Now What? Bailout Bill Passed; Stock Market Hits New Low

Posted October 4th, 2008 by Michael Nystrom

Editor's Note: The following is excerpted from Friday's edition of Elliott Wave's Short Term Update, written by Steve Hochberg. This update is part of a package that I subscribe to that includes the Elliott Wave Theorist & Financial Forecast. It is the kind of perspective that you won't find in the MSM, which is why I value it so much. It is excerpted here with permission, with my own emphasis added in bold:

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All the “uncertainty” over the government’s rescue plan has been removed with today’s passage of the “bailout bill.” Now all we have is the “certainty” of the stock market’s Cycle wave c decline. Wave 3 of (3) down started on August 11 and appears far from complete...

Now what? Both the U.S. House and Senate have each passed their respective versions of the big bailout bill and the president signed it into law today. But what happens now when the stock market decisively breaks down from current levels? A break lower here is when some degree of panic will arise since “the bill” that just passed is thought to somehow address the market’s problems. It won’t, nor can it. One day of stock market decline on Monday of this week wiped out over $1 trillion dollars of stock market capitalization, greater than the $700 billion (+) total of our tax money that is supposedly being allocated to “fix” the problem (with an estimated $152 billion of “pork” included for congressional pet projects, it’s a pig of a bill…ba da boom, please tip your waitress.). The market, by virtue of its sheer size, is the master. And here’s the kicker from a stock market technicians point of view: the same day that the bailout bill passes, which will supposedly save the world, the Dow Jones Transportation Average closes beneath its January low, thereby reconfirming the major Dow Theory bear market signal issued last November. EWT, EWFF and STU subscribers have been bearish since the dual market highs last July-October, and we even alerted you to the original Dow Theory Bear Market signal last November. So even this venerable market signal is falling in line with our forecast and all the Dow Theorists should now agree.

Finally on this topic, it was reported today that U.S. Treasury Secretary Paulson is hiring an old Goldman Sachs crony to head the “transition team” to try and help him straighten out the current financial mess. In a scene that could only be lifted from a chapter in Orwell’s classic book “1984,” Ed Forst will now head the Office of Financial Stability. No, I’m not making that name up. Possibly the Office of Financial (in)Sanity might have been more appropriate.

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Time to lead.

On October 5th, 2008 iehuvihs says:

Now it is time to teach people to be thrifty and not borrow money. The people have to lead by example. Government is just a reflection of the people.

Mish

On October 4th, 2008 duff says:

Will Printing Lead To Hyperinflation?

Many have asked if the actions of the government would lead to hyperinflation. Others mockingly told me that it would. Nope. The answer is the same: Deflation.

There has never been hyperinflation in history with falling home prices. And home prices will continue to fall. Wasting $700 billion will not do the stock market any good either. The bottom is not in. Today's close proved it. There are new lows on the S&P 500, the Nasdaq, and the Dow.

Yes the Fed will print, but the money will sit, just as it did in Japan. Wasting $700 billion will only make things worse. Banks will still hoard cash.

Hyperinflation Dreams Are Way Down The Road

I am not the only one who has come to this conclusion. Please consider this audio with Austrian Economist Frank Shostak on Mises.

Shostak refers to Money AMS in the audio. An complete explanation of Money AMS can be found in Money Supply and Recessions.

A more recent update of Money AMS is in TMS: A Truer Money Supply? Unfortunately I cannot update that chart because a falling out with the person who created that chart for me.

Proper Definitions of Inflation and Deflation

Those who believe inflation is measured by the CPI, the PPI, or price increases of any kind desperately need to read Inflation: What the heck is it?, Interview with Paul Kasriel, and Deflation American Style.

The definition of inflation I am using is "A net increase in money supply and credit". Deflation is the opposite "A net decrease in money supply and credit".

Looking at deflation in terms of money supply (money that is actually lent) and credit (marked to market), the proper conclusion is the bailout bill does not change the picture, and that picture remains deflation.

I have said many times the fed can print but it cannot force banks to lend or consumers and businesses to borrow. We are about to find out who is right.

Mike "Mish" Shedlock
http://globaleconomicanal...

It's called papering over. It won't work. Here is real change...

On October 4th, 2008 Constituent_Res... says:

Despite that fact that millions of Americans wrote and called to say "no," the traitorous Senate and House (and President) said "yes." It was perplexing. Why? What were they afraid of?

Well now we've found out.

Rep. Brad Sherman of California ( http://www.infowars.com/?... ) came forward and admitted that some in the House are claiming to have been threatened with marshall law in America if they didn't vote for it. And to back it up, the 1st Brigade Combat Team of the 3rd Infantry, was suddenly, without previous announcement or justifiable reason, redeployed to American soil. (This development is so alarming that even the normally passive and reserved Cato Institute made a statement about it to CNN: http://www.cnn.com/2008/U... )

It is time for a housecleaning! Time to show them that they work for Main Street, not Wall Street.

Based on quick analysis, it looks like there are several Senators who voted "yes" who are in tight races, and perhaps more who are vulnerable. In the House, the analysis is even better. There are over a dozen who are in vulnerable races, where a little bit of effort might make all the difference. And, a number of Senators are also subject to recall (18 states allow of it). And once we get the momentum going, then we can go after the Fed.

Targeting these so-called "representatives of the people," with print and radio ads highlighting their betrayal, could really make an impact on their chances for re-election -- and put the fear of constituency back into the Washington elite.

Are you interested in making it happen? There isn't much time before the election, so it will take money (quite a bit, things cost more at the last minute) and effort (the same). Can you participate by offering time (to write letters, post to forums, hang door hangers), special skills (web design, copy writing, political analysis, seed capital(!), graphic design, printing) or funds (did we mention money)? Please make a pledge to un-elect these traitors.

Contact the Constituent Response Team at constituentresponse@gmail.com if you can pledge some of your time, fortune, or honor to saving America for the Americans on Main Street.

they're all criminal

On October 4th, 2008 jonibaloney says:

criminals

Who are the masters they now

On October 4th, 2008 FreeJesseVentura says:

Who are the masters they now serve? The mega-banks? The president? Secret societies? It sure as hell ain't the American public.

Brilliant! Lets put in

On October 4th, 2008 Victoria says:

Brilliant! Lets put in charge the same numbskulls that got us into this mess.

The congressional idiots STILL seem to think...

On October 4th, 2008 Cliff Treadway says:

they did the right thing (?) That level of stupidity is an art form. I don't think the English language contains words to describe that kind of mentality.

Cliff Treadway, Sioux City, Iowa