem arising – as the Fed is printing tons of money, commodity prices head higher, the man on the street (consumer) as well as many companies are not SEEING any of that new printed money. It is possible that we might not see inflation or deflation, but possibly something else (and it could be worse than either).
Imagine a world where commodities and goods go up in price, the fiat money printed is losing buying power, and even though the money is becoming less valuable (via massive printing and government debt) – you STILL can’t get your hands on any. This seems like a more likely scenario - as we must measure the cost of goods independently from the consumer access to money (credit or earned income).
http://www.bloomberg.com/apps/news?pid=20601087&sid=atsXGDwfFA_E
It’s a deflation/inflation mix bag and some are calling it stagflation. Whatever you want to label it – it means that those without credit or earned income are going to face higher prices (poor get poorer) and those with money will be losing buying power and good prices increase and dollar weakens.
The call for a new reserve currency is making the rounds again this morning, this time from Europe. Has China and Europe come to terms with something we are not willing to face? Are they losing faith in the U.S. dollar? On the surface you wouldn’t think so, as the Treasury spins bond sales figures to indicate that we are seeing record buying by China and others. There is SOME truth to that, but once we look AT the numbers we see something unusual – as they DO continue to buy treasuries – they are NOT buying long-term treasuries, but rather Short-term. So What, they are still buying – some might say. The reality – short-term is more liquid and expires sooner. Clearly they don’t want to make long-term commitments to the dollar.
How long before a new reserve currency? Probably 2 – 5 years, they question remains – can we hold out that long and what do we (investors) do? Make sure to put on some inflation plays with some percentage of your portfolio, be it gold, silver, foreign currencies, commodities or any mix bag. Equities will not help in a inflationary environment. Remember – “Stagflation” talk does NOT mean prices will not go up – they will.
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Futures Pre-market
Futures are getting hit this morning, following Europe’s sell off. The spread is in – but expect negative pressure on the market at the opening for now.
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Support / Resistance
INDU 8750 (We closed back up to that resistance point after seeing some intraday volatility.)
NDX 1500 (Up, Down, Up, Down – a fight up here that is seeing some volatility.)
SPX 950 (Again another resistance fight.)
RUT 530 (500 in the cards?)
It seems that the bulls don’t want to give an inch – regardless of news. One person made the comment that institutions are buying this market with all that government bailout money (TARP) , that’s pretty ironic.
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Conclusion
We are seeing some negative pressure in the futures this morning – some of the stories last week that were overshadowed by the Job’s numbers are getting some more attention this morning, Bernanke’s testimony and debt, banks ability to pay back tarp funding, Citigroup executive shakeup and funding, etc. Add all that to the talk of Stagflation as the new buzzword and we are back to that head scratching phase as we ask ourselves are we at the bottom, is the worst over, is this the recovery?
It’s been a wild ride and my concern is that Inflation or Stagflation or whatever you want to call it will be on us when we least expect it. It’s like the housing bubble, we all KNEW that the housing market was going to pop, which just FAILED to listen to our gut. People act as if it was a shock, were there really people in denial? Then it happened, and it happened fast and we acted like it was a surprise. Now we are hearing warnings from Rogers, Faber, Ross, Buffet, China, Europe, a host of economist about the concern about the dollar and inflation (or whatever you want to call it) – yet we ignore it. Are we doomed to repeat ourselves? It would seem so. When will it come? Who knows, but it is not IF it will come it is WHEN and How Bad. We are warned, but will we listen? Even Bernanke is warning Congress and the Administration to stop spending, but they don’t listen and are now talking about the new national healthcare plan as paying for it is taking a backburner, because they can ALWAYS just print MORE money.
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