Since there isn't much to discuss about Monday's market, I want to begin with a sort-of follow-up to the 1975 scenario I wrote about Monday. I see that the folks at Newsweek have given us the cover story that the recession is now over.
Lumpy and Bumpy
Whether it is or it isn't I will leave to the economists and the folks who forecast such things. I, however, use Richard Russell's fantastic annual charts with his notes on them for some historical context. So I flipped to the chart of 1975, and what I saw for August was fascinating. His notes said: August economy picks up strongly; recession is over. Now, how can you read that and not think of this Newsweek cover? Conventional wisdom would say the recession is over so stocks go up. In fact, that would be logical and that would make so much sense. But instead, as we noted in the 1975 chart Monday, stocks broke out of the head-and-shoulders bottom and then went sideways. So much for conventional wisdom; so much for logic! The other interesting tidbit from late 1975 was that was the time when New York City was on the brink of failure. Russell notes on May 14, 1975, that New York was virtually insolvent and there were fears of default. Later that year, in October and November, the city received support and got saved. I am not fully versed on the situation in California, but isn't there a similarity here? Two major economic forces (one a state, one a city) in the U.S. and both were on the verge of bankruptcy and both got saved.