A History of Stock Market Bottoms

Recent market turmoil has many wondering when the freefall will cease, and whether we are on the brink of a new Great Depression, which is supposed to happen every 70-80 years according to Kondratieff Wave theory.  I don't believe we are on the brink of a depression, even though the present recession is already in its 10th month.  But it would be instructive to compare the current situation with prior market corrections, and judge the present situation in a historical context. 

We can first start with a chart of the S&P500, from 1950 to today.  We can see that the deepest deviations from the trendline appear to be in 1950, 1970, 1974, 1982, 1987, 1990, and 2002.  We shall term these instances as historical 'bottoms' for the stock market.  All but the 1987 bottom were in the midst of economic recessions. 

  

From this chart, we can see that the time period between bottoms can be irregular, with over a decade passing between them, in some cases.  1974 and 1982 appear to be the deepest corrections.  These bottoms coincide with recessions, but interestingly do not coincide with other major crises.  The Cuban Missile Crisis, Kennedy assassination, and 9/11/01 did not induce major market crashes beyond the first few days.  Now, we can take the datapoints of each of these bottoms, and chart the exponential trendline that connects them.  This is purely a chart of index valuation, with dividends not included. 

 

From this chart. we can see that the equivalent value of the S&P500 in 2008, as designated by the red circle, would be around the 1000 level.  As of October 10, 2008, the S&P500 is at 899, or 10% below the level of the bottoms trendline.  However, we can see that both the 1974 and 1982 bottoms are substantially below the trendline. 

The S&P500, since 1950, has delivered an 11.4% average return, with 7.7% of that in the form of a rise in the index itself, and 3.7% of the return being in the form of dividends.  If the long-term underlying growth rate of the index is 7.7%, we can chart a 7.7% compounded projection trend from each of these bottoms as another method to compare them to an approximate 2008 equivalent.  We shall start this chart from 1970. 

It is apparent that 4 of the 6 bottoms cluster around a 2009 projection of 1100-1200, but the two deepest bottoms of 1974 and 1982 project to a 2009 equivalent of only 700-750.  These should be considered the two 'mega-bottoms' that happen a couple times per half-century, with the other 4 being only smaller bottoms that happen every 7-10 years, whenever there is a recession. 

Since we are presently at 900 for the S&P500, we are about half-way between a smaller bottom and a mega-bottom.  Therefore, do not be surprised if the S&P500 does, in fact, dip into the low 700s in 2009, merely to match this correction to 1974/1982 levels.  This would be a further 20% correction from the 900 close of October 10, 2008.  It may not happen, but it certainly could in terms of historical precedent.  This also means that the Dow Jones Industrial Average would simultaneously decline to as low as 6500.  Indeed, there is no guarantee that it could not go even lower, but that would he historically unprecedented.  Even the 1932 bottom in the Great Depression was not deeper than the 1974 and 1982 bottoms, by these measures.       

The Good News :

If the thought of a further 20% decline in the S&P500 or DJIA is depressing, also consider the following :

1) After both the 1974 and 1982 mega-bottoms, the stock market promptly returned at least 60% in the next 9 months.  This also happened after the 1932 bottom within the Great Depression. 

2) Never forget about dividend reinvestment.  Dividend yields are highest when the stock market is at the depths of a bottom, and reinvestment ensures that new shares are purchased at the lower prices.  This enables the investor to enhance his returns when the recovery finally commences.  Even in the 1970s, the major indices were stuck within a flat range for a decade, but dividend yields as high as 5% enabled total returns that were substantially better. 

Considering points 1) and 2), make sure that you are in a position to capture the recovery, and are not forced to sell at the unfavorable prices of the bottom.  This means that you must a) never hold any substantial margin debt, b) be positioned across a diversifed set of securities, preferably ETFs ahead of individual stocks, and c) watch as little financial news as possible, thereby reducing your chances of panic that could lead you to take ill-considered actions.   

Tremendous profits will be made by those who can steel themselves through this purging of the weak, and are subsequently prepared for the post-bottom recovery.  Put daily volatility aside, and enjoy the historical times that we are experiencing first-hand. 

Related :

Economic Growth is Exponential and Accelerating

The Housing Bubble - 20-year Gains May Never be Repeated

(crossposted on TechSector)

Comments

[brokerdavelhr]

GK,

Good article, as always, I am a happy reader.
I personally can not see another great depression, but then again, the final tell will be when the next person takes the oval office.
I believe that what we are facing today is a correction that almost always follows after every bubble. There is a pattern here. 1- The internet bubble crashed the stock mark market in the 90's. 2- The housing bubble followed suite in the early portion of 2004. Both of these spurned heavy investments in foreign markets. People who were in the past 5 years (and in some cases still are) in the housing market, are taking a pounding. As a result, many have turned to foreign stocks. I laugh when I see where those are going. I really do think it is one of the funniest things I have seen in a long time.
To those who 'dabble' in market trading (ie those who attempt to make a quick dollar, who do not truly understand the nature of the beast they are investing in), it is the end of the world. And due to an overflow of the 'make money quick' scheme's, millions have been doing this when they should never have touched it from the get go. Ironically enough, this influx of poor investments helped caused these bubbles to occur. All this reminds me of the age old adage, ‘just because you can do something, does not mean that you should’.
The funny thing is, a Sauvé investor can make money in any market. Period. Problem is, you have people investing in things that they do not understand. This in many ways mirror’s societies direction as a whole. We see it from pharmaceuticals to cars. From investing to college life. It is a circular thought pattern that is not understood by most, so instead of reaping the expected benefits of what they see as a guaranteed profit, they lose more then they can afford.
In the 1930’s (we had black Tuesday), we saw the same situations. And like then, the govt came up with an inane ‘quick fix’ (witness the bailout we just had, and more will follow, believe me). Which means that another policy will be enacted, and once again, America will have a chunk taken away from its freedoms and money, and given to the govt in the form of laws and taxes.
Oddly enough, we don’t learn. We as American’s refuse to admit that we ourselves are the root of the problem. When Thomas Pain wrote the book ‘Common Sense’, it ignited a nation of free thinkers to take action. However those ideals were soon forgotten, and the herd mentality returned.
I will re-iterate a point I had made in an earlier posting. And this is my prediction. Until something bad enough happens that shocks America to her core (and it will come from the inside, because anything else will be blamed on someone else as always), and wakes us up, we will be caught up in the same cycle we have been in for over 140 years now. I am sad to say that I have lost hope in much of our society, as they not only refuse to see past their own noses, but mostly do so on the basis of the ‘because I am free to do as I wish’ thought pattern. It disgusts me that these kinds of people are becoming the majority, and are making the rest of us a laughing stock.
On the flip side, I have made over 40% so far this year, and am set to make a lot more in the next few months. So if I can do it, so can you. All it takes is a little time to brush up on an idea before you jump on it headfirst. Hmmmm, then again, keep making dumb decisions people. I am doing better because of it! 

[GK]

brokerdavelhr,

Thanks, man.

People who bought houses they cannot afford just have to go bankrupt. At one time it appeared that such a solution could be avoided, but there is no fighting off mother nature for ever. The market is sending that signal, and it cannot be postponed any longer, nor should it.

[brokerdavelhr]

Well, the problem is that because of all the govt involvement, when many buy stuff they cannot afford, they will get hit anyway, but their institutions won;t notice the differance. Kind of messed up really. But your right. I guess all we can do is sit back and laugh.
To quote Long John Silver from treasure island- 'The prize goes to him, who bides his time'.

[Nurseb911]

Very good & informative post. I like your use of historical context and data on long-term trends.
My first visit on your site, but I'll be sure to return

[GK]

Nurseb911,

Welcome, and thanks.

Do check the 'Categories' archives. Some of the better 'evergreen' articles are up to 2 years old, but just as relevant today.

[jeffolie]

A little long view of economic stock market history will show that GK needs to look at the 1850 to 1950 period. The were many panics, small depressions, two large depresions, stock market corrects of more than 45%.

Here were my market predictions and comments from a different site:

The DJIA rallied 1000 points today from the low early in the trading session to the high of the trading day about an hour before the close.

In my humble opinion this was a bear market rally. Such rallies typically are straight up, quick and followed by a few trading days of sideways action before the primary trend (downward) resumes.

In Elliot Wave counts the DJIA declined to the panic of (3) of 3; while today starts the countertrend upward (4) of 3; which will be followed by the end of 3 in the downward (5) of 3. After 3 comes countertrend upward 4, then the final leg down of 5 which takes out the low of 3.

With the low of 3 below DJIA 8000, then the low of 5 (which will be after the rally of 4) probably will be DJIA of 7000 or lower. This is not trading advice. I have not owned stocks since March of 2007.

A 50% retracement interday could reach DJIA 11,000.

A 38.5% retracement interday could reach DJIA 10,310.

----------------

I called for this bear market rally.

[GK]

I agree with today being a bear-market bounce. As per the article, a bottom of 6500 on the Dow would equate to 1974 or 1982 bottom levels.

The period from 1850 to 1950 is substantially different from the present, particularly since the world GDP trendline was so much lower then. This does not mean the same things cannot happen, but there are too many differences.

The period from 1973 to 1983 was a virtual 'depression' for the stock market, a period similar to what we are in now.

[Mbb]

I have been reading your site for about a month now, and i have to tell you that I am impressed with the articulation and points made. Just out of curiosity, could you tell me your education GK?

[GK]

Mbb,

Thanks for your encouragement.

English isn't my first language, in fact. I have engineering degrees and an MBA.

[brokerdavelhr]

Jeffolie,
It was not a bear market rally. It is more then typical for there to be a sell off in the market on Fridays, as most investors do not want to have it hanging over their heads on the weekend. When the market rallies on Monday, it is just a 'Ramp-up' for the rest of the week. This is not new, or unexpected. It also has nothing at all to do with the bailout- the long term affects of that will not be felt in the market for almost another month now.

[brokerdavelhr]

BTW,

Cisco is doing just fine. I was hoping it would take more of a hit for a better buy in price but...guess we can't win em all.
Anyway, just thought you might want to check out their new routers. Capable of providing a cross fabric of 300gbs/ to 1tbps. I gotta tell you , pretty sweet....
But to the point- with new equipment comes new issues. In the long term, it was a great investment. I would watch this over the next quarter though. You seem like the type who does not like short term trades, but if I may make a small suggestion- When the stock goes back to your buy in price (which it will), see where the market is. Also take into to account times like last week that somewhat shook the market. If such a time comes, and your stock is close to your buy in- sell it. Then when everyone is preaching hellfire and damnation, saying the next depression is here, buy the hell out of it. Inevitably, the market will make a speedy recovery (as seen in recent times lol). While you should not sell at that point, you would have succeeded in lowering your cost average, and thus make the profits sweeter.

I am sorry though if this is something you already did or thought about. Sometimes I have a bad habit of giving advice where it is not wanted, if this is the case, then I really do apologize.

Also, if you are interested at all, I have a really nice short term mover. The only catch it is what would technically be considered a penny stock. But it is a great company, and has picked quite a few new high end clients, and has positioned itself quite nicely to really go somewhere. If your interested, let me know. (No I am NOT selling lol). Just respect you, and thought I would spread some cheer on what would elsewise be a very dreary economic situation.

[jeffolie]

brokerdavelhr

The 'fear index' or volitility index or VIX is a good short term technical tool. It gave a buy signal. Most bear markets have a double bottom meaning that the DJIA will go back down to retest the low already made. Elliot Wave theory usually calls for a bear market rally called wave 4 in a 5 count primary downward direction. The 'seasonality' of October has demonstrated bear market Massacres notoriously happen.

In summary, from all of the above a very large bear market rally was easy to predict.

By the way, the squaring up of positions on Fridays do not produce huge rallies. And in bear markets, traders often do not want to go home 'long'.

[jeffolie]

Housing remains the persistent and primary problem. Fixing the financial institutions will help to avoid the freeze in short term lending only. While this is desireable, the law of unintended consequences applies. In my humble opinion this financial industry repair will not last. I expect a mega huge housing bailout by the Obama administration, 'The Big Obama Bailout'.

[sam]

Thanks for your analysis, GK.

[jeffolie]

BOB to save capitalism?

I expect a mega huge by the Obama administration, 'The Big Obama Bailout' (BOB) to triple the buying of bank preferred share. By the time BOB is completed the lying corrupt semi socialist government will own 30% of the shares in the surviving banks. BOB will claim it is saving capitalism.

[Chris]

Of course in a recession / depression some companies go bust - this never looks so bad in an index because the companies are replaced by other companies. The same applies for companies that have lost a lot of value - if they were towards the bottom of the index anyway, again they are replaced by other companies. What this means is that drops may be more pronounced than these graphs will show.

[GK]

The ^VIX had already been at all-time highs.

As per the article, the Dow could dip below 7000. Of course, this would be the best buying opportunity in a generation (just like 1974 and 1982 were). Indeed, anything below 8000 represents a very good long-term entry point.

We are already at the cheapest valuations since 1982, but another big dip down to Dow 6500-7000 is possible.

[jeffolie]

Banks are being saved to be the living dead (zombies).

Japan saved their banks from closing and Japan became a zombie.

The Japanese stock market is still down more than 75% after 18 years.

BOB's unintended consequences will be very rapid inflation as Obama will pump unfunded money into every program the Democrats can concieve of from A to Z such as buying empty houses to universal health care.

[GK]

jeffolie,

Japan's Nikkei is analogous to the US Nasdaq. We will still not reach Nasdaq's record high of 5000 before 2016, so 16 years after the peak (as I stated in the previous 'Timeline of Economics' article).

But the S&P500 will not drop 75% from its peak of 1578. That would mean S&P500 = 380 or so. Not possible.

Note that Japan had deflation, not inflation. Inflation will happen in the US, but it won't be quite so painful, particularly now that oil is inexpensive again.

[jeffolie]

In my humble opinion the determining factor as to if the US has inflation or deflation is BOB. Without BOB, I expect deflation as happened in Japan.

Inflation will happen if the US does not fund BOB with taxes (which is very unlikely in The Crisis in The Fall of 2009) and if the US can not borrow in the credit markets at low rates. The last funding solution would be inflationary creation of credit and money.

The Fed currently has the approach of asset bubble, followed by clean-up of the bust, followed by asset bubble, etc and do again. The 'clean-up' consists of dropping the rates to near zero and expanding the credit and money supply.

Tariffs and trade wars are popular among leftists and right wing populists and anarchists as an anti-gobalist solution. As naive and inexperienced as Obama is, one can not completely disregard the possibility of tariffs and trade wars even though that would clearly be a stupid repetition of the errors made in the Great Depression.

[jeffolie]

Japan chose to borrow with low rates. Japan used the 'carry trade' to have traders, institutions and countries borrow yen at low rates. The borrowers took the money and invested it in the debt of other, stable countries at higher rates. This arbitrage was called 'the carry trade'.

Japan used the cheap interest rates it offered to cheapen the yen and thus promote its exports.

Japan's GDP declined and deflation set in partially because its birth rate collapsed and its population aged. Feminist Japenese women decided not to stay at home to care for the elders, not to marry, not to have children, and did decide to pursue personal career advancement. These demographic impacts caused less household formations. Less household formations caused a decrease in the 'volitility of money'. Any good economist will understand that formula of m*v=GDP. Money supply times volitility equals Gross National Product.

Until very recently, the US was becoming a 'carry trade', cheap dollar, trending toward exporting country. But, the dollar has had a substantial bounce against the falling Euro and Yen. This 'carry trade' export approach worked well for the US in 1929, 1930 while stocks crashed and was called the 'beggar thy neighbor' economy.

Until recently, the US looked to be headed towards a lost decade as in Japan. But, the lying, corrupt government decided to flood the financials with a Trillion dollars among Freddie & Fannie, banks, insurance companies (AIG). So, the Wall Steet leaden government officials rewarded the Wall Steet corporations that elected them with a Trillion dollars without addressing the primary and persistent problem of declining house prices. Japan did the same thing.

The BOB will make the US different from Japan by buying houses. Why? Because Roosevelt did it with the RFC. The Democrats will repeat what their idol, Roosevelt did, but much faster.

[GK]

jeffolie,

A housing buy-up would be disastrously stupid. I hope he does not do it.

The best solution for America would be if the US government decides to issue a one-time supply of 1 million greencards to highly educated immigrants. There are already hundreds of thousands that are presently trapped in the 6-year H1-B to Greencard application limbo. Speed up their applications, and issue more greencards, to get to 1 million.

Even if the job market is in recession, we should issue 1 million greencards to highly educated people. If each earns an average of $75,000 a year, that is a $75B injection into GDP and consumer spending.

It will solve both the housing oversupply and the social security shortfall issue simultaneously. It will increase the average education level of the US workforce. It will boost our competitiveness. It will tighten trade ties with India and China (where most of these 1 million will be from).

This would be the best solution.

[jeffolie]

Aother jeffolie prediction comes true unlimited deposit insurance.

It (FDIC) will provide unlimited deposit insurance for non-interest-bearing accounts, which are widely used by small businesses for payroll and other purposes.

[brokerdavelhr]

Jeffolie,
Sorry it took so long to reply, I keep somewhat odd hours. Being that I was a broker, I must say that your Friday assessment was way off. The Friday sell off will typically increase in times when economical instability is perceived in the markets. I say perceived and not realized because the market runs on hype, not realistic figures.
BTW, the entire economic model of the US has changed since the wave theory was brought into being. Not to mention the induction of govt tomfoolery that has been placed into the works in the past 3-4 decades.
I must also add that whether we are in fact in a bear market or not is strictly a point of view at this point. Volume is high, the gas prices continue to plummet (though this will only happen until after the elections), and the Dow (in spite of recent hiccups), is doing comparatively well.

We can agree on one thing though, the banking system is slowly being bought out. As of now I am not affected, but I agree that it is not only wrong, but a direct violation of our rights as taxpayers.

GK,
I like you solution. Tough love I guess it could be called. IN addition to the benefits you mentioned, Add these to the list:
1. Money would be saved by just giving the educated immigrants green cards, instead of holding up the system.
2. That saves the govt from forking over about 50 mill plus in grants and loans for US citizens who need them because it is 'their right as an American' (gagging over an abused phrase).
3. It would encourage legal immigration vs illegal.
The only thing I could see as a catch, is the media doing what it does best, and classify it as 'preferential treatment of foreigners' over US citizens (which would be far from the truth, but you know how the media twists everything it can get its hands on). In short, I must say that I like the way you think.

[jeffolie]

"The best solution for America would be if the US government decides to issue a one-time supply of 1 million greencards to highly educated immigrants."

This very good, no, excellent idea should be adopted. However, Obama's left wing, tariff loving, protectionists, anti-gobalists anarchists, are unlikely to promote it.

[jeffolie]

brokerdavelhr

You are absurd. This decline certainly qualifies as a bear market. It is not a matter that depends on your point of view. As I type this, the DJIA is below 9000 again and declining over 500 points. The bear market rally is over and you were absurdly wrong again.

This decline reflects the decline in manufacturing, the ISM service sector, and retail sales, not to mention the real estate collapse. You are absurd and do not acknowleged the economy as percieved by sane people. Wearing optimistic, rose colored glass is typical of brokers who only know how to sell stocks to clients and do not know how to tell their clients to sell at the top. You should be telling your clients to search for a bottom to buy or dollar cost average.

[GK]

Bush missed the opportunity of a generation to enact reform to make legal immigration of highly-educated professionals easier.

He had the perfect ally in Arnold Schwarzenegger, who even gave a great speech at the 2004 RNC that explained to immigrants why they should vote for the GOP.

Bush even is the first President to try to seriously expand ties with India.

But he wasted this tremendous opportunity to achieve five good outcomes in one stroke. A much more detailed case on this sort of immigration reform is here.

[jeffolie]

In stock market trading which I do not do anymore since I sold out in March 2007, I expect the market to retest the interday lows.

In Elliot Wave theory (4) of 3 is finished. Downward (5) of 3 is in progress. The biggest damage is done during 3 which ends when (5) of 3 is finished. This could push the DJIA below 7000 which would be about a 50% decline.

After 3 is finished then 4 is a significant rally. 4 may well be a 'seasonality' rally called the Christmas rally. With Obama winning, I expect this 'honeymoon' or Christmas rally.

There is an alternate count that is worse. If 3 repeats then a depression style stock market crash could mean a 68% decline to about 4512.

[GK]

jeffolie,

Can you explain in detail how this 3/4/5 thing in Elliott Wave Theory works?

I, too, am saying an intraday low of 6500-7000 as per the article, but 4500 would be unprecedented, and much deeper even than the 1932 bottom.

[jeffolie]

here is a link to a good overview of Elliott Wave patterns, what they mean and a historical overview.

link:
http://en.wikipedia.org/wiki/Elliott_wave_principle

Here is Mish's graphic interpretation, which in my humble opinion fits the current downtrend well.

http://seekingalpha.com/article/99402-reading-the-s-p-500-s-crashing-waves?source=mb

Robert Prechter among others have been selling newsletter on the Elliot Wave Theory:

http://www.elliottwave.com/

[brokerdavelhr]

Jeffolie,
I never said you were absurd, and I would appreciate you not do that to me. It is childish and uncalled for. I merely said you were wrong, that is all.
We are in a correction due to the over inflation of the housing, stock, and various other markets. This does not a bear market make. Typically a bear market is marked by a steady sell off in the market over a period of at least two months. This means a long term steady decline, NOT a sharp plummet we have experienced since this bail out nonsense came into being (which a sell off is being made in anticipation to the after effects, as the bill hasn’t even had its full effect yet). Could it be the beginning of a bear market? Yes. Is it already a bear market- NO. So don’t you dare try to call me absurd. BTW, if you don’t believe me, try this: http://www.investopedia.com/terms/b/bearmarket.asp .
Also, I am no longer a broker. It has been years since I have been in the business. Also, brokers do not as you say, ‘Wear optimistic, rose colored glass typical of brokers who only know how to sell stocks to clients and do not know how to tell their clients to sell at the top’. Quite the opposite. A good broker will do their level best for your account without getting sued. The problem is people like you who think they know everything about the market, and actually believe that they can out perform the broker. I saw it all the time when I was a broker, and can tell you that if a broker was aloud to trade a clients stocks when they saw it as the best time without having to worry about the client suing them, then the client would be a lot better off. A good broker eats, sleeps and drinks markets and economic issues from dawn to dusk. You obviously do not.
As I have said, your wave theory has not happened enough in the recent decades, to call it any more then what it is- A theory. This is why it is not taught in economics, or brokerage courses.
Once again, the problem remains with people like you. You see an immediate action the economy, society, or markets, and then proceed to mislabel it which causes another bad ‘quick fix’ to be implemented.
Lastly, you said ‘You should be telling your clients to search for a bottom to buy or dollar cost average’. Well duh. What do you think I have said in several posts I have placed in the month? So before you call me absurd, read my posts in their entirety. Also, if you disagree with me, state fact, not a century old theory that has yet to hold water. And when I argue your so called ‘sanity’ with my facts, check it out before you go calling me absurd. By doing so, you will spare yourself quite a bit of embarrassment in the future. BTW, how is my statement anything but sane? Please explain using fact. Thanks.

[jeffolie]

brokerdavelhr

You are myoptic. The top was a year ago, far exceeding your 2 month decline standard. The decline has exceeded 40% far larger than the 20% minimum. You are a misleading, stock salesman.

For the most part investors who pay brokers commissions on mutual funds grossly underperform the market. Stock salesmen like you are mostly parasites hired for their sales talents. Index funds and ETFs are far better choices than absurd parasites like you. Discount brokers ate your lunch starting in the 1980s.

Your ignorance of economics and different wave theories is rediculous. One of the wave, cycle theories taught throughout this century in virtually every economics textbook is the 4 year business cycle.

[brokerdavelhr]

Jeffolie,
I will leave it at this:
The DOW peaked out in November 07. To be honest with you, I cannot see why it went as high as it did with all the over inflated stock prices. Maybe it was that buyers were hoping that a new president would fix everything? Who knows?

Regardless, we have not been in a steady 'decline' as you call it. A drop from the peak of an over inflated 14,000 does not a bear market make. Once again, you are calling an apple an orange. By very definition, we are in a correction. As for the 40% decline, you are not taking into account the whole picture. Also, read the chart- it is far from a steady decline. It NEVER HAD A STEADY DECLINE FOR EVEN A MONTH! http://finance.yahoo.com/q/bc?s=^DJI&t=1y&l=on&z=m&q=l&c=

As for me being myoptic, I have no idea what you mean. I looked it up, and it is not in the dictionary either. Between this and your spelling issues, I am beginning to wonder just how real you yourself are. You make up words, cannot spell, call apples oranges, and attack what you do not understand. I am most disappointed in you.

As I have stated- I AM NOT A BROKER ANYMORE!!! I do not sell, trade, or buy for other people or institutions.So you can stop the rhetoric. I am now a network engineer, and am doing quite well without having to sell a bloody thing.

As for your view on brokers, I am sorry that you feel that way. If you had one that burned you (which is what it sounds like), then you should have picked a better one. As for discount brokers, you get what you pay for. You pay a discount price, expect to get discount service.

As for my 'ignorance of economics and different wave theories' as you put it, is only your opinion. You live on your own little world anyway, so as long as your making up words, you might as well make bad calls about people you don't know why your at it.

Or did you mean myopic? LOL another spelling error? In many ways you would be right then. I am nearsighted- but glasses correct that issue. I am also fairly tolerant considering the events in my life. Narrow minded? Sorry, I am not that either. I will discuss quantum physics, sociology, history, technology, and economics all day. So broad minded will be more to the point. I also do so in an adult manner as I tried to do with you until you started throwing meaningless phrases at me. That only leaves one possible definition of the word myopic- unable or unwilling to act prudently. Sorry, I don't believe I got a college education, CCNP, MCP, A+, Series 7 and 63 certifications to use the knowledge gained from studying and working to be called 'imprudent'. I have lived in several different countries, speak several languages, and I tend to be very social. Imprudent? Hardly.

Now what is your excuse? You have brought all your focus into correlating our current market status with that of Japans awhile back. To further your thought, you use a theory that no one uses anymore. A theory which by the way was never in my economics book (yes I keep it around for reference). So if anyone here is myopic, it is not me, but you.
So come on Jeff, take your next best shot.

[brokerdavelhr]

Jeffolie,
I take that back. Instead lets call a truce. I will even apologize if I have offended you. I like a lot of what you have to say, just disagree with you on this point, that's all. It is not worth your time, or my time to be fussing on this. You made your point from your point of view, and so have I.

Now that I have apologized if I came across the wrong way (this is the second time BTW), I will carry on the conversation if you still wish it.

[jeffolie]

brokerdavelhr

OK

I agree to a truce.

I will play nice.

[jeffolie]

Housing starts have virtually stopped. This is very healthy. I want to stop adding empty houses to the already large inventory of empty houses. Perhaps some of the huge inventory can now begin to be absorbed. Although, continuing foreclosures further add unwanted empty houses. At least the residential builders have stopped digging deeper the hole they are in.

[jeffolie]

Another jeffolie predicts... coming true:

The first news in weeks is starting to trickle out of Downey Savings & Loan:

"...word on the street is Downey wholesale is gone as of today and they will be reducing the retail staff as well."
The official announcement followed shortly thereafter.

"Downey Savings and Loan Association, F.A. today announced that it will close its Wholesale Loan Department and the loan processing centers supporting that Department, effective immediately. Downey Savings will also contract its Retail Loan Department. These changes will affect approximately 200 employees."
Forty-six days ago Downey was served Cease & Desist Orders from the OTS (see below). Perhaps they had a window to work within, and now it's closing. When asked when their last day is: "Today my friend, today."

[jeffolie]

Lehman counterparty risk comes due by Wednesday. This may be a little confusing. A lot of money must be paid on next Tuesday from the Credit Default Swaps (CDSs) made to insure the bad Lehman Brothers debt. Collateral was put up by the CDSs sellers for $400 Billion. Maybe $300 Billion was netted out by sellers using other CDSs. If the secondary CDSs do not pay off then there will be a disaster. An analogy is if the reinsurance company for your house insurance refuses to pay your home owner's insurance and then your insurance company refuses to pay for your burnt down house.

[jeffolie]

Rumor has it that AIG's $81B immediate drawdown results form Lehman Brother CDSs.

[jeffolie]

The Fed is going to bring a new $1.5 Trillion more to the credit markets later this month.

The 'Term Commercial Paper Facility' or TCPF will permit holders and issuers of commercial paper to exchange their CP for money from the Fed.

Where is this new money going to come from? My guess is that it will be monetized partially and partially from the $700 Billion bailout and partially from the Treasury selling new paper.

[jeffolie]

RGE horrific outlook...

--------------------

A Review of This Week of Macro and Financial Developments and My Latest Project Syndicate Column
Email PrintShare
Delicious Digg Facebook reddit Technorati Nouriel Roubini | Oct 17, 2008
My latest column for Project Syndicate has been just published and is reposted below. This column was written last week at the peak of the market turmoil and when the G7 had just announced its plan to avoid a systemic financial meltdown. So, how have things changed in a week since this column was written? On the positive side the G7, the EU and other economies have committed to do whatever is necessary (not allowing any systemically important bank to fail, recapitalizing banks with public capital, providing unlimited liquidity to the financial system, providing direct credit to the corporate sector, providing guarantees to most banks’ liabilities, and any other necessary policy action) to prevent a systemic financial meltdown; most of these actions are sensible and follow closely the ones that I suggested were necessary to prevent the meltdown that the financial system neared at the end of last week. Much more needs to be done including further monetary policy easing, a large fiscal stimulus program to boost demand at the time when private aggregate demand (consumption and investment) are sharply falling; and a plan to reduce the mortgage debt burden of millions of distressed households. But at least policy is going in the right direction and the probability of a systemic meltdown – that reached a peak a week ago – is now significantly lower.

But are we close to the end of the tunnel now? Not really for a number of reasons I will flesh out now…

First, as I predicted this past Monday we are nowhere near the end of the crisis tunnel, in the real economy and in financial markets. I then pointed out that the flow of macro news would be awful from now on and will push down equities. And indeed such news flow was worse than awful this week: free fall in retail sales confirming a consumption recession that started in June; terrible news about housing (starts, permits, prices, homebuilders’ sentiment); consumer confidence down the tube; awful leading indicators of supply from the regional Fed reports (Empire State and Philly); continued high initial claims; free fall in industrial production (only in part driven by temporary factors).

After the sharp Monday rally following the G7 and EU actions to avoid the meltdown, Tuesday was weak and markets were spooked on Wednesday by the awful retail sales report; the Thursday sharp fall following lousier macro news was rescued at the last hour by a rumor that the monolines would be possibly effectively bailed out too. And today Friday the onslaught of more awful macro news (consumer confidence and housing) dominated the powerful advice of Warren Buffet to buy stocks with markets further down. So if even the memorable Sage of Omaha is unable to lift the market what will?

So there is now a growing chorus saying that the stock market has bottomed out, that is oversold and this is the time to buy. The problem is that all the possible good news about policy makers doing everything necessary to avoid a meltdown were already priced in the 10% jump in global equities on Monday while, from now on macro news, earnings news for financial and non-financial firms and additional surprises from systemically important components of the global financial system, will mostly surprise on the downside with considerable further downside risks to financial markets. These systemic financial risks include: the risk of a CDS market blowout as corporate defaults now start to spike; the collapse of hundreds of hedge funds that, while being small individually, will have systemic effects as hundreds of small funds make the size of a few LTCMs in terms of their common deleveraging and selling assets in illiquid markets (as the Wednesday equity meltdown showed); the rising troubles of many insurance companies; the risk that other systemically important financial institutions are insolvent and in need of expensive rescue programs while the $250 bn of recap of banks is way insufficient to deal with their needs; the ongoing process of deleveraging in illiquid financial markets that will continue the vicious circle of falling asset prices, margin calls, further deleveraging and further sales in illiquid markets that continues the cascading fall in asset prices; further downside risks to housing and to home prices pushing over 20 million households into negative equity by 2009; the risk that some significant emerging market economies and some advanced ones too (Iceland) will experience a severe financial crisis.

The last factor is a crucially important one: there are now about a dozen of emerging market economies that are in serious financial trouble: they include Estonia, Latvia, Hungary, Bulgaria, Turkey, Pakistan, Korea, Indonesia, a few other ones in Central-South Europe and several Central American ones. There is now a significant and rising risk that several of them will experience a true financial crisis (and I wrote a whole book about financial crises in emerging market economies). Even a small tiny country of 300,000 souls like Iceland is now having systemic effects on global financial markets: since the country was like a huge hedge fund with banks having liabilities that were 12 times the GDP of the country the collapse of these banks may now lead to a disorderly sale of their assets in already illiquid markets. Now the risk of a financial crisis in a number of twenty countries in the region that goes from the Baltics to Turkey is rising as they all they have very large current account deficits and other macro and financial vulnerabilities.

Here at RGE we analyzed such macro and financial vulnerabilities in the Emerging Europe region and in Hungary very early on in two detailed presentations in mid-2006. And now given the global shocks coming from the US financial crisis there is a liquidity crunch and credit crunch in that region together with the risk of a sudden stop of capital and a sharp reversal of capital inflows. The crisis of a couple of countries in that region could have a domino effect on the entire region (in the same way that the crisis in Thailand in 1997 led – in rapid order – to crises in Malaysia, Indonesia and Korea) given that these countries share many vulnerabilities (external deficits, fiscal deficits, currency and maturity mismatches, small forex reserve relative to short term foreign currency debt). I am right now in Budapest Hungary where the financial turmoil is particularly severe (see today’s excellent analysis from RGE’s Mary Stokes on the Hungarian vulnerabilities). The country can still avoid a crisis – and I will write about the proper policy response in more detail over the weekend – but financial conditions are extremely shaky. And a crisis in Hungary would have severe domino effects on the entire Emerging Europe region. It is thus of the essence that the government takes the appropriate fiscal and other steps to restore confidence while the ECB swap ($5 bn) and a badly needed IMF program - together with a proper bail-in of foreign banks - will be necessary to provide the foreign currency liquidity that is now in such a short supply.

So risks and vulnerabilities remain and the downside risks to financial markets (worse than expected macro news, earnings news and developments in systemically important parts of the global financial system) will dominate over the next few months the positive news (G7 policies to avoid a systemic meltdown, and other policies that – in due time – may reduce interbank spreads and credit spreads). So beware of those who tell you that we reached a bottom for risky financial assets. The same optimists told you that we reached a bottom and the worst was behind us after the rescue of the creditors of Bear Stearns in March, after the announcement of the possible bailout of Fannie and Freddie in July, after the actual bailout of Fannie and Freddie in September, after the bailout of AIG in mid September, after the TARP legislation was presented, after the latest G7 and EU action. In each case the optimists argued that the latest crisis and rescue policy response was “THE CATHARTIC” event that signaled the bottom of the crisis and the recovery of markets. They were wrong literally at least six times in a row as the crisis- as I consistently predicted here over the last year – became worse and worse.

So enough of the excessive optimism that has been proven wrong at least six times in the last eight months alone. A reality check is needed to assess the proper risks and take the appropriate actions. And reality tells us that we barely literally avoided only a week ago a total systemic financial meltdown; that the policy actions are now finally more aggressive and systematic and more appropriate; that it will take a long while for interbank markets and credit markets to mend; that further important policy actions are needed to avoid the meltdown and an even more severe recession; that central banks instead of being the lenders of last resort will be for now the lenders of first and only resort; that even if we avoid a meltdown we will experience a severe US, advanced economy and most likely global recession, the worst in decades; that we are in the middle of a severe global financial and banking crisis, the worst since the Great Depression; and that the flow of macro, earnings and financial news will significantly surprise (as this past week) on the downside with significant further risks to financial markets.

And here is my Project Syndicate column:

All the bubbles are bursting

Radical, coordinated action among all advanced and emerging-market economies is needed to avert the looming possibility of a decade-long global recession

By Nouriel Roubini

Saturday, Oct 18, 2008, Page 9

The rich world’s financial system is headed toward meltdown. Stock markets have been falling most days, money markets and credit markets have shut down as their ­interest-­rate spreads skyrocket, and it is still too early to tell whether the raft of measures adopted by the US and Europe will stem the bleeding on a sustained basis.

A generalized run on the banking system has been a source of fear for the first time in seven decades, while the shadow banking system — broker-­dealers, non-bank mortgage lenders, structured investment vehicles and conduits, hedge funds, money market funds and private equity firms — are at risk of a run on their short-term liabilities. On the real economic side, all the advanced economies — representing 55 percent of global GDP — entered a recession even before the massive financial shocks that started in late summer. So we now have recession, a severe financial crisis and a severe banking crisis in the advanced economies.

Emerging markets were initially tied to this distress only when foreign investors began pulling out their money. Then panic spread to credit markets, money markets and currency markets, highlighting the vulnerabilities of many developing countries’ financial systems and corporate sectors, which had experienced credit booms and had borrowed short and in foreign currencies. Countries with large current-account deficits and/or large fiscal deficits and with large short-term foreign currency liabilities have been the most fragile. But even the better-performing ones — like Brazil, Russia, India and China — are now at risk of a hard landing. Many emerging markets are now at risk of a severe financial crisis.

The crisis was caused by the largest leveraged asset bubble and credit bubble in history. Leveraging and bubbles were not limited to the US housing market, but also characterized housing markets in other countries. Moreover, beyond the housing market, excessive borrowing by financial institutions and some segments of the corporate and public sectors occurred in many economies. As a result, a housing bubble, a mortgage bubble, an equity bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble and a hedge funds bubble are all now bursting simultaneously.

The delusion that economic contraction in the US and other advanced economies would be short and shallow — a V-shaped six-month recession — has been replaced by certainty that this will be a long and protracted U-shaped recession, possibly lasting at least two years in the US and close to two years in most of the rest of the world. And, given the rising risk of a global systemic financial meltdown, the prospect of a decade-long L-shaped recession — like the one experienced by Japan after the collapse of its real estate and equity bubble — cannot be ruled out.

Indeed, the growing disconnect between increasingly aggressive policy actions and strains in the financial market is scary. When Bear Stearns’ creditors were bailed out to the tune of US$30 billion in March, the rally in equity, money and credit markets lasted eight weeks. When the US Treasury announced a bailout of mortgage giants Fannie Mae and Freddie Mac in July, the rally lasted just four weeks. When the US$200 billion rescue of these firms was undertaken and their US$6 trillion in liabilities taken over by the US government, the rally lasted one day.

Until the recent US and European measures were announced, there were no rallies at all. When AIG was bailed out to the tune of US$85 billion, the market fell 5 percent. Then, when the US$700 billion US rescue package was approved, markets fell another 7 percent in two days. As authorities in the US and abroad took ever more radical policy steps last week, stock, credit and money markets fell further, day after day.

Do the recent measures go far enough? When policy actions don’t provide real relief to market participants, you know that you are one step away from a systemic collapse of the financial and corporate sectors. A vicious circle of deleveraging, plummeting asset prices and margin calls is underway.

So we cannot rule out a systemic failure and global depression. As we have seen in recent days, it will take a big change in economic policy and very radical, coordinated action among all advanced and emerging-market economies to avoid disaster. This includes:

‧ another rapid round of interest-rate cuts of at least 150 basis points on average globally;

‧ a temporary blanket guarantee of all deposits while insolvent financial institutions that must be shut down are distinguished from distressed but solvent institutions that must be partially nationalized and given injections of public capital;

‧ a rapid reduction of insolvent households’ debt burden, preceded by a temporary freeze on all foreclosures;

‧ massive and unlimited provision of liquidity to solvent financial institutions;

‧ public provision of credit to the solvent parts of the corporate sector in order to avoid a short-term debt refinancing crisis for solvent but illiquid corporations and small businesses;

‧ a massive direct government fiscal stimulus that includes public works, infrastructure spending, unemployment benefits, tax rebates to lower-income households and provision of grants to cash-strapped local governments;

‧ an agreement between creditor countries running current-account surpluses and debtor countries running current-account deficits to maintain an orderly financing of deficits and a recycling of creditors’ surpluses to avoid disorderly adjustment of such imbalances.

Anything short of these radical and coordinated actions may lead to a market crash, a global financial meltdown and worldwide depression. The measures adopted by the US and Europe are a start. Now they must finish the job.

Nouriel Roubini is a professor of economics at the Stern School of Business at New York University and chairman of RGE Monitor

[jeffolie]

Disinflation then lots of inflation (Use the link to see lots of cool graphs)

Still no deflation: Disinflation then lots of inflation

As we explained years ago, the Fed has a bottomless bag of tricks to use to fight deflation. When deflation inevitably threatens, the Fed planned to continuously change the rules of the game to fight it, and so they have.

You did not need genius of foresight to make this call. All you needed was a browser and Adobe Acrobat on your PC, and a strong stomach to read the Fed's deflation play book (pdf) published by the Fed in 2003.

It was not the only such publication that the Fed issued to try to jawbone inflation expectations up back then, before explicitly carrying out the policy ideas the play book lays out. All of the several dozen papers issued either by the Fed or by the man who now heads it, Ben Bernanke – some as many as 25 years previous – have a common theme: do not, under any circumstances, allow your economy to fall into a liquidity trap. Avoid the zero bound of inflation and interest rates as if the nation's economic life depends on it – because it does.

Printing money is front and center in all of the anti-deflation policy recommendations in these policy papers issued in accordance with economic policy group-think that is soon to be relegated to the ash heap of history; the economic orthodoxy of any era is a reflection of the political interests of those in charge.

And here we are, facing down deflation and printing money like there's no tomorrow, because if the Fed does not – or so the Fed believes – there won't be.

Print, Ben, print!

Banks borrowed $368 billion per day last week, up from $188 billion per day the week before.

One question we get frequently is: Where the heck is all of this money going?

As we forecast February this year, the Fed stopped targeting the price of money but instead the quantity of money in Q2 2008. Since then the money supply has increased more than at any time since the anti-deflation era of 2001.

The chart above understates the total growth in money aggregates because most of the growth is in commercial banks, although not institutional money market accounts. Growth in money aggregates there is no longer reported by the Fed as they were in M3 which the Fed discontinued in 2006.

Evidence is that at least some of this money is expanding the credit of commercial banks but you can see from the expansion of bank credit that some of those hundreds of billions are working their way into the banks.

Less successful is the effort to expand institutional money market accounts.

If you are curious to know what actual deflation, as opposed to disinflation, looks like, it looks like this. Note the declines in M2 plus CDs and broad liquidity in Japan in the first two years of Japan's debt deflation, from 1990 to 1993.

Keep that up for a few years and deflation results. After several years of declines in broad money, deflation appeared in 1993.

In contrast we offer further evidence that the Fed is succeeding in its targeting of money aggregates. We call this chart from the Fed's recent data release on the monetary base: "Showing the Bank of Japan how it's done."

(Hat tip to iTulip's Lukester)

Further reading of the Fed literature tells us that the current period of disinflation, should it continue to develop into actual deflation, will be attacked by the "foolproof means" as Bernanke wrote back in the early 2000s: currency depreciation:

Even if the nominal interest rate is zero, a depreciation of the currency provides a powerful way to stimulate the economy out of the liquidity trap (for instance, Bernanke (2000); McCallum (2000); Meltzer (2001); Orphanides and Wieland (2000)). A currency depreciation will stimulate an economy directly by giving a boost to export and import-competing sectors. More importantly, as noted in Svensson (2001), a currency depreciation and a peg of the currency rate at a depreciated rate serves as a conspicuous commitment to a higher price level in the future, in line with the optimal way to escape from a liquidity trap discussed above. An exchange-rate peg can induce private-sector expectations of a higher future price level and create the desirable long-term inflation expectations that are a crucial element of the optimal way to escape from the liquidity trap.

In order to understand how manipulation of the exchange rate can affect expectations of the future price level, it is useful to first review the exchange-rate consequences of the optimal policy to escape from a liquidity trap outlined above. That policy involves a commitment to a higher future price level and consequently current expectations of a higher future price level. A higher future price level would imply a correspondingly higher future exchange rate (when the exchange rate is measured as units of domestic currency per unit foreign currency, so a rise in the exchange rate is a depreciation, a fall in the value, of the domestic currency).5 Thus, current expectations of a higher future price level imply current expectations of a higher future exchange rate. But those expectations of a higher future exchange rate would imply a higher current exchange rate, a current depreciation of the currency. The reason is that, at a zero domestic interest rate, the exchange rate must be expected to fall (that is, the domestic currency must be expected to appreciate) over time approximately at the rate of the foreign interest rate.

Journal of Economic Perspectives
Escaping from a Liquidity Trap and Deflation: The Foolproof Way and Others
Lars E.O. Svensson
First draft: January 2003
This version: December 2003

This explains the pig pile into gold by the well-heeled (see Wealthy investors drain supplies of gold by hoarding bullion bars). If not only the US but economies worldwide face deflationary forces, and currency depreciation is the final "foolproof way out" as espoused by the current economics orthodoxy, then competitive currency depreciation is the logical end game as governments pull out the stops to prevent deflation.

I remind readers that our comments and forecasts on central bank policy should not be construed as approval. We cannot help our readers prepare for the future if we try to impose our own theories on how the economy, financial system, and monetary systems should work. We are interested in what the Fed and other central banks are thinking, not how they should be thinking. We'll have time for that later. So far careful observation of that has yielded, unfortunately, accurate forecasts.

I leave you with the following history of inflations and deflations since 1800. Note that since every central bank abandoned the gold standard globally there have been two slight periods of deflation. These occurred before 1930. Since the international gold standard was abrogated by the US in 1971, ushering in the second era of floating exchange rates in 100 years – the last one ended badly as well – no deflation has occurred. Japan's experience with "deflation" would not show up on this graph because in no year since 1990 has deflation in Japan exceeded 2%.

We continue to expect that the actions of central banks to halt deflation will, as usual, in the long run work too well.

http://www.itulip.com/forums/showthread.php?p=52281#post52281

[brokerdavelhr]

I do not think the market is either ready for or in the middle of a total collapse. I have tried explaining my reasons, but was told I was wrong. I guess to be listened to and believed, one must be posted in a rhetorical magazine that no one reads anyway. Oh well...
So, I have now heard enough gloom and doom for one day, so here it goes.
BLSW- got in at 70 cents about a week ago. It is close to 1.40 now. So i made 100% in a week.
Think I am making it up? Try this then- the stock will go up and down until about december when it posts its earnings. It will post a record profit, and the stock will make a recovery just shy of the 4 dollar mark. No magic, no guess work, just a lot of research. No inside info either.
So if I( a myopic and absurd person as I have been called of late)can make this in a market getting hammered, why is it truly a catastrophy? The truth is, is that there is no real catastrophy. Rough? yes. Catastrophic? No. The problem is that this nation is no longer comprised of problem solvers and tough skinned patriots, but sniveling conspiracy theorists or doomsdayers who do more finger pointing and fault finding then responsible living and problem solving.

And I am done. I will no longer explain a damn thing in the necessary depth to make a real point. So here is proof that good things can still happen by the New Year in 2009- BLSW.

I'm out.

[jeffolie]

brokerdavelhr your analysis sucks.

The average person is not 'suitable' for penny stock gambling and you should not pretend otherwise. You can get the same 100% return gambling on red or black at the casino. The average stock portfolio is down a lot and baby boomers will have to work many years to make up the losses. The average person has most of their wealth in their home equity. Housing is a catastrohpy and will be much worse. The average person is far from sniveling conspiracy theorists. This collapse is mostly a financial industry creation far removed from the average person.

[jeffolie]

brokerdavelhr

You are the cause of this disaster in progress. You and your kind created securities like MBSs, CDSs, CDOs, ABCP, and the now discredited investment banks. You created a casino environment for investing with penny stocks, options, hedge funds and derivatives. You churned the accounts of the novices and elders stripping away their returns. And this is not the first time, you did it before by running up the stocks of the Saving & Loans which collapsed.

You sucked up the biggest part of the federal budget with social security and medicare that exceed military spending for patriots. You who is retired voted more than any generation and burdened this country with so many Democrats in Congress through organizations like the liberal AARP seeking more benefits for your generation.

You and your kind should take responsibility for what you have done to this great country. Your generation sent the youth of America off to 3 wars.

[GK]

Jeffolie and brokerdave,

Come on, let's stay on topic. Fighting with one another will not help America. Both of you must conserve your energies to fight the fifth-column leftists, who are the true enemies of America.

[brokerdavelhr]

Jeffolie,
I am not going to argue with you. The results will speak for themselves. So go ahead and continue your cowardly personal attacks. I will be laughing later, trust me.
BTW, your conception of me is so far off it is rediculous. Sorry you are so blind.

[brokerdavelhr]

GK,
I already apologized and took a step back. I stopped the personal attacks, and walked away. I want you and everyone else out there to know that I am not a bad guy though, and just wanted to give a little hope and say 'hey guys, look on the bright side' you know?
I am really sorry for all this mess, next time I will keep my comments to myself.

[brokerdavelhr]

GK,
Also please note that in my last post, I made a prediction that would offer proof to your readers (in a very on topic way), that things aren't all gloom and doom. All I was trying to say was that you have to know where to look. I know damn well what a penny stock is, and the investors suitable for it. I stopped my attacks then, and like I said, will make no more. In spite of the personal attacks made on me the last few times.

So when I make a post like the one i put in two posts ago, please keep others off my back. I do not mind disagreement of a point of mine like I said, but if one more attack is made on me when I tried for truce, and I am not aloud to defend myself, I will never visit this site again (which just might make your other readers happier, who knows?).

[jeffolie]

jeffolie predicts...comes true again.

I predicted the Fed would bailout out commercial paper. The Fed is buying $600 Billion.

This represent another huge expansion of the Fed's balance sheet. The Fed again is taking 'trash for cash' because the commercial paper market is not liquid.

[jeffolie]

jeffolie Death Watch additions...Tesla and Chrysler.

[jeffolie]

jeffolie predicts....

Pension funds will either fail to make pension payments or get government bailouts in the BOB after The Crisis in The Fall of 2009.

[jeffolie]

$600 Billion is just the opening gambit. Trillions may go into these commercial paper bailouts.

--------------

The Federal Reserve Board on Tuesday announced the creation of the Money Market Investor Funding Facility (MMIFF), which will support a private-sector initiative designed to provide liquidity to U.S. money market investors.

Under the MMIFF, authorized by the Board under Section 13(3) of the Federal Reserve Act, the Federal Reserve Bank of New York (FRBNY) will provide senior secured funding to a series of special purpose vehicles to facilitate an industry-supported private-sector initiative to finance the purchase of eligible assets from eligible investors. Eligible assets will include U.S. dollar-denominated certificates of deposit and commercial paper issued by highly rated financial institutions and having remaining maturities of 90 days or less. Eligible investors will include U.S. money market mutual funds and over time may include other U.S. money market investors.

The MMIFF complements the previously announced Commercial Paper Funding Facility (CPFF), which on October 27, 2008 will begin funding purchases of highly rated, U.S.-dollar denominated, three-month, unsecured and asset-backed commercial paper issued by U.S. issuers, as well as the Asset Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), announced on September 19, 2008, which extends loans to banking organizations to purchase asset backed commercial paper from money market mutual funds. The AMLF, CPFF, and MMIFF are all intended to improve liquidity in short-term debt markets and thereby increase the availability of credit.

http://www.federalreserve.gov/newsevents/press/monetary/20081021a.htm

[jeffolie]

jeffolie predicts...Empty house redux.

About 45% of the foreclosures are empty houses, abondoned by the owners. With millions of foreclosure, the inventory of empty house is staggering.

http://www.cnbc.com/id/27281271

BOB will include a solution to empty houses or else house prices will continue to collapse. The size of the empty housing is now becoming apparent to even the most near sighted. The next housing bailout probably will fail when it avoids the empty housing inventory.

[Neil]

@ Jeff Olie.

Quit with the multiple posts and paranoid vibe. You're dragging the quality of this blog way down my friend.

[Zyndryl]

jeffolie -

It might be better for the rest of us if you can provide links to your own blog's entries instead of all these postings. I am starting to wonder if GK sold his blog to you. :)

And, doesn't m*v=GDP refer to Money supply x Velocity of money, not "volatility" or money?

[brokerdavelhr]

GK,
I have very little to add into your article about stock market history. But you are called the futurist, so here is an addition to my little contribution: -)
For all those interested who are in a position to partake of the following, keep your eye on this one:
http://www.nasdaq.com/aspxcontent/NewsStory.aspx?cpath=20081020\ACQPMZ200810201153PRIMZONEFULLFEED152491.htm&selected=BLSW&selecteddisplaysymbol=BLSW&symbol=BLSW&SourceCode=PMZ&coname=Bridgeline%20Software,%20Inc.&logopath=%2flogos%2fBLSW.GIF&market=NASDAQ-CM&pageName=Company%20News&mypage=companypressrelease&title=RedChip%20Visibility%20Issues%20Third%20Quarter%202008%20Research%20Update%20On%20Bridgeline%20Software

BTW, here is a question for you GK- How much of an impact do you believe the SEC and govt have on the stock markets health and stability? The future thereof in correlation to the last question? Also given your expert analysis on trends and fairly accurate predictions regarding the trends, where do you see the stock market in 10 + years? Also, what effect do you believe this will have on the R&D of existing and future technologies? Given time I would be able to look more into this myself, but you are good at such things, and a second opinion helps keep one flexible to other possible outcomes.
Thanks in advance!

[brokerdavelhr]

Sorry about taking up so much space man...1 last thing-
Always remember that we as Americans should have the freedom of choice. If we make bad decisions, then we should expect consequences. And with good decisions- to reap the benefits. Even though many think that it is nice to have a system in place that would catch you everytime you fall, they fail to see how much better it would be if they were given the freedom to at least try to fly.
I believe that we can indeed have a better future ahead. A future that allows for growth, not the same stagnation and tired routines we see now. So here is an article that might add a new line of thought into this tired old dull-drum- http://www.reason.com/news/show/129580.html

[brokerdavelhr]

GK,

Out of curiousity, do you use the initials GK from G. K. Chesterton?

[GK]

brokerdavelhr,

I think the SEC plus regulations like SOX have short-term negative impact on the stock market, but over 10+ years, the stock market finds a way around them and always returns to the long-term trendline.

Keep in mind that 48% of the profits of the S&P500 are from overseas, so the stock market is far more 'globalized' than US GDP or the US workforce.

I think that in 10+ years, the Dow will be at 25,000 or so. Refer to the 'Future Timeline for Economics' article again for more details.

R&D can get trimmed. See the 'Seeds of Technology' article in the 'Science' category here. Note that other countries are starting to do more R&D as well, so the burden is no longer only on the US, even though the US can benefit from technologies invented in China or South Korea.

'GK' are my actual initials.

[jeffolie]

Zyndryl

The v in m*v does indeed refer to the velocity of money.

[jeffolie]

How is the government responding to DEFLATION?

Commodities as measured by the Commodities Research Bureau Index (CRB) have broken down below long term support and now stand at a reading of 266 .

http://stockcharts.com/charts/gallery.html?$CRB

This is DEFLATION. It is merely a little touch of Deflation.

How will the government respond?

The Fed will lower rates. The Fed created a game plan for Deflation in 2004.

The lame duck, or just plane lame, Bush Administration will not acknowlege Deflation. The new Obama Administration will take the Japanese approach. Obama will create public works projects putting down perhaps triple the amount of concrete that already exists by making highways, bridges and maybe dams along with 'green' projects.

[brokerdavelhr]

You still in San Francisco GK?

[jeffolie]

When the Bears' Bear gets more Bearish

New York University Professor Nouriel Roubini said.
"I fear the worst is ahead of us."

For a 47 minute manifesto on doom:

http://www.rgemonitor.com/roubini-monitor/254130/bloomberg_october_23_2008_roubini_says_panic_may_force_market_shutdown

[jeffolie]

I loved it all.

One part I loved the most was a response to a question when Roubini highlighted the coming period that US's selling of treasuries will be more than the world will be willing to buy.

He only raised to issue and did not come to the conclussion that I predict that the government lead by Obama will try to inflate enough to pay for everything.

[jeffolie]

Economics and politics are the two sides of the same coin in my opinion.

The stark reality is undeniable when a government seizes your property. Argentina stole, seized the pensions of its citizens and got away with it by shear government declaration. You may say so what, Argentina is just a South American country. At one point Argentina was the wealthiest country in South America and one of the wealthiest in the world, and then fell from grace. Can creeping socialism under our lying, corrupt government be far behind by taxing 401k, health benefits and generally taking from those who have money and then 'spreading it around'?

[jeffolie]

jeffolie predicts....

Russian debt default

[jeffolie]

Elliot Wave Analysis

The S&P closed at a 5 1/2 year low. Clearly the bear market rally (4) of 3 is over. Decline (5) of 3 is underway. I do not know how low the biggest down leg, 3 will end, but the end of 3 is insight.

After 3 bottoms the upward leg 4 could rally into Christmas.

-------------

Alternate Elliot Wave count

Wave 5 is completing and upward countertrend A-B-C correction will start with an upward retracement of 31% or 50% or 61%.

[jeffolie]

Bear markets extraordinaire

Markets down more than 70%: Vietnam (-70.5%), Peru (-73.2%), Ireland (-73.4%), Russia (-73.9%), Iceland (-88.7%).

Markets down between 60% and 70%: Hong Kong (-60.1%), Poland (-62.6%), China (-69.8%).

[jeffolie]

What is wrong with this:

One of the few places of market optimism on Friday was Zimbabwe, an economically troubled part of Africa. The Zimbabwe Industrial Index gained 249.90% on Friday in a bizarre response to the country's hyperinflation. Many vendors prefer to barter rather than accept near worthless cash, so residents with extra money are piling it into the stock market, hoping for gains once the country's violent political situation is resolved.

[jeffolie]

jeffolie Death Watch: Volvo Trucks

The depth of the recession was revealed today as truckmaker Volvo admitted demand across the Continent has crashed by 99.7% as it took orders for just 115 new lorries in the last three months.

That compares to orders totalling 41,970 in the third quarter of 2007.

[jeffolie]

German carmaker Daimler, hit by falling demand amid the global financial crisis, plans to suspend production for a month beginning in December, a newspaper said in report due to appear Sunday.

The break in production would begin on December 11 and last until January 12, Frankfurter Sonntagszeitung

[GK]

jeffolie,

The last 8 comments are yours. Try to have a dialog with the other readers too.

[jeffolie]

Elliot Wave Analysis revisited

As I stated:

"Decline (5) of 3 is underway. I do not know how low the biggest down leg, 3 will end, but the end of 3 is insight.

After 3 bottoms the upward leg 4 could rally into Christmas."

--------------------------

Upward led 4 could take many shapes. The start today of up 889 points was a 'tear your face off' rally. Up leg 4 could be a between 1860 point to 3660 point upward retracement from the 8000 point level. That would be upto a level of between 9860 to 11360.

The classic 4 upward move is a 3 step shape a-b-c count. 'a' is staight up. 'b' is down or sideways. 'c' is upward.

---------------------

Alternate count

Leg 3 is over and leg 4 would be a 'flat', sideways large and wide trading range of unknown duration. Commonly this is called forming a bottom or creating a base. A retest of the bottom would happen many months away.

[Adam]

We need someone who actually understands the economy in office...which is why we need third party options. I like what this website has to say about it. Its a great idea of how to get a third (or fourth) party without impacting this election at all: http://www.thirdpartyvote.com Definitly worth a minute to check out.

[brokerdavelhr]

Adam,

Agreed, here you go:

http://www.blinkx.com/video/ralph-nader-bob-barr-chuck-baldwin/ixG5Rd-blwIOoOfsAjW4QA

[jeffolie]

The Big Government Bubble

Our economy has become a bubble economy and society. We had the High Tech/internet Bubble that burst bringing interest rates down to 1%. Then we had the Housing/Wall Steet bubble that burst bringing rates down to 1%. Now we are having the Big Government Bubble/Big Obama Bailout (BOB). It will burst down the road.

[jeffolie]

Goldman Sachs ready to hand out £7bn salary and bonus package... after its £6bn bail-out

Goldman Sachs gives entire bailout as Bonuses

Goldman Sachs is on course to pay its top City bankers multimillion-pound bonuses - despite asking the U.S. government for an emergency bail-out.

The struggling Wall Street bank has set aside £7billion for salaries and 2008 year-end bonuses, it emerged yesterday.

Each of the firm's 443 partners is on course to pocket an average Christmas bonus of more than £3million.

The size of the pay pool comfortably dwarfs the £6.1billion lifeline which the U.S. government is throwing to Goldman as part of its £430billion bail-out.

http://www.dailymail.co.uk/news/worldnews/article-1081624/Goldman-Sachs-ready-hand-7BILLION-salary-bonus-package--6bn-bail-out.html