Tuesday, February 17, 2009


Markets worldwide continue to reflect one record after another. The records are bad. They involve consumption and manufacturing alike. Perhaps it's time to read Spengler's Decline of the West.

In "Weakness Unmatched In 35 Years", the Liscio Report (found on John Mauldin's letter to subscribers (free)) shows that sales tax receipts were recently down 12% year on year, vastly exceeding the prior record, going back about 50 years.
Auto sales hit a new record low per capita. Perhaps most shocking is the savings data. Recently, all or more than all growth in income in America was spent. Recently, that is, until very recently. This "Marginal Propensity to Consume has ranged from, say, 60% to 140%. It recently hit 2%.

An alert reader (what other kind is there) sent me a graph of the Dow Jones transportation index. A multi-year trend line with support at 2883 was decisively broken today with a 5% drop to 2804. In addition, an ultra-long moving average, the 200-month ma of this indexis around 2930. If the monthly close is below that number, that would be reminiscent of the 1970 break, which foreshadowed bad times in the real economy and the stock market until the 1982 bottom.
The prior time the 200-month ma was taken out was 1930.

In contrast, the Dow Jones Industrial Average has been below its 200-month ma for some time.
This is therefore "confirmation" by the Transports.

As discussed here recently, the safe havens of gold and Treasuries can "catch a bid". Little else does so. All this is despite frenetic global attempts to create "liquidity". This liquidity is apparently going to shore up vital financial and other insolvent or near-insolvent institutions. In this environment, the real economy needs to simply survive. The authorities are not really expecting growth. Russia and now Brazil are succumbing to the global downturn. Perhaps India and China can resist this force.

For now, little else can.

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