Yes, dear reader…prices are falling. In April, the US producer price index fell 0.1%.

Oil fell to $72 yesterday. The Dow fell 114 points.

Copper is down more than 20% from its high. Chinese stocks are down 21% so far this year.

The CRB – a measure of commodities prices – is down about 12%.

Even gold got whacked yesterday – down $13.

What’s going on?

Well, we’re in that long period of adjustment known (to us!) as the Great Correction.

In the first stage…

…the markets discover that its assets aren’t worth as much as investors had thought….

…creditors find that their credits aren’t as good as they had believed…

…consumers realize that they don’t have as much money to spend as they had hoped…

…businesses find that they don’t have as many sales as they had projected…

…and governments wake up to the fact that tax revenues are coming in at less than expected levels.

…..read more HERE

World Didn’t End…Yet! 6:00PM EST

While I’m not an advisory service and am definitely not a “traders” blog, I do understand many of my readers especially like to know my latest thoughts when market(s) are volatile. So here are my latest thoughts as of this writing:

U.S. Stock Market – We’ve been in the “eye” of an economic storm. And while I continue to believe the back end of this “history-making, end of an era” tidal wave of economic, political, social and spiritual  hardship will be unprecedented , I’ve since March 8, 2009, allowed for one “mother of all bear market rallies” to take place. While certainly not enjoying all the fruits of what has been an incredible bear market rally, I also didn’t stand in front of it and see much of the gains enjoyed in the previous downturn vanish.

It’s been my opinion for many months that a top of historical proportions was going to be made in 2010, and I had looked for it by the June/July time frame. I believed it would be the beginning of a multi-year, if not multi-decade period where the stock market trades like the Japanese market did for 20+ years. The lows would be the March 2009 and the highs wherever we topped out this summer.

This bear market rally has been almost straight up with no real corrections of any size. The bears drew many lines on the way up, only to have the “Don’t Worry, Be Happy” crowd run over them on the way to the most recent highs. It appeared on more than one occasion (most recently at the beginning of the New Year) that the bears could gain control again only to see the market make new recovery highs. Can they do it again?

While I believe the vast majority of the money created in all the bail-outs and easing has not been used properly and will only compound future problems, it still was a ton (as in trillions) and it has given some life to a feeble economic recovery that may still have a few months left in it.

….read more about Stocks, Gold, USD, Bonds and Oil and Gas HERE

“Yesterday, all my troubles seemed so far away  Now it looks as though they’re here to stay  Oh, I believe in yesterday.”

Yesterday was a real exclamation mark in terms of representing the end of the bear market rally:

• Dow down 115 points to 10,510.95
• S&P 500 down 1.4% to 1,120.8
• TSX off 48.5 points (-0.4%) to 11,764.51
• U.S. 10 year Treasury note yield rallied 9bps to 3.36%  
• U.S. 2-year note yield rallied 5bps to 0.76%
• Canadian 10-year note yield rallied 10bps to 3.40%
• Canadian dollar sold off a bit yesterday, to 1.035 versus the U.S. dollar (from 1.0325).  In U.S. cents, the loonie went from 96.85 to 96.39 cents.  And so far today, the CAD is down further, to 1.05 (or 95 U.S. cents) — now below its 200-day moving average. 
• Euro hit a four-year low of 1.2211 from 1.2395 yesterday and the Euro/Yen cross is near eight-year lows; 50% of Fibonacci retracement on the Euro is at 1.2134  (from the October 2000 level of 0.8230 to the July 2008 level of 1.6038)
• Crude oil price down 42 cents to $69.66/bbl, to October 2009 levels.  Indeed, the S&P 500 has now sliced below the 50-day moving average and is within 15 points of doing so with respect to the 200-day m.a., which would mean a real rupture.  The yield on the 10-year T-note has already dropped below moving averages, and ditto for the oil price.  There is a rally all right — in risk aversion trades.

Oh yes — how can we forget?  If you don’t see deflation then you are obviously not looking at lumber futures — it seems that the market responded more to the U.S. building permits data than the headline housing start number yesterday because lumber prices were cut down a further 8.6% and have now plunged for four straight sessions and is down 26% from the nearby April 21 high.

…..read pages 2-9  HERE

Quotable
“It ain’t over till the fat lady sings.” – Yogi Berra (accredited)  

FX Trading – Dear Mrs. Merkel we’d like to say, “It is calculable!”
Man, if she keeps this up, Mr. Sarkozy is in danger of losing his top spot as the Eurozone leader most prone to bouts of hyperbole.  

BERLIN, May 19 (Reutes) – The euro is in danger, German Chancellor Angela Merkel said in a speech to parliament on Wednesday.  “Every one of us here can feel that the current crisis of the euro is the greatest challenge that Europe has faced for decades, since the signing of the Treaty of Rome,” she said. “This challenge is existential. And we have to rise to it.  “I’ll boil it down to its core: The euro is the foundation for growth and prosperity, along with the common market — also for Germany. The euro is in danger.  “If we don’t deal with this danger, then the consequences for us in Europe are
incalcuable.”

We beg to differ, Mrs. Merkel; the euro is the source of the problem, not the solution. It is not the moniker of “growth and prosperity” as you say.  No doubt, it was a good thing for German industrialists, so speaking to your power base, you may be correct.  But German taxpayers aren’t very pleased, paying for the sovereign bankruptcies the euro has wrought in its wake. 

And if you need some help with the calculations, here are some numbers that were used to form the original monetary dis-union:

These values were from December 31, 1998:

• 13.7603 Austrian Schilling (ATS)
• 40.3399 Belgian Franc (BEF)
• 2.20371 Dutch Guilder (NLG)
• 5.94573 Finnish Markka (FIM)

……read page 2 – 4 HERE