Got a feeling it's going to be a bumpy ride right through the transition and beyond with BO. Don't ya just love the way those spineless congressmen took the auto execs to the woodshed? LMAO. Ought to get rid of the whole lot of those pasty pricks and stick some real Americans in there that understand what it is to work hard.
If you don't want to know what I think is true, instead of what I want to be true, then don't read this post.
Biggest problem I see with the chart you show for use in making a predictive comparison... is a major disconnect between the errors in market dislocations, the market corrections driven by them, and the cyclic nature and scale of periodicity in the causes of the dislocations and in the corrections. I think that where we are now in the business cycle, as seen in the reflection in the example chart, maybe isn't past the "panic" and into the muddling through stages... but only "just barely, if" through the point of denial, to about half way down to where panic might begin.
Reason 1 ? Not "just" that we penetrated through major support in the last few days, but... I predicted that we could... and why. And, I predicted that if we did break resistance more than briefly, the outlook may be a LOT more bleak than people are "getting" yet. I DO still see a lot of people in denial that what may be coming ever COULD happen... just as they have been and still are about how changing all the rules that worked post 1929 in financial markets... didn't and still doesn't matter.
In relevant part, mid-argument, with a nod to riskybiz1 and his focus on secondary market issues in autos:
I do think it likely that Ford will be the only real survivor in the U.S. auto industry... if there is one. Making cars in Brazil looks better than making them in China or Michigan. Ford was the only maker with a viable presence at the auto show this year... the only one showing new models... a line of hybrids for 2010. GM is toast.
Reason 2 ? In looking at excesses and at their market corrections, you typically expect to see a chart pattern that shows you "over-shooting" on both ends of the issue. Oil prices in a frenzy at $146 ? The rational follow up in a correction is NOT to have oil drop to a reasonable fair market value at the OPEC target price of $90 and stop... it is to have oil drop well below that price to one where it is about as undervalued as it was previously over-valued. So, what is the truth behind the STOCK market excesses, and what sort of a chart pattern might you expect in a normal cyclic reaction to those excesses ?
The first answer to that is that the easy money that drove housing into a bubble also drove stocks, and the rest of the global economy... so, now that the bubble has burst, what is the chart you need to look at for establishing a base in the pattern to make a rational comparison?
What drove the housing bubble, et al, was a purposeful change to the Community Reinvestment Act imposed in 1994. That change required banks to make bad loans, which fueled the housing boom. Other changes, before and after, enhanced the risk, by enabling securitization and passing along of bad loans, as new instruments shielded the risks from proper analysis, as market players went along with the scam or got fired, and as we changed all the banking rules crafted after 1929, to prevent this result we see today, so ALL the walls between bad lending practices in one bank and the market, that were designed to contain these poisons, were eliminated... which was done "since everything is different now"... etc. But, the DRIVER of the problem was the CRA in 1994.
Look at a 24 year monthly chart of the DOW.
First, note the blip of the crash in 1987 ? We matched that crash as the DOW passed from 14,200 through 10,519.
Next, note the change in the inflection of the slope in the market that took place in January of 1995 ? THAT is the beginning of the impact from the error of the CRA changes that we are now unwinding. So, take a straight-edge, and extend the prior trend line to the current day, and it looks like at the close TODAY we just got back to where we might have been on the market trend line without the CRA rocket fuel pumping up a market bubble.
I suppose it is possible that the same geniuses in Washington that created these problems will come up with a magic solution that will make the necessary corrections from THIS set of major excesses behave differently than markets tend to require that they do. I'm not counting on it. Instead, they seem even more intent than ever on ignoring the source of the problems, while again tinkering with the market structure and incentives, now with an eye to "saving us" from the impact that they created by tinkering with housing, banking, and market functions. So, after bailing out the banks, once already, we will "save Detroit" next... "and then it will all be good". So, we will not even have to bother with addressing any changes in the CRA or other changes in market rules that STILL continue driving the original problem ?
Ya know, once you've driven off the cliff at maximum attainable speed, it really is OK to take your foot off the gas... even if applying the brakes won't be of much help. With luck, the federally mandated airbag will deploy on impact and save us all. What we seem to see in the financial markets now is a sort of general relief that the rough ride and the road noise has stopped... "Yep, just another 400 pt down day, as per usual"... without much awareness of what that lack of turbulence and road noise really means. The current generation of market participants have been watching WAY too many "Gadget" and "Transformers" cartoons... not near enough of the old, classic Roadrunner type.
So, where that leaves me is looking for the longer wave version of what we see now in the oil markets... a plunge from $146 (~14,600) to an interim leveling off trading around $90 to $75, (9000 to 7500) before continuing the decline... oil is now below $50 (5000) and is likely getting closer to the bottom. The SAME "sort" of performance for the DOW will have it finding solid support around the bench mark of the 87 crash, at 2662, perhaps higher at 3550, or 4400... getting fairly close to the comparable where oil closed today.
There are a number of solid reasons to expect that oil market performance, the global economy, and stock market performance are vastly more directly linked now than ever before... so...
What would I do to improve the potential for even slightly "better" outcomes ?
I'd stop pretending the financial crisis is over, when the fundamentals haven't even been addressed. Fix what is broken in the rules, and address building a floor under what will replace what is failing, rather than just what is failing... and do all you can to address accelerations in having new institutions step up to fill the role of those who failed and those who will.
The banks have failed and are failing... just like they did in 1929... because they are playing with the same rule book they had in 1929. Fixing that, now, won't stop the inevitable corrections to market reality in those institutions, so you need to shore up NEW institutions that will replace them to ensure credit will flow without the legacy institutional issues as an obstacle. Leave the old banks with their old rules, establish a new category of banks with new rules... REQUIRE AND DELIVER FULL TRANSPARENCY... and then let the market decide which ones they think should be trusted... ???
Other issues ? Things could get worse, still... as I mentioned in a prior post... because there is still an largely unacknowledged undercurrent of fraud that is persistent in the markets. The problem with short selling, as it is used to take down competitors, or just for sport and profit from capital destruction, is not isolated from the ongoing financial, banking and market problems. Not "just" the uptick rule, the issue is that the rules don't matter if they aren't enforced: Financial market malfunction is also not isolated from being enabled by fraudulent float in the clearing mechanisms, and a regulatory agency that has wrongly encouraged that degree of top level fraud as a desirable feature of the market place. The SEC's charter is to enable capital formation that helps drive the economy, not to enable its willful destruction, or counterfeiting of securities, for whatever purpose, and they have got it SO BADLY wrong...
I predict the current market maelstrom will not be over before you see "blood in the streets" in a less figurative sense... not until you see audits and heads rolling at DTIC, and inside the SEC, as well as in financial institutions... exposure of corruption in those institutions... people going to jail... and corrections that allow the markets to get back to work. That is how REAL corrections of REAL errors get implemented.
With luck, we can bump along until Jan 20th, waiting for "change"...
The one positive thing I can say about Obama in regard to "change" and policing the markets is... in that, he'll be hard pressed to do any worse. Still, deep roots in Chicago and in left wing politics don't provide much of a reason to be overly optimistic about fixing broken market functions rather than breaking more of them.
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