Friday, August 20, 2010

08/20/10 - A Summer of Discontent

The chart below is the year-to-date picture of the DIA. I think the interesting thing about it is it shows the schizophrenic nature of the modern casino we used to call a 'market'. At the beginning of the year, the indices were diving. The PPT stepped in and we had something close to nirvana in February, March, and early April. The index behaviors were calm, consistent, and marching higher. This is a weekly chart so you can see that each week in this period was well contained. Suddenly in mid-April, everything changed.

From mid-April, the indices have become frantic, wild, and headed south. What happened? The Greek debt crisis may have been the match but the fire that is burning right now is being fed by reality. Most people are realizing that the government has been overly optimistic about economic 'recovery'. There is no such thing. Unemployment is now going to be structurally higher than in the past. Debt is pervasive and excessive both at a federal level and a private level. That has led the Federal Reserve to act as the chief manipulator of indices and now, the Fed is buying Treasuries in a bid to manipulate the bond market. The debt combined with a difficult economy has also led to a record number of individuals applying for hardship withdrawals from their 401(k)s (according to Fidelity). Oh well, workers might as well withdraw all their money before Obama and his 'stick it to the rich people' cohorts get their hands on it. That's another thing bothering the investor world. The result is a chaotic casino. Just look at the chart. What will next week bring? God only knows. That's the problem.

DIA Year to date
Chart Courtesy

No comments:

Post a Comment