Reading the charts Cody-style

Reading the charts Cody-style

Today’s markets are U-G-L-Y. Tech especially. Let’s get some perspective about where these markets have been in order to get a better idea of the relative place of markets past.

An intraday chart here is flatlining at the lows of the day.  And the last few trading sessions have been pretty ugly, even as some of our individual stocks have been on fire:

And the last three months have been choppy after we topped back when I was reminding all of you to prepare for a disaster while we were at the highs:

Three Month Nasdaq

But a year-to-date chart looks like it’s got a pretty good base to it, doesn’t it?

YTD Nasdaq

Much like a two year chart has a pretty darn bullish base to it, huh?

2 Year Nasdaq

Amazing how changing the time frame of the past can change your attitude about the future, huh?

On that note, the biggest worry of most investors and traders and the favorite potential catalyst for most bears is of course the ongoing EU crisis. Is it a solvency or a liquidity crisis? It’s both! The European banks are illiquid and capital is sticky because the banks are insolvent because they lent too much money to Greece and Spain and Italy at historically unheard of low rates and most of that money had for decades been funneled to special interests and fomenting real estate bubbles for people rich enough to own real estate.

My biggest worry has nothing to do with Greece or Spain or the eventual collapse of the Euro as a fully-functioning, inter-state currency. Rather, as I’ve many times explained — the markets are all DOWN since the EU and Euro came into existence in the late 1990s. The bull market and the US economy had boomed for 25 years before the EU/Euro came to be.

But the thing that will likely crash the stock markets next is when the US Treasury interest rates start to return to something more normal and reflective of the true cost of capital, which has never been and never will be less than 1% for an extended period of time. There is risk to lending people and nations money and that risk must be compensated at a reasonable rate….and eventually lenders to the US government will expect reasonable compensation.

Do you really think that the US government can sustain a $14 trillion debt if interest rates get back to where they were just five years ago — which was lower than they’d ever been for any extended period of time in all of US history?

Many decades of falling rates

The good news is that reversing these long-term trends of ever-lower rates usually take longer than most anyone would guess. And the other good news is that when we finally start to see some semblance of normal risk/reward compensation for loaning money to the US government, I’d expect that we’d have a lot of time to get out before the rest of Wall Street explains to you that since the rates of Spain and Greece were able to go up without crashing our stock market and our broader US/corporate economy, that higher US rates won’t matter. But again, look at how low rates were able to stay throughout the 1940s and 1950s, even as Europe and much of the world devolved into and then came out of World War II.

WWII and the spoils of the war kept rates low for many long can it last this time?

Nothing’s easy and I sure don’t expect navigating the stock market and the other asset classes we choose to expose ourselves and our money to is going to be easy. But I don’t expect that rates will spike up in the US tomorrow and even if they do, I don’t expect that the markets will crash when rates initially make that move.

All that said, with the corporate economy continuing to boom and the smartphone/tablet revolutions continuing apace and with Facebook/iTunes/Amazon platforms also driving their own revolutions…I’d stick with buying weakness/panic and trimming spikes.