S&P 500 Continues to sell off

Wednesday June 15, 2011
I wish there were something kind or redeeming I could say about this chart but the market is ugly, ugly, ugly:

Although the 4-week low should have gotten you out at 132 in late May (I exited a little earlier and little higher and regretted it for a bit, but I would rather be rich than right).   Normally, I try to be agnostic when it comes to market direction - much money can be made much quicker by shorting a collapsing market than going long a bull market - but of course we all have skin in this game and the things that are showing up on the market charts as squiggles and wiggles represent the discounting of real economic forces.  Somewhere out there is someone looking for a job, or (whether she realizes it not) facing life 10% poorer (versus the Swiss Franc) than she was a year ago.  Meanwhile, the crazies have taken over in Washington and people who are ideologically opposed to any tax cuts any time are about as far from honestly balancing our books and - more importantly - paying for the infrastructure that is the fabric of our society and our economy - than at any point in history.  At least when Reagan talked about trickle-down economics, he was thinking a bit of most Americans (who were downstream of that trickle from the few elites).  Now the average person is not even part of the equation and the workers who make stuff, the teachers who teach the next generation of workers, and the people who put out our fires and inspect our food and medicine and highway overpasses have all been discounted while CEOs have been lionized as though Enron, Worldcom, Healthsouth, AIG, Lehman, and the whole mortgage-backed securities thing never really happened or was never really their idea no matter how much they shilled for deregulation at the time.  

With the Euro under fierce pressure and the whole idea of a borderless single European market coming into open question, with money fleeing the Euro and the dollar for the safety of the Swiss Franc (who had a $3 billion surplus last year), and a lot of head-scratching going on about what makes an economy grow and what, if anything, the government can do about it, it's a dangerous time economically to be an American, a bit less so to be a non-Swiss European.   My concern is that it's hard enough to know how to fly a plane if you accept aerodynamic realities; if you have disdain for them or have been taught in some rightwing think tank that "lift doesn't matter" or that reducing drag is all a pilot needs to worry about to fly a plane, then we really are in trouble.  We're in trouble.  

Many of the jobs lost in the latest weak jobs report were those vilified state and local government employees whose services the boneheads in Washington feel we should no longer have to pay.  Whether we need those services in the first place, whether private industry can pick up the slack, or what this means for our most vulnerable citizens or the next generation of Americans is anyone's guess. 

I do not like making predictions, but there are some eerie parallels with 1987.  It, too, was a pre-election year that experienced a nice bull leg up that stalled (although a bit later, in August) then began to decline.  Dollar weakness and a perceived unwillingness by Washington to support a strong dollar was probably the coup de grace.  The Reagan administration was running massive deficits and despite the evidence that the tax cuts then were not paying for themselves (Reagan at least had the decency to reverse himself and raise taxes for 6 of his 8 years in office, although he lowered taxes enough to make the deficit and debt a crushing issue for Bush's father).   Military spending was massive by any rational measure and remains even more so today with the wear and tear of 3 wars straining our military and the taxpayers who support them.  Yet no politician can say out loud what any economist or economic historian knows:  without lowering military expenditures, raising taxes, and reforming entitlements, the hope of balancing the budget is about zero.  

Sorry to sound so gloomy, but something very ugly is unfolding... stay tuned.  And stay flat or short.