Global equity markets these days seem to be totally unaffected by all the geopolitical turmoil and natural disasters of the last few months.
Once again the ever cautious David Rosenbergchips in with words of wisdom, alerting investors to the many risks that the market is currently ignoring. (Note to readers - David Rosenberg's Newsletter ends its free trial period this month, so this will be the last of his charts on this blog)
The last couple of months have really been a roller coaster ride for the world economy.
Whether its the unrest in the Middle East leading to surging Crude Oil prices, or rising food prices or EU Sovereign debt troubles, or the recent Japanese Quake and resulting Tsunamis...... a lot has been going on. The incredible damage to property and the loss of innocent lives in case of the Japanese quake is really tragic.
There was another important bit of news that went by unnoticed. "" Wisconsin Gov. Scott Walker on Friday signed into law the controversial bill that eliminates most union rights for public employees"" Wisconsin governor signs anti-union rights bill World DAWN.COM Wisconsin governor signs into law union curbs Reuters Clearly the crisis on Main Street is not over yet. As David Rosenberg recently said, the impact of cost cutting and downsizing at the state and local government level will really undermine the '''ongoing consumer recovery''' So I think that it's time that the guys on Wall Street sit up and take notice. . The Dow Jones may continue to brush off the impact of rising gasoline & food prices and the discontent on Main Street for now, but the prudent investor must realise that its now too late to join the equity market bandwagon. The risk reward ratio is not in favour of the ''long only'' investor and his margin of safety is far too inadequate at the current time.
Even as the EURO continues to rally, the USD is breaking down through some critical levels.
While regular readers know my long term view on the USD, let's not forget that the USD appears to be oversold at the moment.
Below is a screenshot of the CNBC website-7th March 2011 - A classic contrarian indicator! As traders get caught up in the surge in Silver prices, everyone is bearish on the USD all of a sudden.
Turmoil in the middle east and North Africa continues to dominate news headlines, easily crowding out news of dissatisfied government workers' unions and the ongoing austerity measures being implemented by state and local governments in the USA.
Discerning readers will realise that the troubles with Club Med and the 'PIIGS' are far from over.
Meanwhile the price of Crude Oil continue to trend upwards, and with the US unemployment rate near 10%; this will add further stress to the recovery on main street.
The stock markets may continue their upward rally for now, but a toxic combination of high unemployment and rising food & energy prices may be just as detrimental to the US Equity market rally as they proved to be for the ''dictators'' of North Africa.
A sell off in the overbought equity markets could trigger a counter trend rally in the oversold USD.