Non-Existent Recovery Good As Dead ~ The Risk Averse Alert

Friday, February 24, 2012

Non-Existent Recovery Good As Dead

With "the invisible [black] hand" at the gas pump these days a hot news item and everyone wondering if high energy prices will "kill the recovery," to those not yet convinced there, indeed, never has been a recovery, I present you the market's verdict, which is that "the recovery" is as good as dead...

$SPX weekly

The bottom panel shows the relative performance of $WTIC (West Texas Intermediate Crude) versus $SPX. As you can see, while the S&P 500's levitation is continuing, the price paid for the most vital raw material powering the [shrinking] global economy is becoming more dear, relative to the consensus valuation on future earnings measured by $SPX. Therefore, absent some revolution in economy facilitating expanding productivity and increasing margins, this while energy throughput contracts (the present consequence of a hyperinflationary policy animating a comatose banking system), "the recovery" is doomed.

I know this is a simplistic view. Likewise, ongoing increase in the size of the global slave labor camp (Greece is the way) is an aspect of reality the $WTIC:$SPX relative performance does not capture. So, "productivity" positively effecting margins might already be having its "revolution." Yet in the midst of increasing want and shrinking resources with which to satisfy this, where ever in the aggregate will growth come? And how will a mountain of debt not ultimately face write down in an environment where demand has no choice but fall? Thus, again, "the recovery" is doomed.

As to which direction crude might be heading, it depends on the winner of the fast-developing race to a crippling crisis. If first over the finish line is nasty in red, then crude could herald a comeback of the horse and buggy. However if Glass-Steagall wins the day, then crude could be on course to suffering the horse and buggy's fate in a manner likewise fitting mankind's creativity. No matter which proves the winner, political will alone will be the deciding factor.

Fast Money
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