What Causes Market Crashes ? Portfolio Update at 9:37 AM CDT

Mistakes is the answer. 

We saw the mistakes Hoover made before 1929.  We saw how the Clinton Administration and CNBC pundits talked up the heady atmosphere prior to the Tech Bubble in 1999.  We saw how the Bush Administration and Greenspan pushed housing and no regulations to create the big 2007 real estate bubble.  This is all outlined in the opening pages of this blog that were written in early 2008.  And in the last mistake we saw how Bernanke’s QE2 had the right objective, getting money into the economy, but the wrong method as the money only flowed to the speculators and didn’t create jobs.  So that leads us to where we are now.   Working on solutions to the last two mistakes.

First what has worked right towards solving the last two mistakes?  Getting manufacturing to stay and grow in the US is number one.  Detroit’s resurrection is testament to that success.  Getting money into the Green industry has been tepid at best, mainly because Congress takes a short term political view rather than a long-term capital investment view.  There is a big difference between Washington funding capital investments and funding short term problems and it needs to realize that providing lending to long term capital projects should be handled differently in accounting for deficits. 

The main thing today is that the country and the world is working on solutions.  For sure no one is agreement on how to work at this level.  What is good is that both Europe and the US are finally trying to do things in a non-inflationary environment.  Europe learned first and Bernanke has finally got the message as money aggregates have finally quit rising.  I was probably too hard on the Wall Street rally crowd last week, it seems they are actually getting attention for the middle class even though they are clueless as to answers.

So our market direction calls from last week hold on stocks, commodities, the dollar, and gold.

Portfolio Update:  For trader types note that we are selling out our stock positions in total in trading accounts, investing accounts will hold.  The market has the wrong leadership currently as the XLY ETF is leading the XLF ETF, not good for a solid recovery in our opinion.  S&P is at 1188.

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