The Federal Reserve’s Vice-Chair Janet Yellen provided a spirited defense of the Fed’s quantitative easing program at the American Economic Association annual meeting last week. She laid out what clearly seems to be the conventional wisdom inside the Fed as to the effects of its crisis programs, the results of the current additional $600 billion of additional asset purchases, and the hoped-for path of employment flowing from those policies.
It is time once again to throw caution and wisdom to the wind and actually make my 11th annual forecast. I have to admit this is the most stressful letter I write each year. I do at least 5-10 times more research and thinking about this issue than any other. On a positive note, this may be one of the more optimistic forecast letters I have done in a long time. But there are some asterisks, as always.
The Fall of the Roman Empire
A silver mask that had belonged to a Roman cavalryman of imperial times. It was found on the site of the battle of Teutoburg, fought in September 9 a.d. This year marks the 2000th anniversary of the battle that led to the annihilation of three Roman legions and changed forever the history of Europe. It was a tremendous shock for the Romans, who saw their mighty army destroyed by uncivilized barbarians. It was not yet the peak of the Roman Empire, but it was a first hint that something was deeply wrong with it.
This has been an interesting week for traders and investors as precious metals melt down on the back of a rising dollar. Equities on the other hand bucked the trend and moved higher as they get bought into earning season. Once the earnings start to be released we should see the market get sold on the good numbers and retail traders will buy into the good numbers as the smart money selling their shares while there is liquidity in the market.
2010 left us all with a mountain of debt. Whether you’re a taxpayer in the UK, Ireland or the US, it must already be pretty clear that you’re on the hook for a lot of IOUs borrowed from your future. You may not have borrowed the money yourself, but your government has already done it on your behalf, running up massive, record-setting deficits. What’s not clear is exactly how your government is going to pay that debt back.
The other day, in my post “The Lull Before the Storm”, I mentioned that for fiscal year 2011, the Federal Reserve would be purchasing over 60% of the Federal government deficit.
2011 is thus not only the Year of the Hare, following the 12-year zodiac cycle, but also the year of yin metal, following the Wu Xing. As yin is associated with the feminine and the moon, the most prominent yin metal is silver. 2011 is thus not only the Year of the Hare but the year of silver. It should therefore be no surprise to find Chinese jewellers currently offering a range of commemorative silver pendants of hares or of the Chinese language symbol for hare, as shown on the right.
It’s safe to say some people just do not like being in cash, hence the reason so many want stock picks and trades all the time. But to be flat out honest, I love being in cash or at least holding a good chunk in cash waiting for a high probability opportunity to pop up on my charts before committing my hard earned cash. It’s better to be wishing you were in a trade than to have all your money tied up in losing positions just because you wanted to be active…
A look at the long-term trends. Over the years I have been told that, on average, from trough to trough the cyclical bull/bear cycle lasts about four years -- two-and-a-half years for the bull, and one-and-a-half years for the bear. Looking at the monthly bar chart of the last 22 years, it is hard to see anything that looks the least bit like an average market cycle.