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So far, their has been virtually no improvement in retail sales, despite an uptick in confidence from the depths of the crisis low. On a global basis, the European continent is suffering amid chronic high unemployment, while in Asia the big question revolves around the longevity of the current inventory replacement cycle. As the global manufacturing center, inventory replacement can drive the Asian economic engine for a quarter or two, but more sustained growth will need to come from concentrated government spending as exports may revert to a sluggish posture later this year. Perhaps one of the key themes which is fairly clear is that the global monetary system is in strong need of re-alignment. Profligate central banking practices virtually guarantee a new cycle of competitive currency devaluations in the years ahead in what will most likely be a controlled decline. At the moment, it is in virtually no one’s interest, including China, to see the US Dollar collapse in a hail of bullets. The resulting currency market turmoil would drive rates up around the world, and would further cripple any prospect of even marginal growth. In fact, it is not an exaggeration to suggest that a major uncontrolled currency crisis at this juncture could easily send the world in a second Great Depression, which would fuel protectionist fires in virtually every corner of the globe. .....
For students new to the markets it is worth understanding a typical picture that often precedes a major panic. Unlike the popular conception that ‘panics’ tend to hit out ‘left field,’ a fair amount of time they act as an exclamation point of sorts to a market trend that had been in force for some time, often years. While we are not saying that there are not occasions when crisis can erupt from ‘thin air,’ what we are saying is that a lot of the time, real panics tend to come from trends that have already been in motion for some time. The classic picture of this outcome is the curvilinear decline where a market down trend slowly gains increasing downside momentum over a long period of time. Eventually, the building downside momentum snowballs into a full-blown crisis, and prices fall precipitously in a short period of time.