Yesterday's global equity markets were an opportunity for observation and learning. Market psychology is a key to understanding the financial markets. The markets generally gyrate along on the currents of four factors. Hope and greed, fear and despair. We have often heard the phrase "bull markets rise on a wall of worry". Bull markets top in a greedy frenzy. This begs the question, do bear markets "fall on a slope of hope"? Bear markets bottom in an ocean of despair.
Today's equity markets have an over abundance of hope. Every week or so, the government throw the markets a bone, and investors take it and "hope" this means the "bottom is in". The markets rally, and then turn on a dime and fall lower yet again. The "bear market rally" is more destructive than the bear market itself. For "investors" the bear market rally is torture. How many of these can they withstand before they cry "uncle", and run from these markets swearing never to return.
As long as there is "hope" this bear market will endure. Not until stocks are mentioned with the like of lepers will there be a "true bottom" in this market. The market sentiment remains one of hope. The Obama, the Pied Piper, and Little Timmy remain amongst the most hopeful. The sheep in their flock buy the hope hook, line, and, sinker. "Uncle Sam will fix everything," they reassure themselves. We'll know the bottom is near when the flock begins calling for these Demons OF Hope heads. We'll know the bottom is in when those out of the equity markets far out number those in them.
With that let's look at yesterdays time line of hope, and how quickly it can be dashed. The day began with "speculation" out of China.
Stocks Rise Around the World; Commodities Gain, Treasuries Fall
March 4 (Bloomberg) -- Stocks rose around the world, oil and metal prices rallied and Treasuries fell on speculation China will broaden efforts to boost growth and U.S. lawmakers will reach agreement on a plan to stem mortgage defaults.
The MSCI Asia Pacific Index rose 0.7 percent as China’s Jiangxi Copper Co. and Japan’s Seven & I Holdings Co. advanced. Wen will announce a new stimulus package tomorrow, adding to a 4 trillion yuan ($585 billion) spending plan, former Statistics Bureau head Li Deshui said, without elaborating.
http://www.bloomberg.com/apps/news?pid=20601087&sid=an1gpScLNY.Y&refer=home
Hope springs from an "unannounced" announcement of "new" stimulus from China. I found this immediately amusing that the markets moved far higher on news of Chinese stimulus, than they did the day Congress passed The Obama's Stimulus Plan. They fell dramatically on new US stimulus, remember?
World stocks mixed as China stimulus hopes fade
HONG KONG (AP) -- Asian stock markets were mixed Thursday after China promised to support growth and create jobs -- but stopped short of major new stimulus measures to bolster the world's third-largest economy. European markets opened down.
Chinese Premier Wen Jiabao said the government's 4 trillion yuan ($586 billion) stimulus plan, announced in November, would help the country achieve 8 percent growth this year. That rate is seen as critical to creating jobs and staving off social unrest as the worst global economic crisis in generations hits Chinese exports.
As the government boosts money for infrastructure, social programs and tax cuts, the country's budget deficit will surge to its highest level in six decades, Wen said at China's annual legislative session in Beijing.
Global markets had rallied along with commodities prices the day before, partly on hopes China would announce new steps to counter a slowdown in its economy and help other countries restart theirs in the process.
But some investors turned cautious after Beijing largely reinforced programs and spending already known.
The program outlined in Wen's nationally televised speech, while supplying a short-term jolt to confidence with its reiteration of the 8 percent growth target, was unlikely to bring about a lasting recovery in global markets, analysts said. With Western economies and the global financial system still in tatters, any spillover effects from China would be limited.
http://biz.yahoo.com/ap/090305/world_markets.html
European markets opened down. Duped by hope. The Chinese only reiterated old news. Wherever there is hope, a bear market rally is sure to follow, and quickly evaporate with the new hope. This behavior is sure to continue until there is no hope left, and then the equity markets will bottom. To add insult to injury and dash more hopes, GM released more sobering news this morning.
GM auditors raise doubts on automaker's viability
DETROIT (AP) -- General Motors Corp.'s auditors have raised "substantial doubt" about the troubled automaker's ability to continue operations, and the company said it may have to seek bankruptcy protection if it can't execute a huge restructuring plan.
The automaker revealed the concerns Thursday in an annual report filed with the U.S. Securities and Exchange Commission.
"The corporation's recurring losses from operations, stockholders' deficit, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern," auditors for the accounting firm Deloitte & Touche LLP wrote in the report.
GM has received $13.4 billion in federal loans as it tries to survive the worst auto sales climate in 27 years. It is seeking a total of $30 billion from the government. During the past three years it has piled up $82 billion in losses, including $30.9 billion in 2008.
http://biz.yahoo.com/ap/090305/gm_annual_report.html
How can we forget the warm and fuzzy hope that greeted the markets when the government agreed to give GM money back in January. What a hopeless gesture that has turned out to be. Today's GM news should go a long ways towards dashing some hope from these markets. "As go the auto makers, so goes the country." Yep, as hopes are dashed, the despair of reality will begin to set in. America is as broke as General Motors. Bankruptcy looms for both.
Not to kick the horse while he's down, but there are a couple of under the radar news items that should go a long ways towards dashing some of this hope. The FDIC is facing insolvency, and so is the PBGC. The FDIC as we all know, insures our bank deposits. The PBGC, few know, insures the nations pension plans. Certainly if either or both were to "go broke" the bankrupt federal government would surely step up to the plate with some freshly printed money to prop them up. Funny thing about funny money though, it looks good on paper, but it ain't worth much. Our deposits and pension plans might be "insured by the government", but the "value" of the money isn't. The more funny money they print, the less it is worth. Wealth destruction is insidious. Trusting the government to protect your wealth, is like asking an alcoholic to keep an eye on your beer cooler.
FDIC's Bair warns on bank deposit insurance fund
FDIC Chairman Sheila Bair acknowledged, in a letter to bank CEOs, that the new increased fees and hefty emergency premium the agency voted to levy last week will bring a "significant expense" to banks, especially amid a recession and financial crisis when their earnings are under pressure.
"We also recognize that assessments reduce the funds that banks can lend in their communities to help revitalize the economy," Bair wrote.
But given the accelerating bank failures that have been depleting the deposit insurance fund, she said, it "could become insolvent this year."
http://www.google.com/hostednews/ap/article/ALeqM5gv3IJ-X4AJ-eO5sSEq0_QIz7NWogD96NC25O2
Government pension agency braces for recession
WASHINGTON (AP) — The deepening recession spells trouble for a little-known government corporation that insures the pensions of 44 million workers and retirees.
The Pension Benefit Guaranty Corp. already has an $11 billion deficit that seems sure to grow larger as Corporate America suffers through the worst economic crisis since the Great Depression.
With companies reporting shortfalls in their pension funds, it's all but certain that the PBGC will be forced to take over the pension plans of a rising number of bankrupt businesses.
That means more red ink at the corporation before things possibly can improve.
The future financial health of the agency is hard to forecast. It is hinged on interest rates, the length of the recession and the PBGC's own luck in playing the market, where it has billions invested.
The agency has $63 billion in assets. But it is obligated to spend $74 billion on pension benefits in the coming years. The PBGC might have time to rebound, but over the long term it might become insolvent and require a bailout.
http://www.google.com/hostednews/ap/article/ALeqM5hNeTm-svDkx1wPXeuOC6mz8TeiYAD96CPV080
All the more reason to own Gold and Silver to protect your "wealth". The government likes to tell you they are looking out for you, but actions certainly speak louder than words...but only if you're paying attention. And let's face it, America's attention span is about as long as an episode of "Lost". And she's about to lose it all.
All of the hope swirling around in the equity markets yesterday did little for our Precious Metals friends. "Who needs Gold, the bottom is in!" Yeah, right... It is unfortunate that Gold gave up support at 925 on Tuesday morning just minutes after I posted a chart pointing it out. LOL. The current reaction has become a bit deeper than the previous two in this leg up, but Gold still remains within its up channel. 881 remains major support.
Moving to the upside, Gold must clear and close above 922 to attract any interest from the Gold Bulls and pressure the Bears. A close above 940 should signal the reaction is over, and quickly flush the Bears from the market.
Silver has picked up a bit of a pep in it's step, but as always walks in the shadow of it's mentor, Gold. Silver has broken it's reaction downtrend line, and must now clear and close above 13.27 to signal a reaction low is in. A close above 13.27 should embolden Silver Bulls and put pressure on the Bears.
Conventional wisdom continues to be stood on it's head as the Dollar continues to be sought as a safe have. Nothing could be further from the truth. Recent pressure on Gold may be the result of word out of Europe that Euro central banks have have dumped over 220 tonnes of gold on the market in the last 3 weeks. They've met nearly half their yearly selling quota [500 tonnes] in 3 weeks. This smells of desperation...and a cash crisis. Central Bank selling has historically signaled opportunity for those wishing to purchase Gold at discount prices. ALL past central bank Gold selling has resulted in higher prices following the sales.
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