Wall Street (which drives me crazy) calls even the smallest bit of good news “green shoots.” The analogy is that grass starts to grow in the form of a “green shoot.” Well, I have many “green shoots” in my yard right now. Unfortunately, these green shoots are weeds more than anything. John Mauldin made a very good observation in his latest writing. He said:
“My premise for uttering the heresy “This Time It’s Different*” is that the fundamental nature of the economic landscape has so changed that comparisons with post-WWII recoveries is at best problematical and at worst misleading.”
His point is that Wall Street is looking at this recession through the lens of past recessions since WWII. It is like comparing apples to oranges when you think of what makes up the problems that we face today. Last week, the S&P cut their investment ratings on 22 banks. Banks depend on strong investment ratings so that they can attract investor money. The Consumer Price Index saw its largest drop since 1950. Once again, it looks a lot like deflation more than inflation. The reality is that there is a higher probability that we are in the throws of a deflationary problem which is something that only time can solve. The problem with the weeds in my yard is that I cannot do anything about them unless I want brown spots all over my yard. I will have to wait until next year and make sure that they don’t come back. This is unlike any recession since the 1930’s.
This week will have some interesting events. The Federal Reserve Board meeting, that always makes for an interesting day. The Treasury is set to sell billions of dollars of Government Bonds on the open market. It will be interesting to see how interest rates hold up. Once again, a rising interest rate environment is the last thing that a debt laden economy can handle.
As I write, the S&P 500 is below a critical price level of 900. If the market were to close below that level, we would want to watch the next couple of days very carefully. Once again, we want to evaluate whether this stock market rally is the beginning of a new bull market or nothing more than a bear market rally. It is my view that this is nothing more than a bear market rally. Thus, you want to be monitoring your risk very closely right now. I will update more frequently this week as it warrants.
Prudent Money Market Outlook 