Why now?

There has got to be more to last weeks move by the IEA to release an additional 60 million barrels of oil than meets the eye. At the time of the announcement, WTI crude oil was sitting at about $95 – approximately 20% beneath its recent peak. A very big price adjustment had already been made. Had oil been trading at $120, it would be more understandable. Its only the 3rd time ever the IEA has tapped into their reserves: the first time was during the Gulf War, next was after hurricane Katrina, and now a third time. Why?

· One of the reasons given, is the production loss due to Libya. This doesn’t make much sense, as the story is a good couple of months old. Why act now? And in any event, currently the production lost due to Libya has been offset by the loss of demand from Japan post tsunami.
· Another proposed reason, is to clampdown on the speculative longs. Again, this is unlikely, as there were far more speculative longs a number of weeks ago when the price was $20 higher, and there was no “imminent” correction. Plus, any speculative longs out there must have nerves of steel, as the recent macro data is painting a picture of a world in which China, the US, Europe and Japan are all slowing down.
· It’s unlikely too that the reason is to stimulate the economy, be it the US, China or Europe. The 60 million barrels would last for about 16 hours of global consumption- hardly enough to make any sort of impact on global supply and lasting impact on price. Indeed, you will probably find China licking their lips in glee, at the ability to buy up every single one of those barrels for their own reserves.
· The IEA’s strategic reserves are specifically held for “emergency situations”. The IEA has no choice but to replenish the released reserves at some future time. I.e. additional price pressure at some future point.

In my mind, the release of the oil should be considered the equivalent of a global coordinated rate cut. In the long run, oil is an inflationary headwind but the elevated prices at the moment is more of a consumption tax and price shock. Last week’s events may merely be temporary) but I think they will serve a psychological purpose. However, the timing of the announcement, despite being odd as to the necessity, is also a little bit on the short sighted side. As reported 2 weeks ago http://goldrockthoughts.blogspot.com/2011/06/crude-to-march-higher.html
OPEC had their worst ever meeting, and there is already evidence of a strong rift within the OPEC camp. Since that meeting, Saudia Arabia have seemingly been cast into the sidelines, and OPEC themselves do not seem to consider the Saudi’s as a part of OPEC.

Where’s the evidence? OPEC and the European Union are due to hold an energy summit in Vienna Monday that will be the first official meeting of producers and consumers since the IEA's move, and will provide a platform for OPEC members to express their disquiet over the stocks' release. However, OPEC's biggest player, Saudi Arabia, won't be present. There has to be at least the potential for the remaining OPEC countries to counteract the IEA’s move and cut output to offset the increased supply. A war in which OPEC cuts production and IEA offsets that with the release of strategic reserves, is not a situation that the global economy would like to get into right now. (Besides for China of course, who would happily build up its own strategic reserves).

---------------------------------------------------------------------------------------------------------------------------------LEGAL DISCLAIMER: The views mentioned above are purely that of the author, and does not necessarily reflect the official view of Goldrock Capital or employees. Unless of course the aforementioned view was a phenomenally good call, with exquisite market timing, in which case Goldrock Capital reserves the right to all credit!!!!!More Serious disclaimer:The financial advice offered on this site is of a general nature and may not be suitable for some people. No individual financial needs or goals have been taken into account in the advice offered on this site, you should always seek independent advice about specific financial decisions. Neither Goldrock Capital nor its employees makes or gives any representation, warranty or guarantee that the information it provides in this website is complete, accurate, current or reliable (including that it has been or will be audited or verified). Goldrock Capital and its employees shall not be liable for any loss or damage whatsoever (including human or computer error, negligent or otherwise, by one or more of the authorities, or incidental or consequential loss or damage) arising out of or in connection with any use or reliance on the information or advice on this site. The user must accept sole responsibility associated with the use of the material on this site, irrespective of the purpose for which such use or results are applied. The information on this website is no substitute for financial advice.

Greece

One of our avid readers (hi Mum!) pointed out how we have failed to comment on the main story currently hitting all the headlines …. that of Greece. That is correct- probably the main reason is due to the fact that the news flowing out of Greece, is so fast, that I would have undoubtedly got to the end of my blogging, by which point I would have had to write a whole new posting due to an updated newsflash! Often, the latest revelation is a full 180° from the previous newsflash, and that is no doubt significantly contributing to the increasing volatility we have been privy to, with investors being whipsawed from one side to the other! Risk on, risk off, threat of contagion, restructurings, haircuts ….. isn’t life exciting! The other reason for not writing about Greece, is that I would undoubtedly have to disclose that my main ECONOMICS tutor was Greek, and what does that say about my knowledge of economics/finance?!!! Truth is, he was also my Football Manager ……. And he was a darn sight better at football than at Economics!!!

What is clear, is that Greece has run out of money, again, and needs some form of bailout/restructuring. So far, Europe, the ECB, IMF and everyone else has responded to the problem by throwing more money at Greece, allowing them to "buy time". Nobody has used the downright rude and ugly term of "insolvent", with "liquidity" being the preferred terminology. Lenders have been willing to lend more money, because the problem is one of liquidity. They have been willing to lend more money to banks and Governments. And Greece for their part, have not once admitted the need for default or restructuring, and so the banking sectors have not been forced to write down any more debt and/or need to raise more capital. A win win for everyone.

This would have bought some more time. Time is a fantastic healer. However, the issue was not one of liquidity, rather one of insolvency-debt problems are unlikely to be solved by taking on more debt. As a minimum, investors will require a credible plan for the economy to return to solvency to become willing to fund the banks and public debt of the troubled economy in question. This does not seem to be the case though, with the general Greek population revolting (in the other sense of the word), then one has to wonder where that credible solvency plan is going to come from. What is clear though, is that of those included around the negotiating table, nobody but nobody is "allowing" Greece to simply default. A solution will seemingly be found to prevent Greece from "legally" defaulting- even if it means some quick changes to EU law, account rules or ECB operation guidelines.

Whats the big deal with a Greek default? Why are they working so hard to prevent it? The Eurozone debt crises, is not especially extraordinary- it is merely another credit cycle, whereby debt extends beyong the capacity of consumers and economies. Debt then contracts as uncollectable debt gets written down, and bad debt is purged from the system. Throwing more money at Greece is merely extending and prolonging the problem?

Although a default is a default, and from a value point of view it doesn’t make any difference whether it is the debt of Greece, Portugal, Azerbaijan or the US that is written down, from an economic point of view, it certainly makes a difference. If Greece are thrown another lifeline, both Ireland and Portugal will operate under the assumption that in the future, they will also get another bailout should they need it. Markets know that, and hence speculation will continue on the "Who's next path", and cause investors to demand additional premiums, causing yields to rise. Eventually, the larger economies will be targeted too. How do I know you wont default either Spain? And that will cause even more serious problems, as who is left to bailout the larger and more important economies?

---------------------------------------------------------------------------------------------------------------------------------LEGAL DISCLAIMER: The views mentioned above are purely that of the author, and does not necessarily reflect the official view of Goldrock Capital or employees. Unless of course the aforementioned view was a phenomenally good call, with exquisite market timing, in which case Goldrock Capital reserves the right to all credit!!!!!More Serious disclaimer:The financial advice offered on this site is of a general nature and may not be suitable for some people. No individual financial needs or goals have been taken into account in the advice offered on this site, you should always seek independent advice about specific financial decisions. Neither Goldrock Capital nor its employees makes or gives any representation, warranty or guarantee that the information it provides in this website is complete, accurate, current or reliable (including that it has been or will be audited or verified). Goldrock Capital and its employees shall not be liable for any loss or damage whatsoever (including human or computer error, negligent or otherwise, by one or more of the authorities, or incidental or consequential loss or damage) arising out of or in connection with any use or reliance on the information or advice on this site. The user must accept sole responsibility associated with the use of the material on this site, irrespective of the purpose for which such use or results are applied. The information on this website is no substitute for financial advice.

A contrarian view ......

Interestingly, after my last blog entry http://goldrockthoughts.blogspot.com/2011/06/taking-look-at-bigger-picture.html I saw that the 10 day smooth moving average for the put/call ratio was at its highest it has been since March 2009 when the S&P put in its 666 low.

As a reminder, the put to call ratio is a popular contrarian indicator based upon the trading volumes of put options compared to call options. The ratio attempts to gauge the prevailing level of bullishness or bearishness in the market. Obviously, there is always a buyer for every seller, otherwise the market wouldn’t clear. On days when the major averages perform strongly, the number of calls bought typically far outweighs the number of puts, so the ratio tends to be small. On days of market weakness, fear prevails and the number of puts purchased is typically much higher. The daily put/call graph is highly erratic, however, a moving average that smoothes out the data is an excellent contrarian tool that can help you avoid getting caught up in the prevailing market sentiment.




A 1 day rise in the indicator is typically a sign that investors are temporarily seeking protection against a market decline, an extreme high in the moving average reveals a more comprehensive sentiment build-up. The put/call ratio hit its highest level in the last 2 and a half years, higher than this time last year when the market first plunged on Greece, and higher than March 2009 when the market hit the 666 low.

I always like mentioning the other side of the coin too, and so yes, this is a favored contrarian tool, never before has the put/call ratio been at such extreme levels DESPITE the multi-trillion safety net in the form of central banks, and just 2 weeks prior to the end of the Fed stimulus program. Contrarian tools are a good bet against conventional wisdom. However, with Greece/Europe on the verge of bankruptcy, perhaps conventional wisdom (continued declines in the markets) will prevail after all!!!



---------------------------------------------------------------------------------------------------------------------------------LEGAL DISCLAIMER: The views mentioned above are purely that of the author, and does not necessarily reflect the official view of Goldrock Capital or employees. Unless of course the aforementioned view was a phenomenally good call, with exquisite market timing, in which case Goldrock Capital reserves the right to all credit!!!!!More Serious disclaimer:The financial advice offered on this site is of a general nature and may not be suitable for some people. No individual financial needs or goals have been taken into account in the advice offered on this site, you should always seek independent advice about specific financial decisions. Neither Goldrock Capital nor its employees makes or gives any representation, warranty or guarantee that the information it provides in this website is complete, accurate, current or reliable (including that it has been or will be audited or verified). Goldrock Capital and its employees shall not be liable for any loss or damage whatsoever (including human or computer error, negligent or otherwise, by one or more of the authorities, or incidental or consequential loss or damage) arising out of or in connection with any use or reliance on the information or advice on this site. The user must accept sole responsibility associated with the use of the material on this site, irrespective of the purpose for which such use or results are applied. The information on this website is no substitute for financial advice.

Taking a look at the bigger picture ,,,,,,,

I thought I’d take advantage of a quiet day in the office and catch up with some blogging ……. There’s not many people who can openly say that without fear of their employer giving them “the boot”- not only do I not have that fear, but I know I have my employer’s blessing ….. wow! I’d like to take a step back and see where we are. Not that one should only reflect on quieter days, but its certainly a good opportunity to do just that!

With the US markets currently down some 8% from the recent peak, with the Nasdaq in negative territory for the year and many other markets either share a similar fate or are fast approaching, there is certainly a lot of fear out there. What do we do now? Do we buy? Sell and wait for more certainty before getting back in? Wait and see? The first question that needs to be addressed is what sort of an investor am I? Many investors are currently wondering why they are not traders. The last decade has seen the markets go absolutely nowhere with a huge amount of volatility. Buy and hold has not worked in the main. One must remember though, that:

1. yes, your neighbor may have sold at the top, but if they didn’t get back in, then they are not necessarily better off.
2. You have many neighbors, many more of whom would have bought at the top ….
3. and it’s only the successful ones that will be shouting their stories!

Generally, trying to mix the trader and investor approaches does not work. If you would like some blend of the 2, you should allocate part of your money to each method as the rules and psychology are completely different. The trader MUST NOT care about fundamental values- his timeframe is far too short. The investor has to trade on fundamentals, without getting caught up by the emotive side. Indeed, the investor will typically be buying the stocks that are hated by the market in general and traders in particular.

The Markets have had a very negative tone over the last few weeks. This was to be expected. In Q1:
· Cyclical indicators reached historically high levels, and was tracking well above its normal level for the stage of recovery we were at.
· Consumer confidence was dented by a whole host of problems.
· High commodity prices were denting the consumers and putting corporate margins under pressure, but the weak consumer meant that companies were unable to fully pass on the costs.
· Wage costs are rising sharply in Emerging Markets.
· Productivity growth is unlikely to be strong due to the lack of investment over the last 3 years.
· Forecasts, which on the whole had been based on continued positive margin expansion was already at the highest since 1956, despite a tepid economy and surging input costs.
· Emerging Market Central banks have started on the monetary tightening route.

And we haven’t even begun to talk about outside factors, such as the end to QE2 and Fed induced liquidity, or the sovereign debt problems that have plagued us for 18 months and show no signs of letting up, or geopolitical tension in the Middle East/Africa, or natural disasters/tsunamis and their repercussions on global demand/supply, or a housing market is bobbing along at the very bottom, with 1 in 4 Americans in negative equity with potentially much more downside, or even the still weak labor market.

There is no doubt about it, the economy is definitely cooling off, as it was this time last year. However, now it is different. Last year, Mr Bernanke through the market a lifeline with a new round of liquidity expansion. Last week however, he delivered an even more sobering outlook, but this time without the lifeline (just yet anyway- I mentioned here http://goldrockthoughts.blogspot.com/2011/06/what-goes-up-must-come-down.html that the stock market, and Fed, and just about everyone in between is seemingly caught in a catch 22 situation: QE3 is seemingly being priced in by stocks ...... however for QE3 to actually happen, stocks would have to fall approximately 15-20% from their current elevated levels!!! I feel that QE3 was the main factor in propping up the market to such an elevated level, if there is no hint from the next Fed meeting (next week) as to the onset of QE3, we may be in for an interesting market- which of course would give the Fed the ammo needed for QE3!!!

Another interesting observation is that whilst the economists have been cutting their numbers, the equity analysts have yet to follow suit. If they do, then suddenly market valuations are not as compelling as they seemed.

All this sounds very bearish, and one can well understand the want/need to take some money off the table and wait and see. Weakness in the economic data was expected. In addition, the supply chain disruptions from Japan and consumer cutbacks from higher oil, was also expected, with consensus opinion that the tepid recovery will continue after these aberrations. There is always the worry though that the economic weakness is the sign of something much worse. This currently seems quite an extreme view, as even the cautious camp are predicting a slower rate of growth rather than an outright recession.

There are some real doom and gloomers too, who want to extrapolate to another lost decade plus. For me, the last decade was an exception. It started where demand and sales had been brought forward over fears of Y2k. This was an exceptional and unprecedented boom, which was only intensified by the onset of the internet. The decade ended with a financial crises of unprecedented proportions. We started with an atypical peak, and ended with an atypical trough.

For the investors out there, I would take advantage of the fear. Though I would imagine that there is still some more downside, I feel like the slowing economy story is fairly reflected in prices. Over the course of a business cycle, stocks are undervalued and trading below historic norms. Yes, China, and other Emerging countries are tightening, but this is a positive. They have already been appropriately tightening for a year now, and seem to be successfully navigating growth with manageable inflation. Incremental Emerging Market consumer spending eclipsed US consumer spending several years ago, with the Emerging Market consumer to drive global growth for years to come. And there are already indications that even those who have been hardest hit by the Japanese earthquake are almost operating close to full production.

Over the past few months, I have been saying how the market is not exciting, the risk reward is not compelling. The markets are now at their most compelling, valuation wise. Despite expecting some more down side, I would begin to close underweights and for the investors to build positions. The markets themselves seem quite healthy, in the sense of strong balance sheets, leverage as low as it has been for the last 20 years, banks more willing to lend, buisness climate indicators still close to their highs. By all means trade the fear, trade the exuberance. But don’t get caught up in it yourself. Stick to your system- if everything is within normal ranges, then there is no reason for alarm. And also be wary of the news. The news is about problems and potential disasters. If it’s the talk of the town, then it is already reflected in market prices. Look for the unexpected, or if something unusual is happening.

Happy Investing/trading!!!


For the record, S&P 500 currently at 1267!


---------------------------------------------------------------------------------------------------------------------------------LEGAL DISCLAIMER: The views mentioned above are purely that of the author, and does not necessarily reflect the official view of Goldrock Capital or employees. Unless of course the aforementioned view was a phenomenally good call, with exquisite market timing, in which case Goldrock Capital reserves the right to all credit!!!!!

More Serious disclaimer:

The financial advice offered on this site is of a general nature and may not be suitable for some people. No individual financial needs or goals have been taken into account in the advice offered on this site, you should always seek independent advice about specific financial decisions. Neither Goldrock Capital nor its employees makes or gives any representation, warranty or guarantee that the information it provides in this website is complete, accurate, current or reliable (including that it has been or will be audited or verified). Goldrock Capital and its employees shall not be liable for any loss or damage whatsoever (including human or computer error, negligent or otherwise, by one or more of the authorities, or incidental or consequential loss or damage) arising out of or in connection with any use or reliance on the information or advice on this site. The user must accept sole responsibility associated with the use of the material on this site, irrespective of the purpose for which such use or results are applied. The information on this website is no substitute for financial advice.

Thank you Stanley!!

I note that Stanley Fischer has put himself forward as a candidate for the top-job at the IMF.

As opposed to some of the Israeli papers who consider this to be almost treasonable, that he leave the job in the middle of the second term, I would like to wish him the best of luck!!

What an honour it would be if the next IMF head came direct from the Bank of Israel.

By the way, it ought not need saying, but he has done a great job as Governor and I thank him for that!!

Let's be a little gracious to our public servants (at least on the odd occasion when they do they job right!!)

Debt. Debt & more debt

The total amount of mortgage debt peaked in 2008 at $14.6 trillion, whilst the total amount of consumer debt, comprising of autoloans, credit card and student debt, peaked at $2.6 trillion during the same year. Today, mortgage debt outstanding stands at $13.8 trillion, while consumer debt stands at $2.4 trillion. WOHOO- the consumer has been delevaeraging ..... over the last 3 years outstanding consumer debt has fallen buy $1 trillion. If the story ended there, that would be great. However, that would require us to ignore the "trivial" fact that the banks have written off significantly more than $1 trillion in non performing loans.


The lower the debt/GDP ratio, the more powerful and stable the gains in GDP growth, as the growth in GDP can increasingly be financed within your own means, without resorting to outside debt. Not all debt is bad, but increasingly relying on it certainly is. Purchasing on debt is very much "short term gain for long term pain", both on the micro and macro level. Once the purchase has been made, and the loan taken out, the investor/purchaser has a short term benefit (as does the economy); however he has subjugated himself to a monthly installment for a (typically) depreciating asset.


The irony is, that the longer the scenrio plays out, and the more frequently people live out of their means, the more debt is taken on, and the more leveraged one becomes. Leverage increases as the the level of poorness increases in tandem. The following graph from the St Louis's Fed shows that the phenomena is not merely one unique to the individual consumer, it is true on a national level too:




























Deleveraging is a painful process. It is a long, and slow drawn out process. But with the Fed adding an debt to the tune of an additional $7 trillion to the nation's budget sheet since 2008, the problem is not going anytime soon. And with interest rates at all time lows, and can only go up from here, how is the debt to be serviced?

Gordon Gekko is not all bad!

I read Sophie Shulman's article this morning in Calcalist. I would have to say that it was not impressed. On the other hand Michael Eisenberg's blog put a smile on my face. He wrote earlier this week in response to Ze'ev Holtzman's somewhat unfortunate comments on the Israeli VC industry .

There is much discussion about the state of the VC market in Israel and whether it is "good" or "bad." In addition there is much popular debate about the concentration within the Israeli market of too many assets and businesses controlled by a small number of "tycoons."

I personally feel incredibly excited about the developments within the Israeli market, both on a wider level and also from my own personal perspective as an innovation driven investor.

Shulman complains that Gordon Gekko, the infamous corporate raider characterized in the two "Wall Street" films, is coming to town, with the obvious negative implication that this implies. The fact that major global financial investors in the form of their private equity arms are making investments in Israel is a real sign that the market here is growing and maturing. The fact that top investors, many mentioned by Michael, like Silver Lake, Bessemer, Battery, Greylock and others are building teams or dedicating resource to the Israeli economy is a GREAT sign that what we have what to offer the global markets is attractive to the highest quality investors globally.

As I have mentioned elsewhere the domestic Israeli VC industry will have to grow up and understand they are not competing with their peers in Tel Aviv and Herzliya, but their global peers at the best firms on the planet. I see this as a completely optimistic development rather than the opposite.

Their are several obvious implications:

• at a micro level, the Israeli economy is maturing, but will need to continue to aggressively innovate with technology and upgrade its people to continue to be attractive to both strategic and financial investors as the 21st century develops
• the local institutional funders (VC funds, PE funds, public investors etc) will need to adapt their business models as the local and global trends move dynamically. Competing for capital on a global scale is challenging and only the best will survive.
• Recycling of human and financial capital is a healthy process, crucial in enabling the economy to build and rebuild in the most efficient way possible. The continued entry of leading global investors will accelerate this process and should be greeted with open arms!
• Finally Apax, Citi, Permira, Francisco, Bessemer, Battery et al entering the Israeli market will keep the "usual suspects" (Dankner, Teshuva, Arison, Ofer etc) honest by increasing the financial competition for attractive Israeli assets.

We should be shouting from the rooftops about Israel as a great destination for the world's capital, at the same time as investing time, thought and money into readying ourselves for the challenges ahead. The financial community MUST mature alongside real industry, in order to provide relevant and financially efficient solutions for company building. It's not rocket science, but does require us to stop with the constant self-criticism, and replace it with a dynamic and realistic assessment of what is required to move forward.

Happy hunting!!

Crude to march higher?

•Opec had “one of its worst meetings ….. ever” in the words of the Saudi Oil Minister. The cartel agreed to disagree on the state of the market after the Saudi’s failed to convince the others to raise production to meet the higher prices. The Saudi’s had proposed raising production by 1.5 million barrels/day.
•Prices jumped as a result, which is not surprising, but its unlikely to lead to a sustained push higher (just yet). Its more likely to be a short-lived move:
1.Demand is slowing, and the market is already marginally oversupplied.
2.Saudia Arabia essentially holds “a put option” and are now free to increase production if prices do rise too fast, without worrying that OPEC will be on top of them.
3.The IEA (International Energy Agency) has a formidable stockpile and has officially said it is prepared to supply additional barrels if needed.I wouldn’t jump into crude just yet …..



-------------------------------------------------------------------------------------------------------------------------------------LEGAL DISCLAIMER: The views mentioned above are purely that of the author, and does not necessarily reflect the official view of Goldrock Capital or employees. Unless of course the aforementioned view was a phenomenally good call, with exquisite market timing, in which case Goldrock Capital reserves the right to all credit!!!!!

Could there finally be a ray of sunshine within Construction?

Although payroll job growth is pretty poor considering the tremendous amount of slack in the economy, with unemployment at 9.1%, job growth is significantly better year to date than 2010.

2010 Jan - May nonfarm payrolls: 304,000
2011 Jan - May nonfarm payrolls: 783,000
2010 total nonfarm payrolls: 955,000

Unbelievably, one of the reasons for the improvement in 2011 is due to ....... CONSTRUCTION!!!

For the first time since 2005, residential construction employment will probably be positive in 2011. Just eliminating the drag will help. Also residential investment will probably make a positive contribution to GDP growth for the first time since 2005.

------------------------------------------------------------------------------------------LEGAL DISCLAIMER: The views mentioned above are purely that of the author, and does not necessarily reflect the official view of Goldrock Capital or employees. Unless of course the aforementioned view was a phenomenally good call, with exquisite market timing, in which case Goldrock Capital reserves the right to all credit!!!!!

So what is QE?

Many are under the impression that with the end of the Fed's Treasury purchases, the Fed will not be pumping more money into the economy and that constitutes a monetary "tightening". I believe that this way of thinking is incorrect. As interest rates were lowered, monetary conditions could adequately be described as "loosening". As the Fed continued to keep the interest rate at a very low level, the policy could aptly be described as a continued easy monetary policy.

However, it is at this point that the Fed embarked on their quantitative easing policy. The traditional rate cutting had already taken its course, and then the Fed started pumping the additional liquidity. Hence the cessation of the Treasury purchases by the Fed, would not be described as the end of easy money. Interest rates are at historic lows, and monetary tightening will not begin until the Fed starts unloading its balance sheet.

Another misconception is as to the way QE helps the economy. Fed buys treasuries, the extra money finds its way into the economy. Yes? NO. The Fed purchases Treasuries from a dealer, whose ability to then make other purchases allowing the additional money to finds its way into the economy has practically no bearing on the extra "money" from the Fed. If the dealer wished to purchase additional oil futures, or stock futures, he could do so with very little margin. The transaction from the Fed has no effect.

What it does do is it increases the monetary base, and through the money creation effect, this has the ability to add new money through additional bank lending. With the current reserve requirement 10%, $600 billion has the potential to add $6 trillion in new money. However, either because the banks have been so pre-occupied in repairing their own balance sheets, or the public has not been willing to take on bank loans due to the vulnerability of the economy, the banks have not been lending the extra potential money into the economy.

What goes up ....... must come down!

Not been the best few days in terms of economic data coming out of the States:

Consumer Confidence: pretty much non existant! Consumer confidence is now lower than at any point in recent history, including all of the previous disasters, financial crises and tragedies, including the 87 crash, the collapse of Lehman Brothers and 9/11. And dont forget the re-election campaign kicks off in earnest, with the USA full of unhappy and unconfident people! QE3 anyone?!!!

ADP Non farm employment: a downward revised figure of 177k for April was followed by a puny 38k for May, on expectations of 178k. A deceleration in employment, while disappointing, is not entirely surprising. In the first quarter, GDP grew at only a 1.8% rate and only about 2¼% over the last four quarters. This is below most economists’ estimate of the economy’s potential growth rate and normally would be associated with very weak growth of employment.

ISM Manufacturing: Lowest reading since September 2009, the first reading below 60 in 2011. Granted, 60 is the level at which the ISM typically peaks, but the worry is the sheer slide towards a reading of 50, below which is in contraction mode once more.

Downgrades: As expected, the "experts" are downgrading their view of the economy, with Goldman Sachs, Morgan Stanley as well as JP Morgan (TWICE IN ONE WEEK!) all downgrading the US economy.

Bank Stress Tests: Then we've had the news that the 2nd round of stress tests for European banks has been delayed because of "errors" and "unrealistic assumptions". How comforting! Especially since the whole point of the Stress test round 2 was to instill confidence in the European banks!!!

The stock market, and Fed, and just about everyone in between is seemingly caught in a catch 22 situation: QE3 is seemingly being priced in by stocks ...... however for QE3 to actually happen, stocks would have to fall approximately 15-20% from their current elevated levels!!!

-------------------------------------------------------------------------------------------------LEGAL DISCLAIMER: The views mentioned above are purely that of the author, and does not necessarily reflect the official view of Goldrock Capital or employees. Unless of course the aforementioned view was a phenomenally good call, with exquisite market timing, in which case Goldrock Capital reserves the right to all credit!!!!!