Last week, I speculated I wouldn't have to move my Chart's Data Text Box to make room for the DJIA's BEV Plot. I didn't. But that was a Lucky Guess on my part. I wish I was that Smart, but I'm Not. I'll tell you how much I know: I know one bad week doesn't make a Bear Market, but often Big Bear Moves start with a Bad Week. In any event, Bull or Bear, the DJIA is due for a Good Correction.
So nothing happened in Wk 119 that's a Cause for Panic. But selling a good portion of your positions would be a very prudent thing to do next week. I sold some Mining Shares this week. Unlike the DJIA and Shares in General, I'm still Bullish on Gold, Silver and the Mining Shares. But I needed to raise some cash, and all I have are mining shares. I'll sleep better for doing so.
Something new this week: I placed a Dashed Green Line on the DJIA's BEV -40% Line. The BEV -40% Line was, and is the Key Area for both the 1929-32 & 2007-10 Bears. It's the Level where the Bull and the Bear have really Boxed Each Others Ears, for weeks at a time, deciding which way the DJIA was going to go.
Technically, if the DJIA were to retreat back to its BEV -40% Line, and then Bounced Sharply off it, this would be Very Positive for the Bull's Case. I'm only thinking of a 12-BEV Point Move, a Normal Bull Market Correction! Assuming this is a Bull Market, this is how Bull Markets Move from Under Valuation to Over Valuation. Experience investors understand this.
However; should the DJIA Breach its BEV -40% line, and keep going down; well, that would be a Very Ugly Thing for Fully Invested Stock Market Bulls to have to live with. Personally, I don't think the 2007-10 Bear has seen its Final Bottom. It's very possible that the last three days are the First Moves towards the BEV -60% Line.
There are reasons to believe The Bear is Gaining Strength. The NYSE Stock Exchange's Financial Index was very prescient in 2007 and 2008, and it Flashed a Third Sell Signal last October.
Our Current Era will be know in the History Books as a time of Unserviceable Debt, Debt Created by Politicians willing to do anything to win their re-election. In 1999, Politicians frequently spoke of "Sub-Prime Mortgages" as something positive they were doing for the Homeless. It wasn't until the Summer of 2007, when Bear Stern's Toxic Portfolio of Sub-Prime Mortgage became public knowledge, that "Sub-Prime" became a Bad Word in Washington. That "Sub-Prime" was once a Good Word in Washington tells us something!
However, if you were to talk to a Banker at a Local Branch Office, I have one in the family, they would tell you their Office only wrote $100,000 Plus Mortgages to the chronically defaulted, because Washington made them do it. The 1977, Community Reinvestment Act (CRA) had criminal provisions for "Redlining", which the Clinton Administration's Justice Department promised to enforce. A Branch Office Banker could make the Sub-Prime Mortgage and go Home, or use their Common Sense and go to Jail. All this occurred while President Obama was an ACORN "Community Activists." I sure he could verify the truth of what I'm saying.
So our current Credit Crisis is the result of Over Three Decades of Political Interference in the Financial Markets. With this as a background, and realizing that Washington is still heavily involved in the Financial Markets, spend a few moments studying the Above Chart.
No doubt about it, since the beginning of the Credit Crisis in the Summer of 2007, after the NYSE Financial Index Broke Down, the NYSE Composite Index Followed only a few months later. The NYSE Financial Index started Breaking Down in Early October 2009. And now, just a few months later, the NYSE Composite Index is again following the Financial's lead. I can't promise that what has happened twice before in the past 2.5 Years will be repeated in 2010, but I think this is one of those "Better Than House Odds" situations that it will.
In the last 9 Months we've seen volatility spike up a bit without derailing the DJIA's Bullish Correction within the Greater Bear Market. But I think this time it's different. After this week's election results in Massachusetts, Washington may have finally gotten the message that a significant proportion of the electorate, large enough to vote incumbents out of office, are upset with Obama and Congress's Taxing and Spending ways.
House Financial Services Committee Chairman, Barney Frank represents the District where Harvard University is located, Cambridge Massachusetts. Even Harvard went Republican this week! You can be sure Representative Frank is recalibrating his expectations of what additional "Taxing and Spending" will do for him in next November's Elections.
The Chart Above is a 5-Day M/A Plot of the DJIA's Absolute Volatility. This means that even the down days are recorded with positive values. The Chart Below is the same data, but unaltered.
It's a point of interest that only two days after the Election Victory of Scott Brown, the DJIA's Volatility spiked up in these Charts. Why would I think that? Because I've written for years that Capital Gains are only Transient Inflationary Events. I've frequently made the point that Doctor Bernanke's "Liquidity Injections" into the Financial Market were more responsible for the Current Rise in Stock Valuations than actual profits from a company's operations.
In the past year, Congress and the Financial Media, have praised Dr Bernanke for saving the World. Time Magazine awarded The Good Doctor its 2009's POTY Award for his skills in keeping the Economy Properly Medicated. Unfortunately, after this week's elections, Doctor Bernanke's regimen of "Liquidity Injections" has developed an * affordability issue * in Congress and the White House. How long can Washington afford his Economic Health Care, when every time he gives his Patient a shot-in-the Arm, it costs a few Tens of Billions of Dollars?
America's Addiction to Cheap Credit, exactly like Heroin Addiction, is subject to the Law of Diminishing Returns. In the 1960s, a "Credit Injection" of a few Tens of Millions, would make the patient jump out of bed. What does it now cost Dr Bernanke to just keep his patient twitching these days?
In Wk 119, the Massachusetts Election put the "Policy Makers" between a Rock and a Hard Spot.
The Rock: The Political Class is now fearful of introducing additional "Stimulus Legislation" to "Save the Economy." In 2010, the monetary system has degenerated to a point where it now takes the Federal Reserve Trillions where once a Hundred Million would do. Washington didn't give a damn about China hating them for the Fed's Inflation, but China doesn't vote next November!
The Hard Spot: If Doctor Bernanke doesn't "Inject" his Patient (the US Financial System) with a Trillion dollars over the next ten months, the markets, and the Voter's Retirement Accounts will Crash. Will the Voters hold Congress responsible? They should!
This was a Big Week for the 8-Count. We had two DJIA's 2% Days, both were Down Days.
The most Bullish Thing that could happen next week would be for the DJIA to just Calm Down and start Baby Stepping up again. The most Bearish Thing that could happen next week would be seeing the DJIA's 8-Count go up to a 3 or 4 with Strong Up Days.
Why would that be? Because Bear Markets have stronger up days than do Bull Markets. This week Mr Bear gave something to the Bulls with his Negative 2% Days. If we see some Positive DJIA 2% Days next week, that's just Mr Bear telling the Shorts that he's thinking of them too! As far as Mr Bear is concerned, No One is Suppose to Make Money when he is in control. With what has gone on in Washington and Wall Street for the past few decades, Mr Bear has Serious Issues on Market Valuations he intends to work out with the "Policy Makers."
In Wk 118, I noted it took 48 Trading Days for the DJIA to move from its BEV -30%, up to its -25% Line. Forty Eight Trading Days for 5 Lousy BEV Points! In Wk 119, it took only 3 Trading Days to wipe out over 50% of that Gain. This is a Market that Wants to go Down. If you're long this market, you better hope the DJIA starts Baby Stepping again.
The Step Sum is an indicator of market sentiment. When the underlying sentiment is bullish, the Step Sum rises. When bearish, it falls.
Think of the "Step Sum" as the sum total of all the up and down price "steps" in a data series over time; an Advance - Decline Line for a data series derived from the data series itself. Logically, bull markets will have more net up days, while bear markets will have more net down days. Understanding the Step Sum is no harder than that.
This is so typical of what passes for "Financial News" today:
Jan. 21 (Bloomberg) -- Following is the text of President Barack Obama's announcement calling for restrictions on the size and scope of financial institutions:
President Obama joined Paul Volcker, former chairman of the Federal Reserve; Bill Donaldson, former chairman of the Securities and Exchange Commission;
Congressman Barney Frank, House Financial Services Chairman; Senator Chris Dodd, Chairman of the Banking Committee and the President's economic team to call for new restrictions on the size and scope of banks and other financial institutions to rein in excessive risk taking and to protect taxpayers…
http://www.bloomberg.com/apps/news?pid=20601087&sid=an56Bfueode4
For Six Decades, the 1933 Glass-Steagall Legislation protected the Financial System from all of these abuses. Until many "Policy Makers" who are still in Congress (in both parties) and Academics now on the President's economic team, killed Glass Steagall in the late 1990s. Doctor Greenspan and Secretary of the Treasury, Robert Rubin were the stars of the Congressional Testimony, Broadcasted Live on CNBC. I watched it!
There is much not said in this Bloomberg article.
I've covered Electrical Power Consumption (EP) as an Economic Indicator for over a year. Every time its 52Wk M/A has crossed a BEV 0.5% Line I've written about it. But since its August 2008's Terminal Zero (last all-time high), it has only decreased. However, in the past few weeks, EP has bounced off its BEV -5.0% Line, and in Wk 119, is now exactly on its BEV -4.5% line. This is a significant move in so short of time!
Are economic conditions improving? Or is our Unseasonable Cold causing its increase? Actually, it's a bit of both. So let's take a look and see what is going on with EP Demand.
Remember, I take a 52 Week M/A of the weekly data for my EP BEV Chart. This removes the seasonal factors from EP. Taking the long term look at EP (above), there is little appearance of a turn around, but in a shorter term Chart (below), we can see EP has risen from its BEV -5.0% to its 4.5% Line.
There are two factors creating demand for EP in Early Winter 2010:
Let's examine the Seasonal Factors first.
Each year, EP has two Peaks and two Troughs in Demand.
The months given above are typical. But exactly when Peaks and Troughs occur depends upon the Weather, and changes from year to year.
The Peaks and Troughs in my charts are easy to identify. The Winter Peaks align upon the Chart's Gridline, while the Summer Peaks lay between Gridlines, both peaks rising above EP's Red 52Wk M/A Plot. Spring and Autumn Troughs follow the Winter and Summer Seasons highs, and Below EP's 52Wk M/A. EP Demand is an honest, if largely ignored record of Seasonal Extremes of the North American Continent.
Something unusual happened this year - this Winter's Peak has risen above last Summer's Peak demand in EP. Since 1995, this has not happened. And note, we will not know how high EP's 2010 Winter Peak will be until the end of February. Still, this data tells us how Cool Last Summer was, and how Cold this Winter has been so far.
The following chart displays how high, or low, the Weekly data points move about its 52Wk M/A. It Provides a more precise view of the data that allows direct comparison of Seasonal Factors from one year to the next. The Red Line at the 0% represents EP's 52Wk M/A. The Blue Plot displays, in Percentage Terms, how far the Weekly Data is from the 52Wk M/A. Remember, the Winter Peaks align on the Grid Lines.
Seeing a Winter Peak above its Previous Summer's is unusual, but not unheard of. Below is a chart going back to 1970. I've circled two examples of this happening before. But if you look at the Charts Above and Below, you'll note that since 1970, only the Winter Peak of 1987 was higher than our current Winter, (20.54% to 18.34%). We still have a month to go before the Season turns to Spring here in North America, so 2010 could become a new record. If it does, or even if it doesn't, For Global Warmers: "This is their Winter of Discontent."
Along with EP's Seasonal Factors, there has been a marked improvement in the US Economy. Steel Production is up sharply, as are other basic industrial processes.
Steel Production is up Sharply since March 2009. This is good, but I'm noting the huge decline in Steel Production from the start of the Credit Crisis in October 2008 to the Crisis bottom in March 2009. It's significant this improvement came only after the Credit Markets received massive "Liquidity Injections" from the Fed.
I don't want to spoil the party. I'm happy for the Steel Workers this chart implies are finding employment. But investors should anticipate a repeat decline in Economic Activity, like Steel Production, should the Financial Markets again find themselves in turmoil. So we need to ask ourselves a question; can the "Policy Makers" keep the Credit Markets functioning in a Global Economy Drowning in Unserviceable Debt?
And it's not just the US having credit problems. Greece, a member of the EU may default upon their debt in the coming year. They're not the only member of the EU with Credit Difficulties. I remember in 1999, when the Euro was going public, the ECB promoted its Euro as a currency having a 15% Gold Reserve; meaning the Euro's circulation was fixed to its Gold Reserves. This was a promise that the ECB would not issue Euros in a similar manner as does the US's Federal Reserve. But seeing Greece having Credit problems, there is the appearance of excessive currency and credit creation within the EU Banking System.
Doug Hadfield, at Seeking Alpha, finds that currently the ECB has 18.8% Gold Backing to the Euro. But historically, when Credit Creation becomes a Credit Crisis, as in Greece, Ireland and other members in the EU, Gold Reserves backing the currency in which the debt is denominated, don't increase. But Bankers traditionally encourage others to believe it has. These are times when it's wise to be wary of "Official" Facts and Figures.
So the pitfalls lying ahead of you me, and the American Steel Workers, are Global. But I admit that Since March 2009, the "Policy Makers" have so far kept their "Liquidity" flowing. But as we have all learned in the past few years, things can change very quickly.
"Obama said the new proposals would keep taxpayers from being "held hostage" by banks that have become "too big to fail" and that pose a risk to the entire financial system."
- Guardian.Co.UK, 21 January 2010
Is that so Mr. President? It seems that Washington, and the Semi-State-Funded University System that trained all Bank and Government Officials, as well as members of the "News Media" are just a guilty as "Wall Street" in creating the current "risk to the entire financial system." Allowing academics, such as Doctors Greenspan and Bernanke, to manage "Economic Growth" via interest rates and the money supply creation, has been (and will be) the source of our past, current, and future Credit Crises.
Yes, there were Credit Crises before Congress created the Fed. Darn painful ones too! But the system cleared the decks of unserviceable debt from one crisis to the next with End-of-Day-Mark-to-Market Accounting Standards. Today, Unserviceable Debts are the Crown Jewels in the Fed's Total Fed Credit line item. Previous to the Federal Reserve, there was no room for Moronic Academic Notions that "Favored Financial Institutions" were too big to fail.
Here is a link to You Tube that gives an amazing insight of what Academics, and the minions they've trained, have done with the Federal Reserve. It's only five and a half minutes long, and well worth watching. Note the woman to the Fed's IG's left. Her reactions to Congressman Grayson's questions tells us all we need to know. "To Big to Fail" is morphing into To Big to Save!
Don't get me wrong. I'm happy Scott Brown won and tossed a Monkey Wrench into the Democrats' pending Health Care Legislation. But the real problem is structural, and cannot be reversed with a simple change of personnel in Congress. Massive Levels of Debt and Government Regulations overhang the US Economy. Unless the Election of Scott Brown as Massachusetts' new Senator promises to drastically increase the levels of unemployment of Government Workers, structurally nothing has changed in Washington.
The Chart above is only the US Treasury Debt. To this we must add 2.5 Trillion in Consumer Debt, and I don't know how much Corporate Debt and US Mortgages to include. And then there are the "Off Book Items." As per Bloomberg and Congressman Grayson, the Fed is hiding 9 Trillion dollars of its liabilities. These liabilities may be "Off the Books", but they still have the Taxpayers on the Hooks. Then there is Social Security and Medicare. These two Big Spending Politically Inspired Schemes have ignored their growing liabilities for decades, all under the supervision of University Trained Accountants and Economists. It's high time to give these people, and the System that produced them "The Deep Six." So please understand; our Economy has profound problems that will not go away just because of a Political Vote in Congress.
The United States is currently stuck with only two Political Parties, both with close connections to Major American Universities, to assist them in mismanaging the Public's Affairs. Intoxicated with the power to make lesser mortals bend to their wills, these Professors in Economics, and the "Social Sciences" have sowed the seeds of disaster. They have provided the moral and intellectual justification to encourage Politicians, of both parties, to legislate body blow after body blow to the Productive Elements of the Economy. So Mr Bear has much work to do before he is finished with us!
Currently, Brown's supporters are elated with victory in gaining Ted Kennedy's old Senate Seat. They should be. Unfortunately, their expectations of what Congress can do to restore national prosperity in the next decade are unrealistic to an extreme. Until Americans understand that our University System is controlled by Clueless Quacks, and the voters begin to refuse Washington's Political Class's solutions to their Personal Problems, nothing much will change.
Dow Jones -40% Declines From 1885 to 2008 is the article that inspired this race of 1929 & 2007 Bear Markets. You may want to read that article to understand my "BEV Chart."
Dow Jones Industrials Average Market Volatility is the source for my volatility studies.
The Lundeen Bear Box and Step Sum is the source for my Lundeen Bear Box and Step Sum Chart
Note For the Record: Mark Lundeen does not want a devastating bear market in the next two years. However, in full view of Congressional Market Oversight Committees and under the supervision of Government Regulatory Agencies, things were done that I believe will make a historic bear market inevitable. If you have a problem with this bear market, contact Washington, not Mark Lundeen.