Print This Post

Market Wrap Up - The System is Failing

Yesterday many market participants thought the bottom was in. That view was obtained by the VIX and other indicators giving the green light to start loading the boat and buying stocks. But that only works in a normal market.

Within a normal bull market a rise in the VIX and other over sold indicators would be indicative of a trend change. But this is not a normal bull market, it is not even a normal bear market. It is vitally important to realize that we are facing the largest crisis in a century. We have the collapse of the housing market, implosion of the credit markets, lending contraction to consumers, and financial firms folding up or being bought out at tax payer expense every week. These are unprecedented times and the economy is rolling over at an alarming pace.

Attempting to trade the markets is becoming increasingly difficult with violent moves possible at any moment. Those who swing trade must not be trading this market, instead they must be sitting this one out and preserving capital. Buy and hold investors should have heeded our warnings over a year ago and been alert to close positions so as to protect the gains earned up to that point.

The large sell off in the US markets today emphasized the fact that confidence in the US system is still declining. Fear is over taking reason, and in some instances the fear is justified. We are watching the demise of confidence. With every press release from the Treasury Department or the Federal Reserve it is being perceived as “they have lost control”. And in my view they have lost control. The US Government is shooting from the hip in the hopes that they hit the target. But what they are doing is shooting more holes in the hull of the ship and the economy is taking on even more water. One fear gripping the market that is not being talked about much in the media is the growing lack of confidence by foreign Governments in the US financial system.

The Government is urgently trying to sure up a leaking boat with bubble gum and band aids. And then they sail the boat in front of the reviewing stand in hopes that the foreign investors and debt holders will think everything is ok. But you know what happens to band aids and bubble gum when it gets wet, it begins to fall apart.

The same people in the Government who only months ago kept saying “the fundamentals of the economy are fine” are now telling us that their plans will work. Sorry, but I don’t believe Ben Bernanke and Hank Paulson and so to do numerous other people. They are complete failures, they are bordering on criminal activity, and they should be removed from office immediately.

Market analysts began their parade yesterday and today claiming the bottom is in, again. This is reckless behavior on their part and you must always remember that they have their own agenda or are echoing the agenda of the company they work for. Finding independent analysts on mainstream media is almost as difficult as finding an honest politician in Washington.

Our fellow Rebels… I have to tell you that the US markets are becoming even more fragile. Today’s selling echo’s this loudly. Can we be reaching a capitulation point? Sure, but we could also be reaching a complete system collapse. I say again that this is NOT a normal bear market, there are numerous factors at play and most of them have very serious implications to the health of the financial system in this country.

CNBC reported this evening that in some Western European Countries retail stores are refusing credit cards issued by banks in the United Kingdom. The UK is having their own banking crisis and if this report is factual, then this is the kind of thing that can lead to panics, bank runs, and civil unrest.

We are only beginning to feel the implications of this massive credit implosion. This holiday season may be the worst retail shopping season in many decades. Forward P/E ratios are still over valued and as time moves on there will be more and more surprise earnings misses. There is much more downside risk possible. If and when the next bear market rally begins it will be temporary. It won’t last and it will eventually fail with new lows obtained once again.

This is the largest market dislocation and re-assessment of risk since the Great Depression. The system is broken, and so far none of the fixes coming out of Washington are working. They are making it worse.

Be very careful and be ready to pull your trades quickly to preserve capital. Keep your positions small and never go “all in”.

I can’t stress this enough…  capital preservation is paramount!

 XLF - Financial Sector

 

 RTH - Retail Sector

 

 SPX - S&P 500

 

 QQQQ - (NasDaq)