Will things be different this time?
While the media divines the changes in the U.S.
since 9/11 five years ago, I look back four months to 5/11 and see quite a few
changes in the financial markets.
On 5/11, West Texas Intermediate Crude (cash) stood at $73.33 a barrel. Friday
it closed at $67.33.
On 5/11, interest rates on the ten-year note were 5.15%. Friday, they were
4.79%.
On 5/11, gold was trading a bit over $715 an ounce. On Friday, gold closed at
$621.
The CRB Index topped above 360 in May. On Friday, it closed a little over 320.
The Housing Index ($HGX) is down about 20% since May.
On 5/11, the S&P 500 Index had just hit a peak value for this bull market, a bit
over 1325. As of Friday, the S&P is at almost 1299 and has not surmounted that
May peak. The NASDAQ and Russell averages, in percentage terms, are even further
from their May peaks.
M1 money supply also peaked in May, according to
the Federal
Reserve. M1 money supply, from late 2004 to the present, is down over a 20
month period. I last show that happening in late 2000, as the markets were
topping, and in late 1997 in the lead up to the Asian currency crisis and market
drop.
The good news is that the Fed seems to be having success in cooling the hot
housing and commodity sectors. Such restraint of money supply needed to
accomplish the cooling has only been reversed once we’ve had meaningful market
drops. Let’s see if this time is different.
Brett N. Steenbarger, Ph.D. is
Associate Clinical Professor of Psychiatry and Behavioral Sciences at SUNY
Upstate Medical University in Syracuse, NY and author of
The Psychology of Trading (Wiley, 2003). As Director of Trader
Development for Kingstree Trading, LLC in Chicago, he has mentored numerous
professional traders and coordinated a training program for traders. An active
trader of the stock indexes, Brett utilizes statistically-based pattern
recognition for intraday trading. Brett does not offer commercial services to
traders, but maintains an archive of articles and a trading blog at
www.brettsteenbarger.com and a
blog of market analytics at
www.traderfeed.blogspot.com. His book, Enhancing Trader Performance,
is due for publication this fall (Wiley).