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When bankers
are suffering, they shut off the money spigot
transmission effect (via the so-called
"federal" "reserve")
to the rest of us out here
in the real world. Don't believe
me? Try looking for a
home loan right now in
the U.S. with zero money
down. Though this was standard loan policy 5 years ago, good luck trying to find it now.
The take-home message for traders and investors is that you need
to pay attention when financial firms are not doing well. The lag time between a top in the financial sector and the general stock market indices is variable. Here's a look over
the past 7 years, the following chart showing the financial sector, using the Dow Jones US Financials Index ($DJUSFN, the green area plot) as a
proxy, versus the S&P 500 Index ($SPX, black linear
plot):
I would like to show a few
specific, really stinky looking short-term charts in the financial sector, which should worry longer-term equity bulls significantly.
First up, Morgan Stanley (ticker: MS) over the past 6 months:
And here's Bank of America
(ticker: BAC) over the same
time frame:
Remember that AIG insurance firm? In case you forgot, despite
their utter insolvency and previous
implosion, they are still
an ongoing corporation trading
in the free markets:
Next up, Goldman Sachs (ticker:
GS):
Finally, one of the biggest
financial fish left swimming, JP Morgan (ticker: JPM):
I own no financial firm stocks and haven't for years. I do own physical Gold, which helps me to sleep well at night. My bearish tendencies
are in hibernation right now, but they are keenly aware of a pending
spring awakening. I am patient, knowing that the Dow
to Gold ratio will decline
to 2 (and we may well go below 1 this cycle). This means that as a Gold investor, I will gain in relative wealth (regardless of any shorting activity) compared to the paperbugs that dominate the financial landscape in the United States.
Adam Brochert
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