Sunday, May 09, 2010

The BIGGER issue...

Happy Mother's Day to all.

I just shorted some ES (S & P futures) at 1129, though for a short term trade here overnight. Why mention it then?

Cause its part of the grander picture here with the markets and the world economy, and unfortunately part of the macroeconomic environment.

S & P futures Gapped up HUGE on the news that the IMF has approved Greece's $40 BIL bailout.

Shocking! Right?

Ah, no, not at all. Did anyone really think they wouldn't? It's always amazing to me how the markets overreact tot he simplest of news. Thursday you saw why, because the market is moved on very light volume typically, and TRADERS are moving this market, not investors. Traders and institutions actually, and mostly actually INSTITUTIONAL TRADERS.

This is why GS, MS and the large firms make a large chunk of their profits on TRADES.

But, we need to look at the larger picture and that points to a TON of issues all around us, most I hope I am wrong about.

The issues are Greece are NOT isolated to Europe, not remotely, they will affect both us here in the US and Asia, which then acts as a feedback loop and affects everyone the world over, again and again...

Sound familiar? It should, its eerily similar in terms of that feed back loop to the sub-prime mess. Some of you may recall that I sounded that alarm several times a couple of years ago (it really hasn't been long ago, it just seems that way since the market bottomed (or least looks to have bottomed) March of last year and has had, even with last weeks large pullback, a tremendous move higher.

When the sub-prime mess and the derivatives debacle were in their infancy, not in terms of real time, but in terms of when the public became aware of them for the most part you may recall the rallying cries were constantly "this will be contained" and with each bit of "good" news the market rallied under the belief that the problems are over!

Well, as we all know, that was not to be the case and the markets crashed and burned and TRILLIONS of dollars got wiped out and every market across the board other then Gold and such was destroyed. And, each time there was news that another finger was pushed into the dam to stop the leak, we tried to rally again, and again and again.

Ultimately we did have a bottom, of sorts, last March, but not until maximum damage occurred and people were crushed. Lives destroyed, jobs wiped out.

Then the government rushed in and started to print money and bailed us all out, or at least that was and has been the mantra. I would argue that it's ironic when this administration gets accused of being socialist, or even communist by some to the far right, that you could actually make a case that is the exact opposite of reality. Now wouldn't THAT be ironic?

For all the bashing of GS, we still have most of the nations economic policy being handled by former GS peeps. GS is being made the scapegoat (another irony since I'm usually a harsh GS critic obviously, but right is right, and wrong is wrong - as my mom taught me, may she rest in peace) but reality is that the problem is much bigger then GS, and as I've related, it should have been dealt with by higher ups then corporate execs, but that's another story and I want to stick to the point here.

The lower/middle and upper middle class in this country are the last group that can afford a dollar that is inflated to nothingness. So, when you try to solve your economic issues through printing money/inflation then you create a long term disaster potentially. The richest people should be fine, baring the uprising and revolts that could potential ensue (see Greece) when people can't afford to eat and can't find jobs that pay well enough to support their family. I may be in the minority but I see LESS THEN NO help that has been supplied to the vast majority of US families. The mantra has been and remains that a disaster has been averted, but I would argue that is anything but reality, that that is a very skewered and very biased rose colored glasses way of looking at a far more dire situation. And, lest anyone accuse me of being partisan one way or the other, let me make it perfectly clear that I believe that every party is a party to the mess that occurred and that they continue to contribute to the bigger issues. You can point fingers, but (3) always point back at you.

What's happening in Greece, make no mistake, 100% will and does impact this country in a major way. It's why the US knows we have to offer fiscal help to Europe despite some citizens raising eyebrows and yelling that we need to help our "own" before we help others "this time". It should be recalled that while the meltdown certainly wasn't our doing solely, you could make a very strong argument that we had at least THE major hand in it.

Further, a European breakdown can't possibly be contained anymore then our own could be prevented from spreading when many were buying the Euro thinking that THAT was the stronger currency. It isn't, but neither is ours, which is why Gold and precious metals have vastly outperformed and are at or near all-time highs here even as things fall apart elsewhere. (I just covered some of my ES short plus about 7 points btw as I write this - there is my ADD at its finest!).

Further, much of our "recovery" here has been staged and dressed up, a pig with lipstick if I may due to the vast amount of "phoney" money the government pumped into the system and into rebates and such to try to stabilize us. Many of these programs have run their course and part of the reason why the markets are now selling off, if that remains the direction of choice beyond a short term blip, is because of this. Will housing continue to stabilize if people don't get incentives to buy? Will the consumer continue its rebound when and if inflation starts to really do more then creep up and people realize that they aren't getting as much bang for their buck?

Unemployment #s have started to apparently turn, but is it a victory if people go back to work for the same or less (or much less) then they were making only to find out that their buying power has dwindled 10, 20, or potentially 40+ percent in the long run?

Greece will be bailed out, of course, as will Italy, Spain, Portugal, and eventually Germany and Japan. The same way we were bailed out they will be bailed out.

But, if bailing out continues to be inorganic growth, and inflation, then in the end we're going to all need to be bailed out and that is the bigger issue and the much much much bigger danger.

The solution? The solution has to be something NEW, just like the oil spill can't be contained it seems by placing a large steel case over the area, the economic health of the world can't be healed by putting a bandaid on an amputated limb.

What is that something new? I don't claim to have all the answers, frankly, but often times knowing that isn't working is a good first step to trying to find out what may work and right now I'm not so sure that the powers that be realize that what they've done hasn't worked, quite the opposite.

As always with my thoughts on this topic, I hope I am WRONG, because I see what's happening in Greece as a warning sign that we here in the US, and elsewhere in the world need to take very seriously and deal with head on.

I may not have an answer, but I do know that problems don't go away by HOPE, they go away with admitting there's a problem and tackling it head on.

When the American people get tired of hearing dreams and demand to hear reality we will, I believe, be at the point where we are ready to deal and make the necessary changes to make our economy, and the world over a healthier place. Socialist, communist, capitalist, we all have one thing in common above all others, we all want to be able to feed ourselves and our families.

You want to rush in and buy the market as an investor every time there is news of a quick fix? Be my guest, I prefer to TRADE both ways and not have some pipedream of DOW 25,000. The only way DOW 25,000 arrives is if inflation goes bonkers and if that's the case then you can look up what happened in Zimbabwe for a guide to what might happen here and elsewhere.

Peace and love to all,

Michael "Waxie" Parness


Papillon said...

I think waxie is the greatest- and spot on- thanks for your commentary and insight!

gan said...

sell monday's gap? thats odd waxie; perhaps its the bull in me speaking, but didnt the news of the 1 Trillion dollar bailout put in the March lows of '09?
Shudnt this bailout news do the same?