Deer in the Headlight

Remember the Deer in the headlight warning two weeks ago ? We’ve gone over the short term problems that have caused the “Great Recession” But the deeper long term problems also need to be addressed  You can LINK to Part  One here

deer_in_headlights.jpg

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Long Term Structural Problem 

(part 2)

What Made us Strong

Back after WW 2 President Eisenhower (from Wikipedia) led a major stimulus program that transformed Americans. He continued FDR’s New Deal programs, He massively expanded Health Education and Welfare departments, created a Interstate highway system, developed a GI bill to help returning vets own homes, and  the civil rights movement began.  Economically, only one member of a household usually worked, and a fortunate America whose infrastructure was not devastated by war flourished.

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The Decline

What happened is that the rich grew richer and the working class lost in its struggle to catch up and stay solvent.  Wages got hit in the 70′s “by a double whammy of globalization and technology.” Women went to work to keep up with the Jones. But this was not enough. In the 80′s to fix an over reliance on welfare we changed to a tax and government system that rewarded the wealthy and began to strip away the very regulations that were put in place to prevent the Great Depression.

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The Fall

The rich got richer. Other industrial countries provided health care for their citizens that not only helped their economic status and health, but gave their businesses a competitive advantage over ours who had to pay for health care. Both members of families struggled and were encouraged to go further into debt (credit card, college, mortgages etc) just to hold on.  The bubble burst with the fall of housing prices and the over leveraged greed of financial companies. Debt expoded.

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Solutions

All this reveals the fundamental economic flaws of the economy and the huge gap between the rich and the working classes of out economy.  While Obama has made some mistakes, he has fundamentally and structurally set us back on the correct path. Economist and former Labor Sec. Robert Reich has an excellent editorial on this The following and an above quote ate from his piece -

we have “failed to address — widening inequality, sagging median incomes, a broken healthcare system, crumbling infrastructure and global warming — are that much larger now, making the current crisis all the worse.”

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AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

Stocks

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Index Percentage % Volume
Dow +0,49% up
NASDQ -0.44% ?
S&P500 +0.12% down
Russell2000 +0.46% -

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Technicals & Fundamentals

Friday markets consolidated after Thursday’s big fall. (Sorry could not clearly read volume chart on Dow)  Last week saw a massive 6 to 8% drop on the major US indexes and lots of bigger falls abroad.  You’s think, because markets are sooooooo over sold hat technically we would have a least a small bounce higher.

Let’s take a look at perhaps the best two indicators of a bottom in a bear market – The VIX and the Put/Call ratio.

From Yesterday  - The VIX (today’s quote) is out measure of fear for the benchmark S&P 500. Back in November it peaked at @90 interday and 81.48 as a closing high. it  need real fear to wash out nervous investors and  50 is a long way from 80.  Translation, the VIX is usually a reliable indicator in bear markets = More downside to follow.” Friday the VIX closed down 1.67 to 49.33.  Translation – The level of fear is not as nearly as great as it was in November when markets rallied for a few months.

The Put/Call ratio chart This is one difficult chart to understand.  But the bottom line is watch the close when it gets above 1.00 it shows as many traders are betting the market will go down than up.  This is usually considered by many analysts as the point where markets turn or a point when too many folks are throwing in the towel and you can get some quick rallies as traders rush to cover shorts. So focus on the closing number.  We are close to that level at 0.87.  But a sustainable Put/Call above 1.00 usually means a reversal.

The VIX is a bit better indicator because it focuses longer term.

Long Term Outlook = BEARS RULE

See STRATEGY, POSITIONS, OVERVIEW  & ARCHIVES sections of blog for more

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

 

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