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Whether the Market Weathers?


Subprime may have been the beginning of the story, but it is not the end of the story...


Half and Half or Going "All Out"?

Financial culture has been having an emetic experience. In other words, paper assets are vomiting. Financial culture had been exclusively focused on the bright side: that the glass was "half full."

But recent impolite "puking" has emptied the "half-full" glass. Now the glass may be "half empty." Thus, some pundits think that the 7% solution (correction) is a normal pullback and that an oversold market has gone "too far." But, some diseases, some episodes, some profiles can be extreme. Is this one of them? What kind of selling season is this?

Let's review that in a minute. Back to the Puking Possibilities: The paper puking could continue until the glass becomes "fully empty." At the recent top, I talked about the "All In" excess. That is typical at tops. But at big bottoms the market typically goes to an "All Out" excess. Mr. Market may want to empty all of the pockets, paradigms and portfolios of bullish investors. This is called a Panic or Purgation. These are rare, but "rare" can happen. Even medium-rare could be interesting. I prefer "market tartare." This market may be going, "All Out."

EZ*Credit Becomes Revealed

Seasonals are a powerful but seductive market technology. Indeed, they are the original market methodology. I discussed here the diagnosis of Quasi-Seasonals, which are market phases that may recur regularly but not exactly. Thus, "Sell in May" may become "Sell in July" in some years!

Stocks have conformed to the proximate 1987 analog, which I suggested back in April, that the 1987 analog(quasi-seasonal) for a summer melt-up is followed by a "fall fall." Then I added in the 1990 and 1998 seasonal analogs and more precisely inferred a July high(more precisely a third week in July.) Now that the market has broken, how does it look? It looks like the market may be tipping into a Panic. Thus, we should now be allowing that the 1903 and 1907 Quasi-Seasonals could be kicking in. One of those was the known as the "Rich Man's Panic." Those analogs suggest that this may become a market panic.

Transparency, Opacity, Reality

They will tell you on the TV about the good companies and the great earnings growth. But all of those beliefs pale when paradigms shift. Markets don't have a GPS system. CEO guidance is spin.

When investors say they are looking for more transparency on, say, Subprime, it means that they not only don't know what is going on but that they are subconsciously giving permission to the importance of all the market unknowns.

Everything is relative and provisional. There is no absolute truth. When people talk about transparency, they are really focusing on the opacity, which means that a new reality is being discovered, which has to be discounted.

The paradigm shift from "Excellent Earnings" to "Credit Crunch" has altered the cognitive structure of the market. Subprime may have been the beginning of the story, but it is not the end of the story. The "adoration phase" of financial culture is over. Other repressed negatives will become recognized.

But expect market pundits to continue their "Dialog of Denial." Forgive them, Mr. Market, for they know not what they trade. In 1999, I coined the phrase E* Greed. This was the EZ*Credit extreme.

Deals or no deals? Not too many deals will be dealt this season. This could become an Investment "Bank Holiday," but I prefer the Purgation Profile. Maybe the Recipe du Jour will be "market tartare?" Maybe not. But it is the season. Remember 1907!
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No positions in stocks mentioned.

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