Sean Privitera's  Instablog

 Take a look at the following charts. The first chart is one of the market crash of 1929 and the following recovery.

The next chart is the  market crash of 2008 and the recovery up until now.

 And here is a chart through 1932, showing that the recover of early 1930 was just a head fake for a coming disaster much worse than the initial decline of the 1929 crash.

Why would this be the case when we’ve had so many ‘recessions’ since the great depression that weren’t like this? One reason iss the massive deflation we have experienced, with the shrinking of available credit and the 30:1 leveraging of the bank balance sheets which flooded capital markets with money. Securitization of mortgages helpes with this too. During the 2000’s there has been no real income growth, just debt expansion.

This is the reason we will not see a recovery for years in the United States. The savings rate is skyrocketing which will further drive home the depression of 2009. There will, however, be bubbles in certain sectors due to government interaction. There will be another smaller housing bubble driven by the astronomically low interest rates and the $8000 tax credit as I have said before. There will also be bubbles in renewable energy and government subsidized programs. The recent uptick in consumer spending is likely linked to consumer receipts of tax refunds which is very short term. The unemployment rate is still increasing and is maintaining a very high rate.

Although there has been attemps by the FED and the goverment to artificially stimulate the economy all this is doing is creating another bubble like the one that just exploded. Take a look at the effect of the 2008 stimulus that Bush enacted. This had a sugar high effect which was very short lived. There is just no fundamental reason to be buying into US equities. Any recent upticks in economic data are likely head fakes which will later decline more like we saw in the early 1930’s. Additionally, the recent market is very overbought (meaning it has run up too much too fast).

Disclosure: Long DXD (Short the DJIA)