Tuesday, March 3, 2009

Just the (recent) historic facts

There are a lot of things I'd really enjoy writing about. I want to do a piece on spring training for the Braves, on the wars in Iraq and Afghanistan, I have another blog that is my personal experiment with the biography of the life and ideas of Fredrich Nietzsche which I need to tinker with, there's a book on psychology I'm reading that I've love to share with you, my daughter is starting her new fastpitch travel ball season soon, and there's even a fourth part to our trip to Alaska last summer (see the first entries of this blog from 2008) I've outlined to write about.

But the fact is nothing - absolutely nothing - overrides the present historic global economic circumstances. Personally, I haven't felt the "hard rain" of these economic times (except for a very hard hit to my 401k). Most of my friends haven't felt it. All that is subject to change, of course. This Great Recession is not going away anytime soon and it could be the demise of the infantile Obama administration before it even starts.

This may or may not lead to another depression, it has already led to a lot of finger-pointing between
opportunistic conservatives that want to blame President Obama for the mess (it's not his fault...yet) and uppity liberals who think that the President Bush administration's deregulated environment let greed run wild and gave us capitalism at its worst.

There's plenty of blame to go around as I have posted before. "There are no innocents" as
Russell Crowe says in Body of Lies. And this is true.

Unfortunately, I just don't know of anything more important than history as it happens. I want this blog to be about more than just my introspective, personal experiences. I want it to contain my (often amatuerish) impressions of historic events in the making. Two generations of Americans have never seen anything like what is happening now. I feel compelled to capture the gravity of it all. This is not just another bout of "doom and gloom".

We're in a world of shit here and it fascinates me.

So let's take note of a couple of things, for the record...

  • On October 10, 2008, an incredible 92.6% of the 3130 stocks traded hit new lows. No trader has ever seen anything like that. If we see a number like that again we will be in a Depression.
  • On November 20, 2008, the Dow confirmed the bearish action of the Transports by recording a new low. This was a major bear market confirmation. One that has not been off-set by any bullish action since that date.
  • On February 20, 2009, the Dow closed below 7470, which is the halfway point between the beginning of the Great Bull Market of 1982 - 2007. In other words, the Dow took 25 years to build its highest point of valuation and we lost half of the valuation from October 10, 2007 to February 20, 2009 - about 17 months.
  • The week prior to February 20 jobless claims in the US hit an all-time high.
  • February 2009 was the worst month for the Dow since 1933.
  • For the past few days the Dow and the Transport average have been plunging to new lows simultaneously. Reconfirming the bear market on a daily basis.
  • Financial mega-giant AIG has now posted the largest corporate loss in US history.
  • We are in uncharted territory. That's not "gloom" that's reality. Having violated the 50% Principle on February 20, there is a very real chance that we could see the market eventually retest the beginning of the Great Bull Market which is at 776.
That's 7-7-6 or about 6,000 points further down from today's close. I'm not sure what an America looks like under those circumstances. Clearly, the Obama Administration will be perhaps even more unpopular than the Bush Administration if that happens. Rush Limbaugh for president?

T H E R E I S N O S U P P O R T.

The fact is, for all the new technology and new economic theories,
pure Dow Theory has shown to be a great gauge of what we are now experiencing.

Historically, we know that every bear market ends in
capitulation and a new bull market rises out of the that. So, all is not lost.

No one has made more money during the Great Bull Market than Warren Buffett. According to Buffett, though things a pretty bleak now (and will likely remain so for awhile yet),
a rebound is on the way.

Well, it doesn't take a genius to know we will rebound - someday. The question is from where?

The best one-stop overview of the Great Recession that I have found anywhere is offered by the New York Times. It covers just about every angle on just about every aspect of the crisis and also has a splendid overview and history. It is updated daily.

My hunch is this market is going lower than anyone thinks. My intent is to amass as large a cash position as I can (maybe buy some more gold). I think we'll eventually
have great values in stocks and it will be a great opportunity to buy.
But I'm not a fool to think that just because prices are low they ARE values. That's bullshit.

What are "great values" historically?
Richard Russell knows. He wrote on February 18, 2009: "According to Dow Theory, neither the duration nor the extent of a bear market can be predicted in advance. However there are some useful hints. Most major bear markets end with stocks at 'great values' or as some Dow Theorists put it, 'below known values.' This has meant in the past that price/earnings ratios for the Dow and the S&P have fallen to single digit numbers. It has also meant that dividend yields have moved into to the 5-6% zone.

"According to the latest Barron's, the P/E ratio for the Dow is now 18.62, 17.90 for the S&P. The dividend rate for the Dow is now 3.98%, for the S&P it is 2.78%. These are hardly the kind of figures I'd expect at a great bear market low. "

Russell continues to believe that when typical dividend yields reach the 5-6% range things should start looking up. (And this will possibly occur when one ounce of gold buys one share of the Dow, ie., Gold at $2,500 the Dow at 2,500 - for example.)

From a purely charting perspective tonight, we are due for some sort of bounce/rally. The Dow is way
oversold. We should have an up day or two soon. But, no one really knows, right?

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