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Economic Brief – Bear Market Rally or Echo Boom

Posted At : October 8, 2009 12:36 PM

I continue to believe that the current rally is nothing more than a bear market rally, and a tactical strategy (vs. a buy and hold/hope) is imperative. At this point I am inclined to think we are riding a horse of a different color. Bear market rallies are typically 2-3 months and as long as 6 months. Now that we are past the 6 month time frame, it appears we are in an “echo boom”. This may be a new phrase as echo booms are not widely known. Echo booms follow major booms, aka. market bubbles and/or speculative booms on rare occasions, and one of those appears to be now. These major booms are fueled by cheap money and rapid and credit growth (today’s accommodative Fed). Under normal or sane circumstances, the bust period is natural cycle of deleveraging and deflation which needs to occur, much like our need for sleep or winter for our seasons. It happens every generation and is needed for the next generation to be able to afford to live. However, the Fed is fighting this one with everything they’ve got. And even though it is creating more dire problems down the road, they are (artificially) making today seem sanguine. See my 9/11 commentary: Building another bubble…it’s a Hubba Bubba nightmare (http://keithspringer.com/weekly-commentary-091109.htm)

The reason this is important is because “Echo Booms” typically last 10 months, which would coincide with my positive short term, negative long term outlook. As you have been reading (and will below), the market looks pretty strong. However, the timing was throwing me off as rallies rarely last more than 6 months. Given my new enlightenment, the idea that the market could rally for a bit longer makes sense. Oh well, what’s in a name?

Regards -Keith Springer

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