Thursday, July 26, 2007

Prepare Yourselves.

Whether one is an investor or not, the hideous action in the bond and stock markets should be of great concern to all as it presages even more unpleasant events down the line. The banking sector is looking very unwell. Pay attention to the ever increasing drumbeat of well advertised agony coming from the mortgage/credit sector. It seems clear to this observer that we taxpayers are about to get asked to bail out the entities that have greedily and stupidly made an absolute hash out of their balance sheets via stupefying debt shenanigans. Nothing ever changes on the Street or in the world of high finance, as base criminality is first allowed, then fostered, and finally, when the con goes bad, a rescue is organized which is generally paid for by those who were conned in the first place. Lovely.

So what does it mean for you and me?

Here are just a few of the things one should look forward to so to speak.

1.) Lower share prices
2.) Higher interest rates
3.) Higher precious metals prices (after the world's banks and their henchman exhaust their vile precious metals beat down routine)
4.) A sinking dollar (managed as much as possible) in the manner of a terminally ill patient. Think morphine drip.

All of the above are, of course, interrelated, and while the timing of the evolution of, for example, lower share prices, is uncertain, look for late Summer and Autumn to be a particularly scary time.


DED said...

Methinks that the long heralded economic doom forecast may finally have arrived.

Edwardo said...

That's right, ded. The hideous market crash could even come as early as today or Monday. I read a report this morning where the author said that based on the market internals/technicals yesterday there should have been a 10% drop in share prices. His speculation was that the PPT (the Plunge Protection Team) aka The Working Group on Financial Markets, stepped into buy. Someone certainly stepped in to support the market in the late afternoon, that was clear. However, as Joe Louis said about Max Schmeling, He can run, but he can't hide." Ditto for the market.

DED said...

Another 200 points today. Suddenly 14,000 looks really far away. Any thoughts about Monday?

Amazing that a good GDP number would have no lasting effect. Instead, it was "too good" and people are worried about rising interest rates.

Edwardo said...

Regarding Monday, crashes come from deeply oversold conditions and the fact that this deeply oversold market can not right itself should have anyone with a grain of market sense more than a little concerned. On a slightly different tack, this is the best single evidence I can think of that we are now in a bear market. Bull market corrections just do not behave this way.

But getting back to crashes, in modern times, and even in the case of the South Sea Bubble, it has always been the case that share crashes have unfolded in three waves. In '29 and '87 there were initial slides down that took off 8 to 10%. By that measure another two or three percentage points down should occur before a retrace rally, a rally I should add that I believe will be the sell of a lifetime. For a whole slew of reasons I feel strongly there will be no comeback this time.

However, I am not so confident that history ala '29 and '87 will repeat (or even rhyme) here. It just doesn't feel like it. Not sophisticated analysis, but there it is. I am preparing myself for this initial move down to go further and test the lows of March around 1360 before the market bottoms. I think if we make it though Monday and Tuesday without that happening the lows for this initial move being in go up substantially.

DED said...

After a shaky start, the market got a bit of a bounce. Signs of the PPT?

DED said...

Apparently this had something to do with today's sell off.