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376: The final blow-off

04-20-2011 team

Standard & Poor’s AAA: Interesting week. Standard & Poor’s agency announced a negative outlook on USA’s AAA credit rating on Monday – based on the inability of the current Administration to take concrete measures to reduce the budget deficit. How far the mighty have fallen. Instead of taking the warning seriously, there was a barrage of defensive denials. Can anyone blame the credit agency – we all know the USA only two years ago promised to reduce the US debt to $10 Trillion by 2015 – and now it’s promising $14.6 Trillion by 2015 and $20 Trillion by 2020. The deficit even during an expanding economy is running at $1.5 Trillion per annum – with no progress to reduce it. No wander the dollar continues to decline and the oil price continues to rise. Expect Moody’s agency to follow suit soon – they were Dealers-at-IG-Index-in-Lo-Panictrumped by S&P – so they’ll need a little time before going out with their announcement. This will then send the Dow down a few percent again.

Problems Ignored: Wall Street is booming with denial and positive talk thick in the air. Frankly – we think the people in the know realise that recession is just around the corner and the market is in the stage of a final blow-off. They ignore the negative credit outlook, ignore the problems in North Africa and the Middle East, ignore European debt contagion, on Monday ignored the fact that Saudi Arabia has dropped oil exports by 1 million barrels a day because they've either run out of oil (a very serious problem = Peak Oil) or demand destruction has started (a very serious problem = recession). The only thing the market seems interested in is a few temporary positive profits results from technology companies – any wander profits are up after $2 Trillion was printed whilst interest rates remained at 0.5%.  We actually agree with Goldman Sachs – that $120/bbl is the tipping point as they mentioned on Monday – but no-one believed them and Barclays announced the opposite shortly after just to keep the average punters happy. We also agree with Ali Niami the Saudi Minister of Oil – Saudi dropped their exports because there was no market for that 1 million bbls/day oil – signalling the start of demand destruction as the global economy tips into recession. Yes – we are very close to Foreclosure Panicrecession now in western developed oil importing nations – this is our view – read Italy, Spain, Greece, Ireland, USA, France, Portugal.

Final Blow Off: We really think this is the final blow-off period and a suckers rally – but we cannot prove this. Time will tell. If we are wrong, we’ll at least admit it. And don’t take our word for it – consider and think about it yourself and come to your own conclusion.

Head For The Hills: The 9th of May is fast approaching – this is the date the tide turns – when things really warm up climatically and the very richest people head for the hills and sell-down. Then spend the summers on their cool boats floating around the Med or Miami-Keys. It could the last sucker punch. And this time, many Babyboomers will get out for the last time – and head for the hills. "Bag it, peg it".

Danger Levels: In summary – anything above the following danger levels are an excellent selling opportunity:

·         Brent $120/bbl  (higher will lead to a recession and demand destruction)

·         FTSE100 6000 (almost a record – definitely a peak)

·         Dow Jones 12000 (almost a record – too high)

Tandem Blow-Off:  Oil, the FTSE100 and Dow Jones follow each other very closely. They all go up together – they will also all come down together. And we think sometime in the next 5 months this will happen – with the highest likelihood this correction starts in the next three weeks – at or before May Libyan Rebels Oil Crisis9th.

Don’t: Anyone considering entering the market for the first time now – the simple message is – don’t risk it. Don’t be a mug.

Too Hot To Riot: The good news is that it’s getting so hot in North Africa and the Middle East now that – this will keep the rioters off the streets – needing to stay cool – and slow any wars. Things will heat up again end September when the cooler weather returns. It’s not pleasant rioting in 40 deg C heat. One billion people living in the North African and Middle Eastern deserts - massive male youth unemployment and most females are not allowed to work. It certainly looks to be a long term problem as more people suck on less oil and water and resentment builds.   

Libya: And just as we thought – Libya is and has been an unmitigated disaster for NATO – no goal, no aims, no exit strategy and the most likely outcome seems to have transpired – namely – stalemate with huge numbers of people getting killed. So much for a humanitarian effort. "If you’re going to do a job, do it properly" is what we were taught at school. In this instance, no plan, no proper job, no outcome of any desire – the desired outcome wasn't even clear or agreed in the first place.

Property Up-Tick: The other consideration is that – when the massive quantities of cash are hauled out of the stock market mid 2011 (as well as North Africa and the Middle East) – there is a very real chance they will find a home in London and West End property. Everyone knows withLondon Mansion a Tory government London -property is a fairly safe bet – so its certainly a reasonable strategy to get out of the stock market before the crash and put that money into something long term and tangible – namely prime West London real estate or "bricks and mortar". At least it will be something to live in rather than mirage fiat money. And a proper concrete hedge against inflation. 

Panic: We’ll leave it at that for today. Just thought we’d give a market update. And give warning that – even though you might see asset prices on the commodities and stock markets rise a little further and look stable on the face of it, this will be the final blow-off – before the richest investors take their money off the table, then panic sets in – and the average person loses their shirt again.

Does this all sound so familiar? High chance of happening again?  Logic suggests the answer is - yes.

If you have any comments or thing differently or think we have it all wrong, please contact us on .  

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