The bottom? Really?

by JDH on October 13, 2008

The Dow was up 936 points or 11% on Monday October 13, so obviously all is right with the world, the bear market is over, and it’s nothing but onwards and upwards from here on in. Forget about last week, this week all is good. Right?

Then why do I have this nagging feeling in my gut that all of the problems in the world haven’t been fixed? One reason might the this three year chart of the Dow, that appears to still be in a downtrend. It would appear that somewhere around 12,000 is needed to break the down trend, and resume the uptrend from the previous bull market.

For a closer perspective, here’s the 3 month chart.

On this chart something around 10,000 would indicate that perhaps we have put in a bottom, but a decisive move over 11,000 would be more convincing. I’m not betting on that happening any time soon, although I guess with 1,000 point moves it could happen this week.

I’m a cynic because we had the sub prime crisis, but we have yet to have the credit card crisis, and we all know that in today’s society everyone is carrying balances on their credit cards. I suspect they have been parceled and packaged like other debt instruments, and with the economy in recession people will be getting behind on those payments, which won’t be good.

I guess my cynicism also stems from the fact that this is an election year. Canada’s election is on Tuesday October 14, and it would appear that the Conservative government will return to power, but probably not with a majority (which is good, because, in my view, the more gridlock the better, but we will know for sure by midnight on Tuesday). Of course the Canadian election has no impact on world markets, but I assume that the American election next month does. Those of you who are students of history can confirm my supposition that the period before elections tend to be up periods, because the reigning party wants to keep reigning. (I guess I should say the “governing” party, but reigning seems more appropriate).

Is it a coincidence that as the sub-prime and mortgage meltdown has progressed over the last year with no government action, as we approach the election all of a sudden there is lots of action? Bailouts, loans, and the like? Just this weekend the G7 leaders agreed to print lots and lots of money. And our pal Hank Paulson is going to start using American taxpayers money to buy shares in banks! Fidel Casto would be proud!

It’s almost as though all of these bailouts are being timed for maximum impact just before the November 4 election.

Even better, the price of gasoline has fallen over the last few weeks, again, just in time for the election. Is it possible that the government has a hand in that? Probably. Their friends at OPEC will be having their next OPEC price setting meeting on November 18, by which time of course the election will be over, and they can increase prices again.

Here’s my point, on this Canadian Thanksgiving Day: I don’t think we are out of the woods yet. Perhaps Friday was the bottom, but call me skeptic. I’ll wait to see if we retest these lows, perhaps at some point after the election, before I declare that sunny days are here again.

And yes, I still like gold. I know that, given the turmoil of the last few weeks it should be trading at $2,000 an ounce, but gold and silver are obviously easily manipulatable markets in the short term, but given the past 5,000 years of history, I still suspect gold’s time will come. I guess we shall just have to wait and see.

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