Wednesday, September 17, 2008

The Economy: stock market

The U.S. government took control of American International Group, Inc. in an $85 billion bailout to prevent the bankruptcy of the nation's biggest insurer and the worst financial collapse in history.

Time zones -- In the past, September and October have seen some costly market action on the NYSE, but at the same time many bear markets have ended in the September-October zone. I was around in 1949 after the fierce bear market that began in 1946 topped out. The Averages hit their lows in December of 1947, and by mid 1949 a great bull market was born.

Then there was the 1957 mess. The Dow hit its low in October, and by December the Rails hit their low. In 1958 it was all up and away for the market.

Next, I lived through the 1973-74 horror show. The Averages hit their God-awful lows in the October-December period, and from there it was higher and higher.

In 1980 the lows were recorded in March-April, and again in 1982 late-July and early-August saw the blessed lows. So each big downer is different and each one dies in its own way. Let's hope that the current down-leg dies in the next several months as so many have before. I've learned never to depend on an exact repeat where the market is concerned, but these last couple of months of the year have me on my guard.

Yesterday I wrote that I was afraid that the next phase of the economy would be a cut-back by US consumer in their spending. This usually starts with a cut in discretionary spending, eliminating the easy stuff, movies, restaurants, expensive clothes, jewelry. The chart below of the consumer discretionary spending ETF shows signs of topping out on a daily basis.

The next phase after a drop-off in discretionary spending is a general cut-back by consumers at all retail outlets. And here we see the retail ETF also looking toppy. It's been years since Americans have actually cut back on their spending. As I've said before, the current two generations are the only two in US history that have never seen hard times. Anyone under 50 in the US has never had to deal with hard times. This probably explains why Americans are so blase about the current awful stock market action. Do you know anyone who is now sitting in 100% cash? Do you know anyone who has a collection of bullion gold coins? Most Americans have never seen a one-ounce gold coin.

Good Lord, what have they done to the Wall Street I grew up with and loved? First there was Merrill, Lynch, Pierce, Fenner and Bean, and there was Lehman Brothers, and Goldman Sachs and Morgan Stanley. Lehman and Merrill didn't make it, and now we have only two masters of the universe -- Goldman and Morgan. Charts are below. Will they make it or will there be none? Hmmm, I don't like the looks of these two charts. Give my regards to Wall Street, the street is looking rather bare. Will Wall Street go the way of 52nd Street, the lost home of jazz in New York? Hey, I'm not going back to Manhattan, I'm saying out on the West Coast where it's safe.

Below, a daily chart of Goldman.

And Morgan Stanley.

Question -- I note that lately you've been emphasizing gold coins above all other forms of gold. Why?

Answer -- You may think my answer is silly. People don't tend to trade their coins. When gold goes through one of its vicious corrections, my experience from the 1970s is that many subscribers panic and sell their gold. I don't know of a case where a frightened subscriber wrapped up his gold coins and hauled them over to his coin dealer to sell them. It just doesn't seem to happen. People seem to become too attached to their beautiful gold coins. Then, when gold turns around and heads higher, the coin-holders remain IN THE GAME. That's the simple reason why I suggest that subscribers hold gold coins. They just don't sell them!
I'm beginning to hate that meaningless phrase, " Taxpayers money." It's ALL taxpayer's money. How is it that nobody ever mentioned the multi-billions the US spent on the war in Iraq, who's money was that if it wasn't taxpayer's money?

Hey, do you really want to know about taxpayer's money and taxpayer's debts? The national debt of the US is now $9.671 trillion. The annual interest on this debt in fiscal year 2008 will be $500 billion. US taxpayers are paying the ever-increasing annual cost of carrying this debt including money borrowed from Social Security. Cost of carrying the national debt since September 28, 2007 is $1.93 billion a day, and the nation is now in recession. Yet, in the last 36 years the US Dollar has lost 80% of its value. In the year 2007 if you had bought goods costing one dollar, back in 1971 those same goods would have cost you twenty cents. (I well remember the ten cent loaf of bread, and the nickel subway or ferry ride in the NYC of my youth -- figures above courtesy of Ed Reinke.)

All the above is why I continue to hold those shiny one-ounce gold coins. What will they be worth in ten years? What will the dollar buy in ten years?

Gold opened this morning up over fifty dollars to above 830 (Dec. gold). This tells me that the next crisis will be in the dollar. Gold is the safe haven for a deteriorating dollar.

Question -- Do have a bias as to which way the stock market works out? Are you completely subjective and neutral?

Answer -- Of course I have a bias as to the US and its outcome -- I put my life on the line for my country. I have five kids. The last thing I want to see is this country falling apart at the seams. Is that answer enough?

This market has the soul of a murderer. I said this before. Just when all the smart money has moved out of stocks and is in the "safe haven of US dollars," there'll be a run on the dollar. Surging gold represents a run on the dollar. Buyers are getting rid of dollars as they buy gold, which is what we saw today. How do I know if there's a true run on the dollar? Watch the bonds, they'll be falling out of bed.

The VIX was up 5.85 to 36.15.

LATE NOTES: Today there were only 12 new highs and 1018 new lows. 3312 stocks were traded today, which means that almost one-third of all the stocks traded today hit new lows -- a ghastly performance. Lowy's reports that today may have qualified as a 90% down day. I ask myself, will the Dow decline to the point where it yields a classic 6%.? I certainly hope not, but I'm ready for anything.

There are those who have made fun of the so-called crazy "gold-bugs." These are the people, many are my subscribers, who have held on to their gold like the bite of an angry pitbull. The last man standing will be he who owns gold. When all is lost, gold will still be the island of indestructible wealth.

What you read here I don't think you will read anywhere else. Feel free to send a copy of today's site to family members and friends, and even to your broker with the blessing of this old veteran.

50% Principle finally turns bearish.

Sadly, I must report that the Dow closed today down 449 points at 10609.66 -- a tragic close. This takes the Dow below 10725, which is the halfway level of the entire rise from the Dow 2002 low to the 2007 Dow high. The great stock market balance has finally tipped over to the downside, and the extent of the potential market losses ahead are now unknown. I was hoping that the downside of the Dow could be confined to the area above 10725, but this was not to be. I now urge subscribers to move as far as possible into cash and T-bills with a balance against catastrophe via gold coins.

I just spoke to my coin dealer, who told me that he is able to get sporadic groups of American Eagles, but Krugerrands are "off the market" and where available are selling at huge premiums. He can obtain Canadian Maple Leafs and in rare cases odd lots of various gold coins. The US mint is out of Eagles.

December gold closed today up 70 dollars to 850.50. Shades of 1979, and subscribers who were with me in the '70s know what I mean.

Scoreboard --- Markets - Percentage of Change for this year
Index 2008
Dow Industrials -16.6%
Mumbai -33.4%
Toronto -11.6%
Singapore -29.0%
Stockholm -25.2%
Sydney -25.3%
Frankfurt -26.1%
Paris -27.2%
Milan -30.4%
Johan. (Comp.) -13.7%
Zurich -18.0%
Brussels -30.3%
London -22.2%
Amsterdam -28.0%
Mexico City -16.7%
Japan (Nikkei) -24.2%
Hong Kong -34.2%
Seoul -26.9%
Shanghai B -65.9%


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1:05 AM  

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