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Grizzly's
Growlings Back Issues
Monday
Morning Market Musings 10/26/98
Shaken, Not
Stirred
As we said back on September 29th:
"The stock market is seductive, deceptive, and manipulative. It tries to extract the most money and humility it can from as many participants as it can, as often as it can."
The sharp, 1200-point rally off the October 8th low has served its purpose. It has taken us Bears by the snout and shaken our foundations. Shaken, but not stirred. Could the Great Bear Market really have lasted just ten weeks? Have the world’s fundamental underlying economic problems been solved? Have all the ramifications of the Asian and Russian crises already rippled through to the US? We think not.
The flip side of the rally is the renewed sense of optimism and bullishness on Wall Street and Main Street. The consensus now is that the bear market is over. The September/October lows in the 7400 –7500 range are THE lows. The US will weather the international economic storm still flying its colors. Alan Greenspan is a saint who can save the world. Deflation can be managed. We think not.
Despite the steepness of the rally, it continues to appear countertrend and corrective in nature. The three-wave structure of the advance, the weakening internal technical indicators, the extremely overbought momentum indicators, the low put/call ratio, and the quick return of widespread optimism in the financial media, all make it very suspect. The stage remains set for the crash.
The markets are mostly lower going into Monday morning trading on Wall Street. At press time at 1:00am EDT, the Nikkei 225 is off 300 points, dipping back below 14,000.The rest of Asian is mixed. S&P 500 futures trading on Globex are down a couple of points from Friday’s close.
Last week we thought the countertrend rally might halt at last Friday’s close of 8417, the 50% retracement of the entire drop from the July 20th all-time peak. The market burst a bit further than that, topping at 8650 on Tuesday before starting a choppy 200 point move down over the rest of the week. Is this the start of the much awaited Elliott Wave 3 of 3, which will be a destructive crash of historic proportions? Or, is it just a minor rest stop on the way back to new all-time highs? We think not.
Mutual fund cash levels are hovering around 4%, near record low levels. That’s barely adequate to meet the routine redemptions and cash expenses of most funds. They have no reserves to cushion the next fall. Funds will have to liquidate assets on a near dollar-for-dollar basis to meet the next selling wave, thus adding more food to the Bear’s snack pack.
US stocks remain on FULL CRASH ALERT!
In the "just how bad are things getting in the U.S." corner:
- A new Gallup Poll released
last week shows Americans are at their most optimistic and upbeat levels
since the first such survey in 1964. Fully 85% of survey respondents
described themselves as generally satisfied with their lives. Things always
look brightest at the peak, and darkest in the abyss.
[The survey also revealed that 20% of Americans have no savings; zero, zip, nada penny.]
- The government reported last week that exports of manufactured goods and farm products have fallen for five straight months now. The farm crisis is being exacerbated by continued weak demand from overseas. The trade deficit hit a record high of $16.8 billion in August. That record won’t hold for too many months.
- The National Association of Manufacturers is worried sick about a credit crunch. Unfortunately, the Fed’s recent quarter-point rate cut won’t cure their ills. They need powerful antibiotics, not painkillers, to get well.
In the "just how bad are things in Japan" corner:
- In an attempt to restore at least minimal confidence in its crisis-ridden financial system, the government has nationalized former pillar Long-Term Credit Bank of Japan, Ltd. The government’s use of public money to plug the biggest leak in the financial dike is the first such bailout since World War II. Expect other major casualties in the banking arena before the end of the year. The only question is when will the banking system become so overloaded that the dike bursts.
- Another crack in the levee came from the country’s largest and most respected securities megalith, Nomura. The firm lost a staggering Y207 billion ($1.5 billion) in the last six months. Expect other major casualties in the investment arena before the end of the year. The only question is when will the securities industry become so overloaded that the dike bursts.
- To top things off, Japan is following Hong Kong’s misguided lead; instituting restrictions and regulations on short selling. HK pumped in tens of billions over the past six months in a largely unsuccessful attempt to support its equity market. Financial markets are bigger and smarter than government plans or planners. As with HK, the Japanese market will find ways to skirt the shorting restrictions, or traders will just get out of the market altogether. Reduced liquidity is the last thing needed by the world’s rapidly dehydrating financial system.
Last week we asked:
"The question of course is ‘What does Alan Greenspan know, and why isn’t he telling the rest of us?’ "
John Crudele answers this question in [article deleted].
Stop by your local newsstand or library and read this week’s Barron’s interview with Robert Prechter, the world’s foremost proponent of Elliott Wave analysis, and founder of Elliott Wave International. [The interview is not yet available online.]
Despite missing much of the historic rally off the 1987 crash lows to this summer’s highs, Bob Prechter was one of only a handful of analysts who called the market low back in 1982. And he is one of only a hand-full of analysts who called the market top this summer.
That Late Great Bull Market mascot, the Beanie Baby, has hit the skids faster than a tulip bulb in 1637 Holland. Once the be-all and end-all of millions of children and adults alike, the Beanie Baby has been relegated to loss-leader status as part of a long-distance telephone promotion. Not only will they give you a FREE Beanie Baby when you sign up for this company’s long distance service, you’ll get another FREE Beanie Baby every three months, for the next four years!
[image deleted]
"All great truths begin as blasphemy."
-George Bernard Shaw
Grizzly
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