Outlook: 2011 Q3 update

We are in a holding pattern, Greece is about to default soon, and so much focus is being paid to that situation, only now are folks starting to notice the unrest in Italy.  Protests and banks in trouble.  However, we are also coming up to an Aug 2nd deadline for the US to possibly default also.  The odds are incredibly unlikely that the US will actually default, and it will not be a serious default regardless, however as much as I have underestimated the impact of government bailout packages and incentives in the past and their influence on the economy, rest assured many will underestimate the impact of the austerity that is coming to the USA.  We have to cut out about $1.3 Trillion, or roughly 30% of the current budget to spend what we take in.  Or, raise taxes by that amount.  Either way, lots and lots of government jobs are going to be eliminated.  Really, lots and lots!!!

Unemployment, the headline number shocked everyone this past month, but as my new graph shows, the actual employment is flat, and going slightly down.  Not all that much.  This is definitely a jobless recovery, and I am not sure how you can use the word "recovery" given this type of data.  I still think late this year the percentage resumes its drop as shown.  Mainly because the government that hired everyone will need to let them all go very soon.

Inflation continues to climb, and at 3.5% that is pretty high, but again, I am not reading a bunch into it.  Certainly not the hyper inflation that a large group of folks were determined we were headed for 6 months ago.  I still fear QE3, but given the problems around the world and within the US, one has to figure the Federal reserve has to be reconsidering if that is a good idea or not. 

Hard to say about the Dow, the upside of the market seems to be changing, or at least pausing.  Right as we sit, the latest high is lower than the previous, and that could be bad news, but again we could shoot up some more.  I am on high alert, as the 50 day moving average and the 200 day moving average are just below where we sit, and I know a bunch of longer term traders honor the 200 day MA, so a break of that, although still early, would be not good. 

Gold keeps chugging skyward, and still no amount of inflation could justify this.  Well, yes, hyper inflation could, but yet again we do not see that on the previous chart.  So I will stick to my guns and say gold is in for a great fall, but when?

And so like the space shuttle when it sits in a holding pattern on the launch pad, so does the debt ceiling.  Rest assured, once they agree, and they will, it will jump right back on track.  They have only stalled right now.  I have read a fair bit about this debate, and even if we "default" on Aug 2nd, it will not be the end of the world.  Everyone is just assuming we will pay a bit late, and given that it does not look to be a problem, and I do not think it will be either.  They will come to an agreement, as no one wants to be the one that could possibly be blamed for what "might" happen.

This data from the chart below is old, June 22nd in fact.  Italy and Spain are now climbing, Greece is considering a default, and Portugal and Ireland have been downgraded to junk status.  The really scary thing is that there are initial discussions on Japan, England, and the US and their debt loads.  This all comes crashing down, and it is very interesting to see the countries get knocked off one by one at this early stage, but it will soon be by the tens if not more. 

Not much to see the revolving continues up, but for how long? I am thinking time for a change in direction, but may be early once again.

And on this one I have to laugh a little, as last quarter I was concerned that the bottom had fallen out and I had overestimated home prices, and now it would appear I have underestimated home prices.  Overall I have to say it looks on track, and should continue down for the next four years, but for now we will take it one quarter at a time.  There is no hope at this point, and the only proposal I have seen recently to save the housing market is to retire part of the principal on underwater mortgages,  but that idea will require someone take a loss (the banks, shareholders, or the government) and it is unlikely anyone will step up for that.

At this point I suspect I am a bit too pessimistic, namely with regards to the market, and gold still.  Gold is just incredible, for no reason what so ever it has gone parabolic and remarkably continues its rise.  Note now, the fall will be horrific, and there will be no sympathy for those in that market.  Europe looks like it is on the precipice of Armageddon, as Greece will default in a matter of days to weeks, and look for dominoes to fall in Ireland and Portugal very soon after.  Overall things are ok, but still that quiet nervousness persists.  Be careful! 

The email for updates issue is SOLVED!  At the top of the page you can now enter your email, it will send a confirmation, and then you will get a mail automatically whenever I post.  And no, I cannot see the email addresses. 

Patrick