And Now the Bear Case

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In response to the bull case post from a couple days ago, a thoughtful Sloper sent me this email and suggested I make a post out of it; I think it speaks well to the long-term game plan:

1849 – Stock market cratered. TPTB (The Powers That Be) glossed over the problems and told everyone that they had been solved. Market rallied hard for a year or so then reality set in. Market bottomed in 1857 50-60 % below the 1849 low.

Move forward 80 years…….

1929 – Stock market cratered again. TPTB glossed over the problems and told everyone that they had been solved. Market rallied hard for a year or so then reality set in. Market bottomed in 1932 50-60 % below the 1929 low.

Move Forward 80 years…….

2009 – Stock Market Cratered again. TPTB glossed over the problems and told everyone that they had been solved. Market rallied hard for a year or so. Sound familiar? Is reality about to take charge again? Is a new low 50-60 % below 666 due between 2012 and 2017? Probably! Stock market cycles are like gravity, it doesn’t matter if you believe in them or not, they still work.

JPM just announced a loss of $2 Billion to $4 Billion in unwinding their $200 Billion in IG9 Derivatives. Only $69.8 Trillion in derivatives left to unwind. This could get very interesting, very quickly. (Anyone remember AIG, Lehman and MF Global). JPM is not alone. GS, MS, BAC and C have similar exposure. What happens to SPX if any one of these banks goes into the negative book value category?

During Operation Twist 2 SPX has gone from 1075 to 1422. No new money was created during Twist 2 so why would the market take off like a rocket? Rumors of QE3? Buy the Rumor, Sell the news?

The good news is that there is a 100% chance that QE3 will be announced within the next 3 months. The bad news is that none of it will be available to fuel future stock market rallies because it will take it all to keep the treasury market afloat. TPTB know that if they lose control of the treasury market, the Great Ponzi is over.