Saturday, September 04, 2010

Overview of the next few months in the economy, politics and the stock market

I believe in the coming few weeks there will be a great battle in the stock market for the very soul of the market. One group of players will be those Bears, who like me, believe we have been lied to and the markets manipulated to keep us happy. The other players are the Bulls, who believe the lies of the Government and the Fed and think things have been getting slowly better.

I do believe the stock markets will drop significantly in Sept and Oct., set up a angry Consumer and Electorate, who will then go to the polls in November and vote to "throw all the bums out". This will be followed by a Republican victory in the House of Representatives, which will mean a return to endless investigations using the new subpoena powers they will have in the Congress and they will continue to stop all legislation on Energy, Healthcare and of course any Social agenda to help the Unemployed.

A stock market rally will follow the election in support for the change and a Republican victory and election to a majority in the Congress. They will continue the Bush the tax, which are scheduled to expire in January 2011. They won't allow it to end as it has been big business for them to stop it, so the most affluent can keep their money, which, in part, pays for the politicians to vote their way. The consequence of which will be that deficits will be out of control going forward as will the interest payments we will need to pay each year to pay for all our debt. It will be an irresponsible policy move. Of course these newly elected members of Congress will get us into a catastrophe much quicker with reactionary new policies, and this will drive us faster to the Great Depression, Version 2.0.

I think the Fed has done an amazing job managing our psychology these past 18 months along with the Government. I haven't liked it, as I keep seeing the man behind the curtain pulling the strings, as you do. But the facts of what we see everyday is hard to change by hype and manipulation alone. We need to see positive change in our community with better Home prices and Sales, less For Lease signs from Commercial Real Estate problems, less unemployed and more hiring and the business community taking a bit more of the risk and investing in new capital equipment. That is why the stock market has been in a tight range between 11,600 and 9800 during this period, with no significant breakout in either direction. It has been a tradable range of -15.5% to as high as 18.4%, but the timing has not been very easy to trade as most of those moves happen within a few days in each direction and by the time one reacts 50-75% of the move is over. That works fine for Wall Street with their program trading, but isn't so good for the average individual investor.

The battles in the future are going to be between the have's and the have nots. It has already begun if you haven't noticed these past few years. The Middle Class is being slowly extinguished. Eventually Unions will become stronger again but if we aren't careful as a country, we are going to resemble a country in Central or South America, where workers fight to try and live and governments eventually turn like Venezuela. The wealthy in this country are playing a very dangerous game that is going to come back and bite them badly.

One must ask them the most difficult question, which some amongst them have finally asked themselves. When is enough, really enough! How much wealth must one have and when is it counterproductive to the society one lives in to garner more just for the sake of having it. Bill Gates asked himself that question, as did Warren Buffet. I salute them both. But how many more, which I will not name, come to the same realization. You made as much as you have because of the America of the past, which had a vibrant Middle Class. It is equally important for them to have a strong Middle Class as well. It keeps peace in the streets and hope in people's hearts. We need more of that now.

The anger of those politicians who are riling up voters and has spawned the Tea party, is a prime example of what I mean. Being a politician and saying "No" all the time, does not create great solutions to problems, where all can live with a truly compromised solution. They are one sided solutions and half the population is going to be unhappy with the change. We need genuine compromises by elder Statesmen (and Stateswomen) if we are ever going to attack the deficit, Social Security, Medicare, the Military Industrial complex and ensure our national and individual security.

So that's what I see ahead of us. You can make a difference by not letting your anger get the best of your choices. Think rationally, not emotionally, what is truly best for the majority of people and choose accordingly. As to the stock market, don't let the swings between the ranges drive you crazy. Pick a strategy and stick with it until it is proven correct or false. As the charts of the Dow 6 month, 3 year and 30 year show below, there is a great battle brewing both short term and long term. This too will be the effect and affect on the economy and the stock market as it is impossible to discern which leads which and which follows.

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