Mish,
I agree appropriate to post that here.
The question of debt seems quite relevant seeing that more and more companies are seeking protection under Chapter 11.
The height of the internet/Nasdaq bubble blow-off top was when extreme optimism ruled. Few were exempt from the over-optimistic expectations at the height of the market fever.
Companies were falling over themselves to keep up with their competitors, over-spending and over-investing with the perception of carving out their piece of the pie and taking advantage of high share prices to equitize borrowing at an unrealistic pace. IPO's were raining on the markets soaking up available speculative capital.
The cratering of share prices under the weight of it's own debt is a snow-balling phenomenon which is still gathering momentum. As declining share prices continue to wither away the equity supporting massive debt, cost cutting measures such as increased layoffs and decreased spending undermine the support of consumer spending which is necessary to bring the economy out of nose-dive. As fewer employed and spending
consumers make their impact felt in the economy, company earnings continue to soften, warnings after warnings continue to erode share prices, economic growth continues to reverse
and spills all over consumer confidence, corporate financial health, share prices, global economic prospects.....
A negative circle of poor prospects and impact which feeds on itself.
In other words, the failed necessity to take the growth one step at a time in slow and manageable portions has called the piper out to demand his payment for services rendered. The piper has to be paid. Only when the financial excess of high valuations exhibited by high historical P/E's have been finally wrung out of the market will the stage be set for the final bottoming process and the eventual conditions for the next bull phase developed.
The post you responded to effectively demonstrates the ladder of misplaced optimism and denial still permeating the market even now.
I think your brief reference to the multi-year bear of '29 is excellent as it is my understanding the Naz of today is still following the footprints of the Dow of '29, including the impotent series of Fed. rate cuts. Blind trust in the adage "Don't fight the Fed" only serves to prolong the ultimate conclusion of every true bear market.
Bear market rallies notwithstanding, I believe the markets continue headed for worse times ahead, and the Dow's refusal to participate in the decline (still within reach of all-time highs) reinforces that the bear has much farther to go before the slate can truly be washed clean.
The S & P monthly chart shows that we have only corrected 38% fibonacci retracement from pre-1995 levels. From this point of view, very long term, it very much looks like we are only 1/3 at best done with the current correction. The Nasdaq has corrected much more, the Dow much less. All considered,
including the weakening economic fundamentals, I just can't envision how misplaced optimism will be able to fuel any meaningful advances for some time to come.
Considering the complacency as evidenced in the current VIX and VXN readings, there are indeed present all the ingredients for impending disaster. Much like a dry and parched environment prevalent in a drought, a few sparks are all that's needed to blow a fire burning out of control.
All I can say at this point....LONG IS WRONG!
Eichler |
