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October 2007 Shows Us How This Rally Ends


This market looks all too familiar.

Crisis, What Crisis?

As I scroll through hundreds of charts, I continually see that markets are right back to where they were before this credit crisis began.

It's almost like investors have completely forgotten why markets collapsed more than 50%. They must believe the Federal Reserve has once again saved the day.

Who can blame them really? The Fed saved the day in 1987, 1997, 1998, and 2001, so why not today? You know the formula: Markets correct or crash, the Fed floods the system with liquidity and cuts rates, and a new bull market or a new bubble emerges.

Back then, Alan Greenspan was the hero, and today it's Ben Bernanke who supposedly saved the country -- and possibly the whole world -- from financial Armageddon.

Déjà Vu on Oil, Gold, the US Dollar, and Stocks

I reexamined the bubble peak of October 2007 and "surprise, surprise" -- it's déjà vu all over again. If you recall, in October 2007 the US dollar was tanking and oil was ripping higher. The talk was about how the dollar had nowhere to go but down.

Sound familiar? It should because the dollar is tanking again and the talk is how the whole world is turning away from the dollar as the world's reserve currency. Gold today is also making new highs just like it was back in October 2007, on the back of a weaker dollar.

The stock market in October 2007 was making new highs as the dollar tanked. It feels like déjà vu to me because today we have the dollar tanking, oil and gold breaking out, and stocks making new yearly highs.

If you also recall, there was a lot of talk about Iran and Israel back then which made oil traders nervous, just like today. (See Rising Oil Prices May Be the Forerunner to War.) Tensions are now hot as ever and oil is once again on a breakout moving higher. In October 2007, oil started a powerful 68% run until it finally peaked in July of 2008.

The charts on oil before its final run and on the US dollar before its final plunge look eerily similar.

The US dollar in October 2007 looks just like today -- in a slow-motion free fall. In 2007 the dollar fell one final time. This 7% drop held and became the major bottom in July 2008.

The talk of a coming dollar collapse and the noise in the media on Iran are also carrying a similar tone. Oil made a new yearly high last week just like it did back in October 2007.
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