Whee – we finally made it!

In an UNBELIEVABLE move off the bottom over the past 6 months and one week, we have gained 58% on the S&P and have finally crossed into our 33% levels (from the highs) that we first set as upside targets back in our July Big Chart Review.  At the time I said “I just don’t see that happening without a pullback” yet here we are, with barely a wiggle down since I wrote that on July 27th and up 20% from our July 13th S&P base at 880.

Have we been too bearish?  Is it now natural for the market to rise 20% in 2 months without a pullback?  Are we really 20% better off than we were 2 months ago?  History tells us not to mess with the 5% rule so we SHOULD encounter powerful resistance here as we approach the zone of a roughly 60% move off the March lows as well as 30% off our highs – it’s going to be a rough 2.5% from here.  As you can see from the above chart, we have already exceeded all previous recoveries by almost 100% at this point in the cycle.  And why not, our government spent $9 TRILLION dollars to do it so we damn sure better have a pretty chart as a souvenir!  The other rally that had a spectacular recovery was the the great crash of 1929 (the grey line). 

In the 1929 crash, the stock market fell first, not the banks, which didn’t begin failing until 1932 as lack of electronic data and next-day mail meant it took a lot longer for the late payment and foreclosure cycle to start impacting bank balance sheets.   Also, of course, they were nowhere near as maniacally levered as today’s institutions.  In 1929 the banks did not play the market, they simply lent money to people who invested in stocks, businesses and properties that went bust so there were two distinct waves to the market crash in the Great Depression:  First the people went broke, then the banks.

Unemployment in the US in 1930, a year after the crash, was only 8.7% – less than it is now.  No one at that time thought it was important to help the average American get back on their feet after many of them lost their life savings and went deeply into debt as their homes dropped in value and jobs became scarce.  It was only after…
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