Wed August 31, 2011
The talking heads on television and writing hands on the blogs and such still debate whether we will have what they call a double dip, as though we were undertaking a trip to Baskin Robbins for ice cream.
There is no question that we are experiencing exactly what has happened in past 18 year cycles of stagnation. We have had two drops in the market since 2000, the third and worst is now underway. Yes we are in a short term recovery at the moment, but make no mistake the long term trend is down. Just as JP Morgan has to marshal a recovery from the Panic of 1907, Warren Buffet has 'rescued' both Goldman and now Bank of America, otherwise short of a a Federal bailout both would have failed.
I can even offer up a literal picture for you of how this is slowly unfolding. Slowly unfolding is the key here, that way the 'debate' about when the recession ended, continued, began, whatever can continue, nonsense posing as academic theory in action.
Weekly New Highs versus Lows
By progressing in stair step down fashion, with each plunge followed by an equally sharp recovery, the market will keep the idea alive that the President, FED, Congress, European Monetary Fund etc. are 'doing something' and affairs will be 'all right.' However, the turn for the last market plunge of 2008 began in the Fall of 200-7. Above note that the HL line fell below the 50 bar moving average in July 2007. It recovered a year later in July 2008, but not for long. The pattern of lower highs in an overall down trend channel in pink continued, until the whole thing fell apart in Fall 2008.
Now compare the look of the graph above at far righ with the action of 2007. It appears the action duplicates Fall 2007. This makes sense as the markets finally topped May, 2011. The market has already experienced its first sharp decline, now a rebound to reassure is under way. But the rebound will fall way short of previous highs. The banking ETF XLF has broken long term support at 13.5-14. The bank balance sheets don't balance, Assets do not equal Liabilities plus Equity and that is the problem. That is why B of A went hat in hand begging to Buffet. The same is true for the Club Med countries like Greece and Italy as well as entire states like CA and cities like Chicago.
Here is an interesting comparison of silver in 2008 and silver now this year of 2011.
Silver 2008
Silver Now in 2011
I am not able to leave the last part of this year empty. In 2008 silver held up into the end of summer,
and then fell apart. Such analogies are just that but it is an interesting time comparison. After sharp rallies, like gold and oil in 1980, the crowd wants to hold to the notion that the pullback is just temporary. We shall see.
The markets are up in Europe and Asia last night, the overbought condition continues as the media notes consumer buying picking up amid negative consumer sentiment. All indicators suggest the markets should continue up into mid September. We of course never take things for granted here and remain vigilant.
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