I’ve been talking about this horrible bearish shit for seemingly years–punctuated by the occasional oversold QE related ramp job. I’m no crazed mongrel looking for the dissolution of the financial and political system but investors are faced with some big changes afoot.
The answer to all our ills, so far, is to plunge new, fresh money after bad. But that can only work if there is a foundation to build on and that foundation is credit expansion. We are only in the fourth inning of our credit contraction.
The input of fresh capital has served to liquefy and levitate capital markets and their current prices 100% higher than the lows of 2009, and that is the only factor in keeping people and corporations functioning. Policy makers know that if the markets begin a long downtrend or, heaven help us; a crash, that spending and hiring would stop dead in its tracks.
Last week, our Uncle Ben said that he would extend Twist in order to keep the government in paper, but nothing else unless it was an emergency. And no direct money for Europe. The markets have promptly given back only half their recent gains on the latest “Europe is Saved” rally that began on June 4 from SPX 1265. It is a classic 50% retracement and the first area where a bounce is possible.
But realize what kind of market we are in. We see-saw from one end of the trading range to the other. Sentiment swings from super bullish based on the possibility of more inevitable free money to the doom and gloom of the end of the financial system and therefore the world.
I know that HFT creates the potential for near-term volatility but I have a thought; it is time for the market to get boring. Dull. Horrible for the trading set. Think about it. The histrionics must cease. The range must tighten. Investors have been flushed out, only buying stocks in their 401k when they have to. Perhaps now the trader must be flushed either by horrendous whipsaw action similar to last summer or by the total drop off of volatility. It may just be time for investors to return and for good old-fashioned stock picking, rather than index momentum, to be “where its at”.
The credit contraction will continue for years and FYI, bull markets are built on credit expansions.