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  • Short Covering Helps Boost Stocks
    Eventually, the debt problems will get fixed. But as Satyajit Das highlights in Traders, Guns, & Money, this credit crisis is all about the unknown. And what is it that the stock market abhors more than anything? Uncertainty, of course. That is the very defining feature of the current market problems. Das even subtitled his book Knowns and UNKNOWNS in the Dazzling World of Derivatives (emphasis added). The market's habit of shooting first and sorting it out later is making this a most dangerous stock market. That's one nice thing about the commodities market as opposed to the stock market - whatever the fix winds up being for the credit mess, it's a pretty safe bet it will mean big increases in money supply and inflation and investing money rotating into hard assets as shown in the chart I mentioned in my post above (I gave the incorrect Drumbeat date, by the way; it's March 8). At some point, the stock market will see enough resolution to turn back to a bull market. But the waters may be pretty murky for awhile. Not so with the bull market in commodities.
    Mar 12 20:58 pm |Rating: 0 0 |Link to Comment |View article
  • Short Covering Helps Boost Stocks
    Whether the latest move by the Fed is inflationary or not (sounds a little fishy to me, but I'm not a banker) is perhaps not the critical question. We have plenty of inflation already with more on the way.

    Technically (which efficient market theory says is "all things considered") we have the leadership areas that have lead the start of the bull and the roll over process into the bear being the small cap and value end of the spectrums, and they have already thoroughly broken lower than their January lows (look at $RUT, $RUV, $IJE, etc.). The broader market has been very faithfully following the lead of these groups, which strongly suggests that, after some bouncing, the S&P 500 will take up residence below its January low.

    This whole market condition in '08 is remarkably similar to the 70s. After the 70s, every economic downturn has been countered with a Fed loosening. This brought the investment money on the sidelines back into the stock market because there was no problem inflation. But now we have a downturn CAUSED by loose money and the Fed must fight loose money with still more loose money. The mounting inflation caused by this is causing the money on the sidelines, which stands at high levels seen at stock market bottoms, to choose commodities over stocks, which causes still more inflation! It's a cycle that feeds on itself somewhat.

    We had this in the 70s where the stock market made no progress for the 15 years from '66 to '82, but a 15 year commodities bull raged. The 70s version was defused by, among other things, a quick return to very cheap oil in the mid '80s. But in our current version, we are going to have very much more expensive oil. The defusing of this investment money inflationary spiral effect may be tough this time. If you look at a chart of paper vs hard asset investing over the decades, you see a clear and powerful cycle at work and where we are now in that cycle. I posted this chart at www.theoildrum.com/nod...
    If this doesn't link directly, go to "Drumbeat" for March 9 and scroll down to near the bottom of comments for the chart - posted by "netfind". It clearly shows where we are on the issue of over/under valuation of commodities.
    Mar 11 21:28 pm |Rating: 0 0 |Link to Comment |View article

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