(Black) Swan Song

For Seneca, the Stoic sage should withdraw from public efforts
when unheeded and the state is corrupt beyond repair.
It is wiser to wait for self-destruction.


It is a tragicomic sight. Every day, now, bullish traders bid the market to a gap opening above the previous day’s close. Within minutes, the market begins to slide, and it is as though the bulls are hanging on to a chalk board by their fingernails. You can almost hear the screech of their nails as they slide down to a new low. Late in the day, they gather enough strength to launch another rally, but it stops short of the high.

The average investor probably does not notice this action. It is distinctly bearish, particularly since it is happening just below the December 31 high in the Dow Jones Industrial Average. It is typical of a wave 2 retracement, and if a new high does not come soon, the next leg down will be large and unforgiving.

My bet is for the bear market to get underway in earnest in April. Confirmation of this probability comes from the unwavering bullishness on the part of the guys with the ties. The chief investment strategist at my old firm says:

 After years of gloomy forecasts, we finally see a new year with no thunderclouds on the horizon. Growth is likely to pick up in most economies, but not enough to stoke higher inflation. All in all, the outlook appears to be more balanced and better than it has been in years.

These sentiments are echoed up and d0wn the canyons of Wall Street. We might assume that this optimism is rooted in facts, and I don’t see it. Let’s look at facts:


The so-called strength in the economy would be expected to result in strong demand for commodities, but this is not so. Commodity prices peaked around the world in 2008 and have been in a bear market ever since.

Oil has not been able to get out of its own way, despite repeated tremors in major oil producing areas, including the Middle East, Venezuela, and now Russia:

 crude oil new

You may recall that the run up in the commodity markets in the middle of the last decade was due, in part, to the tremendous debt fueled expansion of the economy in China. Here, too, we have a bear market underway:

shanghai newThe global debt hangover, declining social mood, and an already in place trend towards less consumption are the headwinds the U. S. market will contend with after the last bull climbs on board. I’m happy to fade the suits.



No one should consider any part of this presentation as a recommendation to buy or sell any securities whatsoever.


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