Followers of my twitter account (@JulianMarchese) would know by now that I have switched from the long side in stocks, gold, bonds, and euros, to being short stocks, oil, and euros. My initial long positions were essentially based on the expectations of further central bank easing/accommodation, and the expected move did come to fruition, at least in gold, euros, and bonds. However I began to notice a structural shift in the financial markets, as expressed in my latest Seeking Alpha article here. I noticed how central bank easing trades in stocks were unwinding, and the newly freed capital was being put into more depressed markets. This shows a slight loss in confidence of market participants, as they were less comfortable in holding stocks, or in other words, the first sign of a major market shift (and now as I write this, the dow is down 125).
Tomorrow Federal Reserve Chairman, Ben Bernanke, will speak at Jackson Hole regarding the topic of potential further quantitative easing by the U.S. central bank. The question we must ask ourselves at this point, is a new QE appropriate at this point in time? To me, the answer is no, and I do not believe that the market will buy into more promises by the Fed.
-S&P 500 near new 4 year highs.
-Oil near $100 a barrel.
-Strength in the United States job market and housing market returning.
With these current factors (and more), I do not see the Federal Reserve launching, or rather announcing a new program tomorrow…it just wouldn’t make sense. We would need to see a larger stock market decline due to a waning global economy in order to justify another QE.
I believe that lingering problems in Europe will be the main contributor to the stock market decline I expect to see later this year. The problem that certain southern European countries face is simply irreversible. You cannot fix a structural issue with bailouts. Europe at this point needs to accept the hard times ahead and focus on growth from the bottom up. However this view is not popular with the political environment in Europe and so inevitable resurgences will occur.
Marchese Financial 