Notes From Underground: A spectre is haunting the global markets; the spectre of deflation

When one looks at the global markets you have to belive that there is more than a whiff of deflation in the air. The pundits talk about the corporate profits looking rosy but when you are in a “balance sheet recession,” profits be damned. Deflation brings fear and as the storm clouds gather, the small boats are heading to the harbors of safety–where ever they may be.

Today, we are seeing further evidence that the markets are having a paradigm change as the DOLLAR continues its selloff, even as the equity markets continue its bearish pursuit. Bernanke and his minions have painted themselves into a corner that will question the use of more quantitative ease (QE). It is this action that the DOLLAR is beginning to anticipate and we warned of that as the British STERLING started to catch a bid after the announced austerity program.

The EURO currency has gotten a bid as the preponderance of short positions has forced the shorts to rethink the bad news from EUROPE and begin to think that the U.S. is not the haven from risk upon which the carry trade algorithms have been built. GOLD is being sold off in this deflationary milieu but we will watch to see how the barbarous metal reacts if/when we get a move by the FED to some type of new QE program. We know that the BERNANKE TEAM is very concerned about the head winds from EUROPE and some pundits are adding in a slow down from China.

We at NOTES give little credibility to Chinese data as we find it to be even more unreliable then the unemployment data in the U.S.–so we caution our readers to be leery of short term data releases from the PRC. We do always respect market action so when the markets react to the data we pay attention, but we watch to see the more medium-term impact rather than any short-term reaction to Chinese news.

Speaking of EMPLOYMENT DATA, U.S. number will be out tomorrow and the market consensus looks for a loss of 125,000 jobs due to the loss of census jobs. We will be paying attention to hours worked and hourly earnings to see if the numbers are improving. Average hourly earnings are expected to be up around  0.2 percent and hours worked should hold above 34 hours per week. It’s also important to look at how many jobs were created in the private sector and here we would need to seee a number above 150,000 to think anything positive for the markets. If it’s a terrible number, we may see the FED jump into action soon for nervousness is prevalent with the spectre of deflation beginning to haunt.

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2 Responses to “Notes From Underground: A spectre is haunting the global markets; the spectre of deflation”

  1. ernie tomaa Says:

    thank you. very interesting reading.

  2. GaryP Says:

    Thanks for the heads up. I agree that deflation is due, but I think your point that the FED won’t let that happen (if they have the power to prevent it) is also correct.
    Maybe, one should buy gold on the dips. Deflation should be where we are headed since debts have to be written off and this effectively shrinks the money supply (if I understand this very complex topic) but QE, if large enough, will convince everyone that debasing the dollar is the goal and we will collapsing asset prices along with hyperinflation (perhaps).
    Where to invest then?

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