22 Responses to “That should about do it.”

1. Axclr8
   August 25th, 2009 at 8:00 pm

   

   Oh, and let’s not forget: Most red ink ever: $9 trillion over next decade citing worse than expected economy, White House and Congress offer bleak budget outlooks

   http://finance.yahoo.com/news/Most-red-ink-ever-9-trillion-apf-2714959279.html?x=0&sec=topStories&pos=2&asset=&ccode=

   All we need is another Financial screw up / WAR / Pandemic / Attack and that’s it … goodbye USD and welcome Higher Interest rates …. welcome to the Unites States of Hell …

2. Adam
   August 26th, 2009 at 12:05 am

   

   Along the lines of your post, you probably also noticed that the single day reading of 0.39 for the equity P/C ratio on August 21st was the lowest reading in 3.5 years. Admittedly, not as good as using MA, but wow.

3. Mike
   August 26th, 2009 at 4:08 am

   

   Yeah, wow. Also a DSI reading of 89 that day, last Friday. This looks like a great set-up, and I get the sense that most bears are too shell-shocked to get excited over it. They were burned badly in July, and the few who were left took a drubbing last week. It takes real emotional fortitude to go short after that kind of treatment, even if your indicators are flashing red.

4. Mike
   August 26th, 2009 at 4:27 am

   

   If this is a third wave coming up, volume should get increasingly heavy on declines, and price deterioration should be relentless.

   So much support was taken out down to 666 that we could get there very quickly, and the speed could foster panic conditions to bust us right through. The general environment could get very scary again, as bank failures are going to be rampant by next winter. So many big banks are toast, too, like Bank of America and Wells Fargo, whom everyone now assumes will be alright even though there are now even more bad loans on their books than a year ago.

   That’s what’s astonishing… think of the additional trillions in bad debt since this time a year ago that remains to be written off. The debt situation will continue to deteriorate for at least another year, though equity values imply a vast improvement already.

   I see no improvement in real economic activity. Cash for clunkers is a joke, and government spending is stimulating nothing.

   Once we passed the point of total debt saturation, the result was a foregone conclusion: we’re now locked into deflation until the debt is paid back or written off. In the west, there is nothing left to inflate, and China’s little echo bubble will just strengthen the global deflation, since that is simply more debt waiting to go bad.

5. Mike
   August 26th, 2009 at 5:19 am

   

   If anyone out there wants a primer on Elliott Wave Theory, Daneric has an excellent series on his blog. For the record, get your E-wave analysis from him or EWI. I’m just a novice.

   http://danericselliottwaves.blogspot.com/2009/03/elliott-wave-primer-part-1.html

6. Max
   August 26th, 2009 at 6:29 am

   

   I think you are being impatient. It could be another year before we have another panic attack. In the meantime, bullishness is bullish, because it means that money is available for keeping leveraged companies afloat. Perception changes the reality.

7. Mike
   August 26th, 2009 at 6:33 am

   

   Excessive bullishness is always bearish, at least in the short-intermediate term.

   As to what happens afterwards, we will have to play it by ear.

8. Graphite
   August 26th, 2009 at 6:59 pm

   

   Hope is back, too, especially among some of the more Keynesian-inspired commentators and blogs, who are calling for bottoms in housing and economic recovery on the back of government stimulus. The consensus seems to be that our policymakers just need to avoid a “repeat of 1937,” when we haven’t even made it through ‘30-’32 yet.

9. Axclr8
   August 26th, 2009 at 8:01 pm

   

   However, back in 1930 did they have this kind of stimulus, defcit spending, QE etc?

   This is just a question. Not any kind of backhand statement etc.

10. jason bourne
    August 27th, 2009 at 1:22 am

    

    Mike,

    If we enter P3 soon, the decline may not be immediately fast & furious, it might be benign to some extent. It will most likely be wave 3 of P3 that will eclipse the decline we experienced in late 2008 until March 6.

    EW-wise, if we are to go into P3 in near term we need wave [v] of C to conclude very soon. Yesterday might be the end of wave [iv] of C. Wave [v] of C could be concluded by the end of this week. This is the higher probability count (Daneric & Kenny’s)

    There is a lower probability count in that we might be in wave W of C. If that’s the case, the market should decline to around 950 (wave X of C) and rebound to 1050 (wave Y of C), before finalizing the whole C wave and go into P3. The case for this is low in probability because of the mega-bearish divergences across practically almost everything, from momentum to intermarket indicators. Various wedges (mega bullish on risk-aversion entities, mega bearish on risk entities) are running out of time & space.

    Media-wise, the peak of absurdities tend to coincide w/ peak in risk assets. Bernanke’s pronouncement as the savior of the world is the most absurd one can think of. All in all, yes… the probability favors P2 peaking up very soon (could be this week).

11. Mike
    August 27th, 2009 at 3:02 am

    

    Hi Jason — You’re right, the wave count could use another squiggle or two up here, but I tend not to get caught up in looking at 5-min charts. The smaller-degree waves are always so ambiguous, and it is hard to use other sentiment indicators on very short time frames. For example, EWI, Daneric and Kenny all missed the bottom in March by a couple of weeks because they could only count 3 waves down from the Jan peak (they therefore thought the start of the rally was just wave 4 until it proved otherwise). DSI, on the other hand, was screaming BUY with 3% bulls.

    And yes, P3 could take a little time to get rolling, but then in April 1930, the Dow dropped 14% within 2 weeks after the peak of the rally. I’m ambivalent on this point — 3 of 3 is supposed to be the most furious — but then P3 itself is a 3rd of a 3rd at larger degree.

12. jason bourne
    August 27th, 2009 at 3:47 am

    

    Hi Mike,

    Yes, it looks quite hard to count 5 on the 5th of P1. In retrospect (warning: hindsight is always 20/20 & i’m still a relative beginner of this stuff), they didn’t quite follow the rule of alternation (if wave 2 is complex, 4 is simple & vice versa):
    1. Wave 2 of P1 was quite complex, so 4 should be simple… but if you want to count 3 for 5 of P1, the 4 of P1 has to be complex, too. By my count, 4 of P1 is finished on November 4, 2008.
    2. Wave 3 of 5 of P1 is shorter than Wave 1 of 5 of P1. I guess this misled the guys (normally wave 3 of any kind is the most impulsive — but not always).
    3. Wave 2 of 3 of 5 of P1 is complex, the 4 is very simple.

    I think it’s best to use EWs as a tool for limiting probabilities. In this case, the higher probability counts count P2 as either ZZ, double ZZ or triple ZZ. Either way, they are going to finish up P2 with the last squiggle. Lower probability… umm… quadruple ZZ? LOL.

    As for comparison w/ GD 1929, I’m not sure if the comparison is that close. P1 for GD 1929 was relatively swift, 6 months or so. Recent P1 is 17-months, from here on I guess you get my line.

13. Mike
    August 27th, 2009 at 4:25 am

    

    Yeah, I’m ambivalent on the slope of this bear. I think it will continue to be much steeper than Japan after ‘89, but as to whether we’ll go down 89% in 34 months like in the GD, I don’t know. That can’t be ruled out though, since we are bursting a bigger bubble than back then.

    I don’t see how you get 4 of P1 ending on 11/4/08. That would be a very short 4th relative to the others, and there really wasn’t much relief then — we were still in panic mode with a very high VIX and general terror. The markets hit a new low on 11/21, which you would then have to count as 1 of 5. Wave 2 of 5 would have been way too long and powerful to be just a minute wave (11/21 to early Jan and 740 to 940 — that’s just too much.) Much better to count the Nov - Jan bounce as 4 of P1 — many thought it was the “big post-crash rally” and jumped in too soon. It was false relief. Wave 5 felt like a 5th — resignation and despair, such general gloom, but in slow-mo and without panic (subdued put/call and VIX). I like the EWI/Daneric count — each wave just felt like it should in terms of breadth, speed, news headlines, commentary, etc.

    Anyway, IMO strict EW can prevent you from seeing the forest for the trees. There are just so many other indicators to consider.

14. Mike
    August 27th, 2009 at 5:38 am

    

    “However, back in 1930 did they have this kind of stimulus, defcit spending, QE etc?”

    Not to the same degree, but they raised income taxes and tariffs and strangled business with draconian labor laws and price controls. But all of this crap was phased in after the crash was well underway or done.

    The govt is basically irrelevant to the crash phase — mood is going to do what it’s going to do, and part of what it will do is bring awful govt policies. Don’t get correlation and causation mixed up. Govt can set us up for a deep depression, like it is doing with taxes, deficit spending and surely more horrendous anti-business legislation of all kinds. But it is important to remember that it only does this because mood is so sour. When mood is good, taxes are lowered and regulations are dropped.

    This bad mood may very well culminate in fascism and wars like the last time — expect things to deteriorate for 15-30 years beyond the 1998-2008 peak. Like last time, different nations peaked at different times — Europe peaked in 1913 and then destroyed itself. The US peaked in 1929 and destroyed what had made it great. Nothing stabilized in the west until the late 1940s, but Russia and China descended into even greater depths of mass depravity in the 1950s and 60s. This time, Japan peaked in 1989, other parts of Asia peaked in the late 1990s, the US peaked in 2000, and China, India and other places peaked in 2007-2008. By peaked, I mean mood, not just prices — in the US, the wars, fascism and political discontent since 2001 are strong clues that mood never regained the levels of the late 1990s.

    It’s hard to tell how these things will play out. We’d be lucky if all we got was a depression like the 1930s and no more wars, but then the US is already scaling up the war in central Asia. Of course, none of this has to be — we do it to ourselves.

    I’m not of the illusion that the general course of history can be changed by individuals — you only get one life, so just be glad you weren’t born in Russia in 1910 or Europe during the Black Death. It’s all relative. In the long run, the trend is up, but you have to accept your place history as you find it. It’s only tough for us right now because we have to adjust from a manic phase to a depression. If we were born into the depression, it would just seem normal.

15. Aki_Izayoi
    August 27th, 2009 at 8:13 pm

    

    I agree with you social mood. You are indeed correct that fascism is likely. I do not see “social democracy” as possibility in the US. I suppose free trade would be restricted in times of low social mood, but the US elites want to preserve it.

    Regarding Japanese social mood… I suggest you look up “hikikomori” on wikipedia and “herbivore men” on google. I image that would happen to the US social mood. Hikikomori are essential people who live with their parents and lock themselves in their bed rooms. I do not classify it as a mental disorder, but I do think it reflect the mood in Japanese were young adults do not want to go in the job market, and prefer the safety of their parents homes. Of course, the hikikomori are indeed correct that their opportunities in the real world aren’t so attractive and they made the “correct” choice by being hikikomori.

    I do think a hikikomori scenario would be optimistic for the US unfortunately.

    Regarding long term trends… I wonder what you think about Ray Kurzweil and the Singularity? Maybe that will cause a major reversal in sentiment.

16. jason bourne
    August 27th, 2009 at 11:41 pm

    

    Hi Mike,

    Hmm… yes, I guess it’s inappropriate to mark 4 of P1 that way. Timewise, it will be quite outrageous. Thanks for the advice. I’m trying to learn this stuff seriously. heheh

    Today the chart was behaving properly, in that the potential (best) count of 5 to the C peak remaining intact. Had a quite nervous day earlier because the market was dropping quickly in the morning — which, if it had continued furiously, may delay the start of P3 quite substantially.

    What do you think of USD (UUP), Mike? Perhaps it’s trying to make the very last bottom in days to come (perhaps trumping the 23.04 to the downside) — making wave 5 of C down an ending diagonal (quite a normalcy for 5th waves)?

    Psychologically, I think this will convince those dollar bears that the dollar demise is at hand (breaking lows, technically more convincing).

    By the way, Japan election is looming (Aug 30). It is expected that the ruling party (LDP) will be toppled for the first-time after more than 1/2 century. Signs of social mood change going into the next stage?

17. jason bourne
    August 28th, 2009 at 1:56 am

    

    Cheerleader of the day:
    http://www.howestreet.com/articles/index.php?article_id=10554

18. Mike
    August 28th, 2009 at 5:45 am

    

    I had heard of parasite singles in Japan, but I just read about Hikikomori. Boy, talk about depression!

    Japan seems to be a society that has lost all its dynamism. The bailouts and New Deal-type infrastructure stimulus since 1989 have locked them into a mild but prolonged deflationary depression, as capital is drained from productive to unproductive uses. The corporate landscape should have been shaken up violently after their bubble, but their government has propped up the dinosaurs. This has likely had broad implications for society.

    An entire Japanese life seems to be contained within a very rigid bureaucratic structure. With more freedom of capital and less regulation, young people want to get out into the world, make friends and start businesses. Between their educational system (which seems very similar to but even more extreme than the Prussian brainwashing that we get in the west), taxation, regulations and corporate bureaucracies, it is not surprising that many young people see no reason to get out of bed in the morning.

    I also have a comment on their seeming obsession with brand name luxury goods. In a society with such a rigid business universe that has a lock on government power, dynasties are perpetuated. The class you are born into becomes even more important, and because so few are born into the very rich families, most will feel inadequate. Gucci and Louis Vitton provide a little bit of illusion and comfort — or maybe that’s just what girls everywhere do with disposable income!

19. Mike
    August 28th, 2009 at 5:54 am

    

    Jason, you’ve still got to love the dollar, since nobody else does. I don’t care whether it makes a new low here or not — I suspect not, but with sentiment already so bearish it is not going to “collapse” as so many fear. The most bearish scenario would be a sharp rally and return of neutral or even bullish sentiment followed by another trip down to these levels. That seems unlikely though, since bearishness has been sustained here for so long already. The longer an extreme persists, the greater the reversal.

20. Axclr8
    August 28th, 2009 at 9:06 am

    

    Mike: Thanks for the input earlier on 1930 etc.

    Love this quote from you: “The longer an extreme persists, the greater the reversal” … exactly!! So we get this 6 - 12 Month Rally …. LOL! Whatch out what happens next …!!!!! I am going to relish seeing all those Analysts squirm in their seats on TV having to explain once again that they got it wrong .. wrong .. wrong ….

21. Axclr8
    August 28th, 2009 at 11:05 am

    

    U.S. double-dip recession “out of the question”: ECRI

    “With WLI growth continuing to surge through late summer, a double dip back into recession in the fourth quarter is simply out of the question,” said ECRI Managing Director Lakshman Achuthan, reinstating the group’s recent warning to ignore negative analyst projections.

    http://finance.yahoo.com/news/US-doubledip-recession-out-of-rb-2235260180.html?x=0&sec=topStories&pos=6&asset=&ccode=

    This guy has been pretty good over the past years in his predictions but who knows.

22. jason bourne
    August 29th, 2009 at 11:11 am

    

    yep Mike, before I loved the yen on top of the dollar, but now I’m lovin’ the dollar more.

    I’m practicing hard on my EW skills these days. So, perhaps I might as well share what I have been working on:

    1. on the dollar (UUP) count, I think I see an ending diagonal playing out for 5 of C. That play is intact until now. I expected it to be a falling wedge, but more and more it looks like we’re going to have a symmetrical triangle (we’re at the very end of it, if it is so). Hochberg said 5th of C is complete… so that might strengthen the case.

    2. perhaps you’re interested in long-term counts of Asian markets? I feel Asian markets generate the most optimism recently. So, I’m looking for what can cause one of the great consternation to come. I worked on south asian markets counts recently. My counts show similar results for India (^BSESN), Singapore (^STI), and Indonesia (^JKSE) — chose them because of their liberal policies for foreign money, hence similar charts.

    Results:
    Mid 2003 was end of 2nd, late 2007/early 2008 was the end of 3rd, early 2009 was the end of 4th. The 1st, I don’t have the data from 1998 & before for all except ^STI. ^STI’s 1st is from mid 1998 to early 2000. Pre-1998, I think ^STI had a complete 1-2-3-4-5-A-B-C count.

    Right now most likely we’re going to have truncated 5th (signifying how the world economy is in trouble) and enter the major A-B-C correction. From Prechter’s EWP book, C-wave is normally the most violent in bear markets. That could well coincide w/ the 3rd of P3 in SPX/DJIA.