Look: I am eager to learn stuff I don't know--which requires actively courting and posting smart disagreement.

But as you will understand, I don't like to post things that mischaracterize and are aimed to mislead.

-- Brad Delong

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Saturday, September 24, 2011

Market Musing

A week ago yesterday in comments, fried asked if I was taking the anticipated FOMC action of this week into account. I admitted that I was not, and concluded that post with, "Either way, the main trend is still down." In fact, my look at the market is only influence by what takes place in the market itself.

For more conventional thinking, consider this statement by Steve Reitmeiser in the Zacks email I got this morning.

On Wednesday Ben Bernanke gave the clearest signal yet that the economy is likely headed into a recession. That is when he launched the new incarnation of Operation Twist to push long term bond rates lower to encourage economic activity. Here is the key phrase from that announcement:

"Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets."

On the surface that does not sound too ominous. Yet as more investors got out their "Fed Speak Decoder Rings" they began to realize that it spells TROUBLE. That is why the Dow shed nearly 300 points in the final hours after the announcement. And Thursday brought more of the same pain.

Now more and more investors are waking up to the notion that we are likely headed into another recession. And that outcome means that stocks will head a lot lower from here. 

 Implicit in this statement is that stock markets react in big and meaningful ways to news events, which is nonsense, and that the Great God BenBer has the power to move equity markets, when the reality is that the Fed doesn't even have the power to set interest rates.

I started blogging the crash in the first week of August, after I got back from a week at the lake, almost totally segregated from news of any kind.  Recognizing that wave patters have complexities, not simple shapes, and are probabilistic rather than certain, I have have been consistently predicting an imminent major downward move for over a month and a half.

Though my thinking is outside the mainstream, it is not original.  I am deeply influenced what little I know about the Elliott Wave Theory of stock price movements.  From that perspective, we are in for a huge, multiyear decline, that will almost certainly accompanied by social unrest, at the very least.  

We are living The Chinese Curse.


1 comment:

Suzan said...

I couldn't agree more and have been predicting the same all summer.

Thanks for your calm analysis.