Cryptic Remarks

Over the last couple of days (mostly what i read at the end of last week and over the weekend) there has been a marked change in the tone of the doomsayers. The likes of Zero Hedge, Denninger, Mish, etc. have been saying for a while now that this rally in the stock markets is ‘not based on fundamentals’. They’ve all had slightly different takes on who, or what, is driving the indexes higher, and what will, eventually tip things over the edge. Denninger, for example, thinks every Treasury bond sale is going to be the straw that breaks the dollars back; Zero Hedge sees market manipulation in every chart; Mish sees things in terms of deflation, and the falling housing market.

In reality they are probably all right some of the time, but the markets just kept on shaking off the knocks.

Then, over the last couple of days, everything in the media has been about how the recovery has started, the bottom is in, growth has returned… and that seems inherently dangerous. Happy talk.

Monday  saw markets around the world move lower, many indicators are heading back to where they were when Bear Stearns and Lehman Brothers hit the floor… it seems possible that reality was coming back to town.

Personally, i’m guessed that nothing dramatic would happen during the summer, and it would October before we’d see if the system had enough to drag itself over the cusp, or fall back into the pit. Perhaps that’s still a good guess, and this is just a little wobble.

Take a glance at this set of charts, and try to convince yourself that they are all about to start heading in the right direction. It’s not working for me.

On the other side of that coin, take a look at the depths that have already been plumbed and note that The System is still with us. This is the biggest shock that it has been through in almost 80 years, and it’s still hanging on.

It’s too easy to declare that the thing is fundamental broken and beyond repair (undoubtedly correct) and that it it must fail (questionable). The degree of flexibility, and freedom with which elements can be manipulated make short-term predictions very hard.

Really, it’s a coin toss. All of it.

Bear Entrails

Can you tell i’m catching up with my reading?

four-bears-large

Over on dshort.com there are updates of the Four Bad Bears, and Mega-bear Quartet. The first of those links to some pretty interesting looking datasets / discussions. In essence this is now the 2nd worst S&P / DOW market in a hundred years… I’m guessing the Great Depression record is going to be hard to beat. Despite all my cynicism, it does appear that some lessons have been learned in the preceding years.

That being said, the Swiss have started trying to devalue of the swissy, that doesn’t bode well.

Anyway, it will be interesting to see how the S&P tracks the 30s collapse. My feeling is that we’ll see a similar pattern of long decline, punctuated by ‘Sucker Rallies’. The peaks and troughs in those graphs are really maps of human nature, and despite what history tells them, people just want to believe!

Hope. Hope has bought us this far – far enough to shred our hearts to pieces.