This market is low on volume. The danger is the turning point.
By Daniel at 25 November, 2009, 5:10 pm
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Low volume pushing the market up makes it susceptible to a violent downturn. However, liquidity is flowing into this market and the Feds have signaled they are going to continue to provide that liquidity. Keep an eye on the longer trend and avoid a myopic view of the day to day changes. Don’t even think of shorting into this kind of liquidity.
The never before is possible, not probable, but definitely possible. The Feds have transferred or are trying to transfer the entire debt bubble from the consumers and banks onto their own balance sheet. They are sucking in foreign money which lets them shift the end liability over to some one else. When they reach the point where the whole house of cards falls, the foreign countries will be left holding the bag; in the mean time think of the market as a commodity.
Shares represent the underlying companies. The collective companies have value even though no one can really figure out what that value is. That’s what the market does. The value of the underlying companies is real, backed by hard assets in most cases. Dollars are fake and backed by nothing but the ability to tax. The need to tax is well past the point of the taxees’ ability to actually cover. Until the system crashes the taxation bubble is a ‘never happened before’ scenario, in the US. Until the system crashes, the market will go up. Right now the market simply cannot go down because the dollar cannot go up.
How far up? Look for the unexpected. There are no sellers in the market because the general investors, which the market normally fools, are currently broke or scared to move their remaining funds out of the market because the rebound has restore some of their retirement money. The rest of the investors are ‘printed money recipients’ from all over the world. They can do nothing but buy because they have to put the piles of loot somewhere. There is not enough gold in the world to go around and all fiat currencies are being debase simultaneously. Therefore there is no one in the market who needs to sell and those actively in the market get more free money every day. It must be parked somewhere so it’s divided between treasuries (as a payback/thank you) and the market.
Because we are essentially in uncharted waters, we may see the unimaginable happen. We may see one of the most deadly market signals, the double top. Imagine a djia that goes all the way back to 15K and makes a double top before crashing. Imagine a double top first created by the citizen investor in cahoots with the banks using funny mortgage money (that part happened). Then imagine the government buying up all toxic assets and pumping so much liquidity into the system that the entire stock market could be bought all the way back to the original top. That money now exists. All it takes is for a few big players to soak up the liquidity and refuse to spread the money around. Instead, they park it in holding tanks like the oil tankers parked out to sea just waiting for some fool to bid up the price and another fool to bid even higher. (that’s where we are now) Then one day the liquidity stops because they can no longer print as fast as the interest is compiling and because foreigners won’t loan, citizens can’t buy, and the treasury can’t find enough buyers even as interest rates go up. As the interest rates spiral upward out of control the government’s interest payments reach the point that the entire income tax revenue stream can’t even pay the vig. (that day is not here yet) Everyone wakes up one day and says sell, sell, sell.
Why not just hang on to the stocks at that point and just ride out the next downturn? Because, no one makes money sitting on assets that don’t grow over time; when the next wave of the downturn gets underway the remaining retirement funds will be devastated. After that down wave it could be a decade or two before the market comes back even to today’s levels. When there is no one left to buy the market up, even one more penny, those who have been edging ever closer to the door break out into a stampede and try to get out before they get trampled. Those left behind are often wounded and sometimes killed. It will be the running of the bulls…err, running of the bears.
But until that day arrives, go long, stay long.
PS How do you know they are edging towards the door? Watch gold. Countries are buying it, companies buying it, investors buying it. Everyone looking for a place to hide is buying it including the senate and the congress members. Corporate insiders are selling their own company stock and buying metals.
- Kprime
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