I think we agree here that the first sign that a general crisis is ready to erupt would be trouble in the financial system and particularly the stock market. Given that assumption, what might we see first as an early warning sign that the stock market is in trouble? There are some standard technical "indicators" that I mentioned the weekend after the September 19 high, but what might be seen beyond that?
First, let's list some things that we know:
1. The Dow 30 Industrials have generally outperformed all of the other indices since the top of the 2000 and 2007 bubbles, both within the United States and worldwide (there are some exceptions like the Russell 2000).
2. Wealth is concentrating in the top 0.10% of the population worldwide while at the same time wealth has been moving from the periphery to the center (to the United States, specifically New York City and Washington DC), geographically speaking. This is consistent with the strength seen in the Dow for the past 13 years.
3. Bernanke has been printing money and giving it to US mega-corporations, either directly or through subsidies like food stamps, which mostly end up in the pockets of mega-corporations anyway. This is consistent with the strength seen in the Dow for the past 5 years.
4. The US has an entrenched system of corruption whereby there is a revolving door between the Washington and mega-corporate bureaucracies, and lobbyists for mega-corporations get laws they have written in their favor passed by a corrupt Congress. This is consistent with the strength seen in the Dow for the past 13 years.
5. The big insider money tends to be concentrated in the shares of the largest corporations, specifically the Dow 30 stocks (think Warren Buffett and Kraft, IBM, etc).
6. The Dow 30 stocks have a larger percentage of sales outside the United States than the general US market.
7. Stock buying on margin has accelerated to record levels. It is easier to push up the prices of the shares of small thinly traded and speculative stocks with margin buying. And big smart money doesn't chase stocks with margin.
8. When a bubble is nearing an end, the big smart money gets out first. When the bubble popped in 2000, the Dow topped in January while the S&P and Nasdaq topped in March.
The first 5 items in the above list appear to be ongoing and would still benefit the Dow 30 stocks over other US based stocks, as represented by the S&P 500 and Nasdaq indices, while the last 3 items would not benefit the Dow 30 stocks over other stocks. Of course, there are probably many items I missed or forgot. If a tipping point has been reached whereby the trend has reversed and the last 3 items are overpowering the first 5, the Dow stocks ahould become weaker, and this is in fact has been happening recently, most noticeably at the end of last week. Last I will post some charts showing this.
DOW
- DJIA.gif (11.4 KiB) Viewed 24560 times
S&P 500
- S&P.gif (11.03 KiB) Viewed 24560 times
NASDAQ
- NASDAQ.gif (9.4 KiB) Viewed 24560 times
Right or wrong?
While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.
(Fourth Turning Regeneracy, maybe?!?) —Regards/Peace, Marc