The markets are collapsing and the bad news hasn’t even been announced yet
Today, 8/25/15, markets unsuccessfully tried to rally. The Dow had 661 points between its high and low. Investors are nervous and blaming the decline in the weakness Chinese market. However, in my opinion, that’s not why the markets are going down. Wait till the bad news does come out. That’s when you’ll really see the market drop. As of now, corporate earnings (except for oil related issues) are doing very well. Today, research reports came out recommending the Bank of America and J.P. Morgan. The banks are not the solution to the problem; they are part of problem . So, in my opinion, investors still don’t get it yet. They believe that this is just another correction. I don’t think so!
Read the book; This Time It’s Different, Eight Centuries of Economic Folly. The problem as I see it is an unsustainable economy with half the population unable to afford basic human needs. If upward mobility is over, because consumers cannot sustain a viable economy, then prices will go down. If it is a deflationary economy, then real estate prices and oil prices go down. If real estate prices and oil prices go down, then the debt backed by his entities will be in trouble. If bonds and mortgages are in trouble, then the derivatives that speculate on these entities will be in trouble. If derivatives are in trouble, then the banks are in trouble. If the banks are in trouble, then the Federal Reserve will be helpless, as they have no plan to deal with deflation. With QE 123, purchases of bonds, they will hold trillions of dollars of worthless paper. If the Feds are in trouble and the banks are in trouble, then the US economy is in trouble. If the US economy is in trouble, the world and its stock markets have a problem. Dow support at 15,336, 13,377,10,000/6,666
All this wont happen at once. ‘The Panics’ are just beginning!
Today, 8/24/2015 the Dow opened up 1000 points down. An obvious rally was expected. However, the Dow could not rise above -250 points down. So it closed down -588 for the day at 15 870. Incidentally the low for the day was exactly at our support level mentioned in our Lone Bear Letter at 15 370. and the close was close to our othher support area at 15,855! How’s that, for being exact. The NASDAQ closed down 179 at 4,528. Our support level mentioned in her Lone Bear Letter is 4,545. The S&P 500 closed at 1,893, down 77 for the day.Support is at 1,820 All 3 averages were down across 3 3/4% for the day. Apple broke all support and had a low of 92 closing at 103 down 2.6%. This market leader is showing just how weak the market is. As support area have been reached, a shot term rally is expected. I would expect a false rally to occur. Use it for selling and buying US treasuries. If not , Watch out for much lower below.
Thanks to all my readers for your comments. Thanks to Noell for responding, “capitalism only works when there is free and equal access to opportunity. When you have the winners restrict the opportunity through lobbying, it becomes near impossible to enter the marketplace with your goods, services or labor. It’s not that the bottom 49% of Americans are not participating in capitalistic growth, it’s just that they can’t participate.” Yes Noel I agree, upward economic mobility is no longer available the bottom 50%, except under unusual circumstances. Thanks to Diane for saying, “Why does China matter? It is now the 2nd largest economy after the US. It’s middle-class is getting hit. This means weakness abroad, particularly among emerging nations which rely on China to buy their exports. It also means weakness for multinationals that belived China would grow, not shrink. Social unrest in China is a particular concern.” I agree. China is faced with the same problem that we have, in that technological changes are increasing productivity without the use of labor. Thanks to Susan and Bill who like many of you said, “Carl, I hope you’re wrong too,” I responded by saying,”Yes, I hope I’m wrong too. However, I think this is more than just a normal correction. I am particularly worried about the banks that hold of bonds and derivatives for companies and countries that depend upon the price of oil, for payment. Our Fed and the European central banks and trying to stimulate our economies and the inflation rate by low interest rates and quantitative easing bond buying. And yet, deflation form lower oil prices, could tip the scale to a general economic deflationary scenario.” Thanks to Marty who said, Every bear has his day, but if this correction is different and permanent that would be something new and dangerous.” I would refer Marty and all of you to the book This Time Is Different, Eight Centuries of Economic Folly by Carmen M Reinhart.
The Fed is not prepared deflation. Today oil prices were down to $38.35 a barell. Lower commodity prices are down worldwide by 20%. Smart investors are galloping into US Treasuries. The 10 year yield is now 2% down 2.8% for the day and the five-year yield is 1.36% down 5.5% for the day. Not an attractive rate, but it is better than seeing your capital shrink by 50% or more. We should see a rally in the next couple days, as some support areas held today. However, I don’t believe the support areas will hold and I look for much lower levels. this is just the tip of the iceberg! Europe is on vacation. Wait till they get back in September. October is usually the worst month for the market. Use rallies for selling and buying US treasuries. It can get a lot worse!
|Forecasted Trend||DJIA||NASDAQ||S&P 500|
|Long Term||Bear Market?||Bear Market?||Bear Market?|
|Breakout Points||DJIA||NASDAQ||S&P 500|
|Short Term Up (Resistance)||18,352||5,231||2,134|
|Short Term Down (Support)||15,855/||4605/4,545||1970|
|Int. Term Up (Resistance)||18,352||5,157||2,134|
|Int. Term Down (Support)||/15,356 /14,688/ 13,377||4,166 3,986/3294||1,820 /1,560|
|Long Term Up (Resistance)||18,312||5,231||2,131|
|Long Term Down Fibonacci Support||50%12,000 62% 10,750||50%2,958 62% 2,555||50%1,390 62% 1,177|
|10 yr Treasury2.O6%||Gold 1,156||Oil 40.48|