EconomicGreenfield

I ran across the following weekly S&P500 chart and comment from Maurice Walker, of thechartpatterntrader.com at StockCharts.com.  Although I do not necessarily agree with all of the chart’s annotations and the accompanying commentary, I definitely think that both are worthy of contemplation:

chart courtesy of StockCharts.com

(one can click on the chart to enlarge the image)

Maurice Walker’s accompanying comment:

“The Keynesian Cure Never Works

The US had a massive malinestment (An investment in wrong lines which leads to capital losses. Malinvestment results from the inability of investors to foresee correctly, at the time of investment) in housing induced by affordable housing mandates, easy money from the Fed, and Fannie and Freddie guaranteeing mortgages that they had no business guaranteeing.

You cannot get over a debt infused recession with more debt. You have to work off the malinvestment. This is why the Keynesian cure never works. Just look at Greece.

But instead of working off the malivestment, we are trying reinflate the housing bubble with more spending. We are trying to reinflate the economic bubble with the stimulus package.

The Fed has to keep pressing the accelerator faster and faster to main tain the same simulative effect. But if the keep doing this it will cause inflation to arise. Additionally, the Fed already engineered a runaway expansion of the monetary base, that will generate explosive inflation. The borrowing needs of Obama’s record-shattering deficits will only exacerbate the effect. We are moving from a housing bubble to a government debt bubble that is going to ultimately collapse the dollar.”

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SPX at 1092.58 as this post is written

I recently saw an ad for “Bubble Investing” and thought it was notable.  It used to be that the mere idea of an asset bubble led to concern.  Now, it appears as if asset bubbles are seen by many as more of an opportunity than a threat.

Of course, investing in bubbles can be profitable.  As I wrote in the December 3, 2009 post, “Investing in bubbles can be extremely profitable on the way up; however, for the “long” investor they can produce huge losses if one doesn’t time the exit appropriately.”  History has shown that the (vast) majority of investors don’t time the exit appropriately.

While I have extensively written of how problematical the asset bubble situation is today, it should be noted that others have written to the contrary.   The April 25 2010 post concerning work by Frederic Mishkin and an April 27 article by James Picerno are two prominent examples.

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SPX at 1085.04 as this post is written