'Hope 09' - A Plucky little Bugger
You have got to hand it to the masses who collectively make up the vast conventional financial apparatus. After becoming way too hysterical in their negative sentiment into March, they have got a really good story going now. 'Hope 09' in fact, lives on - perhaps to target (SPX 1010) or maybe even beyond target.
"Smaller job losses, rising stock prices and stabilization in homebuilding and manufacturing are evidence that government efforts to stem the financial crisis and lower borrowing costs may pay off." says Bloomberg (full article).
Still, it cannot be argued that some tepid improvement has been registered. Now, I was not originally sure if the recovery in sentiment would coincide with actual improvement in economic fundamentals when I coined 'Hope 09', but now we know that to some degree, the vast inflation panicked into the system, force fed by crooked (or maybe just stupid) policy makers to bail out corporate criminals, is having some short term effect, at least.
"About 76 percent of companies in the S&P 500 Index that have reported earnings since July 8 beat analysts' estimates. Tata Consultancy Services Ltd., India's largest software exporter, climbed 16 percent after its earnings topped estimates. Stocks also gained on optimism lender CIT Group Inc. will get emergency loans from creditors to avert bankruptcy.
"'Corporate profits are beating expectations by their widest margins in a year, pushing most equity markets within a whisker of new year-to-date highs and the dollar toward its 2009 lows,"' John Normand, head of global currency strategy at JPMorgan Chase & Co. in London, wrote in a research note." --Bloomberg (full article).
But let me ask you, what is going to happen if/when this two-pronged welfare program (golden parachutes for corporate criminals not named Bernie Madoff and vast infrastructure 'make work' aimed at the unions) falls flat of its own bloated, non-productive weight? Hmmm? What, more printing? More inflation? Is it that simple?
You know, many people have been managing the price of gold lately, but if these creeps are able to engineer a real end to the recession, gold is likely to under perform things like oil and the materials of infrastructure, not to mention other bubble areas in waiting like alternative energy. Oh, but let them fail and watch gold's assault on resistance and watch the gold mining sector's bottom lines gain in leaps and bounds.
The activity in interest rates recently tells us that policy makers no longer have full freedom and mandate to inflate against the dreaded deflationary beast (aka the lever of inflationary policy). If this mess starts rolling over into a new round of agony, they will be inflating and devaluing in the light of day the next time and the dollar will be front and center.
Oh but wait, maybe Mr. Bernanke can cook up a plan to manage that dynamic:
"Bernanke needs to explain that the Fed has the tools to do the job and that it intends to use them forcefully when it has to," said Lyle Gramley, senior economic adviser with New York-based Soleil Securities Corp. and a former central bank governor. "That would help hold down inflation expectations and give the Fed the opportunity to stay easier for longer."--Bloomberg (full article).
Maybe this is how they will do it... click the heels of their pretty ruby slippers and maybe they can have it both ways. This had better be a real recovery. But it is overwhelmingly likely that it is not. It is a false dawn. Beware of strangers (financial services industry that got it wrong last time) bearing gifts (little bon mots about the end of the 'recession').
Here is the 'tell' on this racket: With the improvement in corporate 'earnings' and the 'hope' for an economic recovery that is based in anything real, should not the dollar be benefiting as pressure is put on treasury yields to the upside? No, the story remains the same here in Biiwii land; we are attempting to pump life into the corpse of what was, a bloated, greedy system that will no longer function effectively or sensibly and the US dollar remains the barometer in this effort. 78 has long term significance. Let's watch the drama unfold.