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Thursday, April 21, 2011

June Bugs

The US Equity rally monkey has been busy this week! 

The idea of a debt downgrade has only strengthened the rally by further crushing the dollar.  Fundamentals are still Charlie Sheen on mushrooms skewed, but this rally is now a combination of marshmallow fluff from the Master Wizard's QEII and the 'unforseen' downgrade from S&P.  The S&P downgrade is just fuel to the fire... The problem now is that it will be much tougher to put this QE fire out. 

On another downgrade note, S&P downgraded FNMA/FHLMC bonds from stable to negative today as well-- just another little slap on the wrist, and again, about 3 years late. Captain Obvious strikes again.  Downgrading FNMA and FREDDIE MAC is the equivalent to picking Micheal Jordan as your 2-on-2 partner when you can pick from anyone in history.  Everyone knows it is coming.  We are moving ever closer to the next major leg down in the US real estate market...  


Watching the VIX, we are now at absolute complacency in the markets.  This is indeed a sleeping dragon.  The idea that we are in a never ending, no risk associated rising market should be scary to everyone, though that doesn't mean you need to go and sell sell sell. 

Not yet.

It should be noted that the VIX is trading at levels before the big kahuna crash that lead to the great recession. 

It appears to be sunshine and cookies for all. 


Ugly should be the word to replace today's dollar.  Next time you go to the store try to pay in Uglies. 
How Much is that shirt?
--30 Uglies.
Will you take 22 Uglies and a book of matches signed by Tom Jones I found in my wife's suitcase.
-- 25 Uglies and keep the matches.
There is no bottom in sight for the dollar's collapse.  It appears to be in a free fall at this point.  The only way it rebounds is with some Wizard Juice-- that is right...  FED-speak magic.  The master wizard speaks to the masses in the 1st press conference on April 27th.  Expect nothing but the usual this time around. 

The waning confidence in the US Dollar continues to push the price of oil up.  Gasoline is nearing $4.00.  It is not different this time.  $4.00 gas will indeed cripple to consumer.


We are at a major crossroads right now for the master of monetary policy.  Price increases will crush the consumer, but the weak dollar and rock-bottom low rates are needed to keep the economy skipping along like a school girl with raspberry jam on her face.

The one thing about a party is that it can't last forever.  There are too many forces against the FEDS to roll into a QEIII without a hiatus.  

When the fun ends it will end not only the rally, but also the dollar's crash, the VIX bottom and the free money for all.  It will not be pretty and it will happen fast.  

I say that the party ends in June.  I know this is vague, but I just can't see the market continuing without support from the FEDS.  The marshmallow fluff from Nov 2010 to now can't be duplicated or supported without the easing.  Long bonds are already strengthening in anticipation of a safe haven, as those that don't want to stay on the roller-coaster any longer are getting off before they run out of track.  

This has indeed been a great party and I would say Mr. Bernanke is a hell-a-va host.  I highly doubt we will have to wait very long for his next shin-dig.  I hear it will be a masquerade ball-- trying to hide the QE that tricky devil.  

Just look how great the S&P looks today!!!

Enjoy it now... It doesn't get much better than this. 

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