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Thursday, May 19, 2011

Market Exhaustion finally here

I must say, the lows of Fall 2008 and March 2009 to now have been one hell of an experience.
The lengths the government will go to change laws, invade markets, and fail to enforce law in the name of a better economy has been spectacular.

Frankly, I was not equipped to appreciate the great lengths the government would in effect, double up, on previous bad policies of the Bush administration.

So here we are, with S and P 500 at 1343, the recent high was 1370.58, and people trying to guess whats next.
I have landed on that what is next is market declines, USD rising, and the bear market is back.
I may be premature, or a tiny bit late (from the high), but I think in the span of life it is splitting hairs.

Cash is king, run from equities. This bear should be 6 months upwards of 18 months before the government starts QE3, or some variant, to create the next fraud bubble.

I may...dare I say it....buy a out of the money put on something, or add a short position!
But I'll play it by ear, after a market run from 2009 to now, shorting seems like a hobby for the insane.

I read TheChartStore.com private blog and the charts he has is stunning for how extreme the markets are right now. Some quick examples.
At the top of 2007, the S&P 500 advance-decline line was at 14,000, at bottom of 2009 at 2,000, and now it is at 18,000. Advance-decline measures number of stocks advancing vs declining. The numbers also show how extreme the swings have been.

Further, the total equity market capitalization value as a percent of GDP hit an all time high in 2000 at 180% of national GDP. In 2007 143%, and now, 122%, forming a nice downtrend line we are now pressing against.

There are many other signs, the breaking of silver market, copper, failure of computer chip manufacture index to also hit new highs with markets. And the whopper of them all, that the BANKING index has failed to make new highs with the market.

Plus, as I have posted, the long term bond rates are declining, not rising, indicating there is massive purchasing of US treasuries.

All of this adds up to me, big smart money out, and dumb, public money in.

I may follow Gary of the Smart Money tracker into gold in the next three months at a critical trend line if we decline enough. For my original thesis for gold and silver was NOT its maintaining value because its real money. (it is not money!) Its because Chinese and Indians love precious metals.

In a deflationary collapse, we may see an influx of panic purchasing to try to protect wealth, I may join in that ride up.

For now, equities bad, for quite some time, cash is great, and precious metals....I will get back to you.


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