Testy Tuesday – Facing Fiscal Failure G20 Resorts to Tricks

Posted on the 10 July 2012 by Phil's Stock World @philstockworld

Yesterday we talked about the accounting shenanigans in the US Transportation bill and this morning the EU Finance Ministers are rushing delivery of the $125Bn of Spanish bank aid that was promised last month (which rallied the markets then) to begin in July (now) and are giving Spain an extra year to get thier budget deficit back in line, which essentially guarantees the delivery of the whole $125Bn (actually $123Bn now as the Euro drops more every day) with no strings attached.

This is not new stimulus, it's faster stimulus!  This is like having a patient who needs 4 pints of blood and you only have two pints of blood but you make up for it by sticking two tubes in him to deliver it faster – it's STILL NOT ENOUGH and I just warned our Members this morning that the pre-market "rally" (up 50 on the Dow) looked like a futures shorting opportunity to me. 

As you can see from David Fry's S&P chart, long-term, we are still forming a very nasty "M" pattern, where the right side top of the M at our 1,360 line (Must Hold on our Big Chart) is consolidating at lower highs than the left top and there's a very real danger here of a drop all the way back to the 2011 lows at 1,100 if we fail to hold support at 1,280, which is our -5% line.

We simply do not have enough stimulus yet but we can't count the market out because we are getting more – lots more.  As David notes

Bank of Japan apparently is ready to increase its QE (bond buying) efforts as the Bank of England has increased theirs. The Peoples Bank of China (PBOC) has joined the easing activities by lowering rates and of course the ECB has been at it for some time in the eurozone.

At some point we enter uncharted waters since we’ve never experienced this amount of money printing without positive effect. After all can anyone really say it’s actually working or has worked? Liquidity injections by most evidence have had only ephemeral effects at least in boosting stock prices over the short-term. When then is pushing on a string finally going to be just that?

"The Fed is running out of balance sheet," says hawkish St. Louis Fed President Bullard following a speech in London this