Four Bad Bear Markets, click for larger size (from Rob Patterson)
By Stephen Pate, NJN Network, Charlottetown, PEI, Canada, April 5th, 2009 with stories from Jim Cramer, CNBC and Rob Patterson
Not long after I wrote bearish articles like Can 100 Monkeys pick stocks better than the pros? March 13, 2009 and Pension fund in worse trouble than Sheridan admits, another $60 million gone since Jan 1, 2009 on March 11, 2009, the market began to climb from a Dow in the mid 6k’s to the mid 7k’s. The Canadian TSX started flirting with 9k.
The kind of activity can spook a contrarian who believes the fundamentals are header the other way. One of my friends asked me to write one really negative article every 10 days or so since the market moved against my recommendations. That would be strange indeed.
I was watching the crazy bombastic Jim Cramer. He believes the rally is on based on one thing – money supply. The US Fed is flooding the market with dollars. Not real dollars based on economic growth. These are inflationary dollars. The US Federal Reserve prints them and sends them out to banks in exchange for their bad debt paper.
As of Feb 09, they M1 had only grown a tiny amount. On March 19th, right after my articles and just before this rally, the Fed announced it was increasing the money supply by 130% that is from $1.9 trillion dollars to $4.5 trillion dollars. Target date is September 2009. Bloomberg
Some economists think this might work. Many are afraid we will enter hyperinflation and destroy the economy. One pundit pointed out that the US only has 30% of it’s money inside the US. This new “funny money” could have a 700% effect on the money supply. Perhaps, but the world will try to absorb these dollars when if it trusts the US to back them.
This is the craziest game of monopoly I’ve ever seen and it points to the desperation in the United States. During the late 1990’s, the US Fed was worried about the Y2K crisis. The upped the money supply by $50 billion or 10% of the world supply of US $ and 31% of the US domestic $ in circulation. That amount of M1 $ helped to push the NASDAQ to 5,000. Too many dollars chasing too few stock investments means higher prices.
When the Fed started to withdraw the excess money in the 1st Qtr of 2000, the NASDAQ and other speculative markets fell like a stone. The NASDAQ ended up at below 2,000 within weeks and declined to 1,300 over the next two years. People lost their shirts. The Fed M1 supply was certainly a catalyst of market euphoria. Everyone would like to strike gold and we all thought we had.
I’m no more likely to pick the top or bottom of this market than anyone. The Fed increase in money supply to $4.5 trillion will be inflationary. Will it drive the stock market higher? Probably. This is a time for gamblers. If you can afford to lose it, pay your money and take your chances. I still think we are headed south to 4,200. When the US Fed withdraws the money this time, the crash will be even bigger. Sometimes, it’s best to take your medicine when the dose won’t kill you.
Scott
I must say after looking at Rob Patterson’s graph things certainly do look all that promising. I have to ask myself though just what are Government’s doing to prepare for tommorrow.
It is like everyone in the public understands things are bad or getting bad and they not get better anytime soon.
So just what are our elected officials doing? I am not saying it is up to them to get us through this because much of it was caused by ourselves and our own greed.
But that being said just what is the Government doing in regards to preparing for tommorrow and should thing drag out to a few years rather than few months.
What happens if this year tanks even worse and unemployment reaches record levels in Canada and in PEI. What happens next year after many people EI has run out? Sure there are social programs but just how far can they go. Can they go for 2 more years?
Will the $150 Million Operating deficit coupled with near $300 Million in Pension shortfalls just what will happen in PEI should this reccession drag on for another 2-3 years?
I would be interested in knowing if any of our elected people are thinking longterm or are they just thinking to the end of their noses.
cesar
well my friend the government wil say the bank stress result are wonderful or will make believe that is not as bad as expected .. huge rally perhaps hitting 9k or 10k dow then later people will know the truth and a HUGE fall will beggin again… oh well you have been warned.