Home > Uncategorized > 2012/06/21: Quick Post: Uncle Benny Bombs on Bullway

2012/06/21: Quick Post: Uncle Benny Bombs on Bullway

© 2012 ROHR International, Inc. All International rights reserved.

There it was… his next star turn on the global financial Great White Way, and the critics hated it. Certainly not enough emotive sympathy and direct support for the fragile economies and markets. What in the world they wondered was the Saviour of 2009 and 2010 and even the Chubby Checker cover band leader (Let’s Twist Again) possibly thinking in NOT providing more immediate overt liquidity expansion?

The answer is actually fairly easy: Keeping his powder dry for the more acute crises that might come along. And while the global economic situation is obviously weakening (as we had suspected in our reviews of China and Europe), the Fed Chairman is likely wise to wait until there is more of a consensus on any further moves being truly necessary.

On the question of just what Bernanke and the Fed could do right now, there is one component of the answer that is clear from his recent Q&A at the US Congress…

 

 

…further balance sheet expansion is politically unacceptable. So the extension of Operation Twist to keep long-term interest rates down may seem a bit unnecessary in the current environment. It’s not like interest rates are the cause of economic weakness; their extremely low level is more so a symptom. Yet it is the one bit of psychological support he can provide without drawing the ire of the fiscal and monetary conservatives in the US Congress.

And the markets were obviously disappointed… with good reason. In today’s Financial Times’ Short View the estimable James Mackintosh notes there is No end in sight to profit downgradesAnd we suggest the online version at FT.com is an even more useful review, as the entire write-up and more is expressed in a video with charts. Worth a few minutes to give it a look.

The bottom line is that this is going way beyond Europe now through Asia and into the heart of the matter: the slowing of the US economy that was supposed to be the savior of the rest… without that endless help from the Fed. What a lot of folks conveniently forgot is that US earnings had been so strong on the back of repatriated foreign earnings. As that went away, so did the results and residual upbeat mood in the US.

It is just not good. And yet, in spite of the near term pain Chairman Bernanke is likely wise to not get caught in in serial minor skirmishes over the incremental extension of accommodation that will be fought by the monetary conservatives inside and outside of the Fed. Better to wait for a real crisis when the opponents of such moves are more likely to acquiesce.

And the culprits which might foment that are still out there… most immediately in the potential for another  instance of Europe snatching defeat from the jaws of victory at the European Summit next Thursday into Friday. Will they come to agree on the steps for Greece and even Spain? We shall see. 

 

General Market Observations

As the late, great New York Yankees manager and Master of Malapropism Yogi Berra once noted, “It’s like déjà vu all over again.” And the markets are much as what we saw back in early May into mid-month. We knew from the anticipation of Fed action disappointment from the top of the week that whether the September S&P 500 future could sustain activity above its major 1,350-55 technical congestion was going to be the deciding factor. Lest anyone forget, falling below the 1,338 Tolerance of that support back in mid-May is what brought the market down to the obvious next major support in the mid-1,200 area prior to the recent recovery. Let’s allow there is some interim 1,300 area support that is reinforced by recent activity. But for noe the equities are bad again for reasons noted above.

 

EXTENDED TREND IMPLICATIONS

Rather that provide any extended discussion here, there is a fresh set of Technical Projections and Select Comments available in the right hand column. Those are current through Wednesday’s Close, and went quite some way to anticipate the equities failure was a bellwether for the trend decisions in most other asset classes as well.

That included the EUR/USD failure on its test of 1.2750, commodity currency Australian dollar doing the same from near AUD/USD 1.0250, strong sister turned weak September German Bund future rebounding from its test of critical 140.00 area support (with a Tolerance to 139.60) even if other primary government bond markets remain quite a bit stronger, July Crude Oil future slipping further below its violated 85.00 support toward the more major 80.00-79.50 that it has also now violated, and August Gold future recovering from its slippage below important 1,615-00 support only to get trashed back below it from the opening today… taking on more of the negative ‘commodity’ psychology than any attempt to maintain recent ‘haven’ action in the face of the crisis. That’s normally a sign of just how weak the global economy has become.

Thanks for your interest.

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