Monday, January 31, 2011

31 January 2011

 Short-term:  bearish trend seems to be slowing, but not reversed yet.  I usually like when this hits around 75% for a trend change.  However, you can see this has been rendered useless by QEII, much like other indicators.
 Medium-term:  rate of change is slowing again.  Could very well turn up.  This has also been rendered useless the past few months.
This hasn't been rendered completely useless because it still shows the strength of moves and helps give us timing.  However, its gravity defying climbs (not really strong, just trickles aimlessly upward) the past few months do slightly show that this is also losing its usefulness.

All in all, you might as well stop reading this blog.  Although, I have been successful identifying the bull cycle turning points, I have been very wrong trying to identify bear cycle movements.

My theory has always been that when you set the price of a good at too high of a level or too low of a level, supply and demand eventually takes over and causes prices to overreact to the opposite side due to overcoming mean-reversion and then some. 

This has been happening in housing. 

The diamond market is still relatively tight, but I would imagine that whole scheme will eventually blow up, given enough time. 

The stock market is yet another that has been successfully inflated by QEII.  This seems to be mainly aimed at shoring up confidence.  However, confidence is not what makes the economy go around.  Once the free fresh new cash is all used up, the bears will remain bears, the bulls won't be able to buy any more and everyone will run for the exits.  This is the ultimate problem with Ponzi/Pyramid Schemes, they always requires more and more capital to keep it going leading ultimately to currency devaluation. 

If this classic model applies, the reaction, if and when it comes, should be far worse than if corrections could have naturally come along the way. 

They will come to learn in the end, at their own expense, that it is better to endure competition for rich customers than to be invested with monopoly over impoverished customers.
Frederic Bastiat

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