(snip)"Mark Your Calendars: The Crash of October 7, 2008 ( September 22, 2008 )
If you believe the pundits and mainstream financial press, the Big Fat Giant Bailout has fixed everything and a Bull Market is now running. Let's examine that thesis before swallowing it whole.
Tongue gently in cheek I am predicting the wheels come off the fake rally on October 7. My reasoning is presented below, but of course the exact date is unknown; October 7 is as good a guess as any other, but October seems to be the right month. "(snip)
(snip)"I've marked the chart up a bit. Please note the following:
1. Depending on how much rosy fantasy you're willing to swallow, there are two possible analogous points in this chart of the DJIA 1929 and the present: the right shoulder which preceded the Crash, or the first bounce off the Crash.
2. A clear head-and-shoulders top was in place on the DJIA before the Crash.
3. Just for discussion, let's assume 10,460 was not the final low of this Bear Market. In that case, then it is unlikely we've just experienced the "blowout low." But even if you think we have, note how the market bounced and then promptly fell to a much lower low.
In other words, whatever analog point you pick, the results are still the same: a huge drop to a catastrophically lower low. Now it could be argued that Sept. 2008 is in no way analogous to Sept. 1929, but there are fewer and fewer "buyers" of that complacent Fantasyland view.
Note that though the DJIA seemed to "recover" nicely in the aftermath of the Crash, the "real economy" entered a devastating Depression which was only ended by the unprecedented fiscal stimulus of World War II, 12 years hence.
Harun made these exceedingly incisive comments when he forwarded the chart:
The market did recover to levels above the that of the 28th but the economic malaise caused by government intervention lasted until WW II. Part of Paulson's grand new scheme of the government purchasing all the bad debt is lauded as having precedence in the 1930 and the S&L debacle. But buying all the bad paper didn't end the depression and the S&L situation was marginally successful because of a secular bull market that enable that property to be sold over time at a profit or break even.
So the market recovered in 1929 rather quickly but not because of sound economic fundamental but because that is the way markets work. Short covering and those sensing a bottom fueled the "rally". But in the end we face the same problem as then: no velocity. Nothing worked, not the make work projects or purchasing of bad debt; all the schemes failed to lift us out of the depression. And there is no telling how long it would have lasted had it not been for the outbreak of WW II.
The headwinds are different this time. We are not energy independent nor are we an industrial juggernaut. But without at least re-industrialization, which will have to be done in the face of peak oil, it's back to fraudulent accounting and counterfeiting money (credit expansion) type expansion.
I overheard on CNN that all this is about confidence and therefore largely psychological. Funny, I thought insolvency is a state of being, But I guess if you are broke but confident you can still buy a McMansion, have 2 luxury SUV's and eat steak at Ruth Chris every night.
Given all the uncertainties and complete lack of confidence that "everything's fixed now," then it sure looks possible that the Paulson-Bernanke "save the bankers" rally was nothing more than another right shoulder in a downtrend."(snip)





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