Reply #1: Market WrapUp [View All]

Seeking Neutral Ground
BY FRANK BARBERA, CMT

In today’s Wrap Up, I want to start by acknowledging all of the rotten and miserable things that are taking place in the economic/financial world. Retail Sales are in a head long nose dive - the worst decline in years, car sales have collapsed, consumer confidence is plumbing the depths of 50 year lows, unemployment is skyrocketing, the banks are loaded with bad debt, central bank liquidity has exploded, and worse, outwardly none of it appears to be having much affect as the central bank ‘money printing’ seems to be disappearing into the ‘black hole’ of a bottomless debt trap. At times, of late, it has truly felt like ‘the sky is falling’ and that the soup lines of the Great Depression are dead ahead. Perhaps this will be so, and perhaps Deflation will carry the day leading the global economy into a self-reinforcing downward spiral of ‘beggar thy neighbor’ currency devaluations, rising protectionism and contracting global trade. Perhaps, everything will be undone.

For me, the fear of this collapse had been a daily rumination for all of 2005, 2006, and 2007. For anyone who knew me personally all during that time, I was one of the few very negative, and at times, very lonely super bears. It just seemed that the credit bubble had to bust, and that housing prices were due for a terrible hard landing. At many times, the very thought of a housing bust seemed inconceivable -- as to most people back then, you were a lunatic to even question whether Real Estate would ever come down.

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Our goal today in writing this piece is to help investors find a measure of ‘pause’ and perhaps restraint to help seek middle ground. Remember, things always look really lousy at major market bottoms, and even at some important medium term bottoms. When we update the chart of the Shanghai Composite now, let’s see how things appear a bit over a year later. To begin with, the market has indeed crashed from above 6,000 to a recent close near 1664, for a total decline of 72.82% in just over 12 months. That is no small move to the downside, and is a move which has inflicted enormous pain on the mainland Chinese population, which only a year ago was wheeling and dealing in stocks with wreckless abandon.

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