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Pivotal Events

The following is part of Pivotal Events that was published for our subscribers July 15, 2011.


 

SIGNS OF THE TIMES:

"We don't have a precise read on why this slower pace of growth persists."

~ Chairman Bernanke, June 22, 2011

"We don't know where the economy is going."

~ Chairman Bernanke, July 14, 2011

Not much improvement in the Fed's learning curve.

"Greece Unveils Stability Program"

~ That was reported on January 11, 2010

"Europe's leaders are unable to calm markets and stop crisis from spreading to other countries."

~ Globe & Mail, July 13, 2011

On Wednesday, Fitch did the dreaded three-notch downgrade on Greek sovereign debt. That was from B+ to CCC.

Interventionist theories assume that nothing can go wrong and then with considerable audacity boast that when things go wrong, anything can be fixed.

The political terms, a Neo-Conservative has been defined as a liberal who has been mugged by reality. It will soon be widely understood that a Neo-Libertarian economist is an interventionist who has been mugged by a typical post-bubble contraction.


Perspective

Our June 22 edition noted the number of oversold games and concluded they could bounce. This, they did with a vigorous bounce in stocks, commodities and sub-prime bonds. This was likely to run into late July.

The vigor ran until last week when it bumped into the "discovery" that the Sovereign Debt contagion had spread to Italy. Moodys reported concerns about the obvious deterioration of US abilities to service its debt.

Spirits have cooled this week, but the ChartWorks is looking for some timely exit opportunities towards the end of the month.

In the stock markets, the S&P quickly jumped a hundred points to 1356 in only two weeks. The correction was to the 1308 level from which it could rise.

This would be a test of that high as well as the party high of 1370 set in late April. Altogether this represents considerable overhead resistance.

On the policy side, the establishment still thinks that it can "fix" any problem by throwing credit at it. In the next few weeks an agreement on the debt ceiling can be signaled. With some fanfare a magnificent QE3 will be launched.

This could be the fundamentals for a natural high for the move. As Ross has been describing it "topping action", for the S&P.

This would apply to other participants as well.


CURRENCIES

Based upon a rebound, the near term has been friendly. This could run out within a few weeks.

Longer-term, there are the credit problems that are integral to any post bubble contraction. Lately, this has been generating headlines from the Mediterranean to the Beltway. The other edge of this sword has been the senior currency, which in any post-bubble contraction trends up relative to most currencies and most commodities.

On the charts, the big rebound maxed out in late April as the dollar index set its low at 72.70. The DX is working on an important bottom and yesterday's 76.7 was accomplished with an overbought reading.

A correction seems timely and this could be helped by the "QE2 Fanfare".

The Canadian dollar could reach the old high of 105.9.

 

Link to July 15, 2011 'Bob and Phil Show' on Howestreet.com: http://talkdigitalnetwork.com/2011/07/default-looms-gold-zooms/

Link to July 20, 2011 BNN interview: BNN Headline Paul Waldie interviews BOB HOYE as well as Rob Cox (Reuters News) US Debt Ceiling Negotiations - Part One http://watch.bnn.ca/headline/july-2011-/headline-july-20-2011/#clip503843 Part Two http://watch.bnn.ca/headline/july-2011-/headline-july-20-2011/#clip503847 (The interviews start at about 2.2min in Part One after the topic setup by Paul, and Part One should automatically forward into Part Two).

 

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