Wednesday, October 28, 2009

Reality comes home to roost in markets

Just about two weeks ago when the Dow went roaring above 10,000 I made the bold prediction that the market had peaked in my article "Prediction: Stock market has peaked". This elicited from some the reaction that I was desperately in need of a brain transplant.

I'd just like to say this. "I told you so!" I know it's a very immature reaction. It reveals a personality that is at once smug and insecure. Guilty as charged!

And what did I say would be the reason for this sudden turnaround? "A return to reality." And what did the fickle financial pundits give as a reason for today's 2% slam dunk of the market.
Stocks slammed

A surprise drop in new home sales sends market lower, with the Nasdaq sliding for the fourth straight session, as investors question strength of the economic recovery.
The Dow Jones industrial average (INDU) lost 119 points, or 1.2%, to close at 9,762.69. The S&P 500 (SPX) index dropped 21 points, or 2%, to close at 1,042.63. The Nasdaq composite (COMP) tumbled 56 points, or 2.7%, to close at 2,059.61.

The Dow and S&P have fallen for three of the last four sessions, and the Nasdaq for all three, as investors have turned cautious following a seven-month stock rally.

Since bottoming at a 12-year low in March, the S&P 500 gained 63% through its peak on Oct. 19. But since then, it's lost 5%, as of Wednesday's close.

Enthusiasm about the largely better-than-expected quarterly earnings reports has been tempered recently by concerns about the still-burgeoning economic recovery.
Surprise? Why should anyone be surprised at a drop in new home sales when unemployment remains at record levels. Unless your living in a bubble, this should come as no surprise.
Unemployment is Higher Almost Everywhere

Unemployment rates were higher in September than a year earlier in 371 of the 372 United States metropolitan areas, according to the Bureau of Labor Statistics.
The greatest increase in unemployment over the last year was in Detroit-Warren-Livonia, Mich., where joblessness grew 8.4 percentage points to a total rate of 17.3 percent in September 2009. The second-greatest year-over-year increase was in Muskegon-Norton Shores, Mich., where the rate rose 6.8 percentage points to 16 percent.

In September 2009, the overall highest metropolitan rates of unemployment (again, not seasonally adjusted) were in El Centro, Calif., and Yuma, Ariz., where rates touched 30.1 and 24.2 percent, respectively. These two areas, which both border Mexico, are highly agricultural.
Well let's see here - 371 out of 372. Well we all know the old saying about "damn lies and statistics". But yeah, I'd say that's 'statistically significant'. I think we can all agree that this meets the criteria of "almost everywhere". But still the financially clueless pundits at CNN Money are "surprised" when bad economic news comes out.

Previous peak predictions

Just one last jab at my critics. I don't often go online and make financial predictions. I don't have any financial qualifications to do that. I only make public statements when it appears to me that the markets are so out of whack with reality through gross manipulation, that eventually they have to come back down to earth.

As I was reviewing my previous posts, I came across this one from September 20, 2008 - "Sell High - NOW!". So was I right?

See that cliff on the left? That was September 20, 2008 when the S&P was at 1255. From there it fell to 899 on October 10, 2008. So what do you think? Was I too sensational with my headline of "Sell High - NOW!"? Should I have not used all caps on the word NOW? Was I being overly dramatic by adding an exclamation point at the end? Because, you know, I want to improve my blog writing style.

My Google surprise!

I probably would have waited a while longer to write this post to see what happens with the markets, except I happened to notice a very strange thing. A Google search of 'market has peaked' returns as the top result my previous article. Isn't that weird? I mean, as much as I might wish otherwise, my blog is not on the top of everyone's reading list that is interested in the stock market. The article in which I predicted that the market had peaked was not even a particularly popular one on my blog. In fact, you can pretty much say it flopped. Maybe someone at Google just likes me. I'm at as much at a loss for an explanation as you are.

You ain't seen nothing yet

Alright, I'll go further out on a limb. I'm going to repeat my prediction that the Dow has further to drop. In fact I don't usually look at the Dow, I usually look at the S&P 500. And what I said in my previous article was that the S&P would continue to drop from a high of about 1100 to at least 1000. Right now it's at 1042 which is about half of the way down or a drop of about 5%.

So should you buy in now? No. I would say "keep your powder dry". Unless that is you enjoy giving away 5% of your retirement savings to the stock market manipulators at Goldman Sachs.

Hold on until it hits 990, then dive in. Hey, if it keeps going down after that at least you'll have the good feeling that you didn't lose that initial 10% from the peak. And if it goes up, then you'll be that much richer.

From there, when to get off the roller coaster on the way up is completely up to you. I have no way of knowing in advance what top the market manipulators at GS have set. I just assume that it will oscillate around 1000 for a while.

What about Gold?

I asked this same rhetorical question in my last article. Yes, it's true that gold is also down from its peak. Am I worried? No, because the Plunge Protection Team led by the traders at Goldman Sachs can only keep prices out of whack for so long before they revert back to their natural state. Recently we have seen the dollar rise which has caused the price of gold to go down. But in just a matter of days I fully expect that there will be a resurgence in gold.

So hold on to your gold - whether it's an ETF or a the real thing. Don't panic and you'll be quite pleased with the results. I promise. And if not you can leave me a nasty comment. That should make you feel much better. Just don't get too nasty or a might be tempted to delete it.

BTW, as long as I'm saying "I told you so", I would like to remind long time readers of FNT of an entry from almost exactly a year ago. I wrote an article titled "Buy Gold NOW!" At the time an ounce of gold was worth $733. Since then gold has steadily gone up. It's nearly 40% higher than it was a year ago.

And the S&P 500? Well let's just say "it's been interesting". If roller coasters are your thing, then the S&P was definitely the place to be. I just hope you didn't get out at the wrong time, or likewise buy in at the wrong time, because that could be lethal.

It's your choice you can either hang in there with the S&P for the ride of your life, or switch your investments over to gold for a little peace of mind and security. In fact now would be a great time to do just that. Just remember a year from now. "I told you so."

Russia - the last frontier

If you're really feeling lucky, then when the S&P slips below 1000 you should buy into the Russian stock market with the RSX ETF. It pretty much follows the S&P but is much more volatile.

I happen to think that the future for Russia is brighter than most people currently realize. My one big concern - and its a huge one - is regarding corruption.

But if you think about the big trends - energy, water, farmland, even population. Russia has every reason to be optimistic. Of course that assumes that the government doesn't screw it up, which is a big assumption when you consider the history. Is Putin the next Stalin, or the next Jefferson? I certainly don't know the answer to that one.

Regarding the Russian population, I want to point out one thing that is totally lost in all these discussions about man's impact on climate. When you get to the bottom of these arguments, it all comes down to population increases. What's interesting about Russia is that it has actually lost population in recent years. It's so bad that some experts have warned that Russia's economy could be severely impacted.
UN report says Russia could face labor shortages, slowing economic growth as population falls

Russia's population has fallen by 6.6 million since 1993, despite the influx of millions of immigrants, a United Nations report said Monday, and by 2025 the country could lose a further 11 million people.

The result could be labor shortages, an aging population and slower economic growth, the U.N. said.
Population levels in many developed countries have stagnated and are expected to fall by 2025, but Russia's population, currently around 142 million, has been in retreat since 1992. Russia's mortality rate is among the highest in the developed world, with average life expectancy for males at barely 60 years.

For reasons that are not fully understood, Russians suffer very high levels of cardiovascular disease. But most experts blame the country's overall high death rate on one factor, alcohol. It has been linked to everything from liver disease to Russia's high number of murders, suicides and fatal accidents.

According to a 2007 U.N. report, in 1950 what is now the Russian Federation had the world's fourth-largest population. By 2007, the report said, Russia ranked ninth globally, behind Bangladesh and Nigeria. By 2050, the U.N. estimates, Russia will rank 15th, with a population smaller than that of Vietnam.
Personally, I think this whole idea is ridiculous. On the one hand the alarmists warn us of a coming crisis if the population continues to increase, and on the other hand they warn of a crisis if the population should remain steady or even decline. So which is it?
Halting Russia's population collapse

Demographic experts say Russia's steep population decline could have serious consequences for the economy.

"The numbers are frightening," says Sergei Zakharov, from the Institute of Demography at Moscow's Higher School of Economics.

By 2050, Russia's population could shrink from the current figure of 142 million people to 100 million, according to a United Nations sponsored study published last year.

Mr Jaeger adds that in demographic terms, Russia is in the worst position of any of the BRIC countries.

He explains that India's population has been growing fast, while in China the workforce will continue to expand until 2015, when the population will start to age, but it should not decline.

Brazil, he estimates, will benefit from an 20% increase in workforce by 2025.

Mr Jaeger believes that Russia could face a population collapse.
And keep in mind that Russia is the largest country in the world even after its transformation from the USSR. Will Russia become a deserted wilderness inhabited only by reindeer and bears? I don't think so, although that's hardly the worst thing that could happen.

Related articles

NOTE 1: I should have probably saved this last segment about Russia for another blog entry. I tried to write one earlier, but found the subject too large to address. So I just stuck it in here, mostly just to get it off my chest. Maybe one day I'll write a proper article on this subject. If so, you have just received a free preview. Oh yeah, that's right I'm thinking about charging for subscriptions to my blog now that I'm a top result in Google.

Just kidding :)


NOTE 2: Other interesting top Google results for my blog.

"Goldman Sachs criminals" -> hits on Goldman Sachs: Wall St. Gangstas
"Geithner dollar" -> hits on Geithner's dollar gaffe
"Patrick Parkinson" -> hits on Fed crony Patrick Parkinson named to be top bank regulator

Click on the links above to see the Google search results. Cool huh?

FNT used to be one of the top hits for a search of SIGTARP which hit on my article "SIGTARP is the new sheriff in town" until the MSM got a clue and figured out the importance of this position. You gotta hand it to the ol' MSM - they're big, dumb and slow, but eventually they catch on.

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