russell to 10,000 subscribers: get the hell out!
(an excerpt)
March 10, 2004 -- The greatest bull market in US history topped out during
1999-2000, and a primary bear market started. I said at the time that I
thought this bear market might take the form of the 1966-74 bear market with
one or more mini-bull and mini-bear markets -- all within the main context
of an ongoing primary bear market, a bear market which would ultimately
correct the entire bull market of 1974 to 2000.
I based this "guess-forecast" on my conviction that the Fed would fight the
bear "tooth and nail" and thus prolong the bear market. But in the end, I
said, the Fed's manipulations would leave the bear market far worse than it
would have been had the bear market been allowed to run its natural course.
Nothing has happened in the market or the economy, so far, to change my
mind..
Now we're in March 2004, and what has the Fed done for us? Through massive
manipulation of interest rates and liquidity, we've seen new bubbles in
stocks, bonds, real estate and debt. We've also seen the Dow rebound to
within 985 points of its year 2000 high. We've seen the S&P recover just 50%
of its 2000 to 2002 bear market losses. Finally, we've seen the Nasdaq
recoup about 25% of its bear market losses.
A month ago I drew attention to the fact that the Transports had failed to
confirm the new recovery high in the Dow, and at around the same time I said
that I thought the bear market correction that began in October 2002 had
about run its course. I stated that I believed "the top was in place" and
that the bear market upward correction had ended. With today's action, I
believe that the bear's hibernation period is about over.
On March 3 the Nasdaq Composite broke below its 50-day moving average.
Yesterday the Nasdaq closed below 2000, and by the close the Nasdaq was
showing a loss for the year.
On March 8 the Dow closed below its 50-day MA, On March 9 the Dow closed
below its critical February 4 closing low. That closing was 10453.92. With
today's closing, the Dow will also be showing a loss for this year.
The widely-followed S&P 500 closed yesterday just above its 50-day MA. Today
the S &P broke below its 50-day MA, but still slightly above its December 31
closing.
Yesterday I noted that although the Dow closed below its critical February 4
low of 10470.74, but the Transports had failed to confirm. The critical
comparable level for the Transports was 2822.11. Today the Transports
confirmed the breakdown of the Dow by closing below 2822.11. The die is
cast.
The question now is what does the breakdown of the averages mean? If I had
to guess, I'd guess that it means that the Fed is failing to halt the forces
of deflation. If true, this would be a deadly serious situation, the more so
since the nation over the past few years has built up a veritable mountain
of debt.
I'll remind subscribers that enormous debt constitutes an enormous
"synthetic" short position against cash. You pay off debt with cash, in this
case -- dollars. In a deflation, the need for cash becomes acute. The
falling stock market will now be pressing down against the greatest edifice
of debt in world history. How this will all turn out is -- well, that's what
we'll find out in the period ahead.
A second negative situation comes to mind. It's that US consumers may be
"tapped out," and they may be starting to cut back on their spending. This,
of course, is the last thing that the Fed wants. In fact, if true it would
be Greenspan's worst nightmare (see the Consumer chart further on in this
site).
...................the rest you'll have to buy. excerpt only. |
