Yesterday we got a sell on the US dollar. After our buy last November, we were up 21% on the currency while holding US T-Bills, so we were quite content to take the profit.

The US dollar was incredibly over-bought the past few weeks. It was well due for a correction of some duration. Whether this is an interim pull back or a longer term reversal remains to be seen. Currency cycles tend to play out over years not weeks, so we shall watch the longer term trends here with interest.

While the US dollar has broken down this week, its inverse benefactors--other currencies and commodities have staged an erratic rally in world markets. Maybe this will continue for a few weeks and months. Maybe it will fizzle out today under the weight of the negative US Q3 GDP news. Maybe this will be like November 1973 when the market rallied 13% into March before breaking down to a second consecutive annual loss of -26% in 1974. Time will tell. We know that tech and financials should lead the next bull cycle. Commodities and energy do not lead a recovery, they are late cycle performers. So we will need some further breadth and commitment from other sectors before we buy into the bullish case here.

In the meantime however, we remain open to the idea of some buying at present levels, even if only for a trade over the next few months. Before committing our hard saved capital though, we will be watching for some further follow through and institutional participation first. After you gentlemen...   more »

We are living in remarkable times. History is being made every day in every way.

This afternoon, the US Federal Reserve cut the benchmark rate by .50% to 1%. Again. This is the second time they have cuts rates this low in our life time. The last historic occasion was in June 2003, when the Feds announced “emergency measures” in a "temporary" effort to jump start consumption following the 2001 shallow, short recession.

But that was then, and this is now. And the world economies are in a lot worse shape now compared with 2003. Back then we just had a stock market bubble and the after shocks of 9/11 to deal with. By the time the Fed cut to 1% in 2003, the economy had already pulled out of the 2001 recession. Today we are maybe half way through a 2 year long recession. Today the world is reeling from imploding real estate, a credit crunch and decimated financial markets. People are truly feeling this financial affront from all possible sides.

A .50% cut was what I expected at this point...   more »

Roubini this morning on Bloomberg reminding us that we are about half way through this likely 2 year US recession. I agree with his call on this. He believes stocks could get a lot cheaper yet. I also think that is likely. The trillion dollar question, is "how much cheaper?"

Roubini says S&P could fall another 30% before this cycle bottoms. Roubini is just giving his best educated guess here like the rest of us. But investors must have a plan for "what if the markets continue down". If you are just buying here or holding and hoping with no exit plan pre-defined, heaven help you. Buy and hold managers, brokers and planners won't be valuable to anyone. Unless Boomers change their investment approach this decade, they are going to need artificial limbs to hobble through their retirement on decimated funds.

See Roubini says S&P may fall 30% more.   more »

Big rally today. I would like to believe that this was the pivotal 90% up day on the Dow that will signal the start of the next bull cycle. I doubt that it is but I would be happy to get on with the next bull when it chooses to start. In the meantime though, we will have to see some follow through in the next few days. One day is no trend. And as we have seen vividly over the past many weeks, huge one-day moves up have not, so far at least, changed this bear market's course.

It could be that after awesome selling pressure in the past 2 months, desperate sellers have finally been exhausted. At least for a while. I believe that deleveraging and institutional margin calls have been the dominatrix of world markets for the past many weeks. This has forced the Lowry's Selling Pressure Index to record levels day after day. But even with the huge buying today Lowry's Selling Index only dropped 4 points. Interesting. Maybe this was just another short squeeze rally today. World markets have been technically very over-sold, so a big bounce was within the realm of possibility...

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Excellent interview clip of Economist James Galbraith (John's son) talking to Bill Moyers about his new book and the failure of governments and institutions to safe guard our financial system (again, this generation). He gives excellent perspective on how the present crisis stacks up against a long history of financial crisis. He also explains why the US is still in many ways better off than most other countries in the world. This fact has eluded many gold bugs and US dollar bears over the past year, as they are confounded by the relentlessly rising greenback.

I did not study John Galbraith's body of work until I was 35 years old, in the late '90's when I initially stumbled on to his unassuming little book: "A Short History of Financial Euphoria." If you have not read it or his "The Great Crash 1929," you should. They are a great read, entertaining and incredibly enlightening about human behaviour and our cycles.

I have thought about Galbraith Sr. frequently in the past couple of years since his death. I know he would not be surprised about the present state of world markets. History, in this case, has been very much prologue.   more »

Fundamental analysis is of some value. We need to take as many objective measurements of markets and prices as possible to navigate our capital through risk assets. The trouble comes when we build our investment case on fundamental arguments without taking into account what price is really doing. This is where I find technical analysis (TA) to be a helpful tool. TA used properly can help us to not lose our grip amid our own arguments and opinions. It keeps us focused on reality rather than on our hopes and beliefs.

This brings me to the trouble with assessing the price or "P" when the "E" or earnings are in a free fall...   more »

Hat tip Richard Russell:

'I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.'
-- Thomas Jefferson, 1802   more »

When I was speaking in Vegas on September 10th, I recorded a segment for an upcoming documentary on market history, the present crisis and solutions going forward. The producers recently sent me a rough copy of my segments that we could post on Juggling Dynamite. The interviewer was asking questions but has been cut out of the sequence. (I wasn't just talking away to myself honest.) In response to reader requests, the clips are now available on Youtube Part 1 :



and Part 2:


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Ms. Park was the guest portfolio manager on BNN Market Lookahead this morning at 9:20am talking about the ongoing drop in commodities, and how this is will eventually prove postiive for setting up the next economic expansion. You can watch the interview here.   more »

After many months in denial, the world now believes that we are in the midst of the worst economic downturn in several decades.

Since last December, demand destruction born of the global contraction has been hammering commodity prices across the board. Falling prices have been significantly pulling down inflation expectations.



With more of this downturn before us, and since inflation is a lagging indicator, I think it likely that inflation and commodities including gold may fall for some time yet.

This should be a good thing. Inflation was uncomfortably high the past few years. Cheaper commodity prices will help the world economy re-stabilize. In the meantime however, the re-stabilizing of commodity prices will prove very destabilizing for producing nations that are now caught unprepared...   more »

Today I came upon this interview that Professor Roubini did October 14 for Bloomberg on similar themes. It gives a good update of recent market developments and his thoughts on likely outcomes from here.
See: Roubini sees worst recession in 40 years, rally's end.   more »

Jim Grant of Grant's Interest Rate Observer had a good article in the Wall Street Journal this weekend "The Confidence Game:"

"In disclosing plans to buy a quarter-trillion dollars of bank stock in the name of the American taxpayer, Treasury Secretary Hank Paulson harped on confidence. "Today, there is a lack of confidence in our financial system, a lack of confidence that must be conquered," he said on Tuesday.

What Mr. Paulson did not get around to mentioning was the excess of confidence that preceded the shortfall. Under the spell of soaring house prices (and before that, of stock prices), Americans trusted the things they ought to have doubted. But markets are cyclical, and there is always a new day. In compensating fashion, people will eventually doubt the things they ought to have trusted. Investment opportunity follows disillusionment. It's complacency that precedes bear markets.

If the confidence deficit seems so high, it's because the preceding confidence surplus was full to overflowing. People suspended critical judgment. They accepted at face value the pretensions of central bankers and the competence of investment bankers..."   more »

Warren Buffett tried to reassure Americans this week in an op-ed article entitled: "Buy American. I am.":

"The financial world is a mess, both in the United States and abroad. Its problems moreover have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise business activity will falter and headlines will continue to be scary. So..."[and here is the money quote the investment sales crowd will jump on] "I've been buying American stocks."

Far and wide, buy always investment types will be grabbing Buffett's quote and screaming it from the roof tops in an effort to suave the wounds of those that have bought "buy and hold advice" throughout the past few years to their financial detriment. But here is the part of Buffett's quote that is most crucial of all and yet, will be widely over-looked:

"This is my personal account I'm talking about, in which I previously owned nothing but United States government bonds..."
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The question I have been asked most in the past 24 hours, is whether the global market rally of the last 2 days is the start of the next global bull market or just another opportunity to sell equities into strength.

The truth is that neither I, nor anyone else can tell for sure in one day. But one day is no trend change. The market was painfully oversold in recent weeks, a bounce was overdue. Markets had sold so far below their longer-term trend that a rally of even 20% would only retest overhead resistance while maintaining their downward channel.

Based on many factors which we follow, my guess is that we have not yet seen the market bottom this cycle. These dramatic up swings are more typical of on-going bear cycles than bulls. In the midst of all the green yesterday, the Lowry’s Selling Pressure Index still finished at our near its record high. That looked like institutions and levered players selling into strength. Upside volume was only 73% of up and down volume combined.

Meanwhile the Bond Confidence Index this week hit a new low of 64.2 as bond buyers continued to move into the highest-grade bonds for safety over yield. I also note that while American markets roared ahead yesterday, this afternoon that rally is already breaking down. When markets cannot rally for even a few days, it is not very inspiring for the bulls.

Anecdotally, I note that there are still a majority of retail, individual investors who seem to be hanging on with their last nerve to their decimated stock and mutual fund portfolios. Frozen by fear, I have not yet seen evidence of their final capitulation selling. And the poor little guys are sadly always the last to leave. Their final cash out will create the ultimate exhaustion low this cycle. Only then can the next cyclical bull truly start.

For those that did not yet sell their stocks and stock mutual funds any time in the last 2 years, I would still consider the recent rally another opportunity to downsize your risk.

And for those that have been talked into levered loans, manoeuvres or margin loans to buy stocks and mutual funds in the past few years, get out of them. Sell into recent strength and pay off your loan. I know that it is a painful lesson learned. But happily if you learn this lesson now, you will never have to make the “credit is money” mistake again in your lifetime.

We truly have no idea how low these markets can go before they finally turn. Let other people be the sacrificial lambs with their own dough. Remember, it’s the second mouse that gets the cheese.   more »

The credit mess building was clear and present danger for the past several years. Any advisors or experts who did not see and prepare for its coming should be avoided now.

Most financial experts and media are paid to sell people products, not see risks. That is the bias which makes most financial commentators and "advisors" utterly useless to us. My Irish father has an appropriate saying for this, "you're a nice fella', but you're no use".

The past 10 years have been one of the most high risk, high leverage periods in human history. Mindless, reckless speculation was widely touted as intelligent investing. The web of participants complicit in this demise, were virtually all inclusive: banks, investment firms, mortgage brokerages, real estate brokers, marketing firms, hedge funds, media and governments.

Human behaviour fulfilled its epic precedent of herd mentality and reckless deployment of easy credit.

In order to now repair the damage done and avoid making these same mistakes again, at least in our own lives, we need to study the evolution of the present mess and recognize the thinking or lack of thought that brought us here.

This documentary done by ABC's (Australian Broadcasting Company) investigation show "Four Corners: Mortgage Meltdown" is an excellent piece. It aired in Australia more than a year ago and a few months later on CBC's the Passionate Eye in Canada. It has interviews with Robert Schiller and Satyajit Das, warning viewers over a year ago that the world economy was going to have a meltdown...   more »

Watching world markets implode this past year has been a strange experience. On the one hand it has been gratifying to finally see proof positive that we were founded in our concern and assessment that market risks were off the charts 2005 to 2007. Turns out, it wasn't just our imagination, things had gone crazy. After smouldering ominously for a couple of years, the structure finally did burst into flames last fall and has been burning up capital ever since. The hard part has been watching so many people stay inside while the fire envelops them.

With the incredible volatility and losses of the past few weeks, a period of at least an interim rally should be in the cards. Market indices have been so deeply pummelled that a rebound of up to 20% would not even reverse the down trend at this point. We recall the three separate 20% rallies during the bad bear of 2000-2002. For those that have remained improperly structured and over-exposed to equities throughout this bear market to date, strong clearing rallies would present another opportunity to downsize their risk.

Meanwhile we are watching carefully for a final bottom or at least a tradable bottom should markets rebound and rally for more than a few weeks. Belief and then panic have surged through the world the past several days. The pessimism has gone mainstream. Global fear is palpable...   more »

Paul Grignon's 47-minute animated presentation of "Money as Debt" tells in very simple and effective, graphic terms what money is and how it is being created. Thanks to a reader for bringing it to my attention. Presentations that give us an historical perspective on how we got to where we are today are useful.


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CBS 60 Minutes did an excellent segment on the fraud and regulatory failure of the credit crisis. The present crisis joins the ranks of one of the worst in market history. The past few years have truly been a time of incredible greed, abuse, and immoral behaviour enabled by world regulators and governments. Everyone that had a duty to stand guard was handsomely bought off. The little people have been literally tossed to the lions. People should be outraged.

Watch the clip:    more »

Ms. Park was a guest on CTV's Canada AM, Tues October 7 at 7:05 am est talking about the current market melt down and what real life investors can do to protect their money. You can view the clip here.   more »

Since this global bear market began last October, market participants remained largely in the state of disbelief. For those of us trying to point out the looming risks it was rather difficult to watch the damage mount as "fools fiddled". Week after week and month after month mainstream financial "advisors' called the bottom and pled for people to stay put, look long-term, don't blink.

That always works for a while to keep people in. Then in about August of 2008, belief in the economic downturn began. Each day, more people were turning bearish on the economy. More people began to voice concerns that the credit crunch was not abating and risked lasting harm to the economy. The Volatility Index (VIX) that had been slumbering along at record complacency below 10 for much of 2006 started to pick up.

As world governments have pulled out one band aid solution after another over the past few months, realization began to dawn, that government intervention was coming much too little, too late, to avert the damage. The time for proactive regulation and leadership needed to avoid the present mess was two and three years ago. Governments are now left trying to treat the cancer rather than avert its onset.

And as investors bled through one of the worst quarters in history to the end of last week, fear and tension mount. The VIX spiked above 40 a few times in the last couple of weeks. Today it is above 55. Panic has set in. I think it is likely to take more than a couple of days of panic to find this bottom. I suspect selling pressure could escalate over the next several days as investors begin to receive their quarter end statements and pension boards begin to realize what a grave error they made in adding commodities as a passive asset class this past year.

At our firm, for this down cycle, the technical downside tests were defined as 10,000 on the TSX and the Dow, 1,000 on the S&P 500 and 2000 on the NASDAQ. We are now through all of these levels as I write, but for the S&P which has a further 36 points of decline to confirm. We believed these levels were likely in this correction, we simply could not predict whether they would happen in a matter of days or months.

And so the question of the week: will the indices hold and bounce from here?...   more »

Ms. Park will be speaking at the Toronto Resource Investment Conference this weekend Oct 4 and 5 at the Metro Convention Center. You can see her Saturday morning at 830am and Sunday afternoon at 3:00pm. Danielle will also be available for book signing in between talks. You can register free to attend here on the Cambridge House web site.   more »