The S&P500 crept lower, slipping almost half a percentage point last week, on moderate volume. Volatility also crept higher, up about 4%.  The month (September) ended a quarter that was the worst since early 2009….during the depths of the last market meltdown.  Also of note, September’s loss was the fifth consecutive monthly loss in the S&P500.

Something’s changed in the character of the stock market.  Buying on the dips has not been working. Instead, selling on the rallies has.  This is a trait of bear markets.

In macro news, the data were mostly poor. New home sales were weaker than expected. Consumer confidence also disappointed; but consumer sentiment was better.  Durable goods orders were much worse than experts predicted; instead of rising 0.2%, they fell 0.1%.  Initial jobless claims fell just below 400,000. But this was so unexpected that the BLS itself cautioned that the results may not be accurate.  Personal income was the shocking disappointment of the week. Instead of rising slightly, it fell…..for the first time in a long time.  And the personal savings rate fell to the lowest level in two years, suggesting folks are not saving because they need to pay for everyday basic needs.

Technically, the two month consolidation—which began after the late July and early August plunge—seems to be resolving itself to the downside.  The 50 day moving average has not functioned, beautifully, as a source of resistance.  All breadth and momentum indicators are still very bearish….on both the daily and weekly charts.  More ominously, other non-equity markets are just now starting to fall apart. Copper, corn, precious metals, oil and others are all imploding.  These markets—while affected by equity markets—also feed back into equity markets, and in this case, will provide additional downside pressure.

What’s causing the global equity markets to keep melting?

Well, we all know about Euroland. Yes, it’s a time bomb waiting to go off.  But it’s not the only reason risk markets are crashing.  The other, not totally related, factor is the pricing in of a US and global recession.

It’s becoming more clear that the US, Euroland, Asia, Latin America and Australia are all slowing down to the point where they will soon (in they haven’t already) be in recession.

The ECRI, which has successfully called all of the recessions of the last 20 years (and more critically, has not erred by calling for recessions when they didn’t actually happen) just announced that the US is entering into bad recession.  What’s worse, there’s nothing policymakers can do to stop it now.

And even worse than that, this recession is NOT predicated on an implosion in Euroland.  If or when THAT happens, this recession….according to the researchers at ECRI…..will become even more severe.

Good times!

On another note, BCG—one of the world’s premier consulting firms—recently released a paper arguing that the root cause of the ongoing global recession is the massive excess debt build up that peaked in 2007.  What’s more interesting is that BCG is putting a figure on the amount of debt that must be reduced in order for the world’s major economies to resume sustainable growth.

BCG simply reverts back to a sustainable debt-to-GDP level of about 180%.  As a result, their researchers argue, that over $20 trillion in excess debt must be eradicated….in the world’s major economies.

That’s funny.

Because this author argued that the US economy alone must shed about $20 trillion in debt—for the very SAME reasons that BCG employed.

When did world-renowned BCG publish its paper?  September 2011.

When did this blog publish it’s virtually identical argument? December 2008.

Almost THREE YEARS earlier!

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