Market Rules by Farrell

David Rosenberg (former head economist at Merrill Lynch) used to refer to Farrell's rules frequently, and I agree there is eternal wisdom contained therein, so here it is:

Bob Farrell’s 10 Market Rules to Remember 

1. Markets tend to return to the mean over time 

2. Excesses in one direction will lead to an opposite excess in the other direction 

3. There are no new eras -- excesses are never permanent 

4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways 

5. The public buys the most at the top and the least at the bottom 

6. Fear and greed are stronger than long-term resolve 

7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names 

8. Bear markets have three stages -- sharp down, reflexive rebound and a drawn-out fundamental downtrend 

9. When all the experts and forecasts agree -- something else is going to happen 

10. Bull markets are more fun than bear markets

Japan, Europe, and USA (the developed west) all have unsustainable levels of debt. That is as bearish a fundamental backdrop as can be imagined short of a Holocaust. Now why isn't anyone spelling it out for regular folks on conventional media outlets?

So regarding rule #8, one of two things are possible in my view - we had the "sharp down" in 2008, and are now in the drawn-out phase. Or an even bigger sharp down could still happen. Central Banks are preventing a complete collapse so far, so based on that I think the latter is the less likely of the two. But the idea the central banks of the west will somehow alleviate unsustainable levels of debt by piling on more... well, that seems highly unlikely. Problem is, they've already painted themselves into this corner by assuming it could never get this bad. Now that it is this bad they are stuck.


If that were not enough, we have a perfect storm brewing, read the book "Currency Wars" by James Rickards to get the gist.