Thursday Market Outlook: Listening to Herbert Hoover (DIA, SPY)
Courtesy of John Nyaradi
Midweek ETF and Market Commentary from Wall Street Sector Selector
Instratrader Indicators:
Red Flag: We Expect Lower Prices Ahead
Daily Technical Sentiment Indicators: Optimistic (bearish)
Short Term Market Condition: Overbought (short term bearish)
Short Term Trend: Up
Medium Term Trend: Down
Long Term Trend: Down
So far, this week’s news and market action looks decidedly deflationary and even depression-like and so I went back in time to see what President Herbert Hoover, often blamed for the Great Depression, had to say about his times and to see what we might be able to learn from him about the times we live in.
Some of his most prescient and applicable quotes were:
“Let me remind you that credit is the lifeblood of business, the lifeblood of prices and jobs.” (Certainly an issue today and our money center banks should pay heed)
“It is just as important that business keep out of government as that government keep out of business.” (No doubt about it. Every policy maker in America needs to understand this)
I’m the only person of distinction who has ever had a depression named for him.” (President Obama might be the second)
“Economic depression cannot be cured by legislative action or executive pronouncement. Economic wounds must be healed by the action of the cells of the economic body – the producers and consumers themselves.”
(Dr. Bernanke and his colleagues really need to “get” this one, and judging from what I’m reading this week, I’m not sure they do.)
And, finally, old Herb had a morbid sense of humor when he said, “Blessed are the young for they shall inherit the national debt.”(Unfortunately still too true today)
So apparently as the old saying goes, “The more things change, the more they stay the same.”
This week so far has been more than a little spooky and reminiscent of Herbert Hoover’s times as we listened to Dr. Bernanke and the FOMC warn of deflation and further quantitative easing and then read today’s housing report which indicated that home prices declined in July by -0.5%.
The FOMC said that “the pace of recovery in output and employment has slowed in recent months…and that “employers remain reluctant to add to payrolls. Housing starts are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months.”
“Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability…..the Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support economic recovery and to return inflation, over time, to levels consistent with its mandate.”
So in a nutshell, deflation is a major concern, the $1.5 Trillion the Fed has thrown on this fire has failed to work and now they stand ready to throw more money at this problem in hopes of keeping our economic ship from sinking.
It’s clear what the market thinks of all of this as Treasury bonds continue to rally and gold heads for the stratosphere. Equities cheered Dr. Bernanke’s comments at first but then, realizing that deflation is a bad thing, settled back down to well below the top of the recent range.
One only needs to look at history to see that government efforts have little impact on ending depressions and deflation. The Great Depression didn’t end until the onset of World War II and Japan is a prime example of the ongoing failure of quantitative easing policies as they enter their second “lost decade.”
Tomorrow comes the jobs report, home sales and leading economic indicators and we’ll see if any light shines from this most recent data.
Technically, markets remain overbought and due for a correction and so from a fundamental, technical and seasonal perspective, we are in treacherous waters for sure.
We need to learn from Herbert Hoover’s words and experience or fall victim to George Santayana’s famous warning, “Those who do not remember the past are condemned to repeat it.”
Wall Street Sector Selector remains positioned to the “short” side of the market, expecting choppy to lower prices ahead.
Disclosure: sh, efz, sef, spy put option
