Tuesday, April 27, 2010


I don't think this morning's post could have been more right on. While the market was dropping we were typing that this only means that we'll be seeing more effort from our government to push forward demand, create confidence, and ultimately print money to escape the gravitational pull of deflation.

It looks like we (the US) aren't the only ones to print new currency. The Chinese are contemplating new efforts to keep the plates spinning. The Bloomberg article here cites that this will be announced in August.


We keep hearing that China is in a bubble and China will need to step on the brakes to stop rampant speculation. If there weren't real forces gripping their economy why would a government continue to distribute easy money?

I think the truth is that they absolutely need to keep printing and try to competitively devalue the yuan. If they don't, we'll see riots, unemployment, and a real estate collapse again in the most populous country in the world. More printing in China will create more printing in the USA to offset the devaluation. It is truly a race to the bottom for currencies.



I haven't been posting as much lately because I am working on several projects. In particular I am giving a presentation on the Health Insurance Reform Act and its impact on business owners. I will post an outline of what I present and if I can figure out how to do it will also post the slides. In addition, I will begin some longer posts to outline what I responded to Dacian regarding the catalysts for a turn down.

Here is a graphic that shows where we are in existing home sales since September 2008. We've had a spike as a result of the economy stabilizing and massive stimulus applied to every facet of the financial system.

We have a few more days of "cash for houses" the incentive that allows new home buyers and trade up buyers to access a tax credit to help with the purchase of a home.

Hopefully the housing market will now be able to stand on its own feet and we won't see a drop from these stimulated levels - however I doubt it. (Edit- I noticed that I didn't put in my skepticism as the auto plan cash for clunkers did nothing to change long term demand).
I pulled the chart from - http://dailycaller.com/2010/04/22/existing-home-sales-up-6-8-in-march-propelled-by-buyer-credit/

We've been on target for the last several months as April has delivered "more of the same" as the melt up has continued. As I'm typing the market Dow is down 150 points on the back of the Portugal debt downgrade. This revelation added to the Greek debt uncertainty and the Goldman Sachs testimony is adding risk and volatility back into the markets.

Does this mean we need to bail on trades? Actually, I believe this is not true at all. In fact, this weakness and the continued understanding that Europe is on its deathbed means that the only course of action will be more of the same. More of what? More printing of course! As I suggested in December and January in my predictions, the FED is not going to be able to raise rates given the deflationary forces at work. This uncertainty assures us that the FED will continue to press the gas pedal and inflate.

Notice that despite the sell off that gold is doing well. This gives us and indication that players have a sense that inflation is going to be looming.

I'm still watching issues with seasonality of the markets in May (Sell in May), but feel like we have sometime before that will kick in near the end of the month. I will be buying on weakness here.