The week that capitalism died

There are times when technical analysis just isn’t useful, and this last week was one of those times. When panic and news dominate the market there isn’t much use in looking at past prices for support or resistance, or looking at overbought or oversold indicators, or looking at price structure when the market is swinging back and forth with 400 point moves. I’ve gotten numerous emails asking why I didn’t bother updating after the close on Thursday. Apart form being exhausted from the intra-day ups and downs, I was upset about the end of capitalism, and I didn’t want to turn this blog into a political discussion. It is upsetting that the government had to start selectively nationalising businesses. I don’t know what choice Paulson and Company had. In the short run the perception of the rescue will help calm markets I suppose. It is still amazing how they could not see this coming and have some plan in place. The housing bubble was easy to see. The mess at Fannie Mae was well known. There was corruption and encouragement of liar loans. Interest rates artificially low fed the bubble. It wasn’t that difficult coming to a conclusion that this could spread and create panic in other areas of the financial markets, even in the lowly but safe money market funds. Maybe there was no choice. I don’t have a better solution so I shouldn’t criticize. I just fear the government having to start nationalizing more and more businesses and maybe whole industries. What’s next, autos? Health care is probably on the way. Left wing politicians and blogs are rejoicing that capitalism has failed. That free markets can’t work. They are cheering on the coming age of socialism, finally, to the United States. They’ve wanted this since the 60’s. Now it is finally at hand. The final nail in the coffin of capitalism will likely be the coming election. Nothing inspires the far left of this country more than a failure of the financial system as proof that their left wing views are correct. And now they have their candidate in place to take advantage of the financial problems this country is facing, even though that candidate doesn’t have a clue on how to improve the situation other than raising taxes, which will only make matters worse. I doubt there is time to repair the economy in time for the election. The economy will repair of course, and voters have short memories, but the election is too close, and the polls are already reversing back toward the left because of the events of the week. But I better not get into politics.
The chart today is that of the volatility index, or VIX, along with a three standard deviation Bollinger band. This indexes measure fear and complacency as felt by option traders on an S&P index. High number are viewed as fear and low numbers are complacency. It is more of a contrary indicator, so high numbers indicate a dropping and fa earful market, and when those numbers reach an extreme it is thought that the market may be capitulating and possibly making a bottom. On Thursday this indicator went beyond the 40 level, pushing to levels not seen for a long time. The reversal back down of the VIX on that day (2nd bar from right side of chart) indicated that maybe the market was done on the downside, at least for now. When the stock indexes reversed back to the upside, this indicator fell back. There was really no lead in this indicator, rather it was coincident with the reversal in the market, but the fact that it did reach such an extreme level might indicate exhaustion and capitulation of the downmove. I have my doubts that everything is now just fine and we can all jump back into the market. The VIX is still very high and there is still much uncertainty. There are probably many more shoes to drop. There may be more companies for the government to take over, and maybe a few to let fail along the way.

One thought on “The week that capitalism died

  1. I’ve been watching the slow, progressive plan for socialism unfolding ever since I was a child (dad was and is a staunch Bircher and close friend of Mike Badnarik, the 2004 Libertarian presidential candidate). I have been talking about the housing bubble collapse for two years and now everyone is suddenly surprised. Wealth transfer combined with quick, pro-socialist and pro-totalitarian police-state legislation is how the coupe operates. Keep in mind these same people own/control stakes in the mainstream media, which is key for making it all happen. Now that all the pieces are in place, the opportunity to finally remove the threatening and politically powerful US middle class is here and will not be wasted. World government under the UN is here, as evidenced by the Lisbon Treaty. Now that Europe has been effectively neutered, the US is next in line.

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