UBS does a victory lap here below. They correctly called the levels, timing and end of the cyclical bull market. Well done to UBS. Looking ahead they don’t get any more bullish near term. They are calling for a big rally early Oct but don’t forecast a return to the secular bull until H2 2012 which doesn’t make for easy reading, at all.
‘The key message is that the next 6 to10 months should be largely bearish for equities and therefore also for commodities, and this picture would only change if we see a huge new momentum breakout above the early May high in the SPX’.
Its worth recalling the maths again here. If we get a version of a ‘double dip’ debt to gdp will worsen considerably. Government austerity plans and fiscal forecasts will be in tatters. Tax revenues will not come through and social security expenditures on everything from food stamps to rent subsidies to unemployment benefits will soar. The public finances will be truely disasterous.
I therefore presume that all the central banks will take action to avoid a lull in earnings and inflation that would occur from the UBS call. (Indeed within days of the cyclical bull breaking they came out and starting taking action. The gene is out of the bottle. Its too easy to print so print they will – in spades again and again. I cannot know as i have no crystal ball. In spite of their correct calls, UBS don’t have such a ball either but the maths of the situation re exponential monetary growth is very clear.
Monetary matters (not technical matters) are at the heart of where this heads next. If central bankers don’t take action we are certainly going to see a version of a double dip. Although this ‘version’ will likely be against expanding nominal gdp and positive inflation therefore. Due to the issues above, ie so dependent on monetary actions of the central bankers forecasts here are near impossible. I could easily see a range develop swinging backwards and forwards which points to decent, widely spread income stocks. Imo. We won’t get super inflation until the consumer and corporates pick up the debt baton, probably after a couple of years more of inflation eroding their % debt burdens.
Finally apologies for the delay in reports and commenting meaningfully. I broke for holidays last week and on returning to the coast have been greeted by hot humid weather that demands sitting on a boat to avoid the worst of it. Will step it up next week.
All the very best.. and in case you thought you had a bad week.. think of poor Carlos Slim who lost 7bn this last week.
Rich
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