All Signs Point to Ominous Outlook for the Fall

As I have been soaking up all the economic data, the markets reaction to earnings and as well as factors such as the drastic 60% fall in the $BDI to levels not seen since the market lows of early March 2009, the jobless recovery in the US, anemic credit velocity, drastic tightening of spending in Europe, throw in a slowing Chinese economy and we now pretty much have a recipe for a double dip or at least another taste of some extended bearish conditions this fall.



Not sure what the trigger will be, but I can almost guarantee that we are going to go much lower from where we are today in the coming months of September and October. If those will be the market lows, it is way too early to tell, but for certain we are setting up for a fall this fall. Already the markets are starting to take large swings to the downside and having a hard time staying above important moving averages.

One thing of note is that the $VIX looks like it is going to break out to the upside as it is forming something of a wedge and can't break support at $23. I think this would be a great place to buy January '11 calls as volatility in the markets is almost certain to increase and this pattern looks to almost certainly be resolved to the upside. It will make a gradual rise over the the rest of the summer to $47 where it will break out as poor economic data starts to come in September. Consumer confidence will be low and I doubt there will be any relief until the holiday shopping season.

We really do have a recipe for another downturn which will almost certainly be seen in the markets. Also riskier currencies will suffer another round of selling and we could very well see the Euro at parity if we do indeed enter into a double dip slowdown.

What is killing the US economic recovery is stagnant credit markets. With the system currently set up how it is there is no fix. Corporations made paper profits on international sales and cutting at home. They are sitting on records of amount of cash refusing to spend it. Since the system is set up for the big guy and the little guy gets only access to and raped in my opinion through mortgages. Of course there is no velocity.

of course there is no hiring. Hello? When a recession turns around companies have to spend, they have to hire, they are not. The US became a great economy on the American dream and was set up for the little guy to succeed. That has completely changed as now America caters to big corporations and the wealthy few. For the little guy to get a loan to start a company or expand a current business is next to impossible. The only way is through equity on a hard earned house they have paid twice for through their mortgage.

America is completely backwards to what made it strong. no one believes the American dream anymore. But if they could introduce credit to those that could and would use it, they would spend it, expand and jumpstart the economy. But they way the system is setup this is an impossible tactic. But it would work in helping to solve the velocity problem. If the corporations won't spend then give it to small and medium business and give the incentives to spend. Allow easier access to loans for legitimate business ideas and spending incentives would help alleviate this problem.

Bernanke's comments today in my opinion are also ominous. He is playing down the idea of a double dip saying they will introduce more stimulus packages but the problem is that this is reactionary and at the rate the credit markets froze up last time and the markets fell apart, stimulus will be too late. If Bernanke wants to avoid a double dip, he should be announcing stimulus now, not if things should worsen. Be proactive Bernanke.

My number one low risk trade other than my gold stocks of course is buying the $VIX at $25 I can guarantee a double to $50 in the coming economic slowdown. At the 200MA this is the lowest risk entry point you can find.