Thursday, February 25, 2010

A belated prediction.

A few weeks ago I listed predictions from several economic sites for the coming year or two from several different authors. This one was just published a couple of days ago, and I'd like to add it to the bunch. Recall that the Market Oracle is a British group. If these guys are correct, it is too late for us to transform our communities significantly in regards to infrastructure - meaning we will have to make our communities self-sufficient and relocalized without any real mass transit, amoung other things. That's going to be a neat trick.

The Market Oracle Online
Ignore the Illusion of Economic Spring, Stock Market Crash This Year
Feb 23, 2010 - 01:37 AM
By: The_Gold_Report

...We're in for a lot more of a long, harsh Winter—a real whopper in terms of the Kondratieff cycle that the Longwave Group's Ian Gordon has become expert at analyzing and interpreting. In this exclusive interview with The Gold Report, Ian pulls no punches about the dreadful times ahead as economies wring out decade's worth of accumulated debt...

...Russian economist Nikolai Kondratieff developed his thesis on this in the 1920s. The cycle lasts approximately 50 to 60 years. I call it a lifetime cycle, because we live only one cycle in a meaningful way. For that reason, it is also very difficult for anyone to recognize where we are in the cycle because we haven't lived it that period before.

For example, we are now in the depression stage, but no one really refers to it that way. I do believe we are in depression because the real number on U.S. unemployment is somewhere around 17%. That to me is a depression...

...When the big speculative bull market when all the huge debt that's been built into the economy is wrung out, through either payback or—in most cases—bankruptcy. Creditors and debtors alike suffer very, very much during the Winter period. It causes a crisis in the banking system because banks are the biggest creditors. If you look at the last Winter after the 1929 stock market peak, 10,000 U.S. banks failed by 1933...

...So, we're now in the Winter. I've argued the real peak in the stock market occurred in 2000; that was certainly the speculative peak on the NASDAQ. At that time, too, consumer confidence peaked. Alan Greenspan decided he didn't like Winter and to save the American economy from a depression, he cut interest rates from 6% to 1%, and pushed enormous amounts of money back into the banking system to try to refloat the economy. He did that to some extent, but in effect, he really built up the debt level to absolutely unmanageable proportions and particularly in the housing market, which resulted in this huge speculative phase in real estate.

That housing market bubble burst, and it has a lot further to go on the downside. The stock bear market that began after the NASDAQ peak—and it has never gotten anywhere close to that level since—began for the Dow in October 2007...

...I am very much a deflationist. Taking the debt out of the system is in itself a deflation process. You can see it in falling housing prices. As debt comes out of the housing and mortgage markets, it deflates prices. We're going to see the same in stock prices. Wealth is being reduced considerably, and that is deflationary...

...The Federal Reserve is printing copious amounts of money trying to re-start the economy. Unfortunately, the rate of debt being taken out of the system eventually will overwhelm their ability to do that.

...I think China's banking system will go the way the U.S. banking system did in the '30s, and the whole economy will go into a collapse. But out of it, she will rise as did the U.S. as the greatest economic, financial and political power. She will be the world leader.

...During this depression silver may well take on a monetary role, since the price of gold might take that metal out of reach of many people. I think only the precious metals work—again because of the stock market debacle that I see occurring...

...I think the run to gold will become very extreme this time around, but in many cases these gold stocks today haven't recovered from their highs of early 2008 anyway. If you look back on the past Winter, when the Dow lost 48% of its value between September and November of 1929, Homestake crashed. But in subsequent downs, Homestake went up. I feel that will happen again.

...The stock market recovered 50% of its losses in a rally into April of 1930. That's very similar to the rally we went through from March 2009 to mid-January this year. Now, we're on the downturn again in the market, and I am predicting that this one will take us down to somewhere about 5250 on the Dow either this year or early next year. And then we'll get another rally. Hope springs eternal.

But then I think the whole stock market bottom will be reached in 2012. The only reason I am picking 2012 is I am a huge fan of a great cycles guy who died in 1955, called W. D. Gann.

...He did a lot on anniversaries and so on, and 2012 happens to be the 30th anniversary of the 1982 bottom, which was the beginning of the big speculative Autumn bull market. And it's the 10-year anniversary of the first bottom, in 2002. The market peaked in 2000 and dropped in 2002. It's also the 80th anniversary of the 1932 Winter bear market bottom, after the Dow had dropped 90% from its 1929 high.

...I think we're going to have a crash in stock prices this year. But I am staying long in my gold stocks.

There is absolutely nothing, nothing whatsoever, in the business fundamentals that supports the DOW anywhere near 10,000. As this analyst notes, the equilibrium value is somewhere in the neighborhood of HALF that and the market will, however much the Fed tries to manipulate it, find its real value eventually - and the Fed is running out of tricks. It can't continue to try and buy all the US bond issues behind the scenes forever - that strategy might have worked if they had only done it for a short while but now the US is basically buying almost ALL of its own debt issues. Other nations simply aren't interested in them, and when the public digests the fact that the government will basically be left with shutting down most of it as the only operating option, the market will crash like a rock and not recover for years.

And along with this realization will be the end of any hope of more "stimulus money" trickling down to fund our electric buses, trolleys, light rail and commuter lines. The money is simply NOT going to be there, class. We will soon be on our own in a sea of debt, declining tax revenue, and no help from Washington for our local government needs. Nobody can keep spending money they don't have indefinitely, not even the US government. It has to end, and when it does, it will take the market down with it.

Investing in the stock market has always been gambling with your money - but now its more dangerous than ever. Don't count on your investments getting you out of trouble, because they aren't going to. No more "something for nothing," only living within your means will be possible, however meager those means may be without credit and without imports.

Ready or not.

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