World financial markets contracted severely this week based primarily on the desperate, delusional, and dysfunctional workings of a damaged and destructive US political process.
The needs and concerns of very nervous and vulnerable entrepreneurs and investors have taken a back seat to the 'Armageddon' threats issues by the fearless meddling leadership. This 'last and final battle between the forces of good and evil' before the Aug 2nd judgement day has deteriorated into nothing more than repulsive self serving partisan pre-election grandstanding.
The 500+ point sell off which Dem. Rep. Nancy Pelosi shockingly suggested might be necessary to 'focus the attention' of her Republican counterparts became a fear driven disgusting reality this week. Her latest latest pearl of wisdom in response to investor debt angst is the mind numbing proclamation that, 'We're trying to save life on this planet as we know it today.' One does wonder which planet she originated from?
This incredibly dangerous and desperate ideological battle for control over the tax payers purse strings and the role of government in American society better end before whatever little confidence remains totally and permanently evaporates. The fundamental divisions over the role of government, the extent of state involvement in the economy, and the extent of the welfare state burden desperately needs to be settled probably by others more qualified and disciplined than are currently in charge!
The diseased and infected DC political swamp needs to be drained!
In the US, an already weak and jobless economy reported tepid/dismal GDP economic growth statistics (1.3% in Q2) primarily as a reflection of the lack of confidence which domestic industry has in the current administration and political process. Considering the various fear tactics which Washington has employed for the past 3 months it is not surprising that the domestic economy cooled and contracted. The 'flight of capital' and continued corporate 'disinvestment' is a by product of ongoing substandard and incompetent leadership. A coherent mission statement would be a good start!
Heavily indebted and leveraged nations need a positive program of growth and wealth creation. It's all about getting back to the basics - hopefully!
The CDS cost of insuring Treasury's spiked 50+% this week based primarily on the annoying political stalemate and the real possibility of a 'non' AAA rating.
Earnings continue to be the silver lining in a very dark cloud with over 50% of S&P companies reporting of which 75+% exceeded expectations. Almost 70% of S&P companies are now global which enjoy a historically low interest rate structure and a weak US dollar policy.
The DJIA has lost the 'Pelosi 500' points (-3.75%) this week with both the S&P and NASDAQ also both down 3+% - and all breaking their 200 dma's which sure gets my 'attention!' 12,750 now represents formidable DJIA resistance and the S&P needs to decisively break 1,350 before any significant upward bullish momentum occurs. A clear break below11,900 on the DJIA would constitute a major intermediate term negative signal. Longer term support levels are in the 11,750-12,000 range - should push 'come to shove!' Let's hope cool heads prevail during the dog days of August! The fragile residential housing market is trying valiantly to bottom and needs all the help it can get!
In commodities, the obvious sovereign inflationary debt strategy solution has tacked $US50/oz onto the price of Gold and record all time highs of $US1,650/oz. The potential exists for an accelerated rally into my target level of $US1,750/oz should the political types continue to mastermind! This is definitely the environment to hold/buy/trade Gold! Silver solidly holds $US40/oz and measures to retest the $US47/oz level over the next few weeks. Copper ignores all suggestions of an economic slowdown and threatens to breakout of $US4.50/lb resistance to my long term target of $US5/lb in fairly short order. Natural Gas continues to be range bound ($4-4.50/mcf) trading at $US4.15 based on expanding inventories and despite persistently hot North American temperatures. I have expected Natural Gas to act better in this environment and remain mildly positive until further notice. Crude Oil has weakened from it's recent $US100/bl and looks likely to retest the end of June $US90/bl level. The Agra markets remain poised for new life of the contract highs based on a deteriorating US dollar and inflationary pressures. Corn would need to break $US7/bu and Soybeans $US14.25/bu. Wheat has been the laggard of the group and needs to break $US7.25/bu to turn short term bullish with a possible run at the $US9 May high level.
In Canada, the TSX has also been hit hard this week in sympathy to the various US debt challenges and sovereign uncertainty. The TSX/S&P has lost over 4% (550+ points) in broad based selling of financial and resource issues. The TSX index stopped cold at the critical level of 13,500 and is now within less than 2% of the recent end of June low of 12,800. Canada's monthly GDP growth for May came in well below expectations and at a slowing -0.3%. Housing prices managed yet another 1.3% increase in the month of May and a new (stunning) record all time high. Wild and woolly SinoForest newly minted largest shareholder, billionaire R. Chandler, now holds 15% of the beleaguered company. SeeNoForest has rallied over 400% from the recent panic sell off lows. Resource earnings have been mixed based on a number of currency and inflationary head winds. Relative divergences between the resource equity price levels and their underlying commodity prices are getting stretched to compelling table pounding levels. The TSX index has considerable support in the 12,500 level should poke come to punch!
Bottom Line, the latest 4 month political deal deal saga is mercifully coming to an end and hopefully some kind of logical and pragmatic conclusion. I am a tad surprised that equity markets have waited until the 11th hour to stage a mini sell off panic which should be contained by support levels 3-5% lower.
It appears to be as much of a buyers strike as it is concerted liquidation. It feels more like a 'bid pulling' process as opposed to a heavy selling exercise.
The annoying and painful political 'debt compromise process' has been met with as much disgust as it has been fear and loathing.
My long term bullish inflationary view remains intact and reinforced by the mindless and uninspired rhetoric emanating from the political types of all stripes.
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