What can one say to market action such as this? That we were “cautious” about the reality of the economy? Investing based on being realistic was a dismal failure.
I’ve said many times that the entirety of the market rally, especially the rally from QE2, was fueled by free FED money. That didn’t change the endless parade of market prognosticators who told you–with a straight face–that the markets were telling you how strong the economy would be. Just suspend your disbelief and “listen” to what the market is saying. We know how that ended in the year 2000 and in 2008 and now in 2011.
Everyone knew and knows the newsflow but the stock markets action has had the remaining market participants hypnotized. The “Just Buy the Dip” crowd had won so many times that very few would bet against it, only the most secretive and deepest pocketed investors who could take the egregous losses doled out by the ever-levitating equity market. Payback is a bitch.
The latest government “crisis” certainly did not help the economy or the markets. And most everyone I know said that the market would rise once it had passed. It rallied for about a half hour before reversing wildly to the downside. And after about ten days down in a row, Europe is again in crisis. They are selling everything that is not nailed down, especially American stocks. Plus they–and everyone else–is buying gold.
And Ben Bernanke is nowhere to be found.
After spending trillions of newly minted dollars to “save” the system, Uncle Ben is incommunicado. QE3 is just a pipe dream. The massive stimulus that saved banks, the investor class and the markets–at the expense of everyone else–has been squandered. There is no “trickle down”, there is only melt-down. And equity investors are again left holding the bag.
It’s not like the signs weren’t there. They were. I did a hit declaring the Bull Market is Dead that aired on June 6. But I felt, and my work showed, that it died in May when it became clear to me that the stock market was in distribution. Nevertheless, the stocks that everyone loved kept moving higher. And just when the market looked like it would finally succumb to reality, we were surprised with the Magical Mystery Rally just as QE2 ended. What a pump and dump that was!
My long standing target was SPX 1200-1220 sometime in August. We are now here and there is wholesale liquidation and panic as we enter the tenth straight day to the downside. Investors are scared of another real crash. Certainly the fundamentals suggest that it could happen. But there has been tremendous damage and we are very close to the end of this phase of the correction.
I’ve said many times that the market is the same as last year only with worse fundamentals and 20% higher. That ends now that we’ve given back half of the gains from QE2.
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