Friday, February 15, 2008


At least for some, there is "some" good news. While Greenspan’s recent suggestion that housing prices have a long way to go before hitting bottom, and Bernanke provided us a very pessimistic forecast suggesting the economy “could avert” a full-blown recession, the North American stock markets have experienced a mid-term down trend, yet they remain in a Long-Term UP TREND. The hard to accept fact is that there is a disconnect between prevailing events impacting the economy and the current U.S. stock market. This disconnect is NOT obvious.

Contrary to much media commotion and punditry, the U.S. markets remain and will remain a principal and dominant safe haven for foreign and off-shore capital. This is so to a degree never before seen, and certainly not reminiscent of the situation during the period preceding the crash of 1929. The enormous pools of invested funds controlling and managing the markets will continue to do so, carefully, diligently, willfully and even on occasion - ruthlessly.

This need not fit into any definition of great "conspiracy". It is very simply and with all practicality, a system subdued by common sense. Doubting that the markets are managed in an orderly and deliberate fashion would be to ascribe "stupidity" to those directing the enormous tides of capital sweeping in and out of the major markets. Stupid, they are not. Why would anyone gamble with such vast pools of cash? Why would anyone in such position leave success or failure to the winds of chance, or to the whims of human frailty such as myopic administrations launching endlessly expensive social or political experiments in foreign lands? Why would the smart money leave its returns in the hands of the too often egocentric inclinations of corporate heads?

Recall the period between mid 2002 and March 2003 during which an astounding 7 to 10 trillion dollars moved into the major indexes. This massive movement of cash turned a long term market Crash into a long term Up Trend still prevailing today. The reversal of this long term trend will occur when such time arrives that a colossal "profit taking and cashing in" is appropriate. The timing will have nothing to do with home values, or U.S. currency held by China or Japan. Until then we will witness short term and mid term fluctuations.

"Volatility" is not the result of big pools of money "cashing in". They are simply collecting intermittent tithing, albeit serious tithing. The good news for most market watchers and occasional or minor participants is that they can stand witness to the greatest show on earth from the sidelines, silently observing those tides of capital astutely, ingeniously and with absolute dexterity, fleece all lesser players. There's something comforting about knowing that there's order and discipline in our capital markets, even if the profundity of its wisdom and altruism is as deep as a mirror.

The good news is that if you’re already in the markets, the long term should treat you well.


Post a Comment