Pretzel Logic

4 Possible Market Scenarios

The charts tell the whole story. There is another option to your "one of four" scenario, and that is that we get MORE than one of those scenarios following in close succession.

Personally, I think we get the Great Recession first. It will be much like passing through the eye of a hurricane. Things will seem to be getting better for a while. Then, a year or two down the road, we get the back end of the hurricane, which will be even worse than what we've exprerienced so far. It will probably take the form of Great Depression 2.0. And maybe something else after that.

As I said, the charts tell the story. This is a higher degree bear market than '02. In fact, the closeset parallel is the last great depression. We will have a huge counter-trend bounce at some point that could be viewed as a bull market within the Great Bear (just as they had after the '29 crash) -- maybe we're getting that now. But the worst is yet to come.

The Worst Isn't Over Yet

Yeah, the market is in "bad news is good" mode right now. The rational is that things can't get worse -- and maybe they can't. But they're pretty bad already.

On Apr 03 11:07 AM schlumpf wrote:

> in cnbc the bulls wrote, its a good sign that the job losses are
> higher. The recession is over because the job losses are higher.
>
> I know everybody is long now. but this is crazy.

Dow Nears 50% Retracement; Tread Carefully

Fib retracement levels are measured not from a zero starting point, but from the beginning of a given move.

(Beyond that, the market has never been worth "0" - so 0 would be a fallacious starting point in any case.)

Anyway, if one considers 1982 to be the start of the great bull run to 14K, then the 50% retracement level would be 7494.04 and we've already broken it. Using Fibonacci retracements, that would make the next target the 61.8% retracement at 5890.

Market Sentiment: Still No Panic

The ongoing level of complacency in this market is astounding. We have yet to see anything approaching real fear and panic. Maybe Dow 4500 would do it. But until we see a real wash out, all rallies should be sold.

12 Reasons to Short Gold

I would take issue with reason #1 ("it's a great contrarian play!") -- contrarian for contrarian's sake is never a good reason to trade. Buying stocks on Oct. 6, 2008 was a "great contrarian play" -- how did that work out for folks? Oh, they're still sitting on 30+% losses.

I would also take issue with the idea of a second half recovery. That's just naive. For proof you site Obama and the gov't? The gov't didn't even admit to a RECESSION until it was almost a year old. C'mon, seriously.

Beyond that, I would short gold at your own peril right here. I was bearish on gold a couple months ago, but now that it's broken its downtrend, it's a new ballgame.

Oil: Crashing to 30 or to 20?

I was short-term bullish on oil as recently as a couple months ago, but the technical damage it has sustained since then has changed my mind. I would now expect oil to have one more downthrust (along with the equity markets) before putting in an intermediate-term bottom. I would think that once it hits the $20's, it will be a no brainer to go long and hold for awhile. But it does look like it needs one more down-leg to complete this crash off the highs.

Breakout or Fake-Out?

The upper line of the bigger (and symetrical) triangle connects the Nov. and Jan. highs, and is currently around 900 on the SPX. I'll be shocked if we can break out of that with conviction. I agree with your analysis that this is a bear market rally.

Markets Shake Off Unemployment Numbers and Continue Higher

The market didn't ignore the bad news -- the market was happy because the news is SO bad, it means the $800 gazillion dollar stimulus package will pass.

Mind you, I'm not saying I agree with the market, but that's the psychology.

Team Obama vs. Team Reagan

Ugh. The revisionist history blaming Reaganomics for our current crisis is mindboggling (not this article, some posters and politicians). Let's try an analogy to make it really easy to understand:

Imagine you are on the cusp of bankrupcy. Your employer is cutting wages several times a year, so you are earning less and less. At the same time, your cost of living is actually increasing, and your debts are mounting. You have passed the point of no return. Then someone comes along and says, "Hey, let's try to restructure your finances. We'll move some money around, refinance some debts, and see if you can't work your way out of this."

Several years later, you end up having to file bankruptcy anyway. Do you blame the guy who helped you restructure? ("Well! THAT didn't work! It's all his fault I'm bankrupt!") Or do you place the blame correctly, and realize that you were financially doomed long before that?

Reagan didn't create the disaster, he inherited it. And he did a pretty good job of making life MUCH better for the vast majority of Americans, if "only" for a couple of decades.

Gaza War: Expect a Spike in Oil, Gold

Regarding "Higher oil prices will be the death knell for the recent modest rally in global stock markets and the impact of higher energy costs " -- if you overlay a chart of oil and the SPX, you will see that the two have been moving in tandem for several months. Modestly higher oil prices would be bullish for equities, not bearish. I expect oil to rally to $65-85 before crashing to new lows on its next downleg.

Gold lost its luster as a war safe-haven when Russia invaded Georgia (look at a GC chart if you missed it). I doubt most investors have forgotten that lesson this soon. I expect gold to see the $600's before it sees the $1000's again.

The One-Word Topic of the Day, and Week: Obama

Hmm. Obama will save us all, right? Wake up. We just hired a guy with absolutely no relevant work experience to do the toughest job in the country at the moment.

It's like having an inoperable cancer, and then hiring a "surgeon" who never went to medical school, and actually spent his entire life working at 7/11, to remove it -- solely because this 7/11 Guy had "hope" for "change" when all the real surgeons said it was inoperable. Good luck with that. In reality, 7/11 Guy (Obama) will just kill the patient faster.

Wise move, America. "Hope" springs eternal!

What this country needs for REAL change is Ron Paul, or someone like him. Sigh. Maybe 4 years from now, we'll be ready. No? Maybe 8..? We can only "hope." ;)

Investors Face the Psychological Pressure

This is one time when the media is UNDERreporting the collapse (partially because they don't understand it). We're locked in a self-perpetuating loop:

a) Foreclosures come onto the market and lower comps (real estate values) for the whole neighborhood, so...
b) John and Mary ARM can't refinance now, because their house has become worth less than they owe, so...
c) John and Mary ARM get foreclosed
d) Go back to a)

a) Jack and Jill Consumer can't get HELOC loans anymore, because of everything outlined above, and because of the credit crunch, so...
b) J/J Consumer tighten their budgets, so...
c) Businesses have to lay off workers, because sales are down and...
d) People without jobs spend less
e) go back to b)

The last lynchpin is the government. How much of this bad debt do you think Uncle Sam can backstop in an environment of falling GDP/falling tax revenue before THEY become insolvent? If the foreign central banks decide one day to stop showing up to buy treasuries, we'll have our answer.

And on. There's a lot more, but I have limited time. Suffice to say: we're not even close to bottoming on a long-term basis. We might get a short-term rally... but long-term "investors" here will get creamed. It only SEEMS gloomy now -- it can get MUCH worse. One day we will look back fondly on this time as "the good old days."

Dow 3600 will be a buying opportunity for long-term investors who can see past the seemingly impenatrable doom and gloom that will be all-pervasive when we get there.

I sincerely hope I'm wrong, and by correlation, I hope you're right. But unfortunately, I don't think that's the case.

Bailout, Schmailout

Does it scare anyone else to hear everyone and their brother screaming that we should nationalize everything? WTF is wrong with people? The further we get from Constitutional government, the more trouble we get in. IS THIS NOT GLARINGLY OBVIOUS TO EVERYONE YET???

Getting even further away by nationalizing private business will ultimately make things worse, not better. We need to be stripping away all these never-intended functions of government, not adding to them. I can't believe all these cries I keep hearing, from both sides, of "give the government more power!"

Where is the outrage the left showed over the increased power of the government through the Patriot Act? You ain't seen nothing yet. Giving over our businesses and our banks and our health care, now THAT's giving the gov't real power -- because money is power in today's world. We are creating a monster that will devour our every last freedom.

We need a real revolution. Not an Obama or McCain "business as usual" revolution. Vote all the bums out.

Happy-Sad News: Foreclosure Sales Climb

Biased Realtors??? Never! My favorite is their ad which says, "Now is a great time to buy or sell a home!" WHAT? Either it's a great time to buy an asset (the asset will appreciate) OR it's a great time to sell an asset (the asset will depreciate) -- but it can't be BOTH.

At least the stock brokers keep their message logically consistent (even if it's historically misleading): "Buy buy buy, stocks always go up long term."

Anyway, the other issue with home prices stabilizing is the overhead supply. How many people are waiting for prices to go up so they can sell? Quite a few. Which means, prices won't go up again for a while. And all those sitting on a 33% loss now need a 50% gain just to get even.

Should You Go Long at Volatility Extremes? Nikkei As Example

Who on earth told you we are at historic low valuations? Not even CLOSE.

Using earnings per share over the trailing 12 months, the current PE ratio for the S&P 500 index is 18:1. Only 21% of the months since 1871 have had higher PE ratios than this.

We're closer to historic high valuations than we are to historic low valuations.