'Groundhog Day' for the Markets

Includes: DIA, QQQ, SPY
by: Gary Tanashian

Bonds, tech stocks, credit, housing, commodities... a would-be bubble in everything. Marc Faber, by way of Michael Panzner illustrates just how removed from any kind of sound economic foundation we became (Will They Ever Grasp the Simple Truths?) by the time the rolling bubbles of the 2003-2007 time frame had hit full throttle around mid-decade.

You've seen the movie Groundhog Day, with events repeating over and over in a maddeningly similar pattern? Our policy makers have been schooled in a system that has proved itself to be unsound or worse, disastrous and yet in their densely myopic fashion, these bureaucratic stooges move forward pumping the same old policy as heroin into the [debt] junkie as the first and most privileged abusers, the big banks, laugh all the way to the... bank. That would be our children's piggy banks. We have eaten their future, and it is criminal.

Making matters worse, this is cultural. It is not the fault of Republicans or Democrats. To be sure, their respective policies have corroded the moral underpinnings of a great country that in turn has led much of the rest of the connected world right into the abyss of moral hazard. I read a statement somewhere recently to the effect that as long as the average American has a color TV, they won't make any trouble. The average American has been bred - like cattle - to remain docile and accepting of fate. It took Republicans, Democrats and the average American to get this done; to get us to a stage of moral hazard whereby the only perceived solution is to administer more of the poison that keeps killing us. Well, it takes those three groups in concert with the guidance of the troubadours on Wall Street and financial television.

The preceding paragraphs sound a lot like the articles I used to write in 2004-2007 before Biiwii.com went commercial with its newsletter. NFTRH must tone down its indignation over the inequity and ultimate tragedy of what the macro crooks are doing and remain focused on its theme of getting the intermediate swings right; of surviving and thriving in the wake of wrong headed and immoral policy. The most macro theme is of course that deflation is merely a lever. It is a lever that gets pulled again and again (until the handle breaks off) in service to inflationary policy. The key is in understanding that money is created out of thin air by various methods of mad genius, comes from no productive origins, and flows toward things of real value. But there are a lot of traps along this progression.

Currently, we are dealing with the aftermath of the mother of all deflation scares and are riding hope in what I believe is the 'false dawn', with certain leading indicators improving and policy makers looking more and more in control.

I clearly remember when, in 2003, I had to swallow my gall and admit that the cyclical bear was over. That is where the 'is what it is' theme for the website came from. It couldn't be a bull market, could it? But look at the economy, look at the war on terrorism and its sub-themees of smallpox, nuclear instability, invasion, etc.

No! Look at the little bespectacled man behind the curtain, pulling policy levers like crazy, look at the cozy macro-vendor financing relationship the US and China have cooked up and most importantly, look at the charts! It is a source of satisfaction for me that despite my views that the bull from 2003 was the result of cooked macro books, I was able to outperform the broad market bulls year in, year out, by more than 100% during the cyclical bull market.

Well, there were signals in the charts and they first said 'stop being bearish' and then eventually said, 'yes Gary, the policy is perverted and immoral... keep your financial ethics and beliefs but get the hell out of way, and get LONG or at least trade long'.

Today the S&P 500 is thus far just obediently following our game plan, with a minor hitch along the way that seemingly negated NFTRH's most bullish potential outcome as it failed to decline toward 800 recently in what would have been a potentially solid right side shoulder to a major inverted head & shoulders formation. That thing we have now is not well formed, and it does not pack the power (of negative sentiment) that the pain of an interim, fear stoked decline to 800 would have.

No, this market has places to go and people to see. It is bolstered by more and more analysts turning less cautious to all out bullish. The public should soon follow with the upward thrusting price restoring their confidence. Now again, the dream machine may once again kick in as we suspend financial reality one more time, and if the signals are given, I will have to adjust. NFTRH made its explosive gains in the gold mining stocks off of the historic opportunity presented in October and November of last year. They say you really only need one great trade a year. For me, that was it. Now I trade in patience, and let events play out.

Everybody is taking note of the mighty S&P rally and there is a lot of micromanaging going on about it. All I can tell you is that NFTRH's minimum upside target has not yet been reached, and I am currently a bear due to the untenable risk/reward ratio this market presents. Get that? A bear whose upside targets have not been reached. A bear who was more bullish than many of the newly brave months ago.

So yes, there could be a bull signal up ahead and a corresponding adjustment in my market view. But as was shown in NFTRH43 this week, there is a big picture signal for the S&P that must be triggered for me to even think of abandoning the stance that holds that this is nothing but a suck-in of the (not so) innocents. The signal would be very similar to what happened in 2003 when it was time to deal in market reality. Right now, those declaring 'new bull market' now that it appears safe to do so are kidding themselves.

In short, Hope '09 is doing its job. If however this becomes a legitimate illegitimate (think about it) bull market, it will feel like Groundhog Day in a different way, hearkening back to the early months of 2003.