I wrote “Crash Alert!” on Dec. 12, a little over a month ago. Please re read this so we don’t have to go over the nuts and bolts here. Since then, we watched equity markets all over the world take a dive into year end where most finished in bear market territory. As the new year started, we have seen equity markets bounce to relieve the vast oversold conditions. I believe the “dead cat” bounce phase has now run its course and the selling will resume shortly and into an outright panic mode.
Over the last month we have learned more regarding the real economies, very little of it good. The most important areas of weakness are trade and real estate volume/price weakness worldwide. Both of these are in confirmed downtrends and both are lynchpins to the financial system. Trade, because it provides “cash flow”, and real estate not only because it is a global asset of “wealth” but more importantly because real estate is COLLATERAL. This last point is very important because “collateral” to the banking (financial) system is now smaller than it was 6+ months ago when it was already too thin. Remember, higher rates had already directly affected bonds (collateral), now real estate is an obvious symptom of weakness and collateral shrinkage.