Deflation Remains the Macro Factor
While all the markets, commodity and stock, have had their upward runs out of the September 2010 Fed Scare levels when Ben panicked, deflation remains as the macro factor. Employment is going to make modest gains this year and manufacturers are ramping up. This is good for everything but profits and inventories as the consumer had to borrow over the past holiday in order to have a good Christmas. Consumers will not borrow for Indy 500 tickets on Memorial Day, or firecrackers on the Fourth of July.
Deficit reduction will be the pin that slowly lets the air out. Until the economy really deals with deficit and the underwater housing situation, and we let the air out, and get to a solid base of assets I believe one should tread carefully. This will take three to five years to resolve. In the meantime the market seems to believe that inflation, gold, and oil are the drivers, in reality they are the chase dog and will lead everyone around in circles.
Short term, the flash crash potential will exist through Monday. If there is none by then the market dodged a bullet for now.