Friday, August 10, 2007

Look Out Below II

More from: charles hugh smith


The stock market's 4-year cyclical low has been put off for an entire year by the explosion of liquidity/credit. Now the chickens are coming home to roost. One of the most reliable cycles in U.S. markets is the 4-year cycle: about every 4 years, the stock market hits a low. It has been remarkably consistent: 1982, 1987 (OK, 5 years), 1990, 1994, 1998, 2002--so the low was "scheduled" for 2006.



In 1986, Mr. Market missed its appointment; but that simply set up the October 1987 "appointment" which resulted in a 22% drop in a single day. Now the U.S. stock market has blown right past this 2006 "appointment"--but the appointment wasn't cancelled, it was simply re-scheduled for the future. That future is now:

Historically, a 20% decline is quite a normal occurrence. With this is mind, it is risible how market cheerleaders/pundits are screaming and shouting and shaking in terror now that the Dow Jones Industrial Average has declined a mere 6% from it's all-time high.

Recall that stock market meltdowns aren't the result of some fundamental dislocation in business or the economy--they result from credit contractions/panics/dislocations. Which is exactly what we have right now.

It looks like Mr. Smith called this one right on the money. Thanks Charles. If you haven't visited his site I recommend you give it a click, good stuff. charles hugh smith

I didn’t know about the four year cycle but I do know that the markets are over valued. In fact most every asset class is now over valued and waiting for an adjustment, which, if you have been following the news, seems to be upon us.

Even the PPT (Plunge Protection Team) seems impotent in the face of this re-pricing as investors are questioning values and running for cover. Australia, Canada, Japan, the Federal Reserve and the E.C.B. have all been pumping money, ($130 Billion in the case of the E.C.B.) into financial markets for two days now to no effect.

Normally I would feel a little optimistic, trusting in the inherent greed of my fellow investors to predict a re-entry to the markets to scoop up bargains, but I’m not feeling so optimistic this time. If the PPT can’t turn this stampede, we are in for a long drop.
Vern

2 Comments:

Anonymous Louisville Real Estate said...

I think you're right on this one Vern. Normally investors would seize on an opportunity like this to get some great deals, but we may be in for the long haul this time...

Friday, August 10, 2007  
Blogger Vern Wichers said...

Did you notice the record amount of dough the ECB poured into their monetary system? Three days in a row with very little bang for the buck.

The Fed followed on with their own simultaneous liquidity injections to little or no effect.
It’s like plugging the dam with your finger when the proper course of action would be to run for the hills.
It’s not looking good…

Tuesday, August 14, 2007  

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