Transcendental Market Truths:
The Market:
The government is flooding the economy with printed money (and paying 3-4% interest on that money to the banking system to "borrow" it back, probably the greatest government rip-off of its citizens in human history). Some think hyperinflation will result from this flood, but until there is demand for debt money, that's a remote possibility. The real economy needs real money, but debt money just won't do the job.
I expect a high on May 20, followed by a correction, then a resumption of the uptrend and a final high in late August. December could bring a major low in the stock market.
My Dollar Weighted OEX Call Put Ratio hit an astounding 21.95 on Friday as virtually all bets were placed on a continuation of the manic run higher regardless of valuation. When the tsunami hits, it hits big.
I'm watching the Russell 2000 - S&P 500 relative strength ratio as an indicator of the fever and, so far, there's no sign of a top. In fact, the ratio closed in all-time new high territory on Friday as it has been accelerating in recent days.
If the market does pull back this week, it will undoubtedly be seen as an opportunity to buy for a continuation to all-time new highs in the stock market within the next month. Already, I have seen the broadest stock market index (Value Line) achieve new highs.
The S&P MidCap Index should be the next index to move into all-time new high ground.
The Russell 2000 Index could possibly make a new high, but is in what should be a stiff resistance area right here.
Given the bullish spirits awash in the market, the late August double top now looks like it could be substantially higher that the May top.
None of this changes the underlying fundamentals of the financial system. It's a shell game where fiat money drives stock prices higher in order to pump animal spirits up in an orgy of Wealth Effect spending designed to jump-start a consumer-driven economy. Consumers are being asked to stop saving and return to their old habits of going into debt to drive the economy. At the same time, they are being asked to do so while no new jobs are being created - and many jobs are still being outsourced to China. Ultimately, there can be no solution to the imbalances when government is pumping money out to the banks at such a prodigious rate. But, for a little while, the illusion of prosperity can be maintained. Joe Six-Pack doesn't know or care what's really happening.
At what point does the system collapse? Actually, the signs of the collapse are visible in Europe right now. Greece is simply a micro preview of what's coming. When the debt is so crushingly large on a country that it must ask for help from its more prosperous neighbors, the signs are clear that the entire foundation of the financial system is cracking. Certainly, a bailout by Germany and France of Greece and Portugal is possible, but political revulsion by the populace is a major obstacle to this prospect. In fact, the government of Germany is likely to fall if they do bailout Greece. Americans, however, are always willing to bailout banks and European countries, so the US may be the ultimate contributor of funds to Greece (and Portugal and Spain and ...). The US taxpayers have an endless wallet open for the government to seize funds for those who need a bailout.
And, of course, that is the ultimate factor in determining just when the financial system will collapse. When the US taxpayer runs out of funds which can be seized by the government, the whole system will collapse utterly. One cannot cure a debt problem by throwing more debt at it. It simply makes the ultimate collapse that much more inevitable and devastating. Kicking the can down the road will eventually reach a point where the road stops and the cliff begins. At that point, forget about hyperinflation, it will be a full-blown deflation, complete with a soaring rush into the dollar as the safe haven for all. |
