Modest Recovery or Not?
While pundits continue to hype the economy recovering, we continue to see deflation pressures building. All of the latest economic data has been terrible and does not look to be getting any better. Oh, and just in case you thought differently, The Washington Post reported that home foreclosures are expected to rise to a new record this year - over 1 million.
Yet, we have the government telling us the economy is showing modest growth.
Washington DC simply puts a positive spin on everything they want you to believe.
Deflation Looming?
The latest news on inflation tells us the rate continues to fall and is actually starting to point to deflationary pressures building. Producer prices were down 0.8% in the last two months and the rate of decline is starting to accelerate. While we are not predicting outright deflation, if this trend continues we very well may experience it - just like Japan.
Would you like to know what’s even more scary? The yield on the 10-year note is telling starting to confirm this evolving story, yields closed at 2.932% July 20, 2010.
Here at PSTL, we believe the 10 year-note yield is suggesting troubles with the economy, which in turn will create trouble for stocks. One thing we should note, despite yields within an earshot of new lows, we will ALWAYS respect the technicals of the stock market. Today, July 20, 2010 we saw the whole commodity sector soar and many stocks are on the verge of breaking out to the upside, something we will look to capitalize on in our day and swing trades.
Also, we should note, businesses are in excellent shape due to hoarding of cash and being more lean, however; if we do see deflation, stocks will suffer irrespective of how strong their balance sheets are.
A few tidbits I think you will find of interest. The DJIA closed 2009 at 10,428 with the 10 year-note yield at 3.84%. Now, we have the DJIA closing today, July 20, 2010 at 10,229 with the 10 year-note yield at 2.93%, lowest being 2.88% on July 1 when the DJIA was at 9,620.
What looks wrong with this picture? How can the DJIA only be 199 points below the 2009 close and have yields significantly lower? The whole bond spectrum is not only signaling potential deflation but a pending economic slowdown.
Even the 30 year bond yield has dropped from 4.64% at the end of 2009 to 3.96% as of July 20.
None of this can be painting a rosy picture for stocks or the economy.
Here at PSTL we still think the three D’s are still in play, DEBT ISSUES, DEFLATION and DEPRESSION.
No empire (US) that had to borrow money from its rivals (China) has ever lasted very long.
Wake up Washington before it’s too late!
Or, is it too late, and the Economic Tsunami is already set in motion?
Hyper-Inflation Thereafter?
Deflation to hyper-inflation can certainly be a possibility down the road. Ponder the unthinkable! Stay tuned for one of our upcoming editorials to address this topic.
Since late November 2009, we have been teaching our members in our nightly video updates and daily live webcast to be vigilant in this continued complex market environment. We teach our members how to protect their portfolios and actually capitalize and make money in a declining market. We believe for the foreseeable future all rallies in the stock market will be false and abortive and all MAJOR risk continue to be to the downside.
Regardless of how you play the market, at ProfessionalStockTraderLive.com, we always preach our members to be patient, disciplined and use stops.
