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Every time the markets
rally, some surprise at the end of the day hammers US stocks, and then rest
of the world follows down. The Dow tried to rally Friday and Monday, but
Friday, news that Spain was downgraded caused a Friday sell off the last
hour. Tuesday saw the same thing, with the Dow struggling to gain positive territory,
but it closed down another 100 points after news of a deteriorating Mid East
situation with Israel and the flotilla attack.
This
is a danger area
Because US markets are
hovering right around Dow 10,000 and S and P 1050 (just above) it is not
clear a new US stock rally will stick. Rather, what seems more likely is
markets accumulate negative sentiments each week with more bad news killing
rallies.
Commodity
index crashes, 2008 again?
They call that
‘headline risk’ IE bad news that kills any rallies at the end of
the day. But, more important is that the dropping commodity indexes which
foretell another big world economic slowdown:
“June 1 (Bloomberg) -- The biggest slump in commodities
since Lehman Brothers Holdings Inc. collapsed is undermining Wall Street
forecasts for accelerating economic growth and higher prices for everything
from copper to crude oil.
The Journal of Commerce Industrial Price Commodity Smoothed
Price Index that tracks the growth rate of steel, cattle hides, tallow and
burlap plunged 57 percent in May, two years after a decline that foreshadowed the
worst recession in half a century. The index of 18 industrial materials
declined the most since October 2008 as Europe’s debt crisis widened
and China took steps to curb growth…” My emphasis
Evidently the commodity
markets think the economic slowing due to China popping its
construction/property bubble, and the expected EU slowdown will be enough to
counteract any tepid US economic recovery.
While anyone would
cringe at a potential repeat of the Summer 2008 commodity sell off, the fact
remains that indicators such as the CIPC smoothed price index mentioned in
the Bloomberg piece are shouting a loud warning.
Even while the base
commodities are yelling trouble, gold has held well and is near highs. Flight
to safety is again appearing in all markets, with gold a main beneficiary as
a currency risk haven.
We
have been concerned for the last two months that another repeat of the 2008
commodity sell off was developing.
Right now, we have been
warning subscribers of a continued USD rally, a fall in key commodity
currencies such as the CAD and AUD (warned of their fall a little over a
month ago) and we are particularly worried that another huge world stock
crash is getting ready for Fall 2010.
Right now US stocks are
trying to rally from that key Dow 10,000 level. The effort keeps stalling.
Since we are still at near the lows following the Dow fall from 11,000 to the
present 10,000 level, a rally better appear soon or else we are going to
newer lows this present period (before any rally appears yet).
The biggest risk period
is Fall 2010. Summer should see the US markets trying to fend off this coming
crash. But frankly, with the EU situation still in dire condition, and China
now going to be giving reports with economic news of its slowing, the markets
have little reason to be cheerful going ahead.
Rather there is a huge
overhanging of ‘headline risk’ for the Summer. That risk will
alternate between the next crisis due (California has a new budget crisis
starting July 1 with the new fiscal year) which will be US states having bond
market trouble. Ongoing turmoil with Korea and Israel don’t help.
And I haven’t
even mentioned the Gulf mess, where the US moratorium on deep wells will put
50,000 oil workers tied to those rigs out of work for 6 months. Between the
oil sector in the gulf getting hammered, and the Gulf fishing industry being
killed, all the US needed was another economic hit. And what about a
hurricane there??? It’s a huge negative for Summer, that entire gulf
disaster.
In fact, all the
current event trends are negative going into Summer… and so a building
negative consensus will be with us all Summer. We may even have this big
crash from this point in a few weeks, and well before Fall 2010.
As we said in January:
“Again the correlation – and there are others
– but the correlation is for a huge market decline starting around
March of 09 or so. Much of the QE worldwide, not only from the US Fed and
Treasury, but also a staple financial tool in Japan, and of course the UK
now, and others are all adopting this tactic., China too.
But, the only question is how long QE will last. My expectation
is that after the US let’s go of QE, the rest soon follow, the logic
being why be the only man in a parade? A parade needs more than a few. So, no
parade. The parade is cancelled.
And so, we are counseling people to prepare for what is coming
around March – at least what we think is coming for commodity and the
financial markets. .. But March or a month or two around that period is going
to be fateful. There are other pressures of a great magnitude as
well…” Second leg crash, what’s next in 2010
The US
stock crash started right at end of April (we warned subscribers two weeks in
advance of that) and commodities indeed have crashed as we suspected within
two months of the end of March 2010.
It could be a dark time
worldwide. There is a lot more to say here. Needless to say that will be in
our future newsletters for paid subscribers. If you noticed, we have not been
publishing as many public articles, and one reason is that our paid people
get a great deal more of this analysis than the public articles offer.
Obviously. And we have quite a batch of recent newsletters out that will most
definitely intrigue you. They are my best stuff to date.
Lastly, I would like to
point out that we have made some astounding predictions over the last two
years about the USD and gold and other currencies. If you stop by our site,
we’ll have a page showing you them. We do not make many predictions
like that, maybe 2 or 3 a year. But our last batch was quite on the
money… you’ll see when you take a look. The latest was the Dow
11000 peak call at the end of April 2010.
We
invite you to stop by and have a look at www.PrudentSquirrel.com
Chris Laird
Prudent
Squirrel
Chris Laird has
been an Oracle systems engineer, database administrator, and math teacher. He
has a BS in mathematics from UCLA and is a certified Oracle database
administrator. He has been an avid follower of financial news since childhood.
His father is Jere Laird, former business editor of KNX news AM 1070, Los
Angeles (ret). He has grown up immersed in financial news. His Grandmother
was Alice Widener, publisher of USA magazine in the 60?s to 80?s, a
newsletter that covered many of the topics you find today at the preeminent
gold sites. Chris is the publisher of the Prudent Squirrel
newsletter,
an economic and gold commentary.
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