Saturday, July 28, 2007

Fear Ahead! - U.S. Markets and Mood - August 2007

The mood in general this month is again very gray, almost despondent. What should keep the stock market from completely crashing is the general lack of energy. The biggest danger is the lack of anchor in facts or anything that has to do with "reality." Just like being alone in the deep woods late at night, the slightest creek or crackle can cause incredible panic as the collective imagination runs wild with ferocious beasts, goblins, and monsters. The U.S. government does its best with smooth talking and placating sounds to try to veer away from fears of impending recession. The most likely response from the government to perceived pressure is secrecy, manipulation of social mood, and new constrictive regulations, especially towards the end of the month. From the U.S. perspective, the rest of the world looks pretty sinister, and like a powder keg that could explode into chaos at any moment. The dollar looks unusually strong this month. European currencies and commodities should continue their decline. Crude oil is showing extremely high ambiguity which could manifest as high volatility, but little overall progress in any particular direction.

August 1-10 - ClimaxThe most notable thing early in the month should be highs in overbought markets and lows in the oversold. This is a period of peaks and valleys; markets should be ready to do an about face. Look for "blow-offs" and other tell-tale signs of trend climax.
Week of August 13 - TranquilityThe general mood is indicative of a calming of fears, even relief. The stock market should be making a good attempt at recovery (even if slow). Crude oil should be dropping substantially as the bogeymen that have been propping up the market fail to materialize.

Week of August 20 - EnlightenmentAn epiphany this week should make ambiguities in the markets that have lacked a good sense of direction turn to clarity. It may be another week or two before society in general understands the full implications of this week's events. There is a coming together of mood factors for the U.S. government, the rest of the world, and the factors that influence the price of oil and commodities. However this manifests, it should be interesting.
Week of August 26 - AccelerationThe markets pick up speed (even if down) to end the month off with a loud thud. This may be one of those weeks where the only "market" going up is the U.S. dollar.

Tuesday, July 24, 2007

More Stock Market Losses

Today's losses in the market were again refreshingly in touch with the gravity of the situation the U.S. economy and quality of living is facing in general. I still have my doubts that the long time bulls will actually "get it" at this point. While the overall mood for the month continues to be somber, I would not be surprised if many see today as another buying opportunity, rather than the glaring warning that it is. Excuse my cynicism, but it has gone on way too long-- Wall Street wonders profiting while the average U.S. citizen feels an increasing sense of impending "something."

Don't get me wrong, I am not looking forward to a stock market crash. I am dreading the implications for jobs, services, and quality of life. I suppose I am highly annoyed with the fact that we have overshot "reasonable" by so long and so far that such a high price needs to be paid to balance it all out. Overspending, over-consumption, over utilization of resources-- we in the modern, industrialized world have done this to such an extent that the "correction" will not be pretty.

The beginning signs of this-- large downward movements in the global stock markets-- should be coming soon, but not immediately. Today's 200 point dip in the Dow was just a "drop in the bucket." The "big one" is not here yet. This increase in volatility, however, can be seen as pre-shocks to something far worse that is just barely coming over the horizon.

Friday, July 20, 2007

Panic in the Markets - False Alarm (again)

While there was a lot of worry in the U.S. markets this week, and talk of such things as "sub-prime meltdown" and "credit crunch" which caused jumpiness and panic selling-- it was likely not the signal of the big stock market "correction" that has been anticipated for months. The fact that the overall tone of the month was gloomy and pessimistic, had too many investors on guard for a sell-off. A big crash event, should it be a single event that sets the downturn in motion, would most likely happen at a much less expected time-- when there was more optimism. It should not take more than a few days for the market to start its tenuous climb back up again, or at least make an attempt. This is not to say the days before a good downturn are not numbered; it is just not likely imminent (i.e. the next week or so). It was actually refreshing to see the denial stripped away briefly, but unfortunately both people and their denial are resilient.

As far as the increase in noticeable paranoia this week, such as more frequent discussions of terrorism, and the perception of an increased liklihood of something bad happening due to an outsider with an agenda-- indications are that this component of U.S mood will continue for at least another two weeks (Note: I am not saying these fears are unfounded-- recall that just because one is paranoid doesn't mean someone isn't out to get them. However, just because the paranoia is up, doesn't mean that a terrorist attack is any more likely now than it was last week before this mood change occured).

Saturday, July 14, 2007

Dow breaks records-- is this good news?

The collective U.S. mood for this month is melancholy, especially for last week, which is an indicator of likely "bad news." So, what about the stock market rally that broke new records? Isn't that good news?

More and more people in the U.S. are not doing well. Health care is a problem for many. Foreclosures are rapidly increasing. High oil and gas prices will insure a higher price for most other goods and services as well. The dollar is falling, further decreasing our purchasing power. Yet, the stock market keeps rising.

Stock prices rise because investors keep buying stocks, and because there are more buyers than sellers. It is that simple. If the U.S. stock market is a gauge of the collective mood of the U.S., and the collective mood has been turning down for some time already, then what gives?
The stock market's continual rise in spite of a slowing economy, and lowered general mood can be compared to the "J" curve in ecology. When a species is in sync with its food supply and the rest of the ecosystem, its population fluctuates in a sine wave shape, an "S" curve. If it gets a temporary increase in food supply, or its predators die off, for instance, the population can surge way above a balanced state until suddenly it crashes.

Every time I hear the Dow breaking new record highs, I find it highly disturbing, even chilling. The market is in such a state of overshoot, and so out of sync with its "ecosystem", that when it does finally crash it could even make 1929 look like a walk in the park. Each time records for winning streaks are broken (as they have been for 1987, then 1927 and 1929 in the last few months) and the connection is NOT made with what happened the last time such greed and mania went unchecked, I am baffled.

At some point this roller coaster ride is going to be over. And it will feel like it ended because the tracks suddenly weren't there. It won't be pretty.

Stocks surge despite rush of bad news
July 14, 2007

"Capping a dramatic week on Wall Street, the Dow Jones industrial average came within spitting distance of the 14,000 mark yesterday and the broader Standard & Poor's index surged to its highest trading point in seven years. But for a number of observers, the big question is: Why?The record gains for the Dow and S&P came despite news of slowing retail sales, a burgeoning trade deficit and a declining housing market."
"Even as stock prices climbed to record highs, there were signs that some investors were jittery about the health of the economy. International investors continued to drift away from the U.S. dollar, signaling their lack of confidence in the economy. The dollar fell to a record low against the euro and a 26-year low against the British pound."
“All of the pundits and so-called 'experts' who did not see this coming still do not appreciate the magnitude of the mortgage disaster and how it will impact the housing market in general, the economy, the stock market, the dollar, interest rates, inflation and the price of gold,” said Peter Schiff, head of Euro Pacific Capital in Newport Beach. “The curtain has yet to close, but if you listen closely, you can hear the fat lady warming up in the wings.”

Thursday, July 12, 2007

U.S. Markets and Mood - July 2007

July video script:

In July, the economic focus is on practical matters. The mood is somber. There is some concern whether things are going in the “right direction.” The world is watching what looks to them as the demise of the U.S. economy. The response to economic stress is to run from anything suggestive of recession or depression, increasing spending, making deals, and other hypomanic efforts to insure that growth and expansion are still occurring. Another response to difficult news would be an increase in the conciliatory tone of diplomatic effort, and appeasing or comforting those at home.

The U.S. Dollar loses any appearance of strength this month. While the US government turns up efforts at diplomacy and peacemaking. There is a heightened vulnerability towards reacting to domestic stress with external conflict – picking a fight would not be out of the question to distract from problems at home.

Crude Oil: A lessening of bullish factors should lead to a price ceiling. The climb in prices is “empty” – greed chasing its own tail and is difficult to sustain. The bias for the month is for a price decline; however, the market is very sensitive. Any threats or potential threats to supply will send the market climbing.