When Sirius, the Dog Star, rose in the evening sky, the Romans called the time the Dog Days of August. As we entered August, the market, which had doggedly kept afloat all summer, has begun to roll over, and now may be turning into a serious dog. The key level of SP962 was breached today, and although the market rebounded, it presages a further drop into next week.
We have now reached an interesting moment of history. Greenspan is trying massive liquidity as a way to stave off deflation & deep recession. So far it is working, but the interest spike this summer may dampen it before the economy truly turns.
The housing increase is not really a bubble, since a bubble would reflect speculative excess, whereas we have so far seen refinancings with some $ taken off the table as opposed to borrowing to speculate (e.g., 'no down payment' types of purchases). Bubble or not, history says it will correct & this will sap what little staying power still exists in the economy. Question is when?
The Kondratieff wave predicted deflation in commodity prices, which we have had since mid '80s, and debt repudiation, which has been happening altho not dramatically due to modern bankruptcy law, into 2003-4. Thus we may be headed for a re-inflation period in 2004-05. This will fleece one side of the bond speculators, since it will cause long term rates to spike up even more. If this is what occurs, it will fit the 4-yr cycle (driven by Presidential elections) that predicts a generally up market into 2004 followed by a sweeping downturn into 2006.
The Elliott community still leans towards the Big One this Fall. The count would say a wave 1 down into Aug, and a reversal into early Sep, followed by the Big One down. The market still seems corrective (seeking to figure out which way to go) rather than impulsive, although the last few days have begun to look impulsive. Being watched is whether the hoped for upturn is truly coming later this year.
A downturn of the sort they predict would not come out of thin air. Likely would be associated with some event that furthers distrust of US institutions, such as a quickening of the concerns over Bush's stated reasons to go into Iraq, or an increase in the Iraqi quagmire due to US blundering, or shrinking polls in Bush's favor indicating he may not win the election. These are events which might have more momentum and impact in 2004 than now.
Consider the Big One scenario the prime count, but keep in mind the alt count that would have the market remain relatively corrective into Spring 2004 with the Big One slashing the life out of the Bush campaign sometime in election season into Fall 2004.
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