Rod Dreher

Rod Dreher


Coming: Dow 1,000?

posted by Rod Dreher

With his column saying that we may be inside a pessimism bubble destined to burst, Ross Douthat was trying to cheer me and my gloomer tribe up. Douthat FAIL! He introduced me to this recent NYT profile on stock forecaster Robert Prechter, who makes Nouriel Roubini sound like Jiminy Cricket. Excerpt:

“I’m saying: ‘Winter is coming. Buy a coat,’ ” he said. “Other people are advising people to stay naked. If I’m wrong, you’re not hurt. If they’re wrong, you’re dead. It’s pretty benign advice to opt for safety for a while.”
His advice: individual investors should move completely out of the market and hold cash and cash equivalents, like Treasury bills, for years to come. (For traders with a fair amount of skill and willingness to embrace risk, he suggests other alternatives, like shorting the market or making bets on volatility.) But ultimately, “the decline will lead to one of the best investment opportunities ever,” he said.
Buy-and-hold stock investors will be devastated in a crash much worse than the declines of 2008 and early 2009 or the worst years of the Great Depression or the Panic of 1873, he predicted.
For a rough parallel, he said, go all the way back to England and the collapse of the South Sea Bubble in 1720, a crash that deterred people “from buying stocks for 100 years,” he said. This time, he said, “If I’m right, it will be such a shock that people will be telling their grandkids many years from now, ‘Don’t touch stocks.’ ”
The Dow, which now stands at 9,686.48, is likely to fall well below 1,000 over perhaps five or six years as a grand market cycle comes to an end, he said. That unraveling, combined with a depression and deflation, will make anyone holding cash “extremely grateful for their prudence.”
Mr. Prechter is hardly the only market hand to advocate prudence now, but nearly everyone else foresees a much rosier future, once current difficulties are past.
For example, Ralph J. Acampora, a market analyst with more than 40 years of experience, said he moved entirely out of stocks and into cash late last month. Now a partner at Alverita, a wealth management firm in New York, he said recent setbacks suggested that the market would drop another 10 or 15 percent, probably until September or October, before resuming another “meaningful rally.”

It’s well worth reading the entire article to see how Prechter reckons on this apocalyptic scenario. Note well that Prechter is very far from a fringe figure; he’s at the top of his profession, even though he’s staked out a radical position on this particular issue. I know myself well enough to know that I’m at risk of confirmation bias when confronted by something like this. Leaving aside Prechter’s scenario, it’s interesting news to me that even market forecasters who think he’s way too pessimistic are moving out of stocks for the time being. That datum got me to thinking about how I’m supposed to know when to phone my portfolio manager and ask him to get us entirely out of stocks. We weren’t hurt badly at all when the market crashed a couple of years ago, because in consultation with him, we had invested conservatively. Still, we do hold some mutual funds now, and I’m wondering if it’s time for a conversation with him to get us out of stocks entirely, at least for now. We don’t have much money at risk in our investment portfolio, but it’s all we have, and it is our retirement.
My question is not, “Is Prechter right?” (OK, so it is my question, but it’s one I’m in no position to determine); my real question is, “How do we make the decision to place a bet on the advice of someone like Prechter?” That is, there are market forecasters who say A, others who say Not A. Investors like me are utterly unsophisticated about these things, but at least I hope I’m smart enough to know what I don’t know. I also know that even the experts can miss calls badly; every expert who missed the coming crash — and that was most of them — cost a lot of people a fortune over their bad advice. A friend of mine who had billions under investment got out of the market and saved his fortune because he could see the last crash coming. He said that he was by no means the only one of his professional circle who could see the data indicating a coming crash, but he was the only one who didn’t double down on gambler’s logic, and assume that he had time to place a few more bets before the casino’s roof closed in. In other words, his self-discipline, and ability to allow cold analysis of the numbers instead of optimistic emotions guide his decision-making, saved everything for him.
But he is a very sophisticated investor. I ain’t. What are people like me and thee supposed to do? Reading Prechter, and factoring in his statements with what you know from your other observations, what do you think?



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Scott Lahti

posted July 5, 2010 at 9:51 am


It’s fun to pretend these Name forecasters have any real authority, isn’t it – I mean as opposed to those from precincts more ancient and with at least the residual humility to don pointy cap with moons and stars?
Jimmy Glassman and Kevin Hassett, please pick up the red-faced courtesy phone.
As you watch dozens of suckers – er, commenters – claiming to have an inside track on what the future holds in the markets, you will have begun new life as a wise man instanter you see you have no reason to trust any of them.



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The Cynical Christian

posted July 5, 2010 at 9:56 am


My question is: if I’m I’m pulling my money out of stocks, where do I put it? Cash? At the rate the government is printing money, how can inflation not go through the roof? What are my other options?



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MH

posted July 5, 2010 at 10:03 am


I think technical analysis is the modern version of examining a chicken’s entrails to predict the future. After I previously stated this opinion, another commenter said “at least you can eat a dead chicken, so that isn’t a complete waste of time.”
I know I can’t predict the future, so I am sure I don’t where the stock market or economy is going. But no one will pay for advice like that.
But people will pay for the advice of oracles of dubious value. The problem is that they are stopped clocks, eventually they will be right due to a coincidence with the time of day. They will then loudly proclaim that it was their underlying theory and not mere correlation.



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thomas tucker

posted July 5, 2010 at 10:35 am


Echoing the other two comments, it seems to me that no one really knows and that is why trying to decide what to do is so frustrating. Having said that, what does your friend mentioned at the end say to do?



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R

posted July 5, 2010 at 10:52 am


You may want to look into the past accuracy of Prechter’s previous forecasts. A stopped clock has the correct time twice a day.



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john

posted July 5, 2010 at 10:54 am


In the crash of the past few years, the great companies like PG, JNJ, CVX et al still maintained and raised their dividends. If you depend on dividends, their stability is what matters most. Is Mr. Apocalypse suggesting that corporate earnings also will fall by 10x and dividends are eliminated? If companies need to do that, it must mean that the economy has been so damaged that it will become total anarchy.



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Christopher

posted July 5, 2010 at 11:04 am


“How do we make the decision to place a bet on the advice of someone like Prechter?”
Well Rod it depends on whether this man has shorted the market extensively. What are his personal positions??? What are the positions he has taken for his client’s?? No one makes these kinds of predictions in our media driven culture without some ulterior motive. You can *NEVER* take the predictions of anyone in the financial world at face value. Matt Simmons’ the uber mensch of peak oil has made predictions are tainted by his being an investment banker who has a financial stake in the direction of oil prices. To believe that Prechter is saying these things out of the charity of his heart is deeply naive.



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GingerMan

posted July 5, 2010 at 11:44 am


“A grand cycle is ending, he says, and the time for reckoning is near.”
This sounds like something someone would say before some Aztec sacrifice ritual. Does he wear a feathered headress while being interviewed on CNBC?
These Elliot Wave theory “analysts” are essentially looking at patterns of past stock market movements and expecting them to repeat in the same patterns as they have in the past. Problem is that the world has changed. I mean how much relevance, really, is the market behavior in the 1920’s and 30’s to time now, since the broader economy, financial marketplace and regulatory environment are radically different.
Further, humans are pattern seeking animals. It’s easy to see a “pattern” in what is actually random data (there have been studies done challenging these chartists to discern between actual and random stock market data, they can’t do it).
However, since this guy was a psychology major and a former drummer in a rock band, he’s obviously the oracle we should all be following. More seriously, even if he ends up being right, it won’t be for the reasons that he makes to justify his predictions.
Also, as Christopher noted above, you have to take information provided in this manner at face value. Meaning if he is giving this advise away for free, then how much is it worth really? Someone with a true “edge” in market forecasting isn’t going to be giving this knowledge away I can tell you that much.



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the stupid Chris

posted July 5, 2010 at 12:17 pm


I’d say this is either the opposite of what the Austerity crowd would have you worry about, or the result of the policies they are urging us all to embrace.
Again, Dow won’t hit 1,000 (any more than it would hit 36,000) unless we do some very dumb things in sequence to ensure that result. And having seen that such a result is possible, it would seem that we should be trying to figure out how to avoid this result.
“Winter is coming, buy a coat” assumes there is nothing anyone can do. There is, we need only be smarter than George W. Bush and less committed to fiction-based economic ideology than Alan Greenspan.



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Jon

posted July 5, 2010 at 12:31 pm


1. There are no such things as market cycles. That’s the same sort of bunk as astrology. The market is a chaotic system (I mean that in a technical mathematical sense) and there are no regular cycles by which its future may be calculated.
2. The market bears a passing dependence on the underlying value of the companies that are traded on it. We can debate whethe these companies are a bit over-valued (or maybe a bit undervalued) at the present. But there is no way on earth they are overvalued by a whole order of magnitide.
Re: At the rate the government is printing money, how can inflation not go through the roof?
Despite what you have heard the government is not “printing money”. The govermment has created a lot of money which has gone straight into banking reserves where it shall sit until the sun finally goes nova, never to circulate in the real economy, and thus to have no more inflationary effect than the gravitational pull of a mote of cosmic dust beyond Pluto influences the Earth’s orbit.



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mdavid

posted July 5, 2010 at 12:50 pm


R, You may want to look into the past accuracy of Prechter’s previous forecasts.
I don’t follow Prechter, but interestingly, looking at his predictions I note that my investing pattern has followed his over the last two-three years…and I nearly doubled my net worth during that time, so he must be going ok at least recently.
And I really don’t think Prechter is all that radical – he’s merely a deflationist. And he’s not a traditional “bear” – he was a monster bull in the ’70’s-’80’s from what I hear.
Anyway, all it seems Prechter is saying is:
a) we have a fractional reserve money system, where the FED and banks cannot create real money, only debt
b) once said debt (fed/state/local/city/company/personal) reaches a certain saturation point, those debts must be defaulted upon as the government can’t bailout
c) this debt will kill company profits and the economy, collapsing the stock market
d) Congress/Obama can print money, and will, but too slowly as the political climate won’t allow for it until after the massive deflation runs it’s course (we sort of see this right now)
Nothing seems very radical here to me. And all Prechter is recommending for the investor is staying in the US dollars for now, and once the collapse hits moving into commodities/gold/silver. This seems pretty conservative to me.



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Helen

posted July 5, 2010 at 1:42 pm


Rod, for individual small investors (folks in the middle class just trying to save for retirement, no real wealth to speak of) the best bet is to read Jane Bryant Quinn religiously. Taking the advice in her books and column can set you up with a reasonably conservative portfolio that will get you through to death. (Not to be morbid, but that’ s the goal — having enough money until you and your spouse die.)
I would not follow this Prechter guy or anyone else profiled in the NY Times (or The Economist, or The Financial Times, or whatever). Their orientation is not towards the small family investor — wich is to say, they have no expertise in or knowldge of how the un-wealthy should be investing in order to have enough to live on during retirement. They also don’t look a the whole picture — for example, in addition to your retirement investments, you should have a substantial term life insurance policy on yourself to support your family if, God forbid, you were to die. (I am sure you know and have done this — I’m just using life insurance as an example.) Jane Bryant Quinn to focused exactly on people like you (and me) and all of our financial needs. Read her and follow her advice. You won’t get super rich, but more likely than not you’ll have enough to live on when you and your wife are old (and have sufficent insurance if disaster should strike, etc).



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Clare Krishan

posted July 5, 2010 at 1:42 pm


According to the law of contradictions, bubbles in the ‘mark-to-market’ valuation in moveable and immovable real property cannot occur unless there’s some ‘unreal’ property rights violations happen’ just sayin’…
Douthat FAIL #2: “The European Union’s recent follies make our creaking 200-year-old institutions look flexible by comparison.”
and just where did the [real or unreal, either it ’tis or tisn’t] fiduciary media come from for the EU to blow its own bubble across international political borders? So much for patriotism…
Let me remind Ross that the Fed is NOT 200 yrs old, and the EU’s ‘irresponsible’ political union was modelled on the diregard for ‘inviolable’ rights and political expropriation that institution made possible for the oligarchs of roaring ’20s (that led to some unpleasant unintended international consequences if I recall… in the ’30s).
Ross needs to do a little reading up on how fiduciary media is produced (not wealth or capital, the valuation of which is ‘measured’ by exchange in the third leg of the economic stool the fiduciary media-financial toolkit). Those of us responsible ones who have recognized we enjoy NO LIBERTY anywhere in the Western world, unless we do our accounting in a ficudiary media not tied to ex nihilo FIAT powers (for example the earth’s minerals or natural products that the Good Lord created ex nihilo) are pessimistic for good reason.
May I suggest:
Rod if you’re glad to be out of the immovable real property market (home-owning, land-owning, imperishable goods) for fear of exposure to risk, where do you arrive at certainty re: movable real property market (stock, bonds, currencies, perishable goods) and the exposure to risk inherent therein?
Classical democracy taught that political say ought rest ONLY in those with immovable real property for a very good reason… fraternity depends on the imperishable nature of the bonds given by birth or association by covenant. When the ‘real’ world can be manipulated at will with malice aforethought, then prayer is all that’s left. A dowry in a cascading gold coin garland around her head seems like a much better cultural practice than employment with a modern corporation in a welfare state: the things you attach value to are all future-FIAT-denominated. Better a bird in the hand than two in the bush I say.



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Helen

posted July 5, 2010 at 1:43 pm


Sorry for all the typos! Poor proofreading on my part.



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Bradley

posted July 5, 2010 at 2:41 pm


Actually –
Prechter is a fringe character, because Elliott Wave theory is a fringe methodology.
So what is a person to do?
IMHO – Read and study (as objectively as possible) some financial history, while avoid making definitive historical analogies to the present.
Those who can handle that task have a fighting chance to understand that:
1) *secular* bull and bear markets happen
2) those longterm trends last many, many years
3) the end of market cycles are rarely predicted (or predictable) even as they are happening.
4) permanent (aka “perma”) bulls and bears are often simply acting out psychological hang-ups; i.e they represent some facet of Mr. Market’s sometimes manic and sometimes depressive phases.
5) the opportunities to be a longterm investor have never been easier
and longterm is defined (as it always has been) as decades – not years, months, weeks, days, or hours.
6) SOMEDAY – it will be true that: “this time is different” and that is why assets should be diversified.



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Scott Lahti

posted July 5, 2010 at 3:51 pm


D’ow! – Homer Simpson, plummeting earthward from his roof after losing the family nest egg during a market crash



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Cecelia

posted July 5, 2010 at 4:09 pm


Jon said: Despite what you have heard the government is not “printing money”. The government has created a lot of money which has gone straight into banking reserves where it shall sit until the sun finally goes nova, never to circulate in the real economy, and thus to have no more inflationary effect than the gravitational pull of a mote of cosmic dust beyond Pluto influences the Earth’s orbit.
very good – thanks for saying this – I’d add too you won’t see inflation when oil prices are so low either. Inflation requires lots of money to be in circulation – this is hardly the problem now. I think it is important also to make sure you are getting info that is balanced and that you aren’t always seeking stuff that confirms your own bias. Brokers and that sort are in this to make money – and they for sure will find a way to make money off of doom too – that is YOUR money that will become THEIR money if you aren’t careful.
I do agree if you are willing to do the work and think it through – you can still find investments with reasonable returns. As for Treasuries – while I am sure someone will post and say that the government is going to default so stay out of treasury certificates – I’d note that if the US defaults the entire world economy will go back to a barter economy and stay there for several generations – so you can be sure that every step will be taken to assure the US does not default including foreign takeover. To me treasuries are a good place to be now although I do think the old saw about diversifying should be honored. But in general – I’d stay out of mutual funds since even a more conservative fund is still holding stock and when the market hiccups even good stock goes down.
I suspect this may not be a popular position – but I think now is a very good time to invest in a home/land – first, there are a lot of bargains out there now, second, if the economy gets worse and the price of your home/land falls – at least you still have a home/land if you are in stocks – all you have are statements that make you depressed when you look at them. Plus a decline in home values also means a decline in your real estate tax too and you at least have shelter and even a place to grow some food. Of course – this assumes you have a decent down payment and buy something at a modest price. If it does come to the very worst scenario – shelter is one thing you must have and you are more vulnerable in rental situations than in a home where you have either no mortgage or a small one.



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Jon

posted July 5, 2010 at 4:14 pm


Re: I am sure someone will post and say that the government is going to default so stay out of treasury certificates
The 14th Amendment, besides establishing that the freed slaves were citizens and requiring the states to respect the Bill of Rights, also forbids the federal goverment from defaulting on public debt– since there was some fear at the time the US might do exactly that to get out from under the crushing Civil War debt. If the US even tried to default its bondholders need only to apply to the courts which would require payment (even if printing money was the only option for doing so).



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Liam

posted July 5, 2010 at 6:13 pm


Bunkum.
Do remember that market commentators have a need to invent stories and narratives to pitch, using data as convenient stitch points.
The moral of the story: the bigger the narrative, the more you should distrust its worth.
We are in the middle of a correction that will likely progress further, though it is likely to bottom in perhaps a year, but we will never know when we’re at bottom, because it usually feels like a mere pause in a free fall or skidding along the bottom. You cannot time this. Even professionals cannot reliably; they need luck, too.



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Clare Krishan

posted July 5, 2010 at 6:58 pm


Australian hedge fund manager (Convertible & Quantitative Strategies LLP) Michael Hintze married to an American Roman Catholic Jersey girl and domiciled in the UK is bearish (and very wealthy also, that St. Joseph fountain inaugurated in the Vatican Gardens this morning was made possible by his philanthropy)
The man who accurately predicted the credit crunch now thinks that the recession will be long and deep. “I think it is very serious where we are now. I don’t think we are at the bottom. I think there are still some serious issues if the banks are not lending. The Government could have to step in again. It is a mess. It is not quite Iceland but there is a real issue. I think it is going to look more like Japan. We could be in it for years.”
http://www.timesonline.co.uk/tol/life_and_style/men/article5946794.ece
– note how the “quants’ enjoy the upsides of the bubble and only warn on the downside, selling the banks short (which is their ethical duty, to insure the capital value of assets under their management) but where oh where do the means to pursue their ends (the QE, Quantitative Easing) come from? And why does the government have to step in to protect the 11th wealthiest citizen of Australia and former Goldman Sachs man? You got it – the world’s ex nihilo FIAT reserve currency, aka the federal reserve banknote commonly known as the US dollar.
These guys are all math wiz’s who play on the science of probabilities of future developments that they can discern via racks and racks of computer power, we cannot. Fraternal solidarity? Not so much. The Holy Father’s fountain is still a beautiful work of art – I hope the much vaunted humility and simplicity of the sculptor’s design works its way into the hearts of the spiritual advisors of our Financial Masters of the Universe, that they step back from the brink and reconsider the folly of material reductionism and the havoc it has wrought in the lives of those those least able to defend themselves from the consequences of the failure of the edifice to empty numbers that they have built.



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mdavid

posted July 5, 2010 at 7:16 pm


Jon, Despite what you have heard the government is not “printing money”
During Fiscal Year (FY) 2009, the Bureau of Engraving and Printing produced 26 million notes a day ($907 million). And yes, the BEP is part of the government. And yes, they are still printing in 2010.
If you are using “printing money” as a slang for “creating money”, well, the government is still doing that too. Quick lesson:
There two kinds of “money creation” out there.
1) The first is bank credit, money loaned into existence. Bank credit is a type of money that comes with an equal and offsetting amount of debt associated with it. Debt upon which interest must be paid. This is currently being done.
2) The second kind is money created by the Fed. The Fed creates money whenever it buys Treasury securities, regardless of whom it buys them from. Sure, ,the Treasury prints debt so government can spend money they don’t have, but this doesn’t create money, only debt. But when the Fed buys this debt, it pays for it with money it creates out of thin air. This is currently being done.
So despite what anyone has heard, the government is indeed “printing money”, no matter how one defines this. I’ve heard a lot of strange things on CC, but the idea the government is no longer printing money is really going into black helicopter, Art Bell territory…



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Broken Yogi

posted July 5, 2010 at 7:41 pm


I think it’s important to realize that the Dow could only hit 1,000 if there were a total economic collapse. It’s not going there all on its own, simply because people are scared of stocks. Stocks are backed by companies that make profits, and their value falls only if they stop making sizable profits, and that only happens if there’s an economic collapse. Right now stocks are fairly reflective of actual corporate profits. They will only collapse if those profits vanish. So pay attention to corporate quarterly profit statements. That is what tells you what’s actually going on in the stock market, regardless of what speculators might think or fear.
In case of an economic collapse, cash would be king and inflation not a worry because we were in a total economic collapse. Inflation is only a risk in a growing economy. For example, the famous Carter years when inflation went crazy was actually a time of huge economic growth. GDP grew by 5.7% during Carter’s years, almost double what it grew during Reagan’s years. But inflation was a consequence of that out of control growth. If the economy is actually contracting, then inflation will not only disappear, but deflation is the real threat, and a much worse one than inflation.
So if you’re all thinking the end is near, it’s a good idea to go to cash. It’s always a good hedge to keep a percentage in cash, and invest only where you see safe harbors, such as low-risk bonds, which are almost as good as cash and actually pay interest. The only risk, of course, is that you turn out to be wrong and miss out on the economic rebound. Which could be substantial. The hard part is always in the timing. When to get out of cash and back into assets and investments. Nobody seems to have gotten that down, or prices would already reflect that.



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stefanie

posted July 5, 2010 at 7:58 pm


Sounds like more “Buy high, sell low” advice.



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Lord Karth

posted July 5, 2010 at 8:08 pm


I’m on the road (Broome County) today, so I’ll keep this one brief.
Dow 1,000 ? Not by a darn sight. That would take a near-total collapse of the economy, worse than ’29. I just don’t see it. Our population is a lot larger and more urbanized/suburbanized than it was in 1929, so there’s a lot more money to be invested in abstract things like the stock market than there was back then.
“Elliot Wave” theory is, from where I sit, a lot of hoo-hah. While economies do have cycles, those cycles are NOT UNIFORM. They rise and fall depending on the actions of the participants in the economy. Sometimes the population is smarter, other times it is not. Also, in today’s economy the State has a much larger role than it used to have, so there is a great deal more room for Humans to intervene than there might have been in 1929.
Which means that there is a lot more room for things to go FUBAR than there used to be. (What, did you think I was going all Keynesian on you guys ? Since when did you ever see me call government the good guys ? Come on, my premature Alzheimer’s isn’t that bad QUITE yet.)
What that also means, in a nutshell, is that, providing some CenGov johnnie doesn’t go totally Barack on us, the workings and productions of millions of sound, sharp and occasionally right Human minds in the productive sector will be able to keep things going, without and despite the State and its minions doing their worst.
But it’ll still be a damn close thing.
From where I sit (a McDonalds in Lisle, NY), there is still a LOT of volatility in the markets—mostly the product of State action, mind !–that needs to be paid attention to. I would NOT go very heavily into stocks, except for a very few of the very blue-chippest blue-chips. I would concentrate much more heavily on paying down debt, since that’s a GUARANTEED return, under all circumstances. I would maintain a very strong cash position, and stay the living He!l out of American equities for the next 7-10 years. Obama’s/Geithner’s dollar-flood is going to rear its very ugly head in the form of inflation, and that soon. (It’ll kick off before the end of Obama’s term, is my guess.)
Now is the time to be a plough-horse, not a plunger. Unless you’re Delos D. Harriman—-which I’m not.
Your servant,
Lord Karth



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Liam

posted July 5, 2010 at 8:11 pm


Basically, any commentator who does not acknowledge we’ve been in nearly 10 years of weak economic activity already (in the USA – except for the top quintile of earners) is someone to be taken less than fully seriously. We’ve *already* had a Lost Decade and are into our second.
Most commentators live in the upper quintile of affluence, so this reality is distant to them. This is an unspoken sign of their blinkers.



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Jon

posted July 5, 2010 at 9:11 pm


mdavid,
As in the past you ignore where that money is going: the never-never land of bank reserves. Inflation is caused by an excess of demand relative to supply. If excessive money is introduced into circulation it will obviously result in that situation. But that’s not happening. In fact, money-in-circulation has actually declined somewhat which is why deflationary fears exist instead. Money itself does not cause inflation: people spending money does.
Liam,
You are right, but only in the aggregate. We did have a lost decade, but not everyone lost (and not just the master class prospered). If you were well-educated and had good job skills and a good work ethic and you weren’t too old, you could do well in the past decade. I suffered my own private recession in the tech bust (income off by a third in 2001-02), but recovered nicely, making 40% more last year than I did in 1999. Whether that will continue, well– I am fresh out of tarot cards :)



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Rev. Mike

posted July 5, 2010 at 9:39 pm


Rod, for years people have been telling us that the market is OK because the fundamentals of the underlying economy were OK. We now know that was nonsense. What does your gut tell you the underlying economy is built on, speculation or real earnings? When bubbles burst, they do so because someone finally wakes up and decides they’ve ridden the ride long enough, and then the rest of the lemmings charge along with them.
Ask yourself if sitting it out on a cash position is really going to hurt you over the next six to twelve months, and if not, then I think you have your answer. For my part, my concern is that even the cash might not be an adequately safe position. Should part of your hedge be in precious metals?



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BAM in RI

posted July 5, 2010 at 11:02 pm


I am in complete agreement with John @ 10:54 AM!
Corporate earnings would have to completely and utterly collapse for the DJIA to go to 1000.
I just don’t see that happening.
I work for a small firm in Boston that specializes in wealth management for high net-worth individuals. Despite these hard economic times our business is doing quite well. No dearth of new clients!
Let’s look at Proctor & Gamble (PG) (mentioned by John): With a market cap of $171 billion Its Price/Earnings ratio is a modest 14. Earnings per share are $4.19 for 2009 and it pays a dividend of about 3.2%, much better than what your local bank is paying, Rod!
And its dividend was recently increased!
Sure, its consumer brands are a bit high end: Tide, Bounty, Gillette. And yet I am guessing that for 2010 its earnings will equal or exceed 2009. I don’t see that its earnings will collapse to what? 10% of what they are today?
There are other comparable good-quality stocks out there: Coca-Cola, Pepisco, General Mills, Colgate-Palmolive, etc.
I just don’t see the utter and complete devastation predicted by Prechter.



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mdavid

posted July 5, 2010 at 11:39 pm


Jon, mdavid, As in the past you ignore where that money is going: the never-never land of bank reserves.
What are you talking about? I’ve never said anything “ignoring” where money is going or not, neither in this conversation nor in others. You’ve lost your mind. Lying about what I’ve said does not make it so.
My statement before merely was to state – contra you – that the government does print money, by any definition. Hence, your statement was incorrect. Nobody on earth besides you claims the government does not create money.



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godisaheretic

posted July 6, 2010 at 12:30 am


then there are excellent leading indicators,
such as at Economic Cycle Research Institute
and at Consumer Metrics Institute.
both of these sites have leading indicators that are very negative.
the second half of 2010 is looking like a repeat of 2008.
or worse.
those who have ears to hear, let them hear.



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John E. - Agn Stoic

posted July 6, 2010 at 12:53 am


Reading Prechter, and factoring in his statements with what you know from your other observations, what do you think?
Own rural land free and clear, accumulate guns, ammo, gold, and silver.
Learn to grow food, raise meat, and can/preserve your surplus.
Dig a well.



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the stupid Chris

posted July 6, 2010 at 1:41 am


Rev Mike,
Here’s the deal: Sitting on cash only makes sense if you’re expecting deflation (goods in the future will cost fewer dollars than today), just as spending on credit only makes sense if you’re expecting inflation (goods in the future will cost more dollars than today).
Investing in precious metals only makes sense if 1) you have no idea what you’re expecting and 2) precious metals are valued at historic norms.
Gold is currently trading at near historic highs, which means it’s a sucker’s buy, and suckers always buy from a position of fear.



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Jon

posted July 6, 2010 at 6:22 am


mdavid,
Is it necessary to stoop to insult? Obviously we disagree– in fact most posters who reply to you disagree with you. Your underlying point is that we due inflation abnd I have pointed pout to you at great length why we are not. That does not mean I have lost my mind.



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Tim

posted July 6, 2010 at 11:51 am


Man this post gives me a lot to worry about! The “experts” don’t know what they’re doing. The “system” is out of control. So how am I going to figure it out. But then…
the Ultimate Preacher says: Do not store up for yourselves treasures on earth, where moth and rust consume and where thieves break in and steal; but store up for ourselves treasures in heaven, where neither moth nor rust consumes and where thieves do not break in and steal. For where your treasure is, there your heart will be also.
He also says: do not worry about your life, what you will eat or what you will drink, or about your body, what you will wear.
Is not life more than food, and the body more than clothing?
Look at the birds of the air; they neither sow nor reap nor gather into barns, and yet your heavenly Father feeds them. Are you not of more value than they? And can any of you by worrying add a single hour to your span of life?
And why do you worry about clothing? Consider the lilies of the field, how they grow; they neither toil nor spin, yet I tell you, even Solomon in all his glory was not clothed like one of these.
But if God so clothes the grass of the field, which is alive today and tomorrow is thrown into the oven, will he not much more clothe you—you of little faith?
Therefore do not worry, saying, ‘What will we eat?’ or ‘What will we drink?’ or ‘What will we wear?’ For it is the Gentiles who strive for all these things; and indeed your heavenly Father knows that you need all these things.
But strive first for the kingdom of God and his righteousness,
and all these things will be given to you as well. So do not worry about tomorrow, for tomorrow will bring worries of its own. Today’s trouble is enough for today



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Bradley

posted July 6, 2010 at 1:28 pm


godisaheretic-
I do have ears to hear and eyes to see (although not nearly as well as in younger years).
You really need to read the Ritholtz blog (there’s a link at this site) for a more balanced take on the indicators.
Overall and regarding DJIA at 1,000:
EVEN WITH another edition of the *Great Recession*, 1,000 likely would represent a P/E ratio for US equities of less than 2 … two!



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Edward

posted July 6, 2010 at 4:22 pm


Hmph. So instead of panicking about hyperinflation and getting the hell out of cash, I should be sweating over (effectively) hyperdeflation, and jumping in to it.
Or what?
Captcha: mamas striking.



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the stupid Chris

posted July 6, 2010 at 5:25 pm


Edward,
The “or what” is simple: let your elected policymakers know that they should be supportive of stimulus and wary of anyone who counsels austerity.
Just as we should be wary of anyone who counsels starving a cold and feeding a fever.



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