June 1930: Congress passes the Smoot-Hawley Tariff Act. According to this brief summary...
"The Smoot-Hawley Tariff was more a consequence of the onset of the Great Depression than an initial cause."
Ah, politics in action.
June 2009: German Chancellor Angela Merkel declares war on the Anglo-American alliance responsible for flooding the global financial system with tens of trillions of worthless, dollar-denominated securities.
So, looks like the party might be over soon.
FACT: In extraordinary times like these (just like the 1930s) all concerned parties had better be on the same page ... otherwise there's likely to be more trouble than everyone bargained for.
Truth is our present-day vulnerability fundamentally is no different than that which led to passage of Smoot-Hawley. The global financial foundation is shaking in much the same fashion as it was in 1930, because it likewise was formed by a severe case of risk mis-pricing. Therefore, political reaction creating friction in a machine needing copious gobs of grease is no less inevitable now than it was then.
Players caught up in the allure of a fast-paced market trending positive might not perceive the significance of storm clouds brewing in the lynch-pin economy of the EU, but apparently some recognize the danger...
Now, that's what I call failure following Monday's breakout. The best performing major index since March '09 bottom was disproportionately clobbered today. No matter where one marks the beginning of the NYSE Composite's advance that culminated with Monday's surge higher, this advance is over.
However, the same cannot be said of other major indexes. So, don't expect immediate follow-through to today's turn lower definitively confirming my near-term negative outlook. Sure, pressure still is likely to persist the next couple days. Yet things probably will not get really interesting until next week.
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