Barnyard Economics

Barnyard Economics

Barnyard

Which came first - the chicken or the egg in the new world of Barnyard Economics???

If the first two months of 2013 market’s action could be compared to the farm, the crop would be poor and the animals unproductive, but the farmer would be enjoying a banner yea...except on Mondays. Because alas, for the eight Monday in a row, the S&P 500 closed lower. The farmer (and the markets) might opt for a three day weekend in the future.

Whether or not these patterns and statistics have become self-fulfilling prophecies is hard to ascertain. We do know that the market opened all gangbusters Monday with everyone from the cows to the pigs buying stocks. By mid-morning, things got dicey as we heard Chicken Little’s cry, not the sky is falling, but the sequester is coming. With no resolution in Washington and March 1st fast approaching, federal spending will be reduced by $85 billion in the final seven months of this year and by $1.2 trillion over the next nine years.

Another culprit seemed to be Italy, as we learned there may be a barnyard government. Initial results from Sunday's election showed the center-left party of Pier Luigi Bersani leading in both chambers of parliament, but later in the day Italian state TV station RAI said none of the four main groups running in the Italian parliamentary election is likely to win a majority in the Senate. A coalition or party must win at least 158 of the 315 Senate seats to gain a majority in the upper house, which a government would need to pass legislation.  Italian stock market proceeded to drop 4% from pre-poll headlines and Europe's VIX pushed back above 21.5%. In addition, the Euro fell out of bed versus dollar dropping down to 1.3141.

 Whether or not the barn doors have swung open and the macroeconomic fundamentals will upset the cozy liquidity production machine, we shall soon see.  

Trade well and follow the trend, not the perma-bull OR perma-bear "experts."

Best Trades to you,

Larry Levin

Founder & President- Trading Advantage

TradingAdvantage.com