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The Masked Tulip

There's Probably Another Leg Down...

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http://www.marketoracle.co.uk/Article10904.html

Collapsing home prices and credit markets continue to put downward pressure on consumer spending, forcing the Federal Reserve to take even more radical action to revive the economy. Last week, Fed chief Ben Bernanke raised the prospect of further monetizing the debt by purchasing more than the $1.75 trillion of Treasuries and mortgage-backed securities (MBS) already committed. The announcement sent shock-waves through the currency markets where skittish traders have joined doomsayers in predicting tough times ahead for the dollar.

Foreign central banks have been gobbling up US debt at an impressive pace, adding another $60 billion in the last three weeks alone. That's more than enough to cover the current account deficit and put the greenback on solid ground for the time-being. But with fiscal deficits ballooning to $3 trillion in the next year alone, dwindling foreign investment won't be enough to keep the dollar afloat. Bernanke will be forced to either raise interest rates or let the dollar fall hard.

In an environment where businesses and consumers are rebuilding their balance sheets and paying off debt, there's only one option; inflation. Bernanke will keep interest rates will stay low while increasing monetary and fiscal stimulus. The ocean of red ink will continue to rise. Still, the systemwide contraction will persist despite the Fed's multi-trillion dollar lending programs, quantitative easing (QE) and Treasury buybacks. The "Great Unwind" is irreversible; the era of limitless credit expansion is over.

David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates, believes that the equities markets have undergone a "gargantuan short-cover rally" and that stocks will retest the March 9th low, which was a 12 year low for the S&P 500 Index. Rosenberg said he doesn't expect the economy to recover in the second half of the year.

"I'm seeing no revival of consumer spending in the second quarter," Rosenberg said. (Bloomberg)

The conditions that supported the explosive growth of the last decade no longer exist. The credit markets are in a shambles, the banking system is hanging by a thread, and the consumer is out of gas. Traders are clinging to the slim hope that the worst is over, but they could be mistaken. There's probably another leg down and it will be more vicious than the last.

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http://www.bloomberg.com/apps/news?pid=206...id=a7DLzGCIOJ3s

The S&P 500 rallied as much as 24 percent from an 11-year low of 752.44 on Nov. 20 to Jan. 6 on speculation the economy will recover amid government efforts to rescue banks and automakers. The measure erased those gains and fell another 10 percent to a 12-year low of 676.53 on March 9 as losses at lenders mounted and unemployment continued to rise.

‘Gargantuan Short Covering Rally’

Rosenberg said the nine-week gain that began March 10, the steepest over similar spans since the 1930s, was a “gargantuan short-covering rally.†A so-called short covering rally happens when investors who have borrowed shares, hoping to buy them back at lower prices and profit from their decline, are forced to purchase the shares to close their bearish bets.

Rosenberg said he doesn’t expect the economy to recover in the second half.

“I’m seeing no revival of consumer spending in the second quarter,†Rosenberg said.

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Its going to be soooo funny though if there isn't another leg down though isn't it........

I reckon housing will still fall further but doubt it will go beyond 35% ... which would suggest at 20% the worst is over.

AND I doubt the previous lows of the stock market will be tested although I should think will be periods of falls and rises for a few months yet.... bulls to return 2010.

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Guest DissipatedYouthIsValuable

Only one?

I admire your optimism.

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Its going to be soooo funny though if there isn't another leg down though isn't it........

I reckon housing will still fall further but doubt it will go beyond 35% ... which would suggest at 20% the worst is over.

AND I doubt the previous lows of the stock market will be tested although I should think will be periods of falls and rises for a few months yet.... bulls to return 2010.

See Cashinmatress's thread: Britain Faces ‘Miserable’ Years of Austerity, HSBC’s King Says.

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If you don't have two legs down surely you risk falling over? Unless you're a flamingo.

Or Jethro Tull, in his prime..

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Its going to be soooo funny though if there isn't another leg down though isn't it........

I reckon housing will still fall further but doubt it will go beyond 35% ... which would suggest at 20% the worst is over.

AND I doubt the previous lows of the stock market will be tested although I should think will be periods of falls and rises for a few months yet.... bulls to return 2010.

Whilst I generally agree, I'm not sure how the "worst" can be over for housing, as that would imply a 35% drop from peak is in some way better for those holding property than a 20% drop from peak. Surely the last percent of the fall is, by definition, the "worst".

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This is very interesting, especially if you read the article Mike posted on US gdp figures.

apparently:

--------------------------

Consumer spending, which accounts for over two-thirds of U.S. economic activity, rose 1.5 percent, but slower than the 2.2 percent rate estimated by the government last month. Spending had collapsed in the second half of last year.

Consumer spending was lifted by a 9.6 percent leap in the consumption of durable goods, the biggest advance since the first quarter of 2006.

---------------------------

It's very odd that bank lending to consumers fell 20-25% last quarter, loads of americans lost their jobs and homes, wages fell and yet consumer spending is.... up?! :blink:

Perhaps by durable goods they mean a tent to live in and pot to piss in? :unsure:

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