CHARTS OF THE WEEK: Watch This Chart To See If Stocks Are Going To Tank

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chart of the day, us economic surpirse index, dec 2010

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  • Watch This Chart To See If Stocks Are Going To Tank
  • In Case You Didn’t realise Investors Have A Voracious Hunger For Risk
  • The Shocking Selloff In Muni Bonds That Has Investors Running Scared
  • The Debt Commission Is A Game Changer
  • Here’s How To Cut The Trade Deficit In Half Right Now

Watch This Chart To See If Stocks Are Going To Tank

This morning we noted how if the economy really does start to soften, you shouldn't count on QE to save you.

QE didn't cause the market to rally from September - November, and it didn't save the stock market in Japan.

You should watch the US Economic Surprise Index, which basically measures whether the data is beating expectations or not, which is really the key question to driving stocks higher.

Here's an update from Nomura, and as you can see it's starting to crest. The index is still positive, so on net we're still surprising, but... if it keeps rolling over, then watch out. The economy will follow.

In Case You Didn't realise Investors Have A Voracious Hunger For Risk

Today's chart comes courtesy of Eddy Elfenbein at CrossingWallStreet, and it gives the clearest insight into changing investor sentiment: Ever since last August, cyclical stocks and the 30-year Treasury yield have surged in tandem.

Meanwhile, today is suggesting a trend on overdrive, as not only are stocks higher, but there's heavy selling even on the shorter end of the curve.

The Shocking Selloff In Muni Bonds That Has Investors Running Scared

Today saw a massive selloff in the broader bond market, but the muni bond situation may be the most alarming.

The threat of the end of the Build America Bond program looms large, and it is scaring investors into selling out of the muni market.

It could be the next black swan looming, ready to cause an even larger problem for states already overburdened with debt.

Just check out the down move in the Muni bond ETF today. It may be off its lows of the day, but it still doesn't look good.

The Debt Commission Is A Game Changer

Agreement to extend the Bush tax cuts may not be finalised yet, but worries the outcome will further effect the deficit are already emerging.

After last week's recommendations from the fiscal commission suggested wide-ranging cuts to the U.S. government's budget, the outlook if we don't take that advice, and just continue to spend, is grim.

In fact, according to Deutsche Bank and CBO estimates, if we just continue down the same road of government spending, the U.S. debt to GDP ratio will rise to near 250% by around 2040.

But if we do listen to the deficit commission, we won't be much better off than we are today, at slightly less than 50% debt to GDP after 2040.

Certainly, the latter conclusion is much better, however.

Here's How To Cut The Trade Deficit In Half Right Now

It's simple. All you have to do is eliminate oil imports from the trade deficit.

As this chart from Calculated Risk shows, based on today's data, eliminating our net petroleum imports would reduce the trade deficit from around $40 billion to closer to $20 billion.

Crudely annualizing this difference to $240 billion would represent a 1.7% boost to GDP of around $14 trillion.

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