Juggling Dynamite

One of these days we will have stock prices worth buying again. In the meantime this is a thinly participated market, with a handful of algo sharks churning away, chumming the waters for the desperate and unsuspecting. So long as the bull-case rests on more central bank tricks, while the economy and demand turns down, we can tell that we are no where near good value yet.

Bloomberg’s Mike McKee discusses the lack of volume in U.S. markets and how global markets are basically in a holding pattern, waiting for Federal Reserve chairman Ben Bernanke to speak later this month in Jackson Hole.

Here is a direct link.

Meanwhile as shown in the chart below, retail investors continue to bail out of equity mutual funds (red bars are outflows).

Makes sense: the 99% are needing to raise cash to pay bills. They have lost money in equities now for about 15 years and are starting to catch on that they are being abused. They have lost faith in what has become an increasingly rigged system. About time.

“As the chart below shows, the Federal Reserve has never initiated more accommodation when the TIPS inflation breakeven rate was above 2.0%. This level is important because the Federal Reserve adopted 2.0% as an inflation target last January.

When expected inflation is above 2.0%, it does not mean the FOMC has to tighten. But it can mean there is too much inflation to add more accommodation. Of course the Federal Reserve can decide to ignore this target, but since they adopted it less than a year ago, they risk their own credibility in doing so.

This might be the big stumbling block to QE3.”

Source: Bianco Research

Steen Jakobsen, chief economist at Saxo Bank, recaps why the autumn calendar is full of tail risks coming in and September is going to see a lot more speed and velocity. Here is a direct link.