DEFLATION is upon us...

Europe’s banking system is imploding, Gold has broken its long-term uptrend, and US Treasuries are signaling a Crisis even worse than 2008, stocks are bouncing off of support as though there’s no real danger.
This can be attributed to three factors:
1) Light volume (fewer and fewer folks are investing in stocks which allows Wall Street to move the market more easily).
2) End of the year performance gaming by hedge funds and institutions (most of which have had horrible years)
3) Misguided hope and delusions… just like the ones we had in 2008 when stocks didn’t “get it” until the whole system was ready to collapse
In simple terms, the best analysis of today’s markets is that we are getting MAJOR red flags across the board that another round of DE-flation is here.
Against this backdrop, stocks are as clueless as they were in 2008. And given that most traders will be taking off early this week, those remaining will be able to move the market any way they please as volume will be even lower than the abysmal levels we’ve seen for most of 2011.
So my advice is to avoid trading this week if you can help it. There is simply too much uncertainty in the market: stocks could rally based on end of the year shenanigans… or they could just as easily collapse due to Europe or any number of other issues in the system today.
However, the larger picture indicates that deflation is back and it’s back with a vengeance. It would be wise to prepare in advance for this as stocks are ALWAYS the last to “get it.” And by the looks of the recent action in Gold and Treasuries, “It” is going to be something VERY unpleasant.

QE 3?????

Sorry Folks, QE 3 Ain’t Coming…
… Unless we get a major bank going under or a 2008-type event.
I’ve been reading that several pundits believe QE 3 is just around the corner. I’m sorry to say that this view is both misguided and has proven to be extremely dangerous to investors’ portfolios over the six months.
Indeed, we’ve heard this argument virtually non-stop since last June. Every time the Fed had another FOMC coming up, the argument was made that QE 3 would be announced. Every single time the Fed disappointed and the markets cratered (only to then be ramped higher by the PPT).
The madness would then start all over again a few weeks later. Whether it was some Dovish Fed President hinting the Fed was ready to act… or some economic data point missing expectations… EVERY TIME the pundits spun this to argue that QE 3 was just around the corner.
However, for those who actually read what Bernanke was saying, it was clear as day that QE 3 was NOT coming… at least not without some kind of Crisis hitting first: such as a major bank collapsing or another 2008 episode.

QE 3???

We’ve reached the end game for Central Bank intervention.
When confronted with excessive debt, you can either “take the hit” or you can try to inflate the debt away.
In 2008, the Central Banks, lead by the US Federal Reserve, decided not to “take the hit.” They’ve since spent trillions of Dollars propping up the financial system. By doing this, they’ve essentially attempted to fight a debt problem by issuing more debt.
The end result is similar to what happens when you try to cure a heroine addict by giving him more heroine: each new “hit” has less and less effect.
Case in point, consider the Central Banks’ coordinated intervention to lower the cost of borrowing Dollars three weeks ago. Remember, this was a coordinated effort, not the Federal Reserve or European Central Bank acting alone.
And yet, here we are, less than one month later, and European banks have wiped out MOST if not ALL of the gains the intervention produced.

Kyle Bass is a Genius....

The slow grinding crash is intact and in progress. Because demand has collapsed and deflation is knocking on the door again...but...the Fed and C Bankers in their wisdom think the cure is monetary expansion. After 3 years of "the cure" we've proven that although stock prices, bond prices and food and energy prices do rise, household net worth, real median incomes, res and commercial real estate all drop...and drop..and drop. There is no growth in real terms. Jobs and whole industries keep going offshore, we keep handing money over to other countries by feeding our twin deficits (trade and fiscal) and capital (financial and now even human) follows. Net result? Biflation. The domestic economy is going to hell, slowly being bled dry and geopolitical risks are increasing as buying power and the middle class keeps getting crushed. The cost of living, working and doing business will continue to outstrip the potential for profit.
So no you won't get a "crash". THat would be real capitalism in action. The process of creative destruction would ensure that the failed, inefficient business models would fail and new ones would spring up in their place with new vigor. Ahh but that would mean the status quo, and the people in power would lose big: through defaults and bankrupticies. Debts would cancel. And they sure as hell don't want that. They'd rather ride the slow grinding crash all the way down while they get fat off the failed zombie banks, the Fed's largess and the collection of debts incurred at the peak of the cycle.