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One should always be careful about making broad pronouncements following a period of decline or advance. What appears to be a significant move might turn out to be a mere counter-trend reaction.

Case in point: Greece and the EU.

Today, European markets advanced based on (further) Greek loans to banks, but what are the odds of these getting paid back a) on time and 2) in full?) Regardless, hopes for a resolution of EU crisis loom large.

The simple truth is that Greece, as the first domino in Europe, poses a threat to EH (and therefor) international growth. Anecdotally, an increasing number of investors — or are they just increasingly vocal? — are betting the Euro is doomed. Thus, the collateral damage from a Greek departure is more European sovereign defaults.

Even with FDIC insurance, the US has experienced occasional bank runs; without the same insurance across all of Europe, I can imagine more credit crunches and recessions if there are more bank woes in the Euro zone.

Back to our headline question and original statement: We are oversold and due for a bounce after a bad few weeks in Q2. Whether this is the beginning of something more or merely a reaction rally has yet to be determined, but so far, the market internals have been unimpressive on recent rallies.

So while a melt up is possible, I still await more evidence.


Category: Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

22 Responses to “Is This the Summer Meltup?”

  1. Ted Kavadas says:

    RE: “So while a melt up is possible, I still await more evidence.”

    I tend to view the stock market advance of the last six trading sessions, to the current S&P500 level of 1317.82, to be more of a “bounce” than anything else.

    There are many signs of problems. Among the most readily apparent include the ever-growing European financial problems, as well as slowing global economic growth.

    As well, there are many other “problem areas” that lack recognition.

    In sum, my analyses continue to indicate a very elevated and growing level of risk and danger both in the financial markets and the economy, with notable implications.

    For those interested, my latest post on building risks and dangers:

  2. PeterR says:

    Futures up, but Europe may be starting to sell off as we speak?

    SPY 133 must be cleared decisively on volume for a true summer melt up to take off IMO. The Election Year exception to Sell in May and Go Away has been inconsistent, and hopefully 2008 is not our model here: May to December was a disaster!

    End-of-month window dressing may produce a head fake this week, but Friday and next week will be the tell.

    Let the Summer Trading Bots games begin! Watch VIX.

  3. Eclectic says:

    Good morning, Barringo

    Some thoughts from me today:

    It would be nice to think that Greece and Spain (several others) might be able to transition to basic forms of austerity without tumult, but it’s not going to happen. The recent Happy Feet that started dancing when it was announced that a political party in Greece that was austerofriendly had gained some support, are dancing on vapors.

    The politicos that are supposidly supporting austerity aren’t the market participants that will suffer it. “What you mean, WE, Kemasaba?” is a wonderful expression that makes the point quite well, don’t you think?… Austerity breeds molotov cocktails.

    No… Greece and Spain too are flushing euros out of their banking systems like lemmings jumping the cliffs. It’s only human nature and it will get worse. That futures are up this AM in ‘Merica is naiev…niee… niev… (Damn, how do you speel that word? — well, it means “innocent ignorance” don’tcheeknow). That’s what I mean… futures being up in ‘Merica is innocent ignorance.

    Let me sum up this way:

    I have told you before and I’ll repeat it, because I am a master practioner of the art of human naturology, and this principle will always hold:

    “The quality of accurate information YOU derive from bureaucrats, governments, trade associations, etc., will always be indirectly proportional to YOUR need for truthful and accurate information from them.” In a crisis, therefore, that quality is likely to approach zero.

    The reason for this is that those persons you would hope to inform you of information critical to your decision making will ALWAYS subvert their responsibilities for: 1- paternalistic reasons (“We know better than you, and we are only protecting you from yourself,” they’ll say…) or 2 – to protect themselves from you learning of their incompetence, malfeasance or fraud, 3 – from simple human territorialism (baseless pride, guilt or embarrassment), or they will just be caught like a deer in headlights, in the heat of the moment, and they’ll say anything that comes to mind to get out of the headlights.

    …In other words, these reasons range from innocent ignorance — through incompetence — and all the way to outright fraud.

    Anybody in Greece or Spain that believes anything that their governments are telling them right now are perpetually UNQUENCHABLE fools. If they are smart they will get their euros out-the-hell from Spain and Greece just as fast as it can be done.

  4. dead hobo says:

    This is a day trader’s market. Someone who want to actually invest, defined as holding for a long time or at least several months, is taking on a lot of risk while Europe is unsettled. 30 days is an eternity in this market.

    The commodity bubble burst is overall good for the economy. Input prices fall and consumers have more to spend on other things than commodities.

    That being said, is will take a few months for lowered prices to be reflected. Actual end users lock in prices via commodity contracts. Those who bought long dated contracts to lock in a price will still be paying higher prices through the year. Thus, lower commodity prices will not be reflected in the economy quickly. Also, it is probable the funds will start buying commodity ETF shares when the economy starts to improve, sending up commodity prices once again beyond what they would have been if only pit trading were controlling prices. Thus, a new asset bubble / bubble burst pattern will form afterward in a few months. Also, central bank stimulus will cause commodity prices to rise like a rocket, crushing any real recovery once again as prices zenith.

    Since so many traders, investors, reporters, and pundits can’t read a balance sheet at the accounting 101 level, the evaporation of ECB capital (remember assets = liabilities + capital) if Greece walks away from debt should cause some interesting times in Europe as the ECB is reorganized (quietly, I’m sure, possibly using EFSF money .. assuming the EFSF has been funded.)

    I’m waiting until the end of June before jumping back in.

  5. constantnormal says:

    Allow me to play Devil’s Advocate for a moment.

    Given that the EU is crumbling, from many places more-or-less simultaneously, and that there will be/are ongoing bank runs and flights of wealth from the euro to the USD, might not this surge of money float the US stock markets higher for a few months?

    I suspect that its going to take A Very Long Time for the EU to completely disintegrate, with Greece, then Spain, then Italy, and when France is on the line, the Germans will finally wake up and smell the coffee, and may even bolt for the door themselves at that point. But that’s not going to happen overnight. We will likely be seeing very similar headlines from the EU a year from now. Two years out, I’m not so sure, as my crystal ball fogs up when I try to look that far into the future.

    Fer shure a lot of this will go into Treasuries, and Bernanke is going to have an easy summer keeping rates low … we might even see negative rates in short-term Treasuries (and not just TIPS) … I suspect that even the meager rates afforded by blue chip dividend stocks will be highly attractive, kicking out quarterly payments in US dollars that are seen (mistakenly or otherwise) as being as “good as gold”.

  6. constantnormal says:

    A sign of the times …

    intermediate-term career opportunities as a medical supplies smuggler … ¿Habla Espanõl?

    When people are in desperate need of medical supplies, black market profits will soar …

  7. mathman says:

    Interesting article from Scientific American:

    Apocalypse Soon: Has Civilization Passed the Environmental Point of No Return?

    “Although there is an urban legend that the world will end this year based on a misinterpretation of the Mayan calendar, some researchers think a 40-year-old computer program that predicts a collapse of socioeconomic order and massive drop in human population in this century may be on target.

    Remember how Wile E. Coyote, in his obsessive pursuit of the Road Runner, would fall off a cliff? The hapless predator ran straight out off the edge, stopped in midair as only an animated character could, looked beneath him in an eye-popping moment of truth, and plummeted straight down into a puff of dust. Splat! Four decades ago, a Massachusetts Institute of Technology computer model called World3 warned of such a possible course for human civilization in the 21st century. In Limits to Growth, a bitterly disputed 1972 book that explicated these findings, researchers argued that the global industrial system has so much inertia that it cannot readily correct course in response to signals of planetary stress. But unless economic growth skidded to a halt before reaching the edge, they warned, society was headed for overshoot—and a splat that could kill billions.

    Don’t look now but we are running in midair, a new book asserts. In 2052: A Global Forecast for the Next Forty Years (Chelsea Green Publishing), Jorgen Randers of the BI Norwegian Business School in Oslo, and one of the original World3 modelers, argues that the second half of the 21st century will bring us near apocalypse in the form of severe global warming. Dennis Meadows, professor emeritus of systems policy at the University of New Hampshire who headed the original M.I.T. team and revisited World3 in 1994 and 2004, has an even darker view. The 1970s program had yielded a variety of scenarios, in some of which humanity manages to control production and population to live within planetary limits (described as Limits to Growth). Meadows contends that the model’s sustainable pathways are no longer within reach because humanity has failed to act accordingly.” (there’s more)

  8. the CBs are fixin’ to be ‘more’ Active, no?

    the ECB, the PBOC, for starters, are a ‘Given’, yes?

    as well, seems that it doesn’t take long to find Anecdotal accounts pointing to other, various & Sundry, CBs are going to be ‘QEsing’/’Stimulative’–going fwd..

    not to say that ~this Tide will Lift all Boats..though, it’s seem to *Reason that certain ‘Asset’ Classes should be bid, Higher, in Nominal Terms, at the min..

    too many ‘Balance Sheets’ are, still, too Broken for CBs to do, much, of anything, but (sl-)Eaze..

    Leopards, and Spots, and All that..~

  9. Petey Wheatstraw says:

    Nice comment, Eclectic.

    “Anybody in Greece or Spain that believes anything that their governments are telling them right now are perpetually UNQUENCHABLE fools.”

    I wouldn’t limit that statement to Greece and/or Spain.

    Aside from the fools, there’s also the tactic of playing along with what is known to be a rigged game. Ethical responsibility (including the personal responsibility for potential systemic risks that come along with enabling the continuing scam), fall by the wayside when there’s money to be made.

    Sort of like the AMA pension fund investing in tobacco company stocks.

    Or the anti-war grandmother I know who holds Halliburton stock.

    Or anyone involved in any way with Big Pharma, Big Ag, Big Defense, Big Oil, Big Banking, Big Prison, Big Law preaching the supremacy of capitalism, small government, and self-reliance.

    Regarding BR’s post:

    Not that I’ve been paying all that much attention to the Eurozone cluster F, but haven’t Greece and Spain (and by extension, everyone else in the EU and the world), had their bacon pulled out of the fire repeatedly over the past several years? Wasn’t austerity supposed to be the road back to prosperity (if not, at least, safety)?

    Hasn’t our longer-term rally been fueled, in large part, by regular announcements that the Eurozone crisis had been averted?

  10. dougc says:

    Another year and another solution to the EU crisis. We will hear rumors about EURO bonds, rescue fund, guarantees and a BRIC rescue. The markets will rally and the situation will deteriorate until next year and the process will continue. EURO bonds would be good for everyone but the country that will be left holding the bag when one or all of the PIIGS default. 80 % of Germans are opposed to EURO bonds and I have read where the German constitution would have to be amended for Germany to participate.
    The rescue funds are back by pledges and guarantees including by the the PIIGS, if they were serious they would put the gold held by the central banks up as collateral.
    China and India have problems of their own and bailing out Europe isn’t a high priority.
    Only organization left is the US federal reserve and they will probably wait until after the US election

  11. mathman,

    to your ‘point’..

    “Republics are created by the virtue, public spirit, and
    intelligence of the citizens. They fall, when the wise are banished
    from the public councils, because they dare to be honest, and
    the profligate are rewarded, because they flatter the people,
    in order to betray them.”
    – Justice Joseph Story
    (1779-1845) US Supreme Court Justice

    “Zealotry of either kind — the puritan’s need to regiment others or
    the victim’s passion for blaming everyone except himself — tends to
    produce a depressing civic stupidity. Each trait has about it the
    immobility of addiction. Victims become addicted to being victims:
    they derive identity, innocence and a kind of devious power from sheer,
    defaulting helplessness. On the other side, the candlesnuffers of
    behavioral and political correctness enact their paradox, accomplishing
    intolerance in the name of tolerance, regimentation in the name of
    – Lance Morrow
    (1939- ) Essayist, professor

    “… The theory of output as a whole, which is what The General Theory of Employment, Interest and Money purports to provide, is much more easily adapted to the conditions of a totalitarian state.

    John Maynard Keynes

    In looking at and assessing the economic paradigm of John Maynard Keynes — a man himself fixated on aggregates — we must look at the aggregate of his thought, and the aggregate of his ideology.

    Keynes was not just an economist. Between 1937 and 1944 he served as the head of the Eugenics Society and once called eugenics ”the most important, significant and, I would add, genuine branch of sociology which exists.” And Keynes, we should add, understood that economics was a branch of sociology. So let’s be clear: Keynes thought eugenics was more important, more significant, and more genuine than economics.

    Eugenics — or the control of reproduction — is a very old idea…”

    try to keep the “Ink-Blots” *straight..

  12. rktbrkr says:

    Does anybody have a calendar of the Euro salvations to date?

    The alphabet soup of Euro funding agencies has plugged an 18B hole in the Greek banking dyke (to mix metaphors) as prudent Greeks pull their funds out hand over fist. The same is starting in the much larger Spanish market which will require an “all in” effort by the Germans and other northern europeans and they have been very reluctant to date to do this.

    I think Ben Shalom will step up to the plate and save the Spanish banking system when the Germans refuse in order to prevent a euro zone melt down prior to the November election, even though he’s an R The bernank is more comfortable with O’B.

  13. dougc says:

    Also did you notice that the Spanish bank that is being nationalized restated there earnings from a postive 100 millions to a negative 3 billions. I expect it will grow and other european b anks are in a similair situation.

  14. Concerned Neighbour says:

    When the US markets rallied 30% in a matter of months starting last October, I barely saw a mention of them being “overbought”. How come I now see, after a 7-8% decline and still close proximity to all-time bubble highs, zillions of headlines all over the place that they are “oversold”?

    Of course, that’s a rhetorical question.

  15. farmera1 says:

    And from Reuter’s we have this: capital is leaving Japan.

    In escape from Japan doomsday, capital takes flight

    Let’s see EU in all kinds of trouble. Japan has a whole host of problems that seem to be under the presses’ radar. That leaves the US and it’s stellar finances. No problems there, just print baby, print. Maybe China can pull the world’s economic train. Then again maybe not. That leaves the other emerging markets and Canada. Hard to see a good healthy world economy. I say buy…buy…. when things look the darkest. This is perfect back drop for a melt up in stocks.

  16. Winston Munn says:

    “Austerity is just around the corner.” – Bubba Hoover, Nascar fan, 2012

  17. Pantmaker says:

    Translation- Can we see the future? No. How will the future reveal itself to us? We wait a little while…and we get to actually experience it…we wait a little bit longer and we get to see a little more…it won’t be called the future though…it will be known as the present. :)

  18. [...] I expect really high volatility. There is too much going on and even more uncertainty than ever. Barry Ritholz thinks we might be seeing a melt up. I think that’s a great way to put the equity trade right [...]

  19. constantnormal says:

    I should probably also offer a counterpoint to my Devil’s Advocacy … whatever boost the crumbling of the EU provides to US markets, it is only a temporary thing, pulling stock movement from the future into the present, and leaving an even bigger hole for stocks to fall into down the road, as the EU contagion spreads to Bananamerica …

    I did not (or at least never meant to) imply that a summer melt-up was in any way/shape/form anything of substance, merely a surf-worthy wave …

  20. VennData says:

    “When” the S&P goes back down below 700 will you really buy then? You didn’t last time, what makes you think you will this time? Your prognostications were way, way off then. What makes you think they will be right “next time”… or as you complain so vociferousy about the Fed in this regard, that “they got the housing bubble wrong, so they will get everything else wrong” …so why do you think you even have it right now?

  21. 4whatitsworth says:

    It seems like there is not much reason for the market to go up or down from here. But there is no reason to just sit in cash either. I am getting in very slowly.