End Of The Line

Trends are powerful economic and psychological forces. On a price chart an established trend can be reliably is followed by a trader until it is broken. An old saying goes ''the trend is your friend''. What that really means is that the trend is your friend until it is not anymore (when broken). When trading I will not exit a position or reverse positions until a trendline break, on which I will act immediately, while ignoring all the noise above (below) the main trend line. But there are all kinds of trends, major trends, counter trends secular and cyclical trends and now we see an altogether new kind of trend the End Of The Line Trend.

This new trend is already forming unnoticed by most investors, ensconced in the --you are a sitting duck--buy and hold habit and espoused religion of the financial media and Wall Street spin misters. You can always see some old gray beard suit on CNBC teaching you that to hold is to be disciplined. Yea like a deer in the headlights. After a proportion of the retail investors wised up to this ploy the Street brought out the Crammer types and bulls and bears to tell you what to buy and when. That would be load up at the exact wrong time. You can read Crammer's Golden Rule to get the skinny on that scam.

The chart of the S&P 500 shows a huge double top with twin peaks of 1600ish at 2000 and 2007. Pile onto that the fact that all the gains from 750 in 20003 to 1576 last year came on the backs of people who would not be able to make their mortgage payments, then you realize the last five years of earnings was on air. The stock market was lucky to get back that high. I should say they were lucky that Greenspan could blow another bubble. And that is what is wrong with buy and hold, that is why this is the end of the line and why this trend seen or unseen bounds us all.

Its like a guy I know, a friend of mine named Ponzi who refied his car, refied his house, paid Mastercard with Visa all the while working 80 hours a week with no bathroom breaks. Ponzi through all his up and downs booms and busts and no matter what always got the bills paid- if not on time. I got used to him paying off his bills, I would have even bet on it. But I never lent him a cent of my own money for the simple reason that even a construction worker can see. Because sooner or latter the cascading, compounding debt would engulf him and it has. Ponzi reminded me of those crash test cars, going faster, faster, until crush into the wall, the end of the line.

Bet you didn't know it, but there is a name for guys like Ponzi. He is called a ponzi finance unit, and the nanosecond he crashes into that wall is called his Minsky moment, and the point is that he has to crash no matter what. For all of Ponzi's hard work his income is not exponential, his debt is, so it eventually overcomes his ability to repay it, even by refinancing.

It's no different for us, our economy hurdling toward it's inescapable Minsky moment since 1913 and the FED induced debt based financing of government and business. Through all the booms and busts we have reached this point in human history where there are no more options and the crash must come, the trend is no longer your friend, and the metal is meeting the wall. This is simply the end of the line.