Who's on First. I'm Skeptical at Home.

American equity markets have been losers for the last year. They haven't lost that much though. All the major averages are still following trend lines, established when modern markets exploded into the 1973 mega bull. That bull is still in place. There have been times when markets did much better than the overall trend and some heart stopping corrections but for thirty five years the trend has been strongly and profitably up, without exception. Investors who bought and held made money. A lot of money. Warren Buffett money. As long as they picked stocks that weren't total dogs.

Markets are now poised to test the support offered by the long term trend, as they have in 1981, 1987 and as recently as 2002. This support should begin to move the markets strongly higher, as they have since the beginning of the mega bull. If the markets do not move higher, the support will soon be noticeably breached, due to the rising trend line. If this happens, the markets can suffer profound, long term stagnation but more likely first, deep reversal.

I'm not a technical analyst. There are guys that do that for a living and they understand all the nuances. There are also limits to what technical analysis of past trends can tell you about the future. Markets will do what they will do.

The thing that concerns me is that markets have not experienced a sharp, swift "crash", that stabilized and began a process of bottoming and recovery, that has been the pattern for the last thirty five years, when the mega trend was challenged. We have, for the last year been in a period of slow, stagnating deterioration, with lower highs and lower lows. Additionally, there are no emerging sectors of the economy that promise to offer future increased employment and economic revitalization. The economy is being buoyed only by huge deficit spending, on the part of the Federal government. Much, if not most, of this spending continues to quickly cycle out of the country via the negative trade balance, leaving the country continually short of operating expenses. Many, including some highly placed economic experts, now apparently believe that uncontrolled deficit spending, increases in the money supply and the corresponding debt it creates, can go on indefinitely. They believe that since the US Dollar is the major currency of international exchange in the World, our economy is too big to fail. They believe that printing money, can substitute for a real GDP and the rest of the World will go along. They may be right.

I'm skeptical.