September through mid October is seasonally the weakest time of year. Traders around the globe know the equity markets are on borrowed time. Given the fragility of the global economy many are expecting weakness in the early fall. Chances are very slim that a major selloff will occur during this time period. I would be thrilled to be wrong and hopefully I am. I took some additional bearish positions recently but have closed those out. I am back to 80% cash.
Any time volume drops off and prices consolidates, stocks can be manipulated higher and they will be unless there is another surge in selling due to something unsettling. It is important to understand how trends change and what happens after a change in trend as prices consolidate after a drop. Normally supply at that point will be only slightly greater than demand. In an honest market, selling pressure doesn’t increase until supply is ever so slightly greater than demand, but it does. more selling comes in after that.
In a dishonest market, like the one we are in, central banks including our Federal Reserve put a floor on stock prices and absorb any excess supply. Bears keep shorting stock because, the trend has changed. Derivatives are used to create artificial demand. With a wink and a nod, organizations like the Open Market Committee assure corporations doing buybacks that they have their backs.
Why all the buybacks? One thing all human animals have in common is a desire to get paid as much as possible. Don’t be lulled into believing that corporate insiders take on that kind of work because they love humanity. The goal is to get paid as much as possible. With the kind of work corporate insiders do, not even a crazy person would do this kind of job unless there was a good chance of cleaning up financially. Corporate insiders have no life outside of their work. Interest rates at less than the rate of inflation provide a way to goose stock prices into the stratosphere. High stock prices are the best and fastest way for corporate insiders to make astronomical profits and they are doing it. The government through the Federal Reserve is providing a once on a lifetime opportunity for a privileged to make a windfall.
For all persons, we know that work is a second choice. Corporate insiders have the opportunity to be paid huge amounts of money without working or without providing any utility to society. Of course they are thrilled at the opportunity. Any rational person would do the same.
The Federal Reserve has accepted the responsibility of supporting stock prices and at the time, they have the tools to do it. No one is intentionally destroying the economy. Open Market Committee members would like nothing more than the have the general economy rally so that the high stock prices they have created will be justified. That won’t happen.
An artificial market can be maintained by a central bank for a long time because they don’t have to work for the money that is used to elevate the market. Ordinary people can only invest what they have earned. So, with central banks, there is always demand for stocks. Then end will certainly come when companies do so poorly that they can’t even report positive earnings using non gap accounting. Getting paid for doing nothing makes smart people lazy just like it makes the poor and stupid and lazy. The economy will collapse and so will the stock market but chances are against it happening in the next two months.
The Grazin’ is Good, by Curbside Jimmy.
Available at: Curbside Jimmy’s Free mp3 Download Page
