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Just Another Manic Monday – $1.25Tn ESM Edition

Posted on the 26 March 2012 by Phil's Stock World @philstockworld

That's the way the Global Markets function these days as RUMOR has it that Germany will now bow to International pressure and allow the "permanent" ESM Fund to be" temporarily" doubled from to $1.25Tn extending the due to expire EFSF and combining with the existing ESM.  That then, in theory, will prompt the IMF to put in $1Tn of their own (40% US money!) as Christine Lagarde has said she would not advocate increasing IMF resources to help reinforce the euro zone firewall unless EU countries act convincingly first.

Just Another Manic Monday – $1.25Tn ESM EditionThis "great" news sent to the Euro and the Pound up half a point this morning and turned the EU markets from down 0.5% to up 0.5% as Europe, once again, is "fixed."  It also "fixed" oil prices, which were in danger of slipping back below $106 this morning but now back at $107 and that's still not enough because the S&P says if Russia can't get oil up to $120 a barrel, there is no way they can balance their budget this year and each $20 below that mark will cost Russia a notch of credit ratings.

On the other hand, according to the IEA's Chief Economist, if Russia gets their $120 oil – it's the rest of the World that will plunge into a Global recession.  The IEA estimates that the EU will spend a record $502Bn this year on net imports of oil, up from $472Bn in 2011.  That represents 2.8 per cent of the bloc’s gross domestic product, whereas between 2000 and 2010 it was spending on average 1.7 per cent of GDP on oil imports.  The US will spend $426Bn on imports (2.7%), Japan $198Bn (3.6%) and China $251Bn (4.1%) while India is spending 5.9% of their GDP just on imported oil.  The IEA notes that every recession in industrialized nations since WWII have been preceded by spiking oil prices.  

That has not stopped Bernanke, this morning, from giving a speech where he once again hints at additional Fed easing and that has rammed our futures up (8:30) to the day's highs but pretty much exactly where I predicted they would be when I set shorting targets in this morning's Member Chat at 7:10, when I said

Dollar rallied back to 80 and now is back to 79.67.  The rally didn't drop the indexes but the drop back from 80 to here shot us up like a rocket in the past 90 mins.  There's stimulus news from Europe but it's the same thing repackaged again – I can't see this move up lasting if that's all they have.  S&P (/ES) 1,400 makes a good shorting line as does Dow (/YM) 13,100, Nas (/NQ) 2,750 and RUT (/TF) 835 BUT- above those lines – we're going to have to be bullish.  

Just Another Manic Monday – $1.25Tn ESM EditionBernanke's "conclusion" in his speech has this rally fuel to help goose the markets into the end of the first Quarter on Friday: "Further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies. I also discussed long-term unemployment today, arguing that cyclical rather than structural factors are likely the primary source of its substantial increase during the recession. If this assessment is correct, then accommodative policies to support the economic recovery will help address this problem as well."  As Paul Simon says:

He’s a one trick pony
One trick is all that horse can do
He does one trick only
It’s the principal source of his revenue
  He’s a one trick pony
He either fails or he succeeds
He gives his testimony
Then he relaxes in the weeds
He’s got one trick to last a lifetime 
But that’s all a pony needs     

Just Another Manic Monday – $1.25Tn ESM EditionOr, as 1020 pointed out in Member Chat this morning, Ben's "Gotta have more cowbell!"  Bernanke's comments did the trick and the Dollar plunged back to 79.25 for the first time since early March, when the Dow first rocketed to 13,250.  So we have cheap Dollars boosting US Industrial Exporters and cheap Yen boosting Japanese Industrial Exporters and that means we're all counting on the EU to buy all our stuff – what can possibly go wrong with this plan?

Actually, my bearish theory is the Dollar will hold 79.25 and bounce back as the unfolding crises in Spain, Italy and Portugal make it seem like $1.25Tn is going to be a drop in the European bucket and Chinese news continues to disappoint as well and THAT'S why we're bearish on my target lines!

Still, we have to expect $1.25Tn from the EU and another $1Tn from the IMF and another $1Tn from the Fed (all rumors, of course) to give us a nice run-up into Friday's end of quarter window dressing.  After that – who cares – it's 4 days from now and you know investors don't look that far into the future…  

Pundit scoresSpeaking of people who can't see the future, CXO Advisory's "Guru Grades Page" tracked the accuracy of many famous stock analysts and scored them based on the accuracy of their predictions and, not surprisingly, they are not, on the whole, any more accurate than flipping a coin.  As I commented to Members on the subject:  

Gurus – About what you'd expect, no better than just guessing.  This is why the only sure bet in the markets is to BE THE HOUSE – Sell premium to suckers who think they are going to be smarter than the markets.  These guys are the best of the best and only 4 are better than 50% (and not much better).  Some, like Abby Cohen are so bad they make great contrary indicators and she's the SENIOR US INVESTMENT STRATEGIST AT GOLDMAN SACHS!!!  It's a total joke folks – the only danger is if you take these people seriously…

There's a reason our mission statement at Philstockworld.com is "High Finance for Real People – Fun and Profits" – if you don't learn to have fun with the markets, they can be endlessly frustrating and you certainly don't have to take the markets seriously to make a profit – no more so than you do a roulette wheel or the roll of dice on a craps table – there are no "secrets" other than the one that our friends Steve Wynn and Shelly Adelson know all too well:  

BE THE HOUSE!  


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