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During the late 60’s through the 1970’s with a slowing economy, there was some waning of The American Dream, which may have been reflected in the popular culture with TV shows such as Good Times, The Waltons, and All in the Family. These shows reflected more of who the characters were (for better or worse), than what they had. In the early 1980’s through the present, we got Ronald Reagan, debt proportional to our rising arrogance, and The Bill Cosby Show. The American Dream was back and more important than ever; and once again, it was completely un-cool to be poor in the US. This is unfortunate since so many US citizens are poor and that population is growing in spite of what the official government statistics say each day. In recent times, during the late 90’s stock market run up and the subsequent bursting of the technology bubble saw extreme economic displacements in the US that threatened the core of the materialistic American Dream. Yet those in charge of making regular folks do what they normally wouldn’t do (the Fed), saw an opportunity to keep The American Dream alive in the face of an oncoming recession by creating even more of the American Dream and more American debt. With extreme levels of easy money created out of nothing by the Fed, the US population went on a Leave It to Beaver binge by building tract upon tract of suburban sprawl. Encouragement and tax breaks for oversized SUV’s helped keep The American Dream alive too. Never mind that the energy needed to support and sustain such a lifestyle was becoming scarcer and more expensive. It was a totally regressive plan that will cost the US dearly in the long run. While the energy inefficiency of large SUVs has recently been the subject of general criticism in the popular media, and this is gaining traction with the public, similar criticism of the energy inefficient three-car-garage McMansion has not materialized in any meaningful way yet. To deal with the issue of the needed energy to support this American Dream lifestyle, the government and Fed gave us nothing substantive, but only Alan Greenspan speaking engagements on energy and rhetoric. Unpopular as it may seem to make this suggestion as it is a compromise of The American Dream, the eventual fate of many of these new suburban homes will be to sustain 2 or 3 families per structure. The surrounding land in many cases will be returned to its original pre-construction use as farmland. This will be brought on by economic necessity – probably not before the next options expiration date. As the suburbs sprouted with The American Dream after 2001, US corporate insiders exercised their oversized option packages and sold their shares while corporate balance sheets remained defensive, and to this day, this is creating severe economic displacements in the form of a disproportionate amount wealth concentrated in the hands of corporate insiders. These are the folks who are living The American Dream as opposed to most of us who are only “living” it. This is the American Way; but it needs deception to make it work. Folks need to pay oversized prices for stocks to keep their corporate insider’s portfolios balanced. This deception comes in the form of Wall Street analysts and their largely blue-sky fictional research reports. So far, this strategy is working well as the public is literally buying it. This will prove to be unsustainable before most Baby Boomers retire – not before the next options expiration date. It has been the American Way to never compromise our vision of The American Dream for any reason. The last big time politician to have tried this was Jimmy Carter and we all remember how that turned out. Remember the sweater speech? Since Reagan’s time, every effort has been made to avoid compromising The American Dream at all costs. But in practically every instance, “every effort” has been directly linked to incurring more consumer and government debt, and has not been accompanied with sustainable economic growth. If this statement is true, this growth based mostly on debt is clearly unsustainable. But many, especially those on Wall Street, would argue that our growth is not based purely on debt, but rather it is based on a thriving US economy. Could they be right? Where is US’ economic “growth” coming from? Practically all of our growth is related to the US consumer, and as a result the wealth effect and the preservation of The American Dream. These include retail, restaurants, housing, transportation, and consumer products, to name a few. You can bet that every effort will be made on the part of the government and Fed to sustain our overpriced stock market to preserve the wealth effect and The American Dream for a while longer. Poor but proud folks like Lucille Ball, The Waltons, Ralph Kramden, and J.J. Walker are gone for good, but Beaver is alive and well for now and so is The American Dream. Today’s Market Taken by itself, the action today was largely meaningless, as the volume was nil and the price action only partly cloudy. But in the intermediate term, there is a bearish overtone to the US stock market. Below is a 6-month daily chart of the S&P 500 index. Even though the current rally’s duration was almost equal to that of the last rally, the S&P 500 has only recovered back to the late May lows thus far. In addition, decreasing volume trends seem to suggest that the rally is running out of steam. Formerly leading sectors are now lagging badly as the overall market seems to be taking a defensive posture. In my view, it’s doubtful that a significant bull market can be led by the likes of Campbell’s Soup.
The failure of formerly leading sectors is clearly illustrated in the long-term weekly chart of the Emerging Markets Exchange Traded Fund (ETF). While 2 discernible rallies have been generated in the S&P 500, the Emerging Markets shares are showing no significant recovery thus far.
Similarly, the Nasdaq composite is anything but a picture of technical health, as shown in the 2 year daily chart with a steep downtrend containing two typical bear market rallies. Tomorrow greets the Nasdaq with a crossing of the 50-day below the 200-day moving average - a black cross.
The emotion-driven biotechnology stocks seem to have begun their bear market, following their double top. The two most recent rallies didn’t produce any discernible rally in the long term chart of the Biotech iShares. Seventy (70) looks to be a somewhat important technical level.
Similar bearish action is easily seen in the economically sensitive semi-conductor shares.
These are just a few examples and such bearish action may be found is numerous other sectors. One important sector is the transportation index, where the transports have recovered to about the level of the late May rally. This is also an important technical level. A breaking of the late May high may have more widespread bullish implications to the overall stock market.
The cause of most bear markets is generally rising interest rates, and this one is probably no different than the rest. Below is a very long term chart of the 10-year note yield dating back to the early 1960’s. As can be clearly seen from the aqua colored trendlines, the interest rate on the 10-year note has likely already broken a downward trendline that began in late 1981, before the premier of the Bill Cosby Show. This trend toward lower interest rates is a secular trend, which when broken, will be technically important. Also, if you examine this long term chart, you can clearly see that unlike previous sharp rallies which were of short duration, the current rise is a gentler and longer duration rise. In short, although not an established technical principle, interest rates look like they “want” to go up.
Since mid-2003, rising interest rates didn’t rattle the stock market; but lately the stock market is responding in a negative way. The transportation index is an important chart to follow over the next few trading days. Have a great evening. Martin Goldberg
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