Thursday, November 15, 2012
First of all, let me apologize to all of you for the screw up in my technology. I was traveling and I tried to send to a written Blog using too much stuff. With that out of the way let me try and reconstruct what I said so elegantly last night that only I saw.
The markets have been falling since the day after the election. In some respects I feel like the young man who cried wolf so the towns people would come and rescue him. This past summer I told you that I felt that a significant correction was coming in the stock markets. I was convinced that it would come before the end of the year and I gave it some possibility of happening before the election.
The markets do not like uncertainty and the outcome of the election was a tossup. So, why did the markets start falling the next day when we knew who was going to be president? The reasons are many, but one for sure is the uncertainty of who was going to be president was taken off the table.
I said during the summer that I thought when the correction came it would be significant perhaps as much as 20% or more. People are speculating that all the current selling is to lock in capital gains at more favorable tax rates and I agree that perhaps some of the selling was for that reason early on, but now the markets, I think, are selling off because they believe we will go over the “Cliff”. If we go back in time to September 2008 do you remember when the Congress voted not to save the world, and the markets collapsed. Everybody and I mean everybody was convinced that the Congress would save the world, and when they didn’t everybody couldn’t believe that congress voted no.
I think the markets already believe that we are going over the “Cliff”, and I agree. Going over the “Cliff” might just be what we need to scare people into the reality that they refused to believe, so keep your parachute handy.
Now for the current state of the stock markets, we are down about 6% since the election. We have broken support for all three indexes. We, by some accounts are oversold and we should expect a reflex rally. I do not believe that the rally, if it comes will challenge the previous high. If I’m right the rally will be short lived and we are headed to at least 1125 on the S&P 500 and it could happen very quickly, not a flash crash but an accelerating movement to the down side, bigger chunk’s of declines on a daily basis.
If we reach the “Cliff” Monday December 31 and we haven’t resolved the issues then over we go and we will start 2013 on a serious down note. We have cash, which I have been sitting on and when I see an opportunity I will use it. I’m planning a video blog for Friday the 16th.
Again I’m sorry for the screw up.