HAUKE: A long market slump would defy history

As long as I can remember, there has been a predictable pattern to the seasons. I grew up in the Northeast, which has similar
weather to Indiana, and I knew summers were going to be hot and winters were going to be cold. I also knew something else
that was helpful: Summer never turned into winter without going through fall first.

While the stock market is not as easy to follow as watching a calendar, it leaves evidence as to what it is going to do next,
much like falling leaves warn you about the coming of winter.

But the last two months are putting this long-term stock market pattern to the test. The market hit a new rally high April
23, and all the intermediate and long-term indicators hit new highs along with it. Despite that positive combination, stocks
have been hit hard since. Is it possible that, for the first time since 1932, the stock market went from summer to winter
without going through fall?

While anything is possible, consistent success in the stock market is found through probability testing and reacting in a
manner that is reflective of those probabilities. Every stock market top going back to 1932 has flashed warning signs before
the actual top arrived.

These signs are in the form of, but not limited to, indicators like the number of stocks hitting a new 52-week high and advance
decline lines. If April 23 turns out to be a major stock market top, it will be the first time in almost 80 years this has
happened. Probabilities suggest it is not a major top, but rather an old-fashioned, nasty correction. Probabilities suggest
that the primary uptrend that began in March 2009 is still intact and prices should turn higher over coming months.

On a different note, there seems to be an argument in the international scene regarding the spending policies of world governments.
European countries are in the process of enacting austerity measures, with Greece changing the social contract with its citizens.

America is telling other governments to keep spending and save the austerity ideas until another day. We insist that spending
cutbacks will derail whatever global growth we were seeing. Isn’t that something? We are witnessing a bit of a role
reversal here, aren’t we? It is good for the long-term prospects of the world economy that countries are trying to get
out of the candy store giveaway business. In addition to giving less to its people, Greece is selling off several state-owned
industries like railroads and casinos. These steps will lead to a lower velocity of money in the short term, but down the
road this is a home run.

These countries are going to improve their balance sheets and at the same time wean their people off the dole. Who knows?
Maybe in five years we might even see a major European country cut taxes. Russia just eliminated its capital gains tax and
took other steps to improve its business climate. I like what I see, and I hope it starts to rub off here at home.

There is a movement here in America that reflects the austerity overseas, but it is not with our federal government. Towns
and counties around the country are slowly taking steps to shore up finances. Baltimore is increasing the number of years
before firemen and police can take retirement. A southern California town just fired all its employees and outsourced town
services. New Jersey overhauled state spending, because, as I heard its new governor say recently, states can’t print
more money.

There is a lot more work to be done and an incredible distance to go. But I like what I see. I hope our government catches
the bug and cuts spending soon. There are a lot of easy ways to do this before we move on to the big stuff, like Social Security
and Medicare.•

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Hauke is CEO of Samex Capital Advisors, a locally based money manager. His column appears every other week. Views expressed
here are the writer’s. Hauke can be reached at 203-3365 or keenan@samexcapital.com.