- Market Commentary -

June 9, 2010 (FinancialWire) (By Dr. Joe Duarte) (Go to http://www.financialwire.net/?s=cmmtry for all recent commentaries.) — The S&P 500 SPDR ETF (NYSE:  SPY) bounced some on Tuesday, but market bellwether Goldman Sachs (NYSE: GS) ended the day on the down side, making us wonder if a market with little interest in Goldman is one worth taking a huge risk on.

A wise old woman, also known as Mom, God rest her soul, once told this scribe: “If from far away a dog looks mangy, when it gets closer it will likely be full of mange.” The translation is pretty simple; this market smells bad, like a bear market smells, you know, rancid, putrid, and downright stinky.  Sure, some of the smell may be due to the volatility and the overall feeling in the air that things are getting ready to go from bad to worse, politically, economically, militarily, and any which way you want to consider it.

Think about the current situation for a minute.  Europe and the U.S. are so far in debt that if they were people no one would open their doors to them, or return their phone calls, much less actually lend them money.  Yet, people continue to lend them both money, because, that’s the way it’s always been.  Europe and the U.S., pay their bills. Never mind that most of the bills are paid with money borrowed from someone else, raised via bond options called “refundings.”

Didn’t that guy Madoff go to jail for paying one set of investors with money he got from other investors?  O.K., it’s hard to make a case for the U.S. and Europe running Ponzi schemes. For one thing Madoff didn’t have any real assets that he could sell to support his Ponzi scheme should everyone come asking for their money at once, while the U.S. and Europe do have assets including nuclear weapons, land, buildings, equipment, armies, and even taxpayers.  Yet, it’s the same sort of concept.  The debt is so big that barring a major trend change it will never be paid off, much less pared down to any major degree.

Just that’s enough to make anyone in their right mind think hard before throwing money into the markets.  Yet, the amount of fraud, or at least unsavory activity in this market adds another layer of potential fear to investor psychology.  Take the recent revelation by The Wall Street Journal that stock exchanges sell access to their data to high frequency trading firms milliseconds before the trades hit what the rest of all call “real time.”

Yup, you got it.  Other people know the price and trend of a trade, legally, before the rest of us. And they can place their super fast trade before the price hits the rest of us.  Yeah, they know the way the price will head before the rest of us do.  Think about that. If you knew the outcome of sporting events a few seconds before the rest of the world, and you could place your bets during that brief time delay, you could earn big bucks on a regular basis.  Of course, that’s against the law. But “latency arbitrage” the practice of buying the raw price feed from the exchanges, and trading based on it, before the “real time” data hits the tape, is perfectly legal.

O.K. so Wall Street is an unsavory place, and Europe and the U.S. are basically bankrupt.  But you still want to trade. Just look at a few charts. The major indexes are all below their 200-day moving averages, which means that they are in long term down trends. Market breadth stinks, on the NYSE and the Nasdaq. And gold and the dollar are money magnets, signs of high anxiety levels on the part of investors.

What does it all mean? If this market turns around and delivers some good results over the next few days, we may change our mind. But as long as things continue as they have been with huge volatility, questionable fundamentals, and frequent revelations of what market insiders do to individual investors on a regular basis, it’s hard to get too worked up about making a long-term commitment to this market.

Contrarians may be salivating at the feeling in the air that the world, as we know it, is coming to an end.  And they may be right. But for this scribe, just as mangy dog looks mangy from any distance, so does a bear market look, feel, and smell bad.

And since this market looks, feels, and definitely smells like a bear market, it may well be one, contrarian glee and all.

(Go to http://www.financialwire.net/?s=joe+duarte to see more commentaries by Dr. Joe Duarte.)

(Go to http://www.financialwire.net/2010/04/22/about-duarte/ for more about Dr. Duarte.)

(Go to http://www.financialwire.net/?s=cmmtry for all recent commentaries.)

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