Sunday, January 25, 2009


This week should be particularly bad for the markets

There is a lot of bad economic numbers that the market will have to digest next week. On top of this the market is showing signs that the respite we have enjoyed is about to end and the Bear will continue to lower levels. The trend is down and nothing that the market has done since November indicates that the trend has changed. The S&P 500 would have to close above 1000 to indicate that the Bear might be finished. Instead, the last couple of weeks shows a new downtrend forming which is now sitting on support levels. Once those support levels are broken we could easily see a 10-20% drop from current prices. Certain market gurus are talking a 50% drop from here.

Baltic Dry Index (ocean shipping rates) down 96%. Exports from the Asian Tigers down 27% in Japan, 30% in Korea, and 42% in Taiwan. Toyota dropping production in Japan (!!) by half. Japan output in Nov dropped 8% from October (which annualized is 96%). P/E ratios in the S&P at 22 are down more than 55% but are still much higher than at market bottoms (7 in 1932, 5 in 1982) - and the P will be chasing a falling E next two years. Little wonder his downside targets for the S&P are much lower than anyone expects, so low he has paused in printing them. And who else expects oil to soon be back to its wave 4 level at $10/bbl?

So you might want to keep an eye on the market this week. Cheers.

BTW, the interesting, if you can call it that, part of this depression is going to be coming up soon. I am talking countries defaulting on their debt wiping out the wealth of entire nations. Riots (see Iceland), political upheaval, wars, and societal breakdown in the form of people turning away from inclusion, this is why you want the gov't to get out of the business of smoothing out the business cycle. They inevitably make the booms and busts much worse and that is what leads to chaos. Capitalism has up and down cycles but only the gov't can cause a boom to grow so large that the subsequent bust threatens to destroy civil society.

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