“TARP has been an abject failure,” said Thomas Barrack Jr, billionaire and founder of Colony Capital, in BusinessWeek. “I compare the situation to a fire on a Savannah plain: Let it rip and burn, and the market will rejuvenate so much faster - try to control or impede it, and there will be more and longer suffering before renewal. Japan experienced two decades of economic paralysis by experimenting with fire control of a similar unproductive sort.”

And here is Peter Schiff’s (Euro Pacific Capital) prescription for how the US can dig itself out of the current mess, as reported by Fortune magazine: “Shrink the government radically, cancel all bailouts immediately, take plenty of tough medicine, and let the free market do its job - however harsh it may be for, say, autoworkers in the meantime.”

According to Sheila Bair of the FDIC, as reported by The Wall Street Journal, there will soon be a new government banking agency -- the Aggregator Bank -- to buy troubled assets from financial institutions. For a bit of fun, I tried to register this domain last week. Alas, another aspirant banker pipped me to the post. His reselling price? $100,000! Needless to say, I swiftly terminated the negotiations.

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Next, a tag cloud of my week’s reading. This is a way of visualizing word frequencies at a glance. Key words such as “bank,” “government,” “economy,” “market,” “financial,” "debt” and “crisis” topped the list.

The graph below shows the performance of various S&P sector SPDRs for the year to date. With Financials having declined by 28.2%, the market’s weakness was quite strongly concentrated in one sector. In addition to Financials, only Industrials (-11.9%) and Consumer Discretionary (-8.8%) have underperformed the S&P 500 Index (-7.9%) since the beginning of the year.

“During prior declines during this bear, losses were broad based and once they become more concentrated (as they are now), it’s a sign that the market is beginning to separate the eventual winners from the losers,” said Bespoke.


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Considering the outlook for the stock market, Richard Russell, 84-year-old author of the Dow Theory Letters, said:

“Recently, the Transports broke below their November 20th bear market low. The Industrials have refused (so far) to confirm the Transports. Will the Industrials break down and confirm?

“No one can possibly know. But the longer the time elapses that the Industrials refuse to confirm, the more hopeful the situation. As a rule, the closer in time the 2 Averages, Transports and Industrials, break through preceding levels, the more authoritative the signal. The Transports broke to new lows on January 20th. The longer Industrials hold above their November 20th low of 7,552, the better the odds that they will not confirm.”

Key resistance and support levels for the major US indices are shown in the table below. The immediate upside target is the 50-day moving average, followed by the early January highs. On the downside, the December 1st and all-important November 20th lows must hold in order to prevent considerable technical damage.


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A number of global stock markets -- Germany, France, Belgium, Finland, Ireland and Venezuela -- have actually already broken below their November 20th lows. Although a retest of the lows is often a feature of base formation development, it can also be a harbinger of the resumption of a downtrend.