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Pastimes : The Philosophical Porch

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From: Rarebird	1/10/2012 12:49:05 AM
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Transcendental Market Truths: The Market:: The equity market hardly moved on Monday as the approaching confessional season has many flat. This drop in volatility is typical of a flat, fourth-wave type market and tends to set up a thrust move in the countertrend direction (up). Earnings growth is slowing and does not support the idea of a strong move to substantially higher levels of overvaluation as the global economy slips toward recession. There is no reason to think that the global economy is likely to avoid a coordinated recession which will come at a particularly vulnerable time. Europeans continue to make egregious policy and logic errors, concentrating on further depressing their economies in the name of austerity and will find that they have created a situation which is not only uncomfortable, but possibly socially dangerous. China's economy is already reaching the stage where massive layoffs are likely and leaders are worried. The US economy faces a situation where the Fed is basically out of monetary bullets - QE3 is almost certain, but carries with it the probability of igniting hyperinflation (which is why they have held off for the past few months, hoping against hope that the economy will avoid recession on its own). Fiscal stimulus is also out of the question as the hostile environment in Congress and the White House does not allow more than token attempts at stimulation. All the hard-won lessons of Keynes have now been unlearned. Many are going to have to painfully relearn those lessons as the depression moves toward its severe final phase. There wasn't much to learn from Monday's session, but Tuesday's is setting up for a rally. Overnight, Asian markets are higher as the Shanghai Composite is rallying, as I had expected it would. This should embolden traders to kick off one final rally, potentially achieving that 1292 milestone on the SPX, a retest of the October high I called to the day, to substantially higher levels of overvaluation as the global economy slips toward recession. The SPX appears to need one more rally to complete a diagonal triangle pattern terminating the move up which started at the October low:

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