Wednesday, February 06, 2008

Yikes.

BIZNETDAILY
Economist: Expect Fed to lower Dow to 8,000
Critic claims agreements involving billions used to shift market
Posted: February 05, 2008 10:11 pm Eastern
By Jerome R. Corsi © 2008 WorldNetDaily

Consumers should expect a deep recession, triggered by the "stealth methodology" of the Federal Reserve to "depress" the market even while lowering interest rates in an ostensible effort to stimulate economic growth, an economic analyst is charging.

"Fed wants the Dow Jones Industrial Average and other financial indicators to descend in a managed way," Bolser said. "The Fed wants to drive the DJIA toward the 8,000 level, or below, in order to help create a deep recession which will have the effect of slowing consumption across the board, and dampening the otherwise harmful effects of inflation.

"A falling DOW is only one element of the recession effects of the excessive Fed-created housing and credit creation, whose bubbles are now bursting," he added.

"Without this recession, we would be on quick trip to hyper-inflation," Bolser, the author of an internationally followed newsletter published in conjunction with his InterventionalAnalysis.com website, said, "and the Fed wants to prevent this."


First off, I agree that hyperinflation needs to be avoided at ALL costs - and relatively rapid asset depreciation to a sustainable level would accomplish this. The Feds aren't insane - they just have a bad plate of alternatives to work with (yes, it's their own fault, but that's not really a helpful thing to know).

Now this headline really fascinated when I saw it, because - as some of you may remember - late in 2006 I ran a very rough trendline [which I updated in early 2007]. I think that was published on the old Yahoo blog that I no longer have (I switched to Blogspot in the fall of 2006). I have even mentioned lately on UOJ and maybe some other sites that the equilibrium price of the DOW wass about 8000! And I still have the graphic, and here it is:



I will put this over on the right hand side under "economics" also, since in some strange oversight I forgot about it when I was fiddling with the blog format to add the column of charts and graphs a month or so ago.

While I'm at it, here's another trendline that I ran: that one was for housing prices:



The DOW chart doesn't "look" scary at first glance because the top is algorithmic instead of making an "oooo-aaaaah" high pitched hyperbolic curve upward. But it should scare you, because if 8000ish is still the correct equilibrium price, that means stocks needs to plummet over 4000 points to get there!

Oy, veh.

4 comments:

Garnel Ironheart said...

Interesting point. The problem is that from other angles, the Dow might still be undervalued in terms of price/earnings ratios.

On the other hand, the hyperinflation argument is an important one. With the culture of hyper-consumption that has engulfed us for the last couple of decades, it's a wonder it hasn't happened already.

What have you seen in terms of the long-term effect of baby boomers retiring and slowly taking their money of out the market?

Ahavah said...

That kind of depends on immigration. If all the immigrants could be properly integrated into the normal tax-paying market-rate economy, then we'd have sufficient new population to cover the loss of productivity of the old. As it is, the vast majority of these wages and sales are off the books at sub-legal levels. The black market doesn't support anyone except the profiteers in it.

It's hard to say how that one will come out. Many people want to expel all the illegals and restrict immigration. It's too early to tell if they'll win or not.

As for "taking out their assets," that presumes their assets will still be high enough in value to accomplish supporting them, which is not likely, to say the least.

Garnel Ironheart said...

Then there's Warren Buffett who said in Toronto yesterday that he's bullish on the US economy and feels the recession will be short. Like him or not, he does have a proven track record of predicting and profiting from market trends.

We'll know if this is a recession for sure in about 3 years!

Ahavah said...

Warren Buffet is not a disinterested party - he's a lot like Alan Greenspan was. If he tells people it will be a short correction, they'll believe it and hopefully won't voluntarily restrict spending and traveling. That presumes they have any money with which to shop and travel, of course. If Warren had said, "Oh, hell - I'm getting out of the American market as soon as my broker's door opens tomorrow morning" what would happen? He couldn't say that even if he planned to do it.

What he will do is quietly move his money around - to very selected segments of the American economy, and to segments of other markets. He'll play up the American segments and be mum about the others. That's exactly what all his buddies are doing, too. In fact, it's what any smart person is doing. Medical care is actually a good bet - people have to have it, and it is something we can know for sure that government WOULD step in and save if necessary. Utilities, ditto. Even oil companies - as I said, government still has to have gas and diesel even if no one else is allowed to. So it's not like there are no segments of the American market that can survive - but most people will just go on buying their mutual funds and index funds and do poorly (if not lose everything).

There are a few websites you should have a peek at:

http://ml-implode.com/

http://hf-implode.com/

http://www.fdic.gov/bank/individual/failed/banklist.html

And I noticed something else, too - there was a commercial for a large regional bank in our metro area, and I was looking at the small print at the bottom of the page (a sort of hobby - all the interesting things are there, kind of like those commercials where they tout some medicine as a great thing and then say very quickly that it makes you a gambling addict who chases prostitutes and passes out in your car while driving). Anyway, the tiny print had changed - the largest regional state bank here is now no longer FDIC insured. That means their reserves fell below the required level and they were dropped like a hot potato - but nobody knows it. It's right there in the ad, in plain sight - but people don't pay attention.

It's the little things that make the difference.