The Freddie Krugers on Wall Street are again looking at their old nemesis--volatility. The market fell three consecutive sessions, with a dip below 100 points on one occasion, then suddenly rebounded with a nifty 200 point rally on Thursday, Oct 29th, spitting in the face of the dread anniversary of the 1929 crash. As if to apologize, however, it promptly gave back all those gains the following day with a 250 point drop on Friday. This is the sort of volatility that characterizes a market that has played out all it has to give on the upside, and has definitely topped. The stunning persistence of the "bear rally," up 62% from the bottom at one point, has defied all logic. While the traders were bidding up prices, the companies that actually issue the stocks were all busy laying off workers. We lost 2.5 million jobs during the rally, creating a nightmare on Main Street that Wall Street will eventually have to sleep with as well.
All the "fundamentals" scream that this market is wildly overbought, with P/E ratios above 140 on the S&P 500. Insiders have long since taken their profit from the rally and made a stealthy exit. The smart money went to T-Bills or commodities, or moved to cash or gold in spite of all the gloomy talk about the dollar.
Truth be told, we are still in the early innings of a deflationary depression. In spite of trillions thrown at the banks, credit and lending continuies to contract. The money is not reaching Main Street, and the phony sales rally in housing and autos was entirely created by free cash from Uncle Sam in the $8000 tax credit and 'cash for clunkers.' Housing and auto sales will now resume their crash. This market rally will eventually bow to reality and stocks will be forced to reflect the reality of the painful fact that companies are going to have a harder and harder time actually selling things to a consumer who is out of work and deep in debt. As markets for products fail, profits will thin, and the government simply cannot continue to shovel free money into the economy to produce a manipulated positive GDP.
The nightmare we are now beginning to clearly see is Deflation with a capital D. Prices will decline, but credit will contract even faster. Incomes will eventually erode as well. The velocity of money in the economy is already perilously slow. Cash is king, and will be for the foreseeable future, no matter what the dollar does, yet people will just not have much to spend. The dread specter of deflation simply cannot resolve until the massive debt at every level of our society is somehow accounted for. And if banks think they have a problem now with people walking away from over-bloated mortgages and defaulting on their credit card debt, they ain't seen nuthin' yet.
Th Nabob Hath spoken.
All the "fundamentals" scream that this market is wildly overbought, with P/E ratios above 140 on the S&P 500. Insiders have long since taken their profit from the rally and made a stealthy exit. The smart money went to T-Bills or commodities, or moved to cash or gold in spite of all the gloomy talk about the dollar.
Truth be told, we are still in the early innings of a deflationary depression. In spite of trillions thrown at the banks, credit and lending continuies to contract. The money is not reaching Main Street, and the phony sales rally in housing and autos was entirely created by free cash from Uncle Sam in the $8000 tax credit and 'cash for clunkers.' Housing and auto sales will now resume their crash. This market rally will eventually bow to reality and stocks will be forced to reflect the reality of the painful fact that companies are going to have a harder and harder time actually selling things to a consumer who is out of work and deep in debt. As markets for products fail, profits will thin, and the government simply cannot continue to shovel free money into the economy to produce a manipulated positive GDP.
The nightmare we are now beginning to clearly see is Deflation with a capital D. Prices will decline, but credit will contract even faster. Incomes will eventually erode as well. The velocity of money in the economy is already perilously slow. Cash is king, and will be for the foreseeable future, no matter what the dollar does, yet people will just not have much to spend. The dread specter of deflation simply cannot resolve until the massive debt at every level of our society is somehow accounted for. And if banks think they have a problem now with people walking away from over-bloated mortgages and defaulting on their credit card debt, they ain't seen nuthin' yet.
Th Nabob Hath spoken.
