The entire financial and business world has now learned the two most important words: Hindenburg Omen (HO). We have written about this indicator extensively, with trading floors, chat rooms and even the mainstream press doing articles. Until now, the confirmation of the indicator has been in dispute. That will now change.
In today's trading, which is also a triple witching day, the confirmation is now a done deal. Ironically, this is quite possibly the last time this indicator will be useful or viable. However, if you choose to ignore it, well then be prepared to take a major hit to your financial fortunes.
Prominent wall street analysts such as Joseph Battapaglia, have derided this indicator. Of course, Mr. Battapaglia is well know for beating the internet drum all the way to the top and then to the bottom of the crash in technology stocks. With all due respect Joe, haven't you learned your lesson?
Mr. Battapaglia is hardly alone in his disgust. In fact, the major brokerage houses rarely, if ever issue sell recommendations. Abby Joseph Cohen, a perma-bull if there ever was one, never met a stock or market she didn't like. Never has thought that any financial asset was overvalued. Dear Abby, perhaps you should write an advice column? Naw, it's been done. Never mind!
Now that the HO has made the Wall Street Journal, CNBC, The Drudge Report, Huffington Post and Wikipedia, it will become too well known to be useful ever again. That's how technical analysis works. The minute everyone knows is the very moment that no one can benefit.
For investors, the key here is survival. Safety can be found in very few places: Gold, the Greenback, high quality bonds, high quality utilities and oil companies. But, it would be far more prudent to let this impending waterfall decline fully express itself. There ought to FAR better entry points.
In the case of Gold, for example, consider the likelihood that the mega hedge funds are probably being hit with margin calls and will need to sell the only liquid assets they have. Thus, it is imperative that position sizes be kept fairly small, temporarily.
In addition, most people are long a variety of financial assets such as real estate and employment. These, too, will affected. If you're so inclined, a strategy of hedging your balance sheet is advisable. My personal preference is to place some portion of your portfolio in inverse ETFs such as FAZ and TWM. But, be aware that these are NOT for the feint of heart and will subject you to wild swings and increasing volatility.
Investors need to consider the emotional impact of watching their net asset values bounce around like a pinball machine. No point in subjecting yourself to what is sure to be a tremendous amount of angst.
Marko's Take
Showing posts with label bonds. U.S. dollar. Show all posts
Showing posts with label bonds. U.S. dollar. Show all posts
Friday, August 20, 2010
Wednesday, June 30, 2010
Gold Or Precious Metals Stocks?
Recently, I proudly and confidently proclaimed that GOLD was ready to head for $2,000. As Bill Clinton's former press secretary, Dee Dee Myers, used to saying when Billy was caught lying, that forecast is "no longer operational".
An interesting dynamic has put itself into motion. As GOLD continues to hover near its highs, the equity market is rapidly falling apart. Precious metals mining companies are battling a tug-of-war between higher metals prices versus a vastly more difficult environment for equities.
This sets up a very difficult question: how does one play the market volatility? Carefully.
During the financial meltdown of 2008-09, GOLD held up pretty well, gaining a "flight to safety" bid. Despite the very good action in GOLD, however, mining stocks got blasted for losses of up to 90%. Any one of a number of events could trigger an explosion in the metal: war in Iran, a breakdown of the Euro-Zone, more quantitative easing or more problems in the financial system. This list is hardly exhaustive.
The above notwithstanding, many signs have emerged that another DEFLATION scare is imminent. The money supply is plunging at un-precedented rates. DEFLATION. Bond yields have broken to new multi-generational lows. DEFLATION. Bank loans and credit are contracting at historic rates. DEFLATION. The dollar, despite all the government spending and low interest rates keeps rallying. DEFLATION.
The "Gold Bugs" index, also known as the HUI, has been carving out an ascending wedge pattern. These are normally, but not always, bearish. The HUI has also approached the 500 level on several occasions, and can't seem to break through. A material violation of either 475 on the downside or 500 on the upside would provide a pretty good indication of what to do.
It's possible that GOLD itself could rally while precious metals stocks could decline. So, for now, the best bet is the metal itself. I would be VERY cautious about the equities at this juncture. I tend to think there will be a better buying opportunity down the road.
As to the metal, I would use $1,225 as a stop level. If it breaks below, chances are that we will see some decent downside and there will be a much better entry point. For now, the amber light is flashing.
Warning Will Robinson!
So, what to do here? If you're going to stick with your portfolio of miners, I would at least add a hedge to insulate against equity pressure. Personally, I like the inverse ETFs FAZ, SKF and TWM. There are plenty of others you can use. I would NOT recommend purchasing a GOLD inverse ETF. What's the point of being both long AND short?
As investors, it is ever so important to not get wedded to a particular point of view or to stay either perma-bull or perma-bear. The easiest way to lose money in the world is to be stubborn and insist that your pre-conceived notions must be correct. Minimize your losses and wait until a better opportunity presents itself.
Marko's Take
An interesting dynamic has put itself into motion. As GOLD continues to hover near its highs, the equity market is rapidly falling apart. Precious metals mining companies are battling a tug-of-war between higher metals prices versus a vastly more difficult environment for equities.
This sets up a very difficult question: how does one play the market volatility? Carefully.
During the financial meltdown of 2008-09, GOLD held up pretty well, gaining a "flight to safety" bid. Despite the very good action in GOLD, however, mining stocks got blasted for losses of up to 90%. Any one of a number of events could trigger an explosion in the metal: war in Iran, a breakdown of the Euro-Zone, more quantitative easing or more problems in the financial system. This list is hardly exhaustive.
The above notwithstanding, many signs have emerged that another DEFLATION scare is imminent. The money supply is plunging at un-precedented rates. DEFLATION. Bond yields have broken to new multi-generational lows. DEFLATION. Bank loans and credit are contracting at historic rates. DEFLATION. The dollar, despite all the government spending and low interest rates keeps rallying. DEFLATION.
The "Gold Bugs" index, also known as the HUI, has been carving out an ascending wedge pattern. These are normally, but not always, bearish. The HUI has also approached the 500 level on several occasions, and can't seem to break through. A material violation of either 475 on the downside or 500 on the upside would provide a pretty good indication of what to do.
It's possible that GOLD itself could rally while precious metals stocks could decline. So, for now, the best bet is the metal itself. I would be VERY cautious about the equities at this juncture. I tend to think there will be a better buying opportunity down the road.
As to the metal, I would use $1,225 as a stop level. If it breaks below, chances are that we will see some decent downside and there will be a much better entry point. For now, the amber light is flashing.
Warning Will Robinson!
So, what to do here? If you're going to stick with your portfolio of miners, I would at least add a hedge to insulate against equity pressure. Personally, I like the inverse ETFs FAZ, SKF and TWM. There are plenty of others you can use. I would NOT recommend purchasing a GOLD inverse ETF. What's the point of being both long AND short?
As investors, it is ever so important to not get wedded to a particular point of view or to stay either perma-bull or perma-bear. The easiest way to lose money in the world is to be stubborn and insist that your pre-conceived notions must be correct. Minimize your losses and wait until a better opportunity presents itself.
Marko's Take
Saturday, February 13, 2010
Euro Now Leads Dollar In Race To Oblivion
On this side of the Atlantic, most thinking people understand that the Dollar is in "Deep Doo Doo", as George H. W. Bush might say. Yet, the Euro is even worse!
Bringing the deep-rooted problems of the Euro to the surface have been the recent developments in the so-called "PIGS" countries and their imploding sovereign debt (http://markostake.blogspot.com/2010/02/sovereign-debt-crisis-threatens-to-take.html).
Germany has paid lip service to a potential bailout of Greece, but as of yet, no deal has been struck. It appears that a wait-and-see policy has been adopted in the hopes that a combination of public assurances that Greece will NOT be allowed to default, combined with the Greek government's rigid adherence to its austerity program, will be enough to stabilize the markets.
The financial stresses becoming more evident in Europe are being felt by the common denominator of the European Union (EU), the shared currency known as the Euro.
The "Dollar Index", which is a basket of currencies that the greenback is compared to, is heavily weighted by the Euro - nearly 60%. As a result, the Dollar and Euro tend to trade inversely. Thus, the recent "strength" in the Dollar is nothing more than the mirror image of the severe weakness in the Euro. The two currencies are BOTH in trouble, but the exchange rate is relative and at this time, the Euro is making a headlong sprint toward the "Finished" Line!
The Euro is currently worth $1.36 - down 10% since December 1, 2009. During the same period, the Dollar Index has gained roughly 8%. (In 2000, as the Euro was launched, it traded as low as about $.85 and then steadily climbed to its all-time high of $1.60 in July 2008).
Given the current trajectories of both the European and American economies, the final destruction of western currencies may be entering its terminal phase. Only a return to an asset-backed status, preferably Gold, can stop what appears to be inevitable. The only question is whether the Dollar or Euro reach "toilet paper" equivalency first!
History has shown just how dangerous even a single currency meltdown can become: The Russian Ruble, not a major currency in the least, triggered the 1998 financial panic which brought down the large hedge fund known as "Long-Term Capital Management", putting world stock markets into free-fall and requiring emergency action by the Federal Reserve.
Can you imagine what would happen if BOTH the Dollar AND Euro imploded?
If you either think I'm missing something or want to put your 2 cents in, while your 2 cents are still worth 2 cents, you know what to do. TAKE ME ON!
Marko's Take
Bringing the deep-rooted problems of the Euro to the surface have been the recent developments in the so-called "PIGS" countries and their imploding sovereign debt (http://markostake.blogspot.com/2010/02/sovereign-debt-crisis-threatens-to-take.html).
Germany has paid lip service to a potential bailout of Greece, but as of yet, no deal has been struck. It appears that a wait-and-see policy has been adopted in the hopes that a combination of public assurances that Greece will NOT be allowed to default, combined with the Greek government's rigid adherence to its austerity program, will be enough to stabilize the markets.
The financial stresses becoming more evident in Europe are being felt by the common denominator of the European Union (EU), the shared currency known as the Euro.
The "Dollar Index", which is a basket of currencies that the greenback is compared to, is heavily weighted by the Euro - nearly 60%. As a result, the Dollar and Euro tend to trade inversely. Thus, the recent "strength" in the Dollar is nothing more than the mirror image of the severe weakness in the Euro. The two currencies are BOTH in trouble, but the exchange rate is relative and at this time, the Euro is making a headlong sprint toward the "Finished" Line!
The Euro is currently worth $1.36 - down 10% since December 1, 2009. During the same period, the Dollar Index has gained roughly 8%. (In 2000, as the Euro was launched, it traded as low as about $.85 and then steadily climbed to its all-time high of $1.60 in July 2008).
Given the current trajectories of both the European and American economies, the final destruction of western currencies may be entering its terminal phase. Only a return to an asset-backed status, preferably Gold, can stop what appears to be inevitable. The only question is whether the Dollar or Euro reach "toilet paper" equivalency first!
History has shown just how dangerous even a single currency meltdown can become: The Russian Ruble, not a major currency in the least, triggered the 1998 financial panic which brought down the large hedge fund known as "Long-Term Capital Management", putting world stock markets into free-fall and requiring emergency action by the Federal Reserve.
Can you imagine what would happen if BOTH the Dollar AND Euro imploded?
If you either think I'm missing something or want to put your 2 cents in, while your 2 cents are still worth 2 cents, you know what to do. TAKE ME ON!
Marko's Take
Wednesday, January 20, 2010
Why Does Gold Appear To Be Temporarily On Pause?
Someone has failed to read the Gold script and the yellow metal is acting a bit unexpectedly weaker than expected at this juncture. Some pundit, who regularly provides his "Take", has been anticipating a virtually immediate launch higher. That very same pundit is starting to wonder whether Gold has some more backing and filling to do.
Now "Let Me Make Things Perfectly Clear", as President Nixon used to say. I have NOT changed my longer term view of Gold and Silver one iota. I still anticipate a huge parabolic rise into at least early 2011, taking Gold up to something like $5,000 and Silver to about $300 per ounce! The question is the path.
I believe the recent stall in Gold is partly the result of a sudden strengthening in the dollar. Here's where things get complicated. The dollar is possibly being used as part of a "carry trade". What the hell is a "carry trade" you ask? Ok, I'll 'splain.
Since interest rates continue to be so low, it pays to be a borrower and not a saver. Unfortunately, the reverse ought to be true in order to turn the economy around, but as I've pointed out before, for every 1% increase in interest rates across-the-board, the U.S. budget deficit RISES by $120 billion!
Now, if we view the dollar and the low interest rates it "carries", lending or "selling short" dollar denominated Treasuries can be employed to buy higher yielding assets in other currencies. That's a "carry trade". Use a country's low rates against them and use another country's higher rates to create a "spread". If the bonds used are both short term, one can create a virtually "risk-free" position, acting like a bank. Borrowing low and lending high! Carry trades are commonly employed by hedge funds.
The risk to any "carry trade" is that it can be suddenly unwound without notice! Once speculators have piled on too many "sold short" dollars, they must eventually "cover" or re-purchase those shorts, which can be wicked if the short position is large enough!
The dollar appears to be in some sort of short term bottoming process, possibly the result of some unwinding of the "carry trade". If this is indeed the reason for the dollar's sudden strength, it is also acting as a temporary headwind against Gold. There is also speculation that last night's election in Massachussettes is contributing to a stronger dollar by foreshadowing a change in Congress. Whatever the reason, the dollar strength is making the precious metals sector appear more sluggish than it would otherwise be.
I DO NOT expect Gold to break $1,100 for any sustained period of time and with any materiality. A break below $1,100 by say 3-5% for a half a day or so would constitute a warning that something of a more serious correction is in the works.
In fact, the backing and filling process is now nearly 7 weeks old after the last interim top at the end of November. As pointed out many times before, the market is re-energizing and the upward launch may still be a few weeks away.
Whatever the "cause" of the pause in Gold really doesn't matter. The fact is that it will ultimately do its thing when it's good and ready. As long as rates stay so far below inflation and money printing continues unabated, the seeds for a serious move higher remain in place.
So stay patient. And, use this opportunity to accumulate whatever your own risk tolerances allow you to handle. A good rule of thumb: if you can't sleep at night, then you have too much at risk!
Marko's Take
Now "Let Me Make Things Perfectly Clear", as President Nixon used to say. I have NOT changed my longer term view of Gold and Silver one iota. I still anticipate a huge parabolic rise into at least early 2011, taking Gold up to something like $5,000 and Silver to about $300 per ounce! The question is the path.
I believe the recent stall in Gold is partly the result of a sudden strengthening in the dollar. Here's where things get complicated. The dollar is possibly being used as part of a "carry trade". What the hell is a "carry trade" you ask? Ok, I'll 'splain.
Since interest rates continue to be so low, it pays to be a borrower and not a saver. Unfortunately, the reverse ought to be true in order to turn the economy around, but as I've pointed out before, for every 1% increase in interest rates across-the-board, the U.S. budget deficit RISES by $120 billion!
Now, if we view the dollar and the low interest rates it "carries", lending or "selling short" dollar denominated Treasuries can be employed to buy higher yielding assets in other currencies. That's a "carry trade". Use a country's low rates against them and use another country's higher rates to create a "spread". If the bonds used are both short term, one can create a virtually "risk-free" position, acting like a bank. Borrowing low and lending high! Carry trades are commonly employed by hedge funds.
The risk to any "carry trade" is that it can be suddenly unwound without notice! Once speculators have piled on too many "sold short" dollars, they must eventually "cover" or re-purchase those shorts, which can be wicked if the short position is large enough!
The dollar appears to be in some sort of short term bottoming process, possibly the result of some unwinding of the "carry trade". If this is indeed the reason for the dollar's sudden strength, it is also acting as a temporary headwind against Gold. There is also speculation that last night's election in Massachussettes is contributing to a stronger dollar by foreshadowing a change in Congress. Whatever the reason, the dollar strength is making the precious metals sector appear more sluggish than it would otherwise be.
I DO NOT expect Gold to break $1,100 for any sustained period of time and with any materiality. A break below $1,100 by say 3-5% for a half a day or so would constitute a warning that something of a more serious correction is in the works.
In fact, the backing and filling process is now nearly 7 weeks old after the last interim top at the end of November. As pointed out many times before, the market is re-energizing and the upward launch may still be a few weeks away.
Whatever the "cause" of the pause in Gold really doesn't matter. The fact is that it will ultimately do its thing when it's good and ready. As long as rates stay so far below inflation and money printing continues unabated, the seeds for a serious move higher remain in place.
So stay patient. And, use this opportunity to accumulate whatever your own risk tolerances allow you to handle. A good rule of thumb: if you can't sleep at night, then you have too much at risk!
Marko's Take
Friday, December 4, 2009
Gold: The Ultimate Hedge Against The Unthinkable
At no other time in history, as far as I can recall, have more people been at risk for so many things. Among the risks are loss of valuables resulting from crime, loss of one's job, loss of one's house, loss of one's investments and, as a result, loss of one's mind!
Let's face it, things are downright scary and threaten to get much, much worse. I've already written about what I believe will be another banking crisis, Californias's severe problems, the increasing possibility of hyper-inflation and the inevitability of a currency crisis. How on Earth could a person handle all that?
The answer, of course, depends on which risks one is subject to and to what extent. It also depends on one's financial wherewithal, which, in many people's cases, is nil. However, virtually everyone, no matter how rich, is subject to a sudden currency crisis and the accompanying hyper-inflation. There have been many episodes of hyper-inflation in places such as Germany, Argentina, Zimbabwe, Mexico, Poland, Japan, the Soviet Union and many, many others.
Even people who are currently comfortably rich are far from safe. In Zimbabwe, the most recent and severe case of hyper-inflation I'm aware of, a person who had a fortune of 1BILLION Zimbabwe dollars in 2003 and had chosen to hide it "under the mattress", would today be worth the equivalent of LESS THAN ONE CENT!!
As to the risk of losing one's job, one approach which I have advocated to friends for years, is to take an off-setting financial position in a very similar company to the one employing them. Here's an example: let's say you work for Wells Fargo and fear losing your job for economic reasons. The wise thing to do would be to buy some amount in a security that gains, if indeed financial conditions do deteriorate. In so doing, the "loss" suffered by the termination of your employment would be, at least, partially offset by the GAIN in the financial position. Such securities are common and they are easy to trade. In fact, they are stocks known as ETFs, or Exchange Traded Funds.
As you have obviously inferred from the article's title, investing in Gold or high quality precious metal stocks, is, in my opinion, the BEST form of protection. Gold has historically been a TERRIFIC hyper-inflation hedge. It also tends to rise as other crises unfold, such as an outbreak of war. To be fair, it's far from bullett-proof, as there have been periods of creeping inflation where Gold has fallen, such as in the 1990's. But, I'm referring to the EXTREME types of risks we are simultaneously subject to today.
I believe that the sharp parabolic rise in Gold recently is YELLING that some very serious form of inflation and depreciation in the Dollar is very near. Thus, if you can afford it, I would advise at least some exposure to Gold. If you are short on funds, then use Silver, which as discussed previously, is even historically cheaper than the "yellow metal" and sells for 1/60th per ounce. In fact, Silver is in critically short supply and the U.S. Mint has entirely stopped producing one ounce Silver Eagles. I recently read that they are currently trading at a 30% premium on EBAY to their intrinsic value, based on their metallic content.
I hope you've found this article thought provoking and informative. Comments, pro or con, are always appreciated.
Marko's Take
Let's face it, things are downright scary and threaten to get much, much worse. I've already written about what I believe will be another banking crisis, Californias's severe problems, the increasing possibility of hyper-inflation and the inevitability of a currency crisis. How on Earth could a person handle all that?
The answer, of course, depends on which risks one is subject to and to what extent. It also depends on one's financial wherewithal, which, in many people's cases, is nil. However, virtually everyone, no matter how rich, is subject to a sudden currency crisis and the accompanying hyper-inflation. There have been many episodes of hyper-inflation in places such as Germany, Argentina, Zimbabwe, Mexico, Poland, Japan, the Soviet Union and many, many others.
Even people who are currently comfortably rich are far from safe. In Zimbabwe, the most recent and severe case of hyper-inflation I'm aware of, a person who had a fortune of 1BILLION Zimbabwe dollars in 2003 and had chosen to hide it "under the mattress", would today be worth the equivalent of LESS THAN ONE CENT!!
As to the risk of losing one's job, one approach which I have advocated to friends for years, is to take an off-setting financial position in a very similar company to the one employing them. Here's an example: let's say you work for Wells Fargo and fear losing your job for economic reasons. The wise thing to do would be to buy some amount in a security that gains, if indeed financial conditions do deteriorate. In so doing, the "loss" suffered by the termination of your employment would be, at least, partially offset by the GAIN in the financial position. Such securities are common and they are easy to trade. In fact, they are stocks known as ETFs, or Exchange Traded Funds.
As you have obviously inferred from the article's title, investing in Gold or high quality precious metal stocks, is, in my opinion, the BEST form of protection. Gold has historically been a TERRIFIC hyper-inflation hedge. It also tends to rise as other crises unfold, such as an outbreak of war. To be fair, it's far from bullett-proof, as there have been periods of creeping inflation where Gold has fallen, such as in the 1990's. But, I'm referring to the EXTREME types of risks we are simultaneously subject to today.
I believe that the sharp parabolic rise in Gold recently is YELLING that some very serious form of inflation and depreciation in the Dollar is very near. Thus, if you can afford it, I would advise at least some exposure to Gold. If you are short on funds, then use Silver, which as discussed previously, is even historically cheaper than the "yellow metal" and sells for 1/60th per ounce. In fact, Silver is in critically short supply and the U.S. Mint has entirely stopped producing one ounce Silver Eagles. I recently read that they are currently trading at a 30% premium on EBAY to their intrinsic value, based on their metallic content.
I hope you've found this article thought provoking and informative. Comments, pro or con, are always appreciated.
Marko's Take
Tuesday, December 1, 2009
Exactly Why IS The Stock Market Rallying?
To he honest answer is that I don't know! But, I can think of several possibilites. In fact, NO ONE can know with any degree of certainty. The fact is that markets of all sorts do what they want and when they want. The reasons are only clear in hindsight. What I CAN do is review the potential reasons and make an educated guess.
One possibility is that the economy is indeed recovering. That's less ridiculous than it might seem at first. Given the level of stimulus, coupled with the high level of growth in the money supply, the economy typically would respond with an initial recovery. The unfortunate side effect of all the economic juicing is that eventually, prices start to rise at an accelerated rate. A good analogy would be a drug addict. At first the drug gives one a "high" but is followed by the inevitable withdrawal symptoms. The drug addict then builds a tolerance and needs MORE of the drug. Subsequently, the crashes become more painful.
Another reason for this rally may be inflation expectations. In Zimbabwe, which is just starting to recover from one of the most severe bouts of hyperinflation I've ever heard of, their stock market shot up exponentially. Zimbabwe's inflation rate was so high that it reduced the value of ITS dollar to 6 QUADRILLIONTHS of its value in 2003! However, in the U.S., in the late 1960's through 1982, a period of high inflation, stocks fell by an astonishing 90% from peak to trough, if the cumulative inflation was taken into account. That loss was virtually identical to that experienced during the Great Depression.
A third possibility is that we are in a temporary rally within a longer-term overall downtrend. This is a very common occurrence, especially after the severity of the accelerating panic that engulfed the market between the emergency takeover of Bear, Stearns in 2008 and the March lows of 2009. The market behaves like a pendulum. It frequently overshoots in one direction only to be followed by a sudden sharp about-face.
Finally, the idea that the market is manipulated by agents or proxies of the government is gaining acceptance. It has also been, to some extent, even admitted to, but only very recently. Until we get an audit of the Federal Reserve, we won't know with any certainty as to what extent this may or may not have occurred. It's clear the Federal Reserve DOES manipulate some markets such as interest rates and, therefore, the price of bonds.
They also manipulate the U.S. Dollar. But we don't know how far that manipulation extends, nor its overall effect on the stock market. If this indeed is true, it will ultimately fail because it can only work temporarily. We can be certain that whatever power the Federal Reseerve exerts, it must be limited. Otherwise, the market would have never crashed in the first place!
So, here's "Marko's Take" on all this! My own personal belief is that we are indeed in a temporary rally that will ultimately prove to be of limited duration and NOT make new highs for a long time. And it may be somewhat overdone with help from our friends and their proxies at the Federal Reserve. Even if I AM correct, I don't have any firm conviction as to how long it will last, nor how high it will ultimately go.
I'm always delighted by your comments, pro or con. If you like what you've seen, it would thrill me to have you email this piece, or any other of my pieces, to a friend or two.
Marko's Take
One possibility is that the economy is indeed recovering. That's less ridiculous than it might seem at first. Given the level of stimulus, coupled with the high level of growth in the money supply, the economy typically would respond with an initial recovery. The unfortunate side effect of all the economic juicing is that eventually, prices start to rise at an accelerated rate. A good analogy would be a drug addict. At first the drug gives one a "high" but is followed by the inevitable withdrawal symptoms. The drug addict then builds a tolerance and needs MORE of the drug. Subsequently, the crashes become more painful.
Another reason for this rally may be inflation expectations. In Zimbabwe, which is just starting to recover from one of the most severe bouts of hyperinflation I've ever heard of, their stock market shot up exponentially. Zimbabwe's inflation rate was so high that it reduced the value of ITS dollar to 6 QUADRILLIONTHS of its value in 2003! However, in the U.S., in the late 1960's through 1982, a period of high inflation, stocks fell by an astonishing 90% from peak to trough, if the cumulative inflation was taken into account. That loss was virtually identical to that experienced during the Great Depression.
A third possibility is that we are in a temporary rally within a longer-term overall downtrend. This is a very common occurrence, especially after the severity of the accelerating panic that engulfed the market between the emergency takeover of Bear, Stearns in 2008 and the March lows of 2009. The market behaves like a pendulum. It frequently overshoots in one direction only to be followed by a sudden sharp about-face.
Finally, the idea that the market is manipulated by agents or proxies of the government is gaining acceptance. It has also been, to some extent, even admitted to, but only very recently. Until we get an audit of the Federal Reserve, we won't know with any certainty as to what extent this may or may not have occurred. It's clear the Federal Reserve DOES manipulate some markets such as interest rates and, therefore, the price of bonds.
They also manipulate the U.S. Dollar. But we don't know how far that manipulation extends, nor its overall effect on the stock market. If this indeed is true, it will ultimately fail because it can only work temporarily. We can be certain that whatever power the Federal Reseerve exerts, it must be limited. Otherwise, the market would have never crashed in the first place!
So, here's "Marko's Take" on all this! My own personal belief is that we are indeed in a temporary rally that will ultimately prove to be of limited duration and NOT make new highs for a long time. And it may be somewhat overdone with help from our friends and their proxies at the Federal Reserve. Even if I AM correct, I don't have any firm conviction as to how long it will last, nor how high it will ultimately go.
I'm always delighted by your comments, pro or con. If you like what you've seen, it would thrill me to have you email this piece, or any other of my pieces, to a friend or two.
Marko's Take
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