8200 Broken

The floor for the market has been broken, we are currently at 8,100. Where is this going to settle?

The answer is 8,200. This is a test of the market. Remember, markets don't follow linear patterns - thats a big misconception out there. ."I bought such and such a stock at so and so a price " calls to mind the idea that there is a continuous curve that arced upward from that price point to current day. Not always the case.

To talk about realistic, meaningful statistical trends we have to sort of forget about the individual swings and move towards a discussion of the trendlines. What affects the stock index is really more the general outlook - the market trades ownership in companies, and their outlook determines return.

When I made the prediction that 8,200 would hold - it was a prediction based on a few simple assumptions. First, I wrote that the influence of the infrastructure crash would give us a loss of market capital to power certain markets and they would be dinged heavily. Then I worked in the job loss factors. I added in the factors for job loss accelerating beyond the initial window of the event where the banks crashed. I wrote about the so called "Santa Claus" rally, and how it would not have a serious effect on the indices this year. I also added in retail loss.

8,200 held nicely during the close of the year. Now with the numbers coming in the way I predicted, this is the sixth test of 8,200 today - crossing into 8,100 - the last time it whipped down very quickly into 7,700 before rocketing back up to above 9 (I called it the "dead cat bounce").

What is happening with the markets now are the lethal fallout of a political system run by lobbyists. We are seeing people understand that the new administration is corrupt, and that the effect of political representation and government spending will now be felt only for the elite few. The average person questions how one man, Bernie Madoff, can erase 50 billion dollars. They question what role the treasury has in printing money. And why that governmental department will be run by someone who is cheating on their tax return. Or why lobbyists have been appointed to the highest levels of government in an organization and administration that ran on a message of change.

In the last economic summit, the discussion of these political factors was noticeably absent. It was clear that the global economic crash of 2008 (which will be remembered, like 1929, as the crash of '09 when the effect is fully propagated) - began in America. England stop-gapped the crash with rapid action, however, it was not enough to stop full damage (in some cases, such as the Asian markets - almost 60% of the market value was erased) . Job losses followed rapidly: more jobs were lost than at any other time in the USA other than immediately following the end of World War II. Fiscal and economic policy decisions made by the Bush administration played a heavy role in this crash - and that can be summed up as: a government of the lobbyists, for the lobbyists, by the lobbyists. International American Corporations play markets off one another - if they are not selling domestically - they sell internationally. Etc. - That cornerstone of representative government has been broken and in its stead, the lobbyists often tend to represent the interests of other nations and corporations. My lawyer friend yesterday remarked casually "you have no rights with a corporation" and I suddenly realized its true. You really don't. No such thing as free speech with a corporation.

That loss of representation can only equal loss of democracy and social coherence. The last crash of 1929 presaged domestic unrest but quickly following, a set of social programs.

Clearly, the new government is unwilling to institute similiar programs. The corrective action for this crash is not bank restructuring. Please recall that the banking industry specifically worked against regulators in 1929, to merge investment banking and the broader banking industry under FDIC protection. Rather than attempt to restructure that industry - the appropriate policy response should be to institute a universal healthcare plan and perhaps a sort of universal college "hope grant" program for B, or B plus students.

What effect would universal healthcare have on America? Well what we are seeing right now is the effect of Bankruptcy. And medical payments are the cause of 60% of the middle class bankruptcies filed - an unexpected medical emergency is the number one cause of bankruptcy amongst the (endangered) middle class.

Suppose it becomes law (the SCHIP is a good test case) . What would be its immediate effect? What will happen is that people will take more chances. They will know their voices are heard. It will be a slap in the face of the biggest, and most heavily vested lobbyist firms in Washington - and the billions of dollars that industry represents - will learn that it, like the rest of America, is not safe from change. It will be a true symbol of hope. And it will be an indication that America is stabilizing. It will give meaning to change.

We have seen a lot of change. The Bush Administration changed America radically - classifying documents and turning what was once open government, into a labyrinth of secrecy and expanding governmental powers to wiretap, spy, and otherwise create a huge layer of bureaucracy and expense. They spent more money than any administration in history, oversaw the biggest expansion in government. Where they "cut back" and eliminated positions, they simply hired consultants to do the same work, without health benefits - and paid them more money ultimately for less work. We have, at least for the first time in my memory, invaded an innocent country - and we've destroyed our standing in the world diplomatically, educationally, and financially.

Obama promises change. However, he's getting elected from a state whose governor is now being accused of selling out. And he's appointed alot of people to the cabinet and director level positions who have huge ties to lobbyists.

And he's now seeing the markets react to him, not just Bush. So will 8200 hold? Yes, it can. But not for long.

If the current path of the administration completes its arc - we will have the largest shutdown of an industrialized first world country - that history has ever seen. Obama will be remembered for bankrupting our country.

So I'm going to give him the benefit of the doubt. One business quarter. 120 days. Thats about how long it will take to fix this index. The new bottom of the market will pattern out near 7,700 - while it holds 8,200 pending the new administration. If the current tone of leadership continues , 8,200 will break and not return and the market will bottom to 7,700 or 7,500 - which is a large proportionate drop. At present, 8,200 will hold until Obama takes office and then America will listen quietly to its new leader and its possibility for change . A simple return to the state of the country before the Bush Administration might be enough. They know who the Project for a New American Century is - and they are listening through the internet and other means - intently. Obama's campaign message of hope and change has become empty rhetoric to them.

Can America go into a Great Depression? Yes IT CAN. For now, expect 8,200 to hold for another two weeks. The markets are listening. If they break 8,200 and then (as I am now predicting ) the new floor of 7,700 - they will crash irrevocably and America will hit the largest financial crisis in its history - much worse than 1929.

So. Should you sell your portfolio? All I am saying is that the statistics indicate your 401k still has a downside. Caveat Lecteur