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  • crashcom2001 crashcom2001 Jan 6, 2013 9:18 PM Flag

    MARKETS OVERBOUGHT, LIMITED UPSIDE AT YEAREND PRICES

    MARKETS OVERBOUGHT, LIMITED UPSIDE AT YEAREND PRICES

    At 1426, the bellwether S&P 500 is less than 7% from its decade highs of around 1526 last seen in July of 2007. However the fundamental picture is far darker. Remember that back then the global economy was doing fine.

    All major economies were expanding and expected to continue to do so
    Western housing and banking sectors were considered healthy
    There was no debt crisis in the US or Europe. No annual debt ceiling debate in the US. No quarterly threat of Greece/Spain/Italy becoming insolvent
    Now the situation is reversed, yet most risk assets like the S&P are back near these decade highs due to unsustainable levels of government spending and debt fueled by money printing rather than real wealth creation.

    Indeed, the near term bullish factors are short term anticipated relief rally from anticipated forms of stimulus in the US (fiscal cliff and debt ceiling deals that defer most of the planned spending cuts or tax increases) and Japan. Of course these events could also just become occasions to take profits as markets "sell-the-news."

    There have been many good articles discussing why there is only limited upside versus downside. See here and here for examples.

    Indeed the consensus is that the S&P remains within about 200 points, 14%, of its year end close.

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