Always remembering the second* Climateer Investing cannonical law:
"The map is not the territory"
"A Non-Aristotelian System and its Necessity for Rigour in Mathematics and Physics"
presented before the American Mathematical Society December 28, 1931
...One analog that I have been carrying around in my files because of the similarities in price structure, market sentiment and macro condition, is 1998. A number of other parallels to 1998 are:
As a quick reminder, 1998 was an articulated market environment with considerable strength and momentum in the first third of the year, followed by extreme volatility and rapid market declines in the summer, culminating in a staggering year-end rally. Throughout the year evidence continued to surface of persistent concerns about the Russian banking and financial sectors, culminating in the suspension of payment on sovereign debt issues and the float of the rouble in August of that year. The events were set in motion the previous year by the Asian currency crisis in 1997.
- The unbridled appetite for risk coming into 2011,
- The sovereign debt issues in Europe in 2010,
- The unwinding of a carry trade (yen) both in the beginning of the year and again today, and;
- The proportions and scale of the move in the gold/silver ratio
It sounds vaguely familiar to Europe's issues today, except that the European crisis has been contained within the EU itself. I believe to some extent this dynamic will continue to insulate the US markets from the extreme effects of the crisis abroad, although I'm sure there were many that believed the same thing until Long Term Capital Management brought the crisishome to our markets....
...This is a weekly chart contrasting the two time periods through the SPX and the VIX. The equity declines in 1998 were extreme in the US market because of the Trojan horse that became LTCM.*The first of our cannon laws is:
...If and when the June lows are broken, I believe the next level of support will be found around 1220....MORE
"The honest politician is one who-Simon Cameron
when he is bought, will stay bought."
26th Secretary of War
Democrat and Republican (!) Senator from Pennsylvania