The Goldman Test

The Obama administration's economic intervention efforts unfortunately have a litmus test for gauging whether or not the world economic order is stabilising, Goldman needs to be able to continue making huge amounts of money using the old models. The Goldman test is of course Geithner's plan for using public subsidisation of trading capital for Goldman and others, resulting in wider profit margins helped by being able to look at all the stimulus cards. While the fools in the Republican party complain about the inevitable middle class becoming slaves to socialism, the financial industry, a Republican stalwart, keeps applying the old model skills. Now this test will confirm Goldman is healthy and the credit lines between the rest of the lower economic forces are moving, but ultimately will provide little life for the general population as jobs stagnate and their assets dwindle.

Obama's recent statements explaining the need for patience to allow the stimulus to work is a clear sign it is not having any effect on the larger economy. The velocity with which Goldman has recovered under direct subsidy by the G will become a greater problem as Goldman disappears over the greater wealth horizon, leaving the rest to scolded by Republicans that those rewards are not meant for us.

Economic Recovery Map

The economic recovery map pushed by most forecasters is probably a bit rosier than it should be but certainly a more realistic view than those who point to the inevitable path to economic destruction. The most bearish have impressive examples of ailings; real estate losses of five to seven trillion dollars, retirement and savings losses of close to 10 trillion dollars, and staggering losses around the globe virtually mirroring the U.S. disaster. Issuance of corporate bonds at an ever growing pace at extended maturities suggests more hunkering and less spending as such debt instruments reveal the pursuit of returns pointed towards savings rather than investing in growth.

The bulls exhibit some of the same mindless tendencies which has always been apart of the efficient market crap. And when all else fails, they always will have China saving us all of by providing market opportunities through a notion of a rapidly growing totalitarian state immune from severe downturns and social upheaval.

The love hate by conservative thinkers over the pledge of over 10 trillion dollars by the G to remedy financial disaster is entertaining when viewing swings in the underlying markets from which the have become glued. Since the recovery in March, they have almost claimed the whole economic collapse was just a bump in the road to greater market performance. Of course they will be the first to cry and extend their hands should another rout appear.

Bad Trading Strategies

Looking for driving forces in this summer's trade has been one of deciding whether to play off the 'bottom is in' strategy or rather on sideways rolling opportunities as they appear. Few think new lows are in the offing so those who love volatility explosion bets can play there.

Views of the world's economic future being saved by developing countries is getting some press, as in today's NYTimes article. China, India, and Brazil are apparently going to drag the rest to safety although there seems to be absolutely little evidence of it. Decoupling again is mentioned, but stopping the reemergence of bad trading strategies is impossible. Oil's recovery to $70 from $33 is provided as proof, but developing country demand rationale drove the price to over $140 with idiots guaranteeing $240. This type of thinking has every commodity trade strategy ultimately resting on the China's consumption of all things consumable. China, unfortunately for all of us, is a pending economic disaster. Totalitarian make-up artists can print economic data from a typewriter in Beijing and the decouplers and commodity folks would believe up is the only power. Unfortunely, when all the developed big dogs are not eating as much there are plenty of leftovers which have to be virtually given away.

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Inflating The Bull

The DJIA, SP500, and NQ100 remain in the confusing zone between price mechanics and value. They are related but can produce price patterns which may not match what various economic performance measures of the general economy. The rally from the March lows are a part of the mechanics of running out of panic selling and the natural betting on prices as a function of comparison shopping.

There is a vague uncomfortable feeling running through the markets which stem from a determination not be fooled again and the ability to identify a low risk opportunity with traction. The thought of enduring the break and missing the rally is almost to much to take, let alone watching the Fed and Treasury insure the wealth of the likes of Goldman and Morgan. The boomers know that this time they cannot simply apply rally lotion to these markets after the thundering losses suffered by investors across the board. The financial health of state and local governments have an appalling smell which can only be compared against a particularly unpleasant historical period. These real dilemmas make the notion of bull market anew difficult to inflate.

Squeezing The Bear

Markets as of this AM continue to squeeze the bear as selling remains light despite intraday sell programs. These are uncomfortable ranges for the most bearish of traders as their warnings for the' worst is yet to come' is being mowed over by cheering bullside perennials. The same technical weaknesses which led to the downside free fall of earlier this year have some of the same elements present in this rally. So for traders, it is alright to be bearish, but don't be stupid. The sell opportunities will be less prevelent, but available. This market, as pointed out in a recent post , as measured by the DJIA, is headed on the half way back trail (10,000), and parts of it may feel like it is going straight up. The jobs picture will be the overpowering force this week and in the months to come. Downdrafts will appear.

Data Reading

Determining just what we have here when reviewing the strength and weakness of the current stock index levels can lead to tricky conclusions. Is the worst over? Is this a new bull phase? New lows? The bulls and bears are raising proofs to convince themselves and everyone else.

Misreading market information, the pace of economic rise or decline is easily done. Making assumptions about today's data measures for housing, exports, and economic growth are difficult because of the magnitude of the price breaks. Foreclosure deals are getting as much attention as the flip em frenzy. An old pit adage is never buy the first rally, and foreclosure deals may fit there.

What will allow the markets to establish a long upward trend after such a large decline? China is once again being pointed to as the deliverer. Of coarse you then have to rely on a totalitarian economy pumping money to save itself and believing the economic data being generated by the Chinese government. Sounds as convincing as the AAA credit ratings of the sub-prime era.

Fixing Up

Putting the stock indexes on the upside track is a combination of public trust and a mountain of interventionist theories speculating what underlying share values may be able to support. The former remains unwilling to risk anything more than some of what is left, and the latter, financial engineers, are trying to determine how and what the post crash world order will trade. Arguments about the type of recovery, V, L, or W, all are based on the notion the markets have already bottomed. There are few who think substantial new lows are ahead. Given the headlines and analysis of the crash, the investigations and interventions, a smoke clearing vista of rebuilding has become wisdom.

These markets still remain fragile and the prices constructed so far off the lows show no particular strength. Extremely cheap price areas are usually rejected by rapid recovery rallies and the stop watch on this rally is getting close to losing in the qualifying time. While a middle of the pack recovery would suit everyone, a race down is still a possibility.

Trail Of Rally

After a decent gain last week, the indexes this week start with some rally fatigue. The weekly actions have remained supported by lack of selling and pricing from the money sloshing around from the various bailout strategies. Underlying internals remain soft and may lead to the ' eat like a bird, shit like an elephant' syndrome known to markets which chip higher weekly only to give a major portion of the entire rally back in a two or three day period. Remember, money rates essentially at zero reflect the real story about overall economic energy. That said, the indexes will still set up to recover half the losses from the 07 highs, which for the DJIA will be just over 10,000.

Buy This

Pricing continues to creep into the market as major market players apply investment dollars where sellers are few. The great bail out has provided more than enough currency for trading as historic price declines may have created buy and hold opportunities. Using the metrics for measuring value over the last 25 years this would be the case, but there may be new standard for understanding asset values which will only be born out over the next several years. Just in case, the rallies of this spring have had less punch to them when compared with the days of the bull. While there is no question the pros hope to sell these purchases higher to the same public dopes they did for years, the weary masses may let the greater fool theory be applied amongst the institutional and proprietary chumps this time.