- Stocks continued to slide last week. The S&P 500
shed another 68 points after having posted a new 4-1/2 year low, the Dow
lost 695 points and the Nasdaq composite gave up 75 points. The Nasdaq
skidded to a new 5-year low. Gold was a bit boring as we might expect,
given that the central bankers aren't about to let it get interesting,
if they can help it. Meanwhile the dollar remained weak and near its recent
lows.
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- So much for bottoms. The S&P 500 barely even blinked
when taking out last September's low. Of course that post-holiday upsurge
was nice but once again, the underlying bearish forces took control and
drove the market still lower. And the market didn't care too much for all
the pundits crying "Oversold! Oversold!". There's no such thing
as oversold in a bear market. We were "oversold" when the market
was 10-15% higher than it is now. So what?
-
- The big news last week was that the S&P 500 broke
down from a massive multi-year "head and shoulders" pattern with
technical analysts now projecting further declines to the 500-600 level.
I have no argument with that although the fact that mainstream publications
like the Financial Times featured this bit of news makes the contrarian
in me a little nervous.
-
- But that didn't do much to stem the "bottoming"
battle cry on Wall Street. Byron Wien of Morgan Stanley, among others of
the same ilk, claims that we're in a "bottoming process." Yeah
Byron, we've been in a "bottoming process" for two years now.
So what?
-
- To say that we're in a "bottoming process"
is at best meaningless and at worst just plain silly. What indications
are there of a bottom? Take a gander at an S&P 500 chart, a Nasdaq
chart, a Dow chart. What case can you make for a "bottoming process"
when the market fell to new multi-year lows just last Thursday? The best
argument for a bottom is that stocks didn't fall to new lows last Friday.
Not much of an argument.
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- In fact, from a long-term technical perspective, last
week's action was the completion of a TOPPING process. The breakdown from
the head and shoulders confirms that a major top is in place and that further
declines are exceedingly likely. So while the idiots who misled America
for ten years continue to talk about a bottoming process, the charts are
telling us that a topping process is in the works. If stocks have fallen
this much during the topping process, where's the market going to be when
we really get to the bottoming process?
-
- Bottoming process? Based on what? Hopes? Expectations?
The incessant need to believe that the 401k simply must come back because
it's just not "fair" to have such big losses? There is nothing,
I repeat, NOTHING about the market that is even remotely indicative of
a bottom. Nothing. Not one thing. Have I made my point?
-
- It's simply unbelievable, illogical and totally absurd.
All throughout this bear market these clowns have continued to search for
bottoms, to continually contrive "evidence" for the bottom. Why?
It's a BEAR market. Why not look for where to sell the damn thing, and
not where to buy it?
-
- No matter how far the market falls, the idiocy never
ceases. MSNBC dazzled us last week with repeated helpings of brilliant
and highly informative quotes like these:
-
- "Many analysts say there's no way to predict when
stocks will recover." Duh. So why do they keep getting paid for trying
to do just that? Off with their heads, I say.
-
- "'All of the conditions for the end of a bear market
and the start of a bull market are in place,' said Johnson. He ticked off
market liquidity, low interest rates, a rebounding economy and improving
corporate profit picture. 'If you have those conditions, you ordinarily
have a bull market.'"
-
- Ordinarily stocks of worthless IT companies don't sell
for $300 a share. Ordinarily 20-year old kids with no business experience
don't become the heads of multi-million dollar start-ups overnight. Ordinarily
the stock market doesn't triple in five years.
-
- So what? Anybody who thinks that conditions are "ordinary"
ought to lay off the crack pipe, pull their heads out of their pants and
take a good look around. This is no ordinary bear market. This is a long-term
secular decline, the inevitable unwinding of a massive financial bubble.
Nothing about the bull market was "ordinary". So what sense does
it make to expect the bear market to be "ordinary"? The bigger
they are the harder they fall and what goes up must come down. You don't
get something for nothing.
-
- Take a look at a long-term chart of the S&P 500.
Starting around 1995 the market began an almost exponential increase. The
slope of the advance turned up sharply. Basically, that was when the absurdity
began. That's when buying stocks became a "no-brainer" and many
"no-brains" hopped on the bandwagon. Alan Greenspan, while warning
of "irrational exuberance" on one hand, used the other hand to
inject the nation's credit-addicted veins with plenty more easy money.
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- The Fed pumped us all up full of credit and money supply.
The man known at the time for engineering the greatest economic advance
in U.S. history was in fact creating the biggest financial scam and bubble
in U.S. history as we're all rapidly realizing.
-
- And now we're supposed to be surprised that the market
has fallen back this far when in fact it is still TWICE AS HIGH as it was
in 1995? The market is still hugely overpriced and the excess of the latter
half of the 1990s is a LONG way from getting washed out. We should be more
surprised that the market is as high as it is than we are surprised about
how far it has fallen.
-
- Every bubble in history, every single one has returned
prices to their pre-bubble levels. From Dutch tulips to all the paper scams
the powers-that-be have historically foisted upon the public, every one
of them has fallen back from 90-100%. And if you find an example where
that didn't happen, you'll undoubtedly find a massive decline on the order
of at least 80% nonetheless.
-
- You can't say for sure when the bull market turned into
a bubble market. There isn't an exact point. But looking at the charts
it's fairly clear that this market took a turn for the loopy somewhere
around 1995. According to Jim Puplava, that was about the time that money
supply and credit began to grow faster than the economy. In other words,
that was about the time when Alan Greenspan began engineering the biggest
bubble in U.S. financial history.
-
- What happened back then is all old news. I mention it
from time to time to make very clear the point that much of the 1990s stock
market advance was in fact a bubble. It was gains created out of thin air.
The Fed created money out of thin air and that money went straight into
the stock market. It was the old "something for nothing" but
like all "something for nothing" scams, the buyers are eventually
left holding an empty bag.
-
- Having established the fact that the 1995-2000 advance
was indeed a bubble, we can surmise that this bubble will go the way of
all bubbles. Given that, it's patently absurd to speculate about a market
bottom when the market is still 100% higher than it was when the bubble
began.
-
- The Fed has been busily at work trying to forestall the
inevitable. Cutting interest rates, manipulating the financial markets,
spin-doctoring to no end about why things are just about to get better.
But as the stock market, the dollar and gold are all clearly demonstrating,
you don't get something for nothing.
-
- YOU CAN'T SOLVE THE PROBLEM WITH THE SAME TOOLS THAT
CREATED THE PROBLEM IN THE FIRST PLACE. Let me put it you very simply:
You can't lose weight by stuffing yourself with Twinkies and Ho-Hos. And
you can't fix a deflating bubble by stuffing it with the same vapid, nutrition-less
garbage that created the bubble in the first place.
-
- "Oh but wait! Housing is still strong! Folks won't
stop spending because their housing gains offset their market losses!"
Yeah. Tell that to housing stocks. Take a look at any handful of home builders.
You'll note that most of their stocks have completed tops after extended
climbs and have turned lower. Fannie Mae and Freddie Mac broke down big-time
in recent weeks. Yeah, yeah, the government housing data still looks great.
Then why are the housing stocks tanking?
-
- That's it. The last remaining hope is in the process
of topping out. "Defensive" stocks have topped out as well. Take
a look at Procter & Gamble. It had a nice run while folks figured that
"people gotta' buy soap no matter how bad the economy gets."
But suddenly folks are beginning to realize that the traditional "defensive
stock" is no such thing in a major, long-term secular bear market.
-
- The tide is rapidly turning away from paper assets as
every day more and more people realize that something created from nothing
is still pretty much nothing. The move toward gold and other commodities
& physical assets is on. The bear market in paper is here, it's big,
it's real, and it ain't going away anytime soon.
-
- Yeah, there'll be a rally and it will likely be a big
one and they will tell you that it's "The Bottom". There's a
reason why bear market rallies are called "Sucker's Rallies".
You figure it out... ___
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- Mark M. Rostenko, a veteran floor trader of Chicago's
commodity exchanges, is the editor of The Sovereign Strategist investment
newsletter. His views have been featured in Barron's, the Wall Street Journal,
the Miami Herald and many other publications. The Sovereign Strategist
has achieved an uncannily accurate track record in timing the market's
turning points throughout 2001 (and into 2002), helping subscribers to
profit from 40-500% on various investment vehicles in 2001.
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