"Markets are always right." This assertion loved by market analysts is increasingly losing its relevance. In recent years, we have seen that Wall Street was able to be heavily mistaken.
The Dow Jones gained 30% since the lowest level of last year, July 6th. What concerns me most is the evolution since the beginning of this year. The Dow Jones has risen approximately 9%. On an annual basis, this would be somewhere above 30%.
However, since the beginning of the year, we had a string of bad news.
• Popular uprisings across the Middle East
• A tsunami followed by a nuclear crisis that seriously weakens the Japanese economy
• A rise of 40% of the yield 10-year US Treasury bonds, from 2.5% to 3.5%, over the last six months
• A doubling of the yields of the obligations of countries in difficulty - with Greece's 2-year bonds yielding almost 24%
• A negative outlook on the United States AAA rating by Standard & Poor's
• Mediocre corporate results for the first quarter of 2011 in the USA
• A 20% increase in food prices worldwide
• A nearly 20% increase in the price of gasoline worldwide
• A weakening US dollar against all key currencies
Inflation is at our doors, we are going through democratic crises, Europe and the United States have become vulnerable, and interest rates are rising. Each of these factors alone would negatively influence the investment climate and lead Wall Street to decline. All of them combined have the potential to provoke a market collapse.
This collective denial, which is reminiscent of 2007, gives the distinct impression that stock markets have lost all reason. Time has come to protect capital. We know what kind of crises Wall Street denials can provoke. Large financial institutions are now in a position to send a signal to sell shares, without being accused of lack of civic-mindedness, sense of responsibility, or both. This is the extent of the independence of financial advice that they publish.
Today Equilar, a compensation analyst, reported that the S&P American CEO's bonus increased 43% between 2009 and 2010, and that their average salary ($ 9 million) increased by 28%.
The first press conference on Wednesday, of the President of the Federal Reserve, will most likely tell us nothing more than what we already know. It is good news for the "core inflation" level, namely the Consumer Price Index, without taking into account the price of energy or food ! This betrays the actual purchasing power of the consumers. Bernanke's optimism will not reassure us: he has a track record for not seeing a crisis coming even if it's the size of an iceberg.
The current euphoria on Wall Street is definitely one of the most compelling signs of a selling opportunity in a long time.