Of late I have received a few e-mails asking me if because of these reinflation efforts whether or not the technicals still matter. The answer is without a doubt, "Yes!" Reason being, it does not matter what drives price. Price can be driven by sound fundamentals or by bogus manipulation. From a technical perspective, we are still looking at price on a chart. In other words, everything is discounted into price, be it good or bad, fact or fiction, reality or hype. The only thing that may change is the interpretation of that chart. If these manipulative efforts are going to matter, then that will be reflected in price in a way that will turn the technical and statistical picture bullish. If these efforts are going to fail, then that too will appropriately be reflected in price. As technicians, all we have to do is interpret the price action as ultimately it all boils down to price and knowing the meaning of that price action is what technical analysis is all about.
Another reason I say these manipulative efforts will ultimately fail is because we are dealing with K-wave winter and K-wave winter is a natural part of a long-term economic cycle that must take place before a new cycle can begin. This cycle, the markets and the economic disaster we are all facing is far bigger than the Fed. For the benefit of newer readers I have again included a few of the signposts surrounding K-wave winter.
"Global Stock Markets Enter Extended Bear Markets"
This should be obvious to all.
"Trends During Winter: Stocks Down, Bonds Up, Commodities Down"
I would say that this is still on track.
"Interest Rates Spike In Early Winter Then Decline Throughout"
In June 2004 the Discount rate was at 2.00%. By June 2006 it was at 6.25% and since August 2007 the Fed has been forced to cut the Discount rate back to .50%. So, this too seems to fit and now the Fed is targeting long-term rates as well.
"Economic Growth Slow or Negative During Much of Winter"
This too should be obvious to all.
"Commercial and Residential Real Estate Prices Fall"
This obviously began back in 2006 and is still in a major slump.
"Bankruptcies Accelerate and High Debt Eliminated by Bankruptcy"
This has obviously begun and is no doubt related to the housing and credit bubbles.
"Social Upheaval and Society Becomes Negative"
We are only just beginning to see this.
"Banking System Shaken and New One Introduced"
The banking system is now only beginning to be shaken. There should be much more to come.
"Free Market System Blamed and Socialist Solutions Offered"
This has not yet happened, but just wait.
"National Fascist Political Tendencies"
More to come.
"Debt Level Very Low After Defaults and Bankruptcy"
This has not happened.
"Trade Conflict Worsen"
This basically has not happened.
"View of the Future at a Low Ebb"
This has not happened as everyone seems to be looking for the bottom.
"New Work Ethics Develop Since Jobs are Scarce"
If I can assure you of one thing it is that this has not happened.
"Greed is Purged from the System"
I can absolutely assure you that this has not happened yet.
"Real Estate Prices Find Bottom"
This has not happened.
"There is a Clean Economic Slate to Build On"
Not happened yet.
"Investors are Very Conservative and Risk Averse"
Again, this has absolutely not occurred.
"Interest Rates and Prices Bottom"
"A New Economy Begins to Emerge"
Has not happened
"Stock Markets Reach Bottom and Begin New Bull Markets"
This is still a long ways away.
So far, these signposts remain on track and ultimately they are telling us that these reinflation efforts will fail and that in the end any bout of inflation that is sparked will ultimately end with the deflationary grind into the K-wave winter low.
Sunday, March 22, 2009
The Signposts Up Ahead
From a financial piece: