December 09, 2008

There are many reasons why America is in historic times,  One rather quiet, historic event was the announcement today that mortgage rates have hit their lowest level ever.  While CNBC economists and commentators alike rejoiced at this news, I shook my head in disbelief.  Are these economists just plain stupid, or are they just programed to rejoice when the middle class gets destroyed yet again by an extension of horrific monetary policy?

Let’’s think about it.  Economists argue that high interest rates lead to Deflation.  Deflation, the opposite of inflation, is prices going down.  Why on God’’s Green Earth is it bad for prices to fall?

I don”t know about you, but, filling up my gas tank for 30 bucks instead of 50 bucks is pretty sweet.  It’’s not a bad thing.  I”ve actually got a few bucks in my pocket to grab some lunch after filling my tank!

Is it terrible if our grocery bills get easier to pay as a result of falling prices?  Is it terrible for housing prices to fall to a level that provides a homeowner the ability to pay his mortgage and still have money left over at the end of the month to perhaps put in a savings account for retirement?

Is it terrible that if interest rates went up, prices would decline, thus allowing us to save and actually earn interest on our savings and build wealth without risking it in the stock market?

It is terrible if you don”t want the middle class to be able to afford a home, you don”t want the middle class to afford the grocery bill, and you want the middle class to engulf themselves in debt.

You see, if you are in debt, you can never retire.  If you can”t afford the grocery bill, the mortgage, health insurance, the electric bill, you will have to borrow, thus, you can never save and will never retire.

The wealthy needs the middle class to do it’’s work.  The wealthy needs the middle class to stay in the workforce, and the wealthy own the media.

Don”t be fooled when you read a newspaper owned by the wealthy, or watch CNBC-owned by General Electric-a corporate giant-when they sell you on the idea that black is white, that one plus one equals three, and that the world is upside down.  It is the art of brainwashing you-telling you over and over again that low interest rates are good, that deflation is bad, over and over again until your common senses are overcome by the mind game known as “group thinking”.

Stay thinking independently.  Save your money, stay out of debt, and never believe the media.  Chances are you”re being sold a bill of goods-a bill you will end up paying for the rest of your life.

After Friday’’s (12/5) trading action broke our ceiling, and monday’’s trades followed up the upward break, trades tuesday took an expected turn down.  Tuesday’’s action corrected some overbought positions on the short term, something I wanted to see.

Tomorrow we will find out if it’’s safe to dip your investing toe back in the water for the short term.  Every so often we get an opportunity to really see market direction.  Viewing the chart below, you can clearly identify the market downtrend line (A) and uptrend line (B).  (A) and (B) are on course to intersect.  You could say this is a classic intersection of bulls and bears, uptrends and downtrends, where the prevailing short term direction of the market will be determined by which line breaks the ceiling or floor.  Does the market rally to 10,500, or does the market fall another leg down to 6,800?

We will know tomorrow, when either the floor or ceiling has broken.

For those wishing they sold at Dow 10,000, you may well have your chance to recover some funds on the rally back to 10,500 should the Dow break through it’’s ceiling of 8,600 tomorrow.  Should the Dow fall through it’’s floor of 8,350 tomorrow, you will have to cut your losses and sell immediately, as they Dow will move down to it’’s next leg of 6,800.

This market is unlike any we”ve seen in our lifetimes.  The last time you could identify a chart performance like the past year’’s DJIA, you have to go back to 1929.  Should the ceiling break tomorrow, you can expect the rally to fill the gap left at 10,400 on the Dow and turn south at about 10,500.  Accordingly, don”t get too comfortable on the rally up.  Once again my advice is to sell into this rally, which should last into mid-January 2009, should the ceiling break tomorrow, 12/5/08.  Should the market fall through it’’s floor, it’’s tissue paper only for Christmas. Head for the exits asap.

Tomorrow, December 5/2008 is decision day for the short term direction of the stock market.

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