They Never Kill Their Golden Goose

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The market mayhem that wiped off trillions of dollars wealth last few weeks may be over. The market seems to find a bottom here after moving wildly up and down capitulating many investors as they headed to exits in panic and into Treasury bonds. The very same bonds that were downgraded by S&P that caused the markets to free fall with such ferocity. That was so ironic and irrational.

Weeks of TV posturing and political wrangling between White House and Congress and then both  the democrats and Republicans over the debt crisis left the markets in such angst and disgust that a sell off was inevitable. Our dysfunctional government finally got the arrow right and avoided a last-minute potentially devastating default.

Nevertheless few days later S&P downgraded US Treasuries from AAA to AA and the caseload of dynamite exploded careening the markets into an unstoppable free fall. Than came the high volatility and $VIX index which touched off 47 points on charts. The swings went from 400 to 500 points up and down. You would have thought this was it. This was the end of US and stock market perhaps. Not quite, not at all. You see the people who own these markets, the big institutional traders, the big banks,and others, they have a quiet pledge among them, a pledge that is unwritten and never pronounced, yet everyone follows it. Never kill the Golden Goose. Never. Never take the market and kill it for good. They always keep it fertile, always an opportunity to take your money again.

If you were a retail trader or portfolio holder you should have never sold off when things were looking so bad, because they rarely last many months and  it’s always short-term. The economy was stalling, but the earnings were solid. The stock market has companies with strong balance sheets, good earnings, and solid cash positions. This quarter, S&P 500 companies have 2 trillion dollars cash on balance sheets, a fact that should tell you how strong the inner workings of the markets are and specially under the hood. A strong balance sheet, and solid earnings drive stock prices up. That fundamental change wasn’t clear to many investors who sold off and went to hide in Gold ETFs and Treasury bonds in droves.

According to Marc Pado of Cantor & Fitzgerald the markets may have seen the lows here and are headed higher, as selling climax has ended. I think he is just about right. There is a bottom in place which can be traded higher, called a trade able bottom. Unless this markets cuts down that 1120 level on SPX we should be going much higher. Many skeptical pundits may see these calm waters as anticipation of another crisis, but do you have another crisis over the horizon? The worries about Europe debt problem have become a scarecrow for most investors, and on bad days they take them and scare you bit more. It comes and goes, on and off.  The fact is, we just got over our debt problems for now, and we are still the United States of America.

Think twice before you flee the market in panic and ask yourself: Did they kill their Golden Goose last time?

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