Home > Economic Update > The Market Rallied 14% and You Lost Money – Welcome to the “New Normal”

The Market Rallied 14% and You Lost Money – Welcome to the “New Normal”

The Market Rallied 14% and You Lost Money – Welcome to the “New Normal”

 October 29, 2011

Welcome to a market driven by huge amounts of liquidity and an ever changing regulatory landscape. While the talking heads of the financial stations cheer the latest rise in the markets they fail to see much of the bigger consequences of the liquidity fueled rally. Below is a chart S&P since October 1st.

The Market Rallied 14% and You Lost Money – Welcome to the “New Normal”

Some rough math and we are up nearly 14% since the start of October, which is just crazy because it is based on no outstanding financial news nor stellar economic outlooks. The problems in Europe are far from fixed but the faux “solution” of the EFSF has juiced the markets for the moment.

Source Future Source

Now, look at the price of oil. If this does not throw the brakes on the US and world economies then what will? Oil has gone from $76-$93 a barrel and Brent Crude is trading at $110, that is not bullish for the economy.

The price of oil in the consumer based economy has a huge effect on discretionary spending. The rule of thumb is that every 1 cent increase in the price of gasoline, takes away approximately $1 billion dollars from consumer discretionary spending. Sorry for being a “Debbie Downer” but gas was up 19 cents yesterday in the futures markets.

Before everyone starts sipping a “market is fixed” celebratory glass of champagne, here is some cold water facts to sober up with. First, your 401(k) is up 14% this month, but the money in that 401(k) and the pay check that was brought home is worth approximately 8% less. Second, the life blood of the economy, oil is up nearly that same 14%. Lastly, the euro-zone issue was supposedly fixed by somehow creating a 1.4 trillion dollar fund that had an entire nation default or restructure its debt while not triggering a credit event. In the mean time killing the entire sovereign CDS industry overnight and taking away any entities ability to hedge sovereign debt risk. Solving a debt crisis with more leverage and debt has always been sound economic policy.


Categories: Economic Update
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