First of all the I must give credit to this title from a poster over at Zero Hedge. I thought I would borrow it from them. Most of you know this web site has been offline for about a month. I don't make money off this site so other things take priority. That being said, I have changed everything here from the ground up, and I need new content.
I thought this would be a good subject to start with. I am a student of the market and have been following it for years. I wrote an article in July of 2007 titled "party like it 1999", where I spoke of the coming fall in the market, and while early by 2008 everyone was asking me what I thought. Of course in early 2009 when I thought the market was in a bottoming phase nobody cared what I had to say.
Now I don't claim to be a guru, I was back out of the market way too early as the fed just kept pumping everything up. These are uncharted waters and a great time in history to be a student of the market. The fact is I haven't changed my long term views of the market and I still stand by them.
For about 5 years I have held the belief that we were heading for "The Great Depression 2", for lack of a better term. History of course does not repeat, but merely rhymes, so I do not expect it to look anything like 1929. The crash of 2008 should be evidence enough that something isn't quite right. All of this I derived from my readings on cycles in the market.
Now that we have some background out of the way let's look at where we are now. This is a 40 year cycle, we had one in the 1970's, and the early 1930's before that. These cycles tend to alternate, so the 1970's were a mild one, this one now is a very big one hence the term "There is no out, only in". I am sure a lot of people will disagree with what I am saying and all I can do is point to the performance of all markets since 2000. While the Dow made a slightly higher high after 2000, the S&P made a double top and the NASDAQ has not been anywhere near the 2000 levels. Here are some long term charts for reference:
These charts speak volumes to me, and tell me the next 10 years will be history making. Back in 2008 I had a lot of people asking me where I thought is was going, but few put any faith in my long term projections( can you say new lows?). I still hold those projections, all we have done since early 2009 is burn through all the cash and liquidity the fed could muster. Which brings us to today.
The market does not move in a straight line and the fed can foil cycles by simply printing money. The fed cannot prevent these cycles from occurring, only delay them. I have had a market bottom target of Oct 2010, I must readjust that date now as that would have been a natural low provided the fed did not swamp the market with liquidity and bail out all the major banks. We would be approaching that bottom and while it would have been bad, it would have been nothing compared to what we are in for now. As we move into the time for the 2010 low I expect us to have another 2008 type event. That will not be end of it of course, and the fed will intervene in the market just as it did in 2008.
While I do still hold a Dow target for a low around 3800( currently over 10,000 a drop of 2/3 from here). I am not a doom and gloomer, the world won't end and you don't have to move to the mountains to survive. It will be tough, no doubt about it. This coming dip will be driven by deflation, no matter how hard the fed tries to inflate all that debt they have on their books away, deflation will come back once again. Then we will begin some type of hyperinflationary environment as the fed tries to re-inflate one more time. I hold out hope the people will rise to prevent this and end the Federal Reserve before that, but I have to look at it for what it is.
What is my advice for the next few years? Same as it has been, Cash is King, My retirement account has been in cash since the summer of 2007 and anyone with a 401k that cannot take advantage of a declining market has no choice but to stay in cash. While the bond market remains lofty due to ZIRP ( zero interest rate policy), I expect that to give way to higher interest rates by 2012 and a possible government default on all debt by 2015. While that may sound like an outlandish statement, so is the Great Depression 2 which will be the consensus by this time next year.
I have to place a footnote on all this, which is if the fed does panic during this next drop we could go straight to hyperinflation. Doesn't really matter at the moment because we have another crash to deal with in the short term, so buyer beware.
Good Luck....
