Financial topics

[John]

The web site went down for about an hour this afternoon, because it
was overloaded. I was able to implement a quick patch on my web
server software that bypassed a bunch of stuff and brought the site
back up.

I believe that I had about 20,000 to 30,000 sessions today,
apparently because of referrals to my article on Roubini, Art Cashin,
and generational crashes. That's really exciting, but my old,
creaky, ten year old Perl web server software had some problems.

If traffic keeps growing, I'll have to consider another web site
solution.

John

[John]

I've transcribed some truly bizarre things for this web site, but
this one is near the top.

This is Bill O'Reilly, giving investment advice on his show on Friday
evening, October 24, 2008:

> Some good news now. OPEC is cutting their production. And the
> price of oil continues to go down. So I want to tell everybody,
> please continue to cut back on your oil consumption - drive these
> folks into the ground. ...

> More good news. Stratfor is saying that it's a short recession.
> They're saying that this recession could be over in early '09.
> ...

> I believe that this market is being manipulated now by the
> speculators - the same people who drove up the oil prices. And
> remember, nobody but me was telling you that. And the oil
> companies hid behind that to raise their prices.

> Now the speculators are out of the market - you can see where oil
> is.

> That's what's happening now in the stock market. It's not the
> folks [causing this]. It's the people in Dubai, at the computer
> terminals.

> Interruption by Cheryl Casone, Fox Business Anchor: Kind of.
> I've gotta say here, a lot of those people that are selling are
> mutual funds. The folks at home, their mutual fund, they're the
> ones that are getting out, because they don't want you to open
> your statement at the end of December and see another ...

> O'Reilly, in incredulous tone of voice: But if these funds get
> out, they can't make it when it goes back up. ...

> But look, this is what I'm trying to get to ... and this is about
> you, out there, ladies and gentlemen. I don't think people
> should even watch the stock market from day to day any more.
> Don't open your statements. Put them in a little pile, and around
> Christmas time ...

> For the next 90 days or so, just have some fun. ... But
> Stratfor.com - these are good guys, these are smart guys, and they
> say, it's gonna turn up quickly next year.

Holy cow! This is an utter disaster. He has millions of viewers,
and many of them are going to be totally destroyed by this advice. I
could hardly believe my ears.

And if that isn't bad enough, there's a subtext: It's the speculators
and the Ay-rabs who are killing the market, and he's warning us about
that, just as he warned us that the speculators and the Ay-rabs
caused oil prices to go up. If I understand him correctly, he's
taking credit for being the only person who said that it was the
speculators who drove the price of oil up, and he's taking credit for
bringing the price of oil down, by telling his millions of viewers to
cut back on oil consumption.

So now we have both Warren Buffett and Bill O'Reilly who have turned
into complete whack jobs.

John

[JimZ]

John wrote:

So now we have both Warren Buffett and Bill O'Reilly who have turned
into complete whack jobs.

John,

O'Reilly has ALWAYS been a wackjob. He also is INCREDIBLY reckless - he gives financial advice that follows whatever way the wind is blowing that day. I dont think he realizes there are people out there who just may come after him after they lose everything and realize he said whatever sounded good to him at the moment the thought entered his little mind. O'Reilly is a horses ***.

[John]

Dear Granny Pat,

John - this is flu season. Have you had your shot this year? I reacted to mine by feeling cold and sluggish and moderately dysfunctional for several hours, which tells me what it's protecting against is probably pretty strong. So consider that this might be the fly and take good care of yourself.

If you have fresh minced garlic (comes in a jar at the supermarket), add it to your hot chicken soup.

Granny Pat

Thanks for the suggestions, doubly appreciated since today would have been
my mother's birthday. I also took my vitamin c like a good boy.

And thanks to everyone else who wished me well in private messages. I
appreciate them.

Sincerely,

John

[John]

Dear Gordo,

> Just to recap what Bernanke said in 2002, because I think its
> important, and John has basically dismissed it:

> > "Although a policy of intervening to affect the exchange
> > value of the dollar is nowhere on the horizon today, it's
> > worth noting that there have been times when exchange rate
> > policy has been an effective weapon against deflation. A
> > striking example from U.S. history is Franklin Roosevelt's 40
> > percent devaluation of the dollar against gold in 1933-34,
> > enforced by a program of gold purchases and domestic money
> > creation. The devaluation and the rapid increase in money
> > supply it permitted ended the U.S. deflation remarkably
> > quickly. Indeed, consumer price inflation in the United
> > States, year on year, went from -10.3 percent in 1932 to -5.1
> > percent in 1933 to 3.4 percent in 1934.17 The economy grew
> > strongly, and by the way, 1934 was one of the best years of
> > the century for the stock market. If nothing else, the
> > episode illustrates that monetary actions can have powerful
> > effects on the economy, even when the nominal interest rate is
> > at or near zero, as was the case at the time of Roosevelt's
> > devaluation."
> > http://www.federalreserve.gov/BOARDDOCS ... lt.htm#f19

> If the "new depression" scenario really does in fact play out as
> most here expect, the above is exactly the policy response you
> should expect. Exactly how it will look, I don't know, but it
> will have its intended affect of forced inflation.

I'm sorry, Gordo, but you really have to wonder how Bernanke managed
to get through Economics 1.01, let alone become head of the Princeton
economics department.

He talks about inflationary measures that were taken in 1933-34.
Well, that was 4-5 years after the deflationary spiral had begun. By
that time, the deflationary spiral had run its course, and reflation
would have begun no matter what FDR had done.

By contrast, Bernanke has opened the liquidity floodgates right at
the beginning of the deflationary spiral, and it's done almost nothing
to stop the deflationary spiral today. Perhaps, if he's lucky,
President Obama can find a way to take credit for reflating the
currency when its time comes, around 2012-13.

Ben Bernanke is considered the world's leading expert on the Great
Depression, on economics and macroeconomics, but his understanding of
all of these subjects is so embarrassingly shallow, it's incredible.
He simply doesn't know what he's talking about.

The reason that I've dismissed what Bernanke has been doing is
because it's total, utter nonsense. I would think that, by this
time, you could see that as well as I can.

Let Bernanke try anything he wants. It will accomplish nothing.

Sincerely,

John

[mannfm11]

I'm going to throw you a curve John. I don't think we are going to have the crash, though we are already having it. I know this sounds funny, but i think the crash happened in 2000, not in 2008. The Nasdaq lost 40+% in less than a month in 2000, one of the worst declines in history. We had a day in April 2000, I think it was the 4th of April where we had a crash that didn't happen. I watched in astonishment as the Nasdaq 100 traded down 700 points only to rally near break even. The Dow went from 200 up to -500 on 2 hours only to close near break even. The floor of the exchange roared like they were invincible. The Nasdaq then fell as much as 80% to its October 2002 bottom over the next 30 months. 2000 was the biggest stock bubble in history, so big that the overpriced market we see today is considered a bargain by bargain hunters like Warren Buffet. There aren't any bargains in a market where we are going into a depression, not at SPX 3% dividend levels and falling.

I have followed EWP for a long time. Cashin doesn't know EWP from Mickey Mouse, but i know a guy that I have debated form with for several years that has been using a count that I felt was not allowable under the rules. I forget the rules are prone to currency exchange today, as the dollar had about 40% of its international value wiped out, meaning the top in the SPX last year was really a 40% decline from the top in 2000 and the Dow was an equivalent 9000 being that the index had been rigged up 900 point through swaps of components and opportunistic splits. Thus the 50% decline (the SPX was a perfect 50% decline interday high to interday low) was met with a real 50% recoup of the losses though it appeared to be over 100% in the indexes. The Nasdaq performed even worse. In any case, this is a theory and the market was propped by an unfinished real estate bubble financed by funny money and an implied government guarantee of the GSE's. If you have seen a picture of the 1929 to 1932 Dow, you see a picture where there was a crash, a strong rally and a 2 year sell off. If you look at the Nikkei, you are looking at a market that has been sold down for close to 20 yeas now and is at a new low as I type. IN any case, I think we are looking at the back side decline, the 1930-1932 decline, what is known as a wave C. In this C, we are also in the strongest and longest wave, wave 3 and we are early in wave 3. Notice everything is capitulation. Cashin is expecting capitulation. What the hell was 3000 points in about a week, a bump in the road? Delusion has taken over the world. I have read this stuff for years having been a bear for 10 years now, how the greatest investors of the time would get sucked into this market on the way down and they would buy it all the way down. Look how many times CNBC celebrates a bottom each month? They always bring some guy on there that has been shaving less time than I have been a bear, some cocky SOB that thinks he is genius because he sits in a chair that has gifted him with a fine income for a few years and is probably losing someone elses money. If I am correct, we aren't going to see a bottom in November, December, January or any of those months, but it will probably be another year.

What people don't understand is that the market is accorded a valuation that is near the peak in 1929 at this time and stocks aren't bargains. They are richly priced as John attempts to show us through the PE/10 model that Shiller used. I spent a lot of time with Shillers numbers and I never knew what the PE/10 meant, though I did figure it had something to do with a 10 year PE ratio. I was more concerned with dividends and the rate of growth in dividends over a period of many years, as the valuation model for stocks I was taught in finance was P=D/k-g, which basically said that k-g was supposed to be the dividend rate. g was the growth rate and k was the capitalization rate. Growth has never been over the long run greater than inflation plus .5% to 1%. Being the return on stocks is an assumed inflation plus 5.5% or more according to the bulls, that kind of return on the SPX is a little out of reach with a 3% dividend going into a possible depression.

In any case, I am beginning to suspect we are looking at that backside decline and not the front side crash wave. Thus not the sudden crash wave, but the constant crash wave. The problem with the herd scaring now is the decline has been going on for a year and it is more a case of liquidation than panic. If 401K and IRA investors are having to sell stock, they are having to sell it. And if they need a certain amount to live on, they are having to sell a sizable sum more to live. Back in 2002 or 2003 I got on a website that discussed how much money one could take out of stocks and not go bust and I believe I came up with 3%. The trap of trying to retire out of stocks is a deep one which if studied would blow holes in the 110 minus your age as a percent to be in stocks so big that one might consider a class action suit about misrepresentation of product. Only when dividends on the market in general are decent should this kind of model ever be considered sound. There has never been a decent long term return when factoring in inflation from a 3% peak and there never will be one from a 1.08% peak like we saw in 2000. That buy and hold artist will need 3 lifetimes to get even.

In any case, what we are seeing is a multigenerational liquidation. What isn't explained to many people and understood only by a very few that it is explained to is the fact that credit has no mathematical solution. It eventually breaks down and those using leverage are liquidated. Don't be shocked if housing isn't liquidated down to 30% of value and all call money liquidated out of this market. That is what these margin calls are, but there are going to be credit card margin calls as well.

Barry

[mannfm11]

I happen to agree with John on that subject about what Bernanke said. Poor Bernanke got to be Fed Chairman and I am not sure he knows much more about banking than a kindergartener. 2 straight guys that were never bankers of any sort running the Fed. Greenspan was full of more crap, talking for hours in circles. When he said something important, it went right past people. I recall he said that in times past stocks priced as they were in 1999 didn't end well. The market took off like there was no tomorrow.

In any case, the problem is a debt bubble and the solution is a debt bubble. For one, FDR devalued the dollar on an international basis and made the domestic currency "Legal Tender for Debts, Public and Private" . Anyone ever read that phrase and digest what it means? It means the stuff is for paying debts. Problem is, there is more of it owed back to the Fed than exists. The problem with what is going on now is that what the Fed has put in is owed back to the Fed. What the government has put in is owed back to the government. It hasn't entered people minds that we have been checkmated to debt around the world. The blame is being fixed on the US subprime collapse, but the entire world financial structure was just waiting for something to push it over. It could have been another Russian default or a Chinese collapse. Lost on the country when blaming Bush is that the whole matter was supposed to deflate in 2000, but for a fortunate attack by terrorists, an ongoing housing bubble that was driven by a group of people wanting to get rich and most importantly the Bush tax cuts put a stop to it. Despite all of this, the recovery was weak due to the massive stock bubble that had been popped. You might read my prior post for more ideas as to what I am talking about there, but the move from 7400 to 11,700 took all of 15 months between 10/98 and 1/2000, but took 3 years between 2002 and 2005. That, despite the fact it was back to 10,600 in a little over a year.

FDR had the mechanism of not only coming in at the bottom, as the best short term rally in history in the Dow was in 1932, not 1934 and that proved to be the bottom, but he had a money he could change. We don't have a money we can change today. We can destroy it, but not change it. There is a lot of revisionist history about the depression and it amazes me when I read the truth, like the nonsense about Smoot-Hawley. Trade declined because the US no longer financed it and European countries that owed the US money in sum took the gold out of the US through private accounts. Once we no longer financed trade, it didn't take place on the level it had and as long as the US was on the gold standard, European countries were devaluing and taking our markets. That isn't the same today. Instead we have $60 trillion in debt and another $60 trillion in CDS's and all kinds of potential liabilities out there. The dollar is tender for debt and it can't get any lower, while at the same time the home equity money machine is tapped out. Also, we haven't seen a slowdown yet and buttons are popping off everything. Housing is still producing 5 million units of pre-owned sales, a pre 1997 record. Dividends recently moved back above a pre 1995 record, yet Bloomberg pushes out this since 1995 bullcrap. The NAR produces bubble statistics to make it appear we are down in the market while in fact the housing market never stopped booming. They can only run the housing market so long without equity extraction and keep the economy afloat.

[mannfm11]

The guys is a moron. I heard him bullng financial stocks one night. For one, the speculators couldn't move the price of oil over a few days at a time. The market had run to over $10 billion a day at the peak, meaning taking delivery on 1% of the total and hiding it somewhere would cost $100 million a day. Tha isn't much money in government bailouts, but it amounted to over 10% of the money that went into mutual funds in any year I can recall. The biggest spike on oil cam when a short seller got squeezed, despite the fact they were hedging oil, had to cover and went broke. You might have witnessed that one day spike in September (the entire retrace of 5/8 of the decline in 2 days) when they squeezed the shorts. That is what happens when speculators get in a market, a few hours movement is about it. Had the hedge funds been taking long positions in an oversupplied market or for that matter even a properly supplied market, the oil companies would have let them finance their inventories for them. 400 million barrels in the US would be about $40 billion. Not only that, but they could have the market risk as well. They only needed the supply coming into the country and they could charge the specs storage fees as well and let them suffer the shrinkage.

People that think it was speculators don't realize that they can't drive the price up without buying and they can't get out without selling. The real problem was the operation of the Federal reserve, which i believe pushed up an even bigger bubble the past year than the one that burst and now we are seeing the reprecussions. I believe the most likely bubbles or corners out there belong in the copper market and of course platinum, both of which are rapidly deflating.

[John]

Dear Barry,

> I'm going to throw you a curve John. I don't think we are going
> to have the crash, though we are already having it. I know this
> sounds funny, but i think the crash happened in 2000, not in
> 2008.

I used to think that the crash happened in 2000 also, especially in
2002-2003, when I was developing the theory behind Generational
Dynamics. Even at that time, though, I was puzzled by the fact that
there hadn't been a memorable "panic event" as there had been in 1929
and in previous crises.

However, in the fullness of time I've come to understand that 2000
could not possibly be the generational panic that I'm looking for.

The dot-com bubble and the Nasdaq crash were almost pure Boomer
plays. The Boomers took charge from the Silents in the early 1990s,
and the Boomers decided that they'd just make much riskier
investments than the Silents did. There was a lot of stupidity,
though not a lot of dishonesty.

The real credit bubble began in 2003, when the Gen-Xers took over,
creating the super-complex financial structures that turned out to be
fraudulent. It's not possible for the generational panic to have
occurred, since one purpose of the generational panic is to convince
the Nomads there was a purpose to Artist and Prophet values after
all.

So the Nasdaq crash could not possibly be the generational crash.

> I have followed EWP for a long time. Cashin doesn't know EWP from
> Mickey Mouse, but i know a guy that I have debated form with for
> several years that has been using a count that I felt was not
> allowable under the rules.

You're probably right that Cashin doesn't know Elliott Wave theory,
and simply threw in that reference to it as an aside.

But I've heard Cashin comment many times, including a few times in
the last week, and I don't believe he reached his conclusions based
on some ethereal analysis of any theory.

Cashin is a UBS floor manager, one of the old-timers on the NYSE
floor, and he probably talks to hundreds of people a day, and reaches
conclusions based on those conversations. What he's sensing is that
something very big is coming. He had expected it by now, but when I
heard him late Friday, he was talking about the next week or so.

You guys have got to stop thinking this way. This has gone way
beyond what I say or what Cashin says or what any one person says.

You have massive forced selling going on in hedge funds; you have
massive redemptions in money market funds.

You have dozens of stock markets around the world that have crashed
50% or more.

You have commodity prices and the Baltic Dry Index crashing 70% or
more.

You have 3rd quarter corporate earnings estimates that are still way
below forecasts.

Meanwhile, the $700 billion bailout has had no noticeable effect.

There is a HUGE, MASSIVE downward trend in progress. NOTHING can
stop it.

And at some point it's going to cause a HUGE, MASSIVE worldwide
panic, like the world has never seen before. There is no stopping
this.

There's no point in trying to wish it away, or to rationalize it with
some theory. It's coming, and it's coming soon.

Sincerely,

John

[herman19745]

In these times of doom & gloom on the stock markets I have some questions.
Already now the stockmarkets in Europe are down with 60% and more since 2007. The private investor is already gone out of the markets. Most sell-off's are now done by banks, hedge funds etc.
A lot of banks are nationalized.


So why do you think a huge panic will come ? In my opinion this panic already happened.
I can imagine that we will have a deep recession in 2009/2010 with a lot of layoff's etc, but everybody knows that. But thats no reason to panic.