The Perfect Market – Is it Too Perfect?

by JDH on September 28, 2013

Today I will ramble aimlessly, much as the market appears to be doing.

GoldSept28-2013

Gold is bumping along, just slightly under it’s 50 day moving average, higher that it was at the beginning of the summer, but not quite as high as it was at the end.

DowSept27-2013

The Dow is doing the same, closing Friday at 15,258, a shade lower than it’s 50 day moving average of 15,288, and again, higher than it was at the beginning of the summer, but lower that it’s peaks up near the 15,700 range achieved at the end of July, and in mid-September.  Ho-hum.

SPXSept27-2013

If you prefer a look at the broader markets, the S&P 500 looks better, actually trading above it’s 50 day moving average, near the mid-summer peak around the 1,700 level, and only 30 points or so below the all time high achieved in mid-September.

So what does this all mean?

It means we are bumping along.  The chart of the SPX would appear to be a nice bull market chart.  In fact it looks like a perfect chart, almost as if someone had drawn it to illustrate a perfect bull market chart.  It has a nice series of higher highs and higher lows, the perfect stock trader’s chart.

It took a month to go from the April 22 bottom to the May 22 high, then a month to June 24th low, then a month to the August 1 high, then the August 26 low, to the September 18 high.

Assuming this engineered pattern continues, the month correction will end in mid October, and then we will have a new high in mid-November.  Lather, rinse and repeat.

I am of course not suggesting that the market is engineered.

I’m not suggesting it’s fake.

I’m not suggesting that the Fed, or JPMorgan, or whomever is pulling the strings to engineer a market so that the traders can make money, and so that the public thinks all is well.

I would never suggest such a thing.

Not at all.

Of course not.

 

 

However, if I was to suggest it, I would point out that we now get to go through this “debt ceiling” thing again, so printing money to keep the markets propped up makes it easier to justify the government’s rationale that “things are good, debt is good, don’t blow it by not letting us continue to borrow.”

So here are my rumblings and ramblings on how this will play out:

There will be much talking, and we will get to the brink of disaster, and it will look like a deal won’t happen, and the stock market will go down (during the first two weeks of October; see above for the monthly script).  The stock market will fall, just like it did during “Debt Ceiling 2011”, because investors will worry that the government will stop spending, which in the short term hurts the people who get the government’s money.  This will be the point at which the Boyz will go long, buying options and futures and whatever.

Then a deal will be announced, the stock market will rally, and the Boyz will make a killing.

Of course this is a short term solution.  More government leads to more debt, which leads to a weaker dollar.  Fortunately for the U.S., every other country is also printing money, so all currencies are weakening, so it hasn’t been an issue, yet.

This will end badly, in one of two ways:

It could be a hyper-inflationary blow off, where we have daily inflation and currencies are worthless.  Holding gold would be a good idea.

If could also be a deflationary death spiral.  If one day the bank’s don’t open, cash will become king, and asset prices will collapse, including the stock market.

We could have both, a deflationary crash followed by an inflationary blow off.

So the solution is this:

  1. Have some cash on hand, because if the banks do close, having some bills to buy whatever goods are available will be handy.  Actual cash, not electronic money like debit or credit which won’t work if the banks are toast.
  2. Have some gold coins on hand, either for trading purposes, or to hold value during the hyper-inflationary period.
  3. Be as self-sufficient as possible.  (I will be spending a few hours today digging potatoes, which will be stored in my cold room for the winter.  If the world ends, my family and I will be eating baked potatoes and french fries)!
  4. Let it ride.  If the stock market will continue to get pumped up, enjoy the ride.  Have some play money in the market, and ride the wave.

Is that the correct strategy?

As me in a year and I’ll tell you.  Next week I’ll give you the sad report on how poorly our 2013 predictions worked out in the third quarter.  Until then, I’m off to dig……..