Stock Markets Remain at Extreme Risk of Crash Despite Rallies
Stock-Markets / Financial Crash Nov 24, 2008 - 05:02 PM GMTBy: Captain_Hook
In his genius, E.F. Schumaker foresaw the eventual demise of present day central banking long ago, and offers a workable solution that can both co-exit and operate within transition from failing fiat currency based economies flaming out due to accelerating inflation . And make no mistake about it – the global economy is flaming out – with all strata of economies soon to begin the decentralization process. One need only look at the collapse in the Baltic Dry Index (BDI) for confirmation in this regard. The credit crisis, and lack of trust it sponsors between financial institutions both domestic and foreign alike, has crashed international trade markets the likes of which never witnessed in the history of mankind. As growing numbers begin to understand this condition is not temporary, but the future, process will take hold, and economies will increasingly regionalize.
So, one best face the truth and prepare today for the inevitable, a future characterized by a return to a good work ethic, honest money, and a hard earned respect for your fellow man. Of course the present day bourgeois bureaucracy will attempt to maintain their paper empires for as long as possible, plying the mob with bread and circuses . As with all such past instances however, no matter how big the scandal (with those involved thinking themselves untouchable), the perpetrators will go too far , with revolt and change the outcome. And while it could be said that in the end America's demise was a result of rot from within, it's important to realize that with reverse globalization the pivot this time around, marked by foreigners increasingly less willing to accept worthless US currency in exchange for goods and resources anymore, it's likely the painful process of economic / political decentralization will originate from outside, with extremities collapsing back into the center.
Here, despite being rich in natural resources we all need; recently revitalized emerging markets are imploding from collapsing demand, which is a condition that will remain as long as Western economies remain depressed. And Western economies can be expected to remain depressed as long as the credit cycle contraction and deleveraging process continue to depress demand for goods and services, which in turn brings us back to why demand for resources and manufactured goods from emerging markets has collapsed. Of course the shocker for most people will come when in spite of economic malaise the low interest rates America needs to perpetuate the illusion will also be a thing of the past, where emerging markets (most notably China) will be unable to continue investing in Treasuries, which will in turn sever the ties necessary to maintain the Western banking model . It's the deficits you see. The US is insolvent, and at some point the markets will acknowledge this via a collapse in demand for its paper.
As you can see then, the credit and commerce based loops that keeps the globalization model together are failing, where unless bankers can get aging and already fully exploited Western populations to take on more debt, the party is over. The only question at this point is how fast the decentralization process will take place. Will it come quick, with a rapid deleveraging of the system unraveling the very fabric of modern societal living overnight, or will the decay be slow, interrupted by human intervention in the form of wars, burgeoning bureaucracies, and any other excuse the banking community and politicos can come up with to print more currency. Perhaps now you see why these types feel justified in war, because allowing process to take a more natural course would guarantee an economic Depression , the likes of which not witnessed in multi-generations. This is of course why the Fed has become banker to the world .
In terms of measuring pace in this regard then, it appears appropriate to continue turning to the empirical world to provide us with clues and confirmation in our beliefs, as has been the case these past weeks in rigorous fashion . Here, the understanding is that as long as equity markets remain under pressure, the credit bubble will continue to deflate, and the unwinding of the globalization model will continue to accelerate. Of course a great number of market watchers have been out of late calling a bottom in the stock market, right from just about every little guy you care to mention right to the likes of Richard Russell. And even the great Bob Hoye sees the probability of an interim bottom here based on his panic cycle count, a bottom he sees possibly lasting into the first quarter of next year. And hey, in many respects the markets are oversold and select internals have indeed made some kind of a bottom.
Of course with the present sequence being of Grand Super-Cycle Degree minimally, meaning the cycle scale of what is happening right now, with the generational turn in the credit cycle at center, is a big enough consideration not to take anything for granted in my opinion. This is because in the end, even those who have been correct in identifying such turn points in the past are proven wrong in the end, consumed by the out of control monster a hundred years of unfretted credit expansion will create. You see perceptions are literally ‘blown away' as a result of all the ballooning experiments in asset markets, where even if one where capable of maintaining an appropriate view of things, the elastic was pulled back so far due to scale the reaction going the other way is both incomprehensible and too painful to contemplate for the vast majority of market participants. This sentiment is expressed well in tech stocks right now, up some six-days in a row and poised for more pain at any time. (See Figure 1)
Figure 1
And as you can see above it's not just my imagination at work when raising caution about all the ‘bottom calling' at present, with technicals on the weekly Nasdaq Composite Index (Comp) featured below clearly showing the possibility of lower lows arriving at any time. So, while it's true the bounce in stocks could run further, possibly extending into April of next year if both the 1929 and 1938 patterns were to repeat, again, with so many market participants knowing about this now, and put / call ratios still low, one does need wonder just how it will be before tech stock investors are chased out their speculative long positions by continued deleveraging. (i.e. see Money Flow Indictor [MFI] above.) What's more, and unfortunately for the bulls, things don't improve when we move on to the monthly plot either. (See Figure 2)
Figure 2
By the way, if you are wondering why the damn dollar ($) keeps rising this is your answer, where it's the equity market and deleveraging trends that are driving safe harbor and losing bet related derivatives buying. You see the more US stocks go down, increased forced redemptions from abroad causes foreign fund managers to buy $'s to meet redemption requests, which creates temporary artificial demand.
Unfortunately we cannot carry on past this point, as the remainder of this analysis is reserved for our subscribers. Of course if the above is the kind of analysis you are looking for this is easily remedied by visiting our continually improved web site to discover more about how our service can help you in not only this regard, but also in achieving your financial goals. For your information, our newly reconstructed site includes such improvements as automated subscriptions, improvements to trend identifying / professionally annotated charts , to the more detailed quote pages exclusively designed for independent investors who like to stay on top of things. Here, in addition to improving our advisory service, our aim is to also provide a resource center, one where you have access to well presented ‘key' information concerning the markets we cover.
And if you have any questions, comments, or criticisms regarding the above, please feel free to drop us a line . We very much enjoy hearing from you on these matters.
Good investing all.
By Captain Hook
http://www.treasurechestsinfo.com/
Treasure Chests is a market timing service specializing in value-based position trading in the precious metals and equity markets with an orientation geared to identifying intermediate-term swing trading opportunities. Specific opportunities are identified utilizing a combination of fundamental, technical, and inter-market analysis. This style of investing has proven very successful for wealthy and sophisticated investors, as it reduces risk and enhances returns when the methodology is applied effectively. Those interested in discovering more about how the strategies described above can enhance your wealth should visit our web site at Treasure Chests
Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities, as we are not registered brokers or advisors. Certain statements included herein may constitute "forward-looking statements" with the meaning of certain securities legislative measures. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the above mentioned companies, and / or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Do your own due diligence.
Copyright © 2008 treasurechests.info Inc. All rights reserved.
Unless otherwise indicated, all materials on these pages are copyrighted by treasurechests.info Inc. No part of these pages, either text or image may be used for any purpose other than personal use. Therefore, reproduction, modification, storage in a retrieval system or retransmission, in any form or by any means, electronic, mechanical or otherwise, for reasons other than personal use, is strictly prohibited without prior written permission.
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Stock Markets Remain at Extreme Risk of Crash Despite Rallies
To say our self-serving bureaucracies have been printing a great deal of currency to bail themselves out their ill-conceived exploits that characterized the Bush years could easily be said to be an understatement. Perhaps a better way of putting things is the drunken sailors have finally come around, looked at what they have done, and realized it's far better to tie one on again than to actually attempt conscionable governance. They know however. They know the ship is sinking, and it's just a matter of time before the US, and its almighty dollar ($), goes down like the Titanic. We are getting glimpses of this in smaller economies now, where sooner or later the harsh realities of a global boom gone bust will hit US shores for real, when the world owns up to the fact America can no longer pay its bills.
The following is an excerpt from commentary that originally appeared at Treasure Chests for the benefit of subscribers on Tuesday, November 13th, 2008.
This is when the $ will fall in earnest, as the Fed will need monetize the bond market because even if they wanted to, foreigners will no longer be able to fund the trade deficit with their own economies on the rocks. Of course it's easy to argue this is already happening , however you will know the numbers are meaningful when the Fed begins to add Treasuries to its portfolio , which is not happening yet. And then there's Obama, and the extensive make work promises he made to get elected. Who's going to pay for these – an already tapped taxpayer ? Unlikely – so again, the printing presses will need be employed to fund the budget deficits at home, which is bad for the $ as well.
Of course before getting too excited about all this we should consider all the facts. In this regard Jim Sinclair has posted some interesting insights on his website that explains the leveraged speculator community is holding the $ up at present, but that once they finish unwinding all their bad bets, it should decline. And with this assessment I must agree, referring to the situation as a ‘ synthetic squeeze ', a term first coined by Richard Russell in this regard. Another pertinent term that was brought into view earlier this decade in connection with the massive inflation efforts carried out by Japanese banks (in cahoots with the Fed) is ‘ quantitative easing' , which is apparently something we should get ready for as both the Fed and other central banks around the world attempt to save globalization by letting loose hyperinflation . This is of course bad for the $ as well, being the world's reserve currency.
There is one big problem with the above thinking however. The big problem is the speculation game is not isolated to the $. What's more, one must understand that on a related note, which in fact could be the next big card to fall as credit cycle continues to collapse, there are multi-trillion dollar Credit Default Swap (CDS) and Interest Rate Swap (IRS) bubbles which are ticking time bombs that will cause further deleveraging next year, possibly maintaining the synthetic squeeze in the $ far longer than most can contemplate. Of course the good news for precious metals is when this starts to unwind it will essentially take the banking system with it (because these bubbles are gargantuan) via either hyperinflation or deflation, or both, possibly in that order. This would sponsor the need for a grounded monetary system in due course.
Of course before we can talk about next year we need to see some closure in the present stock market washout naturally. Due to the fact the speculator community continues to bank in the ability of the bureaucracy to turn things around however, participants refuse to capitulate in the various sentiment related measures that continue to prove accurate, which is a problem. So basically, until investors decide / believe the bailouts won't help, stocks will continue to decline because bullish speculators will not capitulate until this point. Even now, after what consider ‘surprising weakness' in stocks this week, gamers are attempting to push stock futures higher in anticipation of the G-20 Meeting this coming weekend, which is par for the course for these characters, even after the Intel warning yesterday. Various measures of stocks have already reached 2002 lows you see, including semiconductors, which means they should bounce no matter what, right? (See Figure 1)
Figure 1
This is important because tech out-performance is the key sentiment measure to be following right now given the precarious technical position of the Dow / Nasdaq Ratio discussed the other day . And guess what, even with the drubbing stocks have taken over the past few days the ‘key stochastic setting' we are following still hasn't broken to the downside (see below), which means two things. First, the bulls still have not given up the ghost. And second, this means stocks are still open to significant downside at present, where those looking for a bounce in Intel shares because its releasing new technology Monday just don't get the fact this will not matter with the credit cycle on the fritz. (See Figure 2)
Figure 2
Thus, what we have here in terms of prospects in the financial markets is the $ breaking to a new high for the move, gold testing the October lows, and stocks breaking to new lows, possibly significantly so, testing 2002 nadirs at a minimum. Given the big break in tech that's still required before sentiment will be poised to sponsor a rally however, and a move that would surprise everyone (which is why it can happen), don't be surprised if 2002 lows are taken out before stocks find any traction in staging a multi-month rally. As you can see below the Nsadaq / VXN Ratio is set to test its 2002 lows, which could cause a brief rally, but as with the recent break in the S&P 500 (SPX) / CBOE Volatility Index (VIX) Ratio , those lows should be taken out soon as well. This will telegraph the likelihood nominal pricing will follow shortly afterwards. (See Figure 3)
Figure 3
What does this all mean in terms of the ‘big picture'? It means the present crash in stocks will go down as the worst in the history of modern financial markets. Of course this is a time of historic extremes – extremes in corruption, complacency, and the sociological rot that goes along with these conditions. So to the educated man such an outcome should not be a surprise. It's difficult to grasp in real time given one's sensibilities continually needs to be adjusted however, but in hindsight such an outcome seems quite reasonable all things considered. And this realization process should now include the speed at which the Great Depression II can grip macro-conditions, where once we slip into deflation there will be no coming back for a very long time
So I must apologize for not having even greater concern for capital preservation than I have had, because even if we get some sort of a bounce in stocks in coming days, given the understandings above, the risk in stocks, and I mean all stocks (including precious metals), remains untenable, and is threatening to enter a condition that could sponsor further surprising and abrupt adjustments despite already oversold conditions. And it's not as if precious metals investors are concerned (non-complacent). They are not evidenced in looking at the low open interest put / call ratios on precious metals shares. (See Figure 4)
Figure 4
Source: Schaeffer Research
Unfortunately we cannot carry on past this point, as the remainder of this analysis is reserved for our subscribers. Of course if the above is the kind of analysis you are looking for this is easily remedied by visiting our continually improved web site to discover more about how our service can help you in not only this regard, but also in achieving your financial goals. For your information, our newly reconstructed site includes such improvements as automated subscriptions, improvements to trend identifying / professionally annotated charts , to the more detailed quote pages exclusively designed for independent investors who like to stay on top of things. Here, in addition to improving our advisory service, our aim is to also provide a resource center, one where you have access to well presented ‘key' information concerning the markets we cover.
And if you have any questions, comments, or criticisms regarding the above, please feel free to drop us a line . We very much enjoy hearing from you on these matters.
Good investing all.
By Captain Hook
http://www.treasurechestsinfo.com/
Treasure Chests is a market timing service specializing in value-based position trading in the precious metals and equity markets with an orientation geared to identifying intermediate-term swing trading opportunities. Specific opportunities are identified utilizing a combination of fundamental, technical, and inter-market analysis. This style of investing has proven very successful for wealthy and sophisticated investors, as it reduces risk and enhances returns when the methodology is applied effectively. Those interested in discovering more about how the strategies described above can enhance your wealth should visit our web site at Treasure Chests
Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities, as we are not registered brokers or advisors. Certain statements included herein may constitute "forward-looking statements" with the meaning of certain securities legislative measures. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the above mentioned companies, and / or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Do your own due diligence.
Copyright © 2008 treasurechests.info Inc. All rights reserved.
Unless otherwise indicated, all materials on these pages are copyrighted by treasurechests.info Inc. No part of these pages, either text or image may be used for any purpose other than personal use. Therefore, reproduction, modification, storage in a retrieval system or retransmission, in any form or by any means, electronic, mechanical or otherwise, for reasons other than personal use, is strictly prohibited without prior written permission.
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