Juggling Dynamite

So long as there continues to be big holes in the bucket in the form of unfunded deficits for governments and insolvent banks holding their bonds, liquidity pumps will continue to bring short-lived rallies with no lasting benefit. Eventually I expect that Euro zone debts will be restructured and written down along with massive cuts in government spending. At that point cash will be able to build into lasting strength on balance sheets again. At last the solvency crisis will be stemmed and the long road back to economic strength and a durable expansion in the stock market can begin. If you can’t see the clip here is the link.

Danielle spoke to Phil Mackesy of Talk Digital Network today discussing recent developments in the global economy and world markets. You can listen to the audio clip here.

For all those commentators who dive under the warm blanket of “decoupling” and “divergence” as reasons to keep hoping that stocks can do well in some countries while imploding in others.  Here are a couple of charts that rip off the covers to leave “long-always” thoughts naked and exposed to the cold dawn of day.

This one shows the nearly perfect correlation between the US Purchasing Managers Index (economic strength) and those of the EU, UK and China since 2006.

This one shows the unfortunate truth that year to date, the higher growth economies of Brazil, Russia, India and China (BRIC) have all suffered greater losses in their stock markets than the slow growth US and even the no growth Eurozone.

I understand that this reality flies in the face of the investment world’s main business model–that we never have to sell or wait in cash because there is always a bull market somewhere.  But Dude, that model is killing your clients.  Facts must be faced.