"the Fed Is Preparing For Failure" By Mike Swanson

[Grand Poopercycle]

Fart, I can see your scenario more or less occuring, although I don't know if we'll actually make it an up year or not in '03(and if we do it'll likely be no more than +5-6%). I think the first half will see a major butt kicking, with the elusive 'freak-out' type capitulation finally occuring; I think we were within a few days of that taking hold in October. Cyclical bull(12-24 months, +40-50%) will take hold by late summer/fall, though we may never see a 5-digit DJI again-absent roaring inflation. Eclectic, odd mix of stocks will drive the rise. However, the biggest point to me is that we are early in a very long term bear. Despite name, I'm not an in-depth Ellyutt man but I think general principals pretty valid and believe we have put in a MAJOR peak in 2000('Western Civilization'-magnitude quite possible, will not go into THAT in this post!). However, MAJOR peak implies a very long unwinding and worst of everything(economy, society, geopolitics,etc.) many years/decades off, especially as it's likely that some 'in positions of power'(Sir Bubbles, certainly)

think similarly and are acting accordingly; eventually they'll lose to "tides of history" or whatever, but can delay,semi-manage for quite some time. If I'm wrong about next year, likely outcome like this year since March: grind down, with occasional accelerations into near-term lows, accompanied by violent rallies(20-25% in 5-10 days) followed by churning for several weeks into new declines(Groundhog Day?). Main thing though, is: high level bear market is ultimate trend.

By the by, I'm a sphincter who can't short and can hold only minor gold stock position- clients have much cash and quality munis. My views are certainly a minority :grin: in the 'profession'-in fact I've laid out full magnitude of views to very few, including no clients; freaking them out not part of job description

[mjkst27]

Fart - I think you are looking for excessive bearishness in exactly the wrong place here at the Stool. I'll agree with your views whenever I see Stool-like bearishness among the folks I work with - the all time great sheep. You think the world has caught up to the knowledge and realizations we have all come to here? I don't. I think there's a big awakening yet to come, to the fact that the sheep been had, and it won't be pretty. Bookmark your thread, I look forward to revisiting it in a year!

[BAREister]

Well, Fart, ANYthing is possible, ass they say.

The issue is what is LIKELY.

You're right to warn bears about being blinded by dogmatism.

You're also probably right in that the POWERS THAT BEE think they can engineer their way out of their excesses and get off "Scott free".

Maybe they will, or, failing that, they can create a crisis such as a war or two, to blame their failures upon, and distract us with/by.

We will know, "in the fullness of time", of course.

History probably suggests you are wrong. It might be possible that a 22 year market would have only a 3 year hiatus prior to resuming, or that the parabolic still etched by the DJIA/NYSE/S&P may, after such a sheer, vertical rise, resume it's ASScent without correcting the way virtually every UDDER parabolic in history has, once it's rise has initially been halted.

But history says that's rather doubtful.

So, too, do the vicissitudes of life, generally/rules of chance, etc.

 

So FUR this bear is doing what one would expect: serving up horrendous losses punctuated by virulent rallies that consistently stall out and fail at major overhead resistance (the "HAYWIRE THEORY" writ large). The economy is ebbing.

[MaxxPain]

I love this discussion. I really hope fartpolio is right, either way I plan on making money. I'm following the chart. I know the game is rigged. I will use their strength to fill my account.

 

My outlook is different and a tad bearish.

 

SP 500 = 366 by June 2003

Dec 2003 Unemployment 10%

Car sales down 20%

Ford & GM Bankrupt

GE hits single digits, close to bankrupt

Dollar index hits 80

All the major banks making billion dollar one time charge offs every quarter.

Fed lowers rate 2 more times to 0.5% People start rolling their CDs into gold & silver.

[Guest Icky Twerp]

ahem, now that I'm alone....

I see coming...

1) Stockmarket, then Economy melt down in Q1 2003

a) 25% "real" unemployment by year end -- layoffs triple from 400,000 a

month to 1,200,000

massive nationwide real-estate dis-locations (foreclosures) thru-out

year (collapse of housing bubble)

c) Gold up to at least $1000 by March

d) dollar devalued to $0.60 by March

e) 35 of 50 state governments in default on bonds and in deficit of

budget by year end (collapse of local government)

f) hyper-inflation takes over in Q2 2003 -- interest rates over 20%

 

2) War in Iraq, chaos in Venezuela, anywhere from Q2 2003 to Q3 2004 --

the later the better, as far as Bush Re-Election campaign is concerned

-- No Democrat has ANY chance in that case, but no viable candidate has

appeared yet, in any case

a) BUSH I derailed by successful war conclusion "too soon"; BUSH II Team

will try to manage it better. But this is (IMHO) driven by economic

pressures.

 

3) Wild card remains California Energy Investigations and NY Spitzer

Broker Investigations and investigatory fall-out related to those

investigations -- potential tie ins to Republicans could throw off their

timing

 

4) The advent of war satisfies all those emergent conditions:

a) put everybody back to "work" and conserving

minimizes fiduciary folderol / puts all investigations on hold.

c) enables civil-liberty crackdown to a degree superior to the "war on

Terror"

d) price of oil at $60 makes a lot of friends very, very happy, OR,

rights to Iraqi reserves at $20 is ok, too

 

IMVHO,

Depression, War, Police-State are all inevitable.

All the cold-warriors assembled "under" Bush II have memories of WWII

and post-war-era; they have the belief that the war pulled the world out

of the Great Depression, then positioned the US to stand against the

communist menace. They want to follow that same playbook for this

Depresion, this War for Oil and against Terrorism, and the looming

Chinese Threat, which is both military and economic. The architects of

this policy (name your own favorites) may be genius Realpoliteknicians

in the Kissinger-mold, or just opportunists playing with fire

 

By flooding the system with liquidity (as one commentator put it

"printing worthless US Dollars till the printing presses glowed red"),

Greenspan has helped the economy to limp along to this point. By

carrying Iraq in this "conflict" like Ali danced around Jerry Quarry for

extra rounds, they have delayed the knockout punch as long as they can

-- delay is no problemo for US. But now, things must come to a head, and

the timing suits the administration.

 

There are other crises that could fuddle the Reps' plans, such as

repatriation of Saudi and Japanese investments (withdrawals of foreign

capital from America), which would be huge, but not essential. The most

optimistic scenario option I can come up with is where the Mayberry

Mafia bungles everything so badly that every republican is turned out of

office like a bedwetter from a boardinghouse, with a corresponding

inclination from the new government to care for all its recently

impoverished and devastated citizens. Even that optimistic scenario

would take years to restore order. If one could believe that Bush II &

company could pull it all off, a decade from now it is hard to imagine

what kind of society we will be living in: some sort of Christian

Talibanized Theocracy, I guess, where clean-shaven and dark-suited

thought police enforce conformity with kangaroo courts. Maybe we'll move

directly to the GATTACA trip.

 

We might get to March 03 and have seen none of this, but that won't mean

it still won't happen. IMVHO it's already happening

[Takachi]

Gee, no one has mentioned central city riots at the strained welfare system and no jobs. Nor has any been mentioned discovery by the public of the "hollowing" out of America and the subsequent disgust and repudiation of globalism.

 

Someone will promise the re-industrialization of American and the roll back of political correctness. It won't be either a republican or democrat, but they might very well be non-white. Who it is will determine whether it's constructive or the end of America, not likely to be constructive.

[EasyAl]

Here is Richard Russell's big picture view on why 2003 could be another down year:

The big picture is that we've just completed the longest (1974 to 1999) bull market in history, and arguably the greatest and most speculative bull market in history (Dow 577 to Dow 11200).

 

The bear market that has followed this great bull market has been in force for three years (1999 to 2002). The Dow, so far, has lost 37.8% of its peak price.

 

Almost every bear market in history has seen the Dow give back at least half of its gains. On this basis alone, the bear market hardly seems to have been completed.

 

Furthermore, every major bear markets has declined to the point where blue chip stocks represent "great values." With the Dow now selling at better than 20 times earnings and providing a dividend yield below 2% it can hardly be argued that stocks are now selling at great values.

 

At the bull market's peak and its "throw-over" during the year 2000, we witnessed the wildest and most outrageous "speculation" in stock market history. Bear markets tend to be a mirror of their preceding bull market. In other words, the bigger and more speculative the bull market, the more drastic and costly the bear market that follows.

 

On this basis, we should probably expect this bear market to be one of the biggest and most costly in stock market history. We might also expect to see stocks, at the final bear market bottom, to sell at an almost shocking level of depressed values.

 

 

You can read more of Mr. Russell's views here

[Goldmember]

North Korea just expelled U.N. inspectors and monitors. The Chinese "interesting times" scenario just turned another page to a new chapter. :shocked

[Guest yobob1]

You just have to love it. Shrub is turning Iraq inside out to find what? So far nothing. Meanwhile we have N. Korea, known to have a couple of warheads at least and the ability to manufacture more within 60 to 90 days. What's even more interesting is the fact that N. Korea manufactures it's own scud missles while Iraq must procure them in the open market.

Perhaps soon China will sense the timing is right to reincorporate Taiwan? Oh Shrub, you've done it again.

 

I keep telling you , we should have just invaded Canada. The people are friendly, most of them speak the same language and they have tons of natural resources.

 

You know if you took the labels and names off of everything and took an external view of our little blue planet, it might appear to an outsider that with 4% of the world's population and a defense budget larger than the total of all other defense budgets, the United States is the biggest threat to global stability.

[chibear]

Yo Yobob1,

 

I get the feeling that you are probably one of those political commentators who believes that everything our side does is wrong or suspect, and everything the other sides do is wonderful, or at least understandable considering what jerks we are. Or is just Bush? I don't like everything Bush does, but I like everything he does better than I liked the doings of our former, serial rapist, POTUS.

[SupplySider]

Kudlow wrote the following this week: "As long as the Federal Reserve keeps pumping the economy with sufficient new cash to boost investing, spending and saving, it looks like we're set for something of an economic boom next year."

As a supply-sider myself, I completely repudiate Kudlow. Like most economists, he lives in a theoretical world. He thinks the problems of today are just like they were in the 1980s. They are not. No amount of monetary stimulus is going to encourage corporations with over-capacity to produce more. Ditto for consumption. The consumer is reaching saturation point. The only effect, at this point, of further dollar creation is to debase the currency. What Kudlow, et al. are expecting is for the cause of the current problems (excess credit) to also be the solution. Kudlow was wrong about Dow 36,000 and he'll be wrong about a lot more before all is said and done.

[EasyAl]

Kudlow wrote the following this week: "As long as the Federal Reserve keeps pumping the economy with sufficient new cash to boost investing, spending and saving, it looks like we're set for something of an economic boom next year."

As a supply-sider myself, I completely repudiate Kudlow. Like most economists, he lives in a theoretical world. He thinks the problems of today are just like they were in the 1980s. They are not. No amount of monetary stimulus is going to encourage corporations with over-capacity to produce more. Ditto for consumption. The consumer is reaching saturation point. The only effect, at this point, of further dollar creation is to debase the currency. What Kudlow, et al. are expecting is for the cause of the current problems (excess credit) to also be the solution. Kudlow was wrong about Dow 36,000 and he'll be wrong about a lot more before all is said and done.

I do not think it is possible to bost investing, spending and saving at the same time. Capitals can not be be formed by credit; it only be formed by savings. If saving goes up, spending will have to come down. I just do not think Mr. Kudlow has any clue. As a freshman, he would fail in economy 101 class.

[SupplySider]

For instance, it now appears that the inexperienced co-pilot may have been the one in control when Paul Wellstone's plane crashed in a full-power dive into the ground. That plane crash has changed the balance of power in the Senate, thus giving one party control of both congress and the executive branch. Mighty big result for one moment of incompetence, eh?

Actually, no. Jim Jeffords switching from Republican to Independent changed the balance of power in the Senate. On the other hand, the recent elections would have switched the balance of power in the Senate whether Wellstone died or not. In a tie, the Senate's President (the V.P.) determines the balance of power.

[DogBoy]

"Perhaps soon China will sense the timing is right to reincorporate Taiwan? "

 

I've been saying this for a long time now. The writing is on the wall for Taiwan. ANY sane person would be accepting the demise of Taiwan as REALITY by now.

 

The intersting thing is how Dubya will SELL it to his right wing contituants. But Taiwan is gone for sure. A sacrifice to the almighty New World ORder.

 

China WILL (not MAY) get their litttle "pet" Taiwain in exchange for an ABSTAIN vote on the UN res to invade Iraq.

 

China is a PERMANENT member of the UN security council. They have VETO power over ANYTHING.

 

The Chinese PLA (people's liberation army) who own most of the manufacturing ventures there (China Mart ?) have proven to be be reliabe capitialists. The western biz guys LOVE 'EM.

 

Taiwan IS T-O-A-S-T.

 

I FULLLY expect Taiwan to be immedieately taking over by China when we invade Baghdad.

 

And this is your SELL signal on the QQQ's. Should be in late FEB or early March.

 

The RED CHINESE wil quickly restore order in spite of a few minor disturbances from some right wing christians who will be upset with the "change in plans".

 

The Reds will quickly institute a provisional gubint that will ensure order and continuation of capitalsitic markets just like in HK.

 

Then the QQQ's will shoot the friggin moon.

 

March madness via the PLA anyone ?

[SupplySider]

I think that the argument for war doing more harm to our economy is much stronger than the current mainstream belief that "war is good for the economy"... especially if we look at the immediate years following the last 2 wars.

War is always bad from an economic perspective. It destroys wealth that must replaced. The money used to replace the destroyed wealth could have been used for other purposes had there not been war. Only neo-conservatives and other idiots believe in the Broken Window fallacy that Bastiat discredit many moons ago.