Always A Bull Market Somewhere

Some of the nattering nabobs of doom have resurfaced.

They argue that the present weakness in the markets signify as signs of the next market meltdown.

These people seem to argue not from evidence but from dogma.

And people blinded by dogma tend to get market predictions utterly and consistently wrong.

Even if they are correct and that a market meltdown occurs, it isn’t likely the same scenario as 2008.

We must be reminded that despite ANY market condition “there always will be a bull market somewhere”. The intrinsic difference is one of the idiosyncratic operating conditions which produces diverse types of bullmarkets.

In the 2008, despite a general financial market meltdown brought about by the recession that culminated with the Lehman collapse, the bullmarket was seen in the US dollar and US treasuries.

chart from netdania

Yet the same experts who failed to see the recent rallies and have made the Great Depression as the fount of their predictions seem to be singing the same tune again.

The idea of a Great Depression circa 2011 is false for the simple reason past conditions are patently dissimilar from today.

True, the US stock markets had its first major episode of correction for the year 2011.

But was it a broad market meltdown?

From US Global Investors

Obviously not.

The energy sector defied last week’s downturn. This goes to show that there has been an ongoing rotation of money—all too symptomatic of inflation dynamics at work.

As it is rare to find this gem of reality check from the mainstream; from the Wall Street Journal

It's important to keep in mind, however, that oil was already trading in the $85 to $90 a barrel range before the recent irruption in the Arab world. The run-up to that price territory began in earnest last year after the Federal Reserve embarked on its QE2 strategy of further monetary easing.

The Fed absolves itself of any responsibility for rising oil prices, attributing them to rising demand from a recovering global economy. Demand has been rising, but not enough to explain what has been a nearly across-the-board spike in prices for dollar-traded commodities. (Natural gas is the big exception, thanks to a boom in domestic exploration.) A spike in one or two commodities can be explained by a change in relative demand. A uniform price spike suggests at least in part a monetary explanation. The Fed will use the Libya turmoil as another alibi, but there's no doubt in our mind that oil prices include a substantial Ben Bernanke premium.

We have been told by most media outlets except the above that rising oil prices represent as a supply shock.

However, even if the Middle East Crisis fizzles out you’d be surprise to see that after the Libya premium would have been covered, oil prices will continually rise and will exceed the last highs and approach the $200 as we have been predicting.

chart from Pragmatic Capitalism

Of course we don’t believe that it’s a bear market, not yet anyway.

What we may be seeing instead could be another bubble at work in the US equity markets as margin trade in the US have been ballooning.

So people who argue that cash should be king will likely be wrong again.

Not with more chatters of QE 3.0 or where global governments have been deliberately destroying the purchasing power of money or currency values. And certainly not when the adjusted monetary base which is one of the monetary component which the Federal Reserve controls.

From St. Louis Fed

At the end of the day, all these money will have to flow somewhere. And unless governments learn to restrain themselves the likelihood is that we would likely see higher commodity prices—food, gold, oil etc....

As a side note fiat money stands for political redistribution, and similarly shackles to freedom and liberty. Meanwhile gold stands for the opposite, as per Ralph Waldo Emerson, “The desire for gold is not for gold. It is for the means of freedom and benefit”. Do not confuse one for the other.

MENA’s Revolt Has Neo (Classical) Liberalism Roots?

Many pundits say that the revolt in MENA isn’t about neo (classical) liberalism, but simply about regime (figurehead) change.

Maybe.

This is Egypt today even after the fall of ex-President Hosni Mubarak.

This comes even amidst speculation by some political pundits alleging that Egyptians will have a difficult time to wean away from the decades long of military rule.

The above picture from Al Jazeera.net shows that this simply isn’t so, as Egyptians demand for more than just President Mubarak's ouster but also the repeal of the emergency rule, release of political prisoners and removal of Mubarak's members--from Associated Press.

My salute to Al Jazeera.net’s outstanding live stream coverage of the MENA revolt.

In Libya, when I see placards that demand for the advancement of the role of civil society and institutional changes (I wasn’t quick to enough to capture them) and even call for changes to a constitutional government...

aside from the below....

....I am delighted to know that the seeds of classical liberalism have been sown --in Libya or possibly also in Egypt and perhaps in the other unfolding People Power revolutions in the Middle East and North Africa.

Thanks to the web too for disseminating knowledge and for inspiring people to act.

Seeing all these gives me reasons to be an optimist.

Cognitive Dissonance: Associating MENA Political Crisis Or Oil Prices With Weak EM Equities

Listening to media and to their “experts” or to mainstream chitchats will give you a false impression of what’s been happening.

Some would claim the Middle East has been causing market turmoil.

On the other hand, others will claim rising oil prices has hurt the EM equity markets.

Let’s put into perspective the reality of the current situation as seen by the above chart. (pls pay close heed)

By the way, here is the time line of the MENA’s (Middle East and North Africa) revolt against autocracy.

The best view for this interactive chart is to go the Wall Street Journal here

The important point is to show you WHEN all these began—January 9^th. (you may want to include Algeria’s food riot 3 days earlier)

So what do all these tell us?

-The fall of emerging market equity prices began last December as OIL prices in general continued to climb. In fact, the initial downturn of EM equities coincided with the WEAKENING of oil prices. But oil reversed and rallied.

-Emerging equity markets has been on a decline WAY BEFORE the domino like political crisis in the Middle East and Africa (marked by the blue vertical line).

-Oil prices have been on the rise WAY BEFORE the MENA Political crisis

-The US S&P 500 has been on a winning streak and only materially declined yesterday.

So has rising oil prices and or the Middle East crisis has caused the decline in EEM? The answer is clearly NO!

The correlationship of the Middle East crisis, oil and Emerging markets appear to be tenuous, i.e. correlations have been starkly weak.

Yet to argue that Middle East or High Oil Prices equals WEAK global equities is no more than cognitive dissonance or in my terminology popular “superstitions” or in Taleb’s lingo, “Negative Knowledge”.

People are simply trying to grope for an explanation and would take any events to confirm or to read by the market’s action.

Instead the role played by the Middle East Crisis to the current EM equity infirmities has been as an AGGRAVATING CIRCUMSTANCE to an already existing condition.

Those who took action because of the alleged Tunisia-Oil-Equity relations are plain LUCKY, for the simple reason that to argue base on this premise has been simply false.

I’d like to further add that to my observation NO EXPERT PREDICTED this MENA political crisis to happen or unfold as it has today.

While the MENA crisis has been long overdue, and has been predictable, as current political structures and system are simply unsustainable, what has been unforeseen is the timing and the scale of contagion.

Take for instance, Dr. Marc Faber, as previously pointed out, rightly predicted on the weakening of the emerging market stocks in the end of 2010. But he didn’t foresee this political crisis unfold (although his prediction of an Israel-US air strike on Iran since has not materialized. Generally speaking, he’s been spot on).

So current conditions have only coincided or buttressed Dr. Marc Faber’s general perspective of the weakening of emerging market equities.

Bottom line: the MENA crisis serves only an aggravating circumstance, not the cause of weakening EM equities.

I’d like to add that MENA political crisis is an upheaval against dictatorship regimes whom had been US puppets.

Yet violence is likely to remain local, as the incumbent autocracy will stubbornly resist relinquishing power which they see as an endowed entitlement.

Nevertheless, it is a positive outlook to see people start to be appreciative of freedom or liberty, even if many have misplaced ideas about what constitutes genuine liberty.

In watching a live interview broadcast in Aljazzera, two Middle East experts seem to acquiesce on the root of the unrest: economics—where the current system has only channelled wealth redistribution to the privileged political class at the cost of the public.

However, in contrast to common impression about Islam Dr. Mark LeVine says that he’s been amazed by how Islam authorities have been urging people to revolt peacefully in spite of government actions.

So while there may be some risks of a militant Islam theocracy taking over, he thinks that this may be overrated.

I agree, people are starting to learn about the difference between top-down and bottom up political structures. Thus, this is no reason to be bearish.

Note: People believe whatever they want to, some to the point of deluding themselves.

I am interested in positive knowledge or what works. This means reading through all the facts rather than selectively taking in facts that only conforms to a preconceived conclusion.