Complacency giving way to fear? Caveat Emptor

The recent Presidential election proved to me that without a shadow of a doubt the world is changing and not for the better. Although we talk about the Markets in this blog we cannot help but be aware of the geopolitical issues and their profound effects on where the indexes go in the future. The current assault on freedom in the Middle East and the expanding European financial collapse all point to economic and social issues of a global magnitude.

Most people will say or argue that you can't predict the future, things just happen. Well, this excerpt from Strauss and Howe's book called the "Fourth Turning" which they published in 1997, begs to differ with that view. Read the comments and then get a copy of the book from your local library. You will understand what is happening and about to happen to our World in much greater detail.

“The next Fourth Turning is due to begin shortly after the new millennium, midway through the Oh-Oh decade. Around the year 2005, a sudden spark will catalyze a Crisis mood. Remnants of the old social order will disintegrate. Political and economic trust will implode. Real hardship will beset the land, with severe distress that could involve questions of class, race, nation and empire. The very survival of the nation will feel at stake. Sometime before the year 2025, America will pass through a great gate in history, commensurate with the American Revolution, Civil War, and twin emergencies of the Great Depression and World War II.”

 – Strauss & Howe – The Fourth Turning

Here is a link to another article by Joseph Russo who takes to task all the hub-bub about the fiscal cliff rhetoric coming out of Washington and the financial press. Well worth the read.

http://www.safehaven.com/author/246/joseph-russo

Then as we move from the global geopolitical ills, we need to find a way to invest in a broken market here at home. We are unlikely to be successful in our investing endeavors until we get rid of the outside influences (think the Fed) that destroy the normal rhythms (fear and greed)  the market exhibits when left to its own methods of balancing.

The following two paragraphs suggest a few interesting answers to the market problems and why you should tread very carefully in these markets.

Quotes from Zerohedge.com article:

The stock market is demonstrably an "attractive nuisance" and should be closed immediately. It should never be reopened unless these conditions can be met: 1) All shares must be owned for at least four hours 2) All trading must be executed by humans on a transparent exchange where all trading activity (and open orders) is visible to all participants 3) Intervention in the market by the Federal Reserve or any Central State agency or agents is against the law.

If you insist on putting money at risk in the stock market, be aware that you are playing a rigged roulette wheel and thus you are the mark. You might win, or the entire game might collapse in a rotten heap of lies and corruption. Just remember that the market is ruled by parasites who need to keep their hosts (investors) alive so they can continue to feed off them (i.e. biotrophic parasites). If the hosts all leave the market, the parasites will have only themselves to feed on, and they will quickly expire. 

Enough about broken markets and geopolitical problems. Whatever the peccadilloes of the market, it is what it is and we just need to find a way to deal with it.

As we began October the indexes were in the throws of their first major set back in some time.  November arrived and the weakest player is the Nasdaq Composite (Apple in particular) which has triggered a intermediate term sell signal by moving down through its 50 and 200 day moving average and the lower trend channel in blue. Friday's close touched blue wave 3 down and we should get a small rally into wave 4 early next week. (Click on chart to get larger image)

The markets are finally beginning to lose some of the "Hopium" that Ben's QE interventions seemed to instill in them. Now everyone knows its an endless printing press that Ben has unleashed and they are beginning to see the folly (read hyperinflation) that could be its result. So far the market has not been spooked enough to move the VIX (Volatility index) above the 20 level - so complacency remains in place. However, with no net under  the market, it could turn ugly very fast if the correction gathers any sort of momentum. By the time you see the Tsunami coming it will be too late.

Chart from Zerohedge.com

Here's what happened after each injection of QE. Now that Ben is through making announcements, you can expect a major move lower.

Chart from Zerohedge.com

Note green arrows on the chart to the left. They   cover the number of points for each rally since the 2000 top.  The interesting thing is that each rally covered 808 points and then topped. Hmm mm.

www.thelongviewtoinvesting.blogspot.com

Very Important .........................
What's next? If we follow suit you can expect the S&P 500 to head for the 565 area as shown on our long term chart at left. Both in time and price the last three tops form a close symmetry.

Follow the Gold wedge lower to the trend channel. The indicators are rolling over and signalling a major move is more than possible.Use the chart to get prepared for the potential of a horrific move lower. You can hope it doesn't happen, but you should be prepared if it does.

Some additional thoughts to ponder. The moronic media keeps asking why we have such an anemic recovery. The follow charts can help explain why things are not improving. They are by no means the only items, just a few that make it hard to move forward unless they are corrected.

Here's reason number 1. The average household has seen its net worth destroyed over the last 6 years.

We keep expecting the markets to break out of this slump any time now but when you look deeper at the damage that's been done to the average American household you can see that things won't get better for some time to come. One of the items is Household Net Worth. The chart below from the Federal Reserve shows how much the average family has lost. Except for peaks for the Dot-com bubble of the nineties and the Housing bubble of the 2000's, the trend has been down since late seventies. 

Net worth also has a strong correlation to the Dow Jones Industrial average as can be seen on the chart to the left. Notice the rounded top (Blue line) rolling over and heading down.

The number 2 problem. The drop in manufacturing jobs which takes us back to the same levels we were at in 1945 and the take home pay and you can see that the average consumer is going to be retrenching for sometime to come.

And problem 3.  Salaries. Notice the long term trend in average hourly earnings. It's no wonder that the average consumer is going to be retrenching for sometime to come, years in fact.