Wednesday, December 31, 2008

Monthly charts

I thought to start off the new year I would take a look at a few very long term monthly charts. First off let me say that I think this bear market is different than any other bear market we’ve experienced in the last 60-70 years. I think what we are seeing unfold is a complete deflationary collapse. This was brought on of course by the Greenspan Fed’s totally irresponsible inflationary monetary policy. True to form Bernanke is following right in his footsteps.

It does seem strange that inflationary monetary policy ultimately leads to a deflationary collapse doesn’t it? Unfortunately the incredible expansion of credit over the last 5 years has ultimately led to the same outcome as it did in the 30’s. The credit bubble now is imploding just like it did back then and it’s taking down not only the financial system and stock markets but also the global economy, just like it did in the great depression.

Amazingly enough the only way that Bernanke knows to put out the fire is to throw more gas on it. The bigger the fire gets the more gas they throw. Talk about a vicious circle.

Anyway on to our charts.

I’ve included the 200 month moving average on each chart. As you can see the S&P and Nasdaq have already sliced through these very long term support levels. The Dow, Russell and transports are in the process of testing the 200. Every index except the transports has already penetrated this support so I really doubt they will ultimately be able to hold above it. I also doubt that the S&P or the Nasdaq will be able to recover these levels at this point.

I think this bear is destined to correct the entire move out of the 1980 bottom. I don’t think we will move below that level per se but I also don’t think we’ve seen the lows for this bear at 740 either.

I have a feeling before this bear is over it will change our world and I suspect that by the time the bottom is reached the average investor will never want to see another stock as long as they live.