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Real DOW Update: Still looking for a bottom? Eric Janszen

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  • Real DOW Update: Still looking for a bottom? Eric Janszen

    Real DOW Update: Still looking for a bottom?

    We first published the Real DOW when we re-opened iTulip.com March 2006. At the time the DOW traded around 11,400. Today the DOW closed at 6763, nominally off 41% since our Real DOW warning, and below the 7552 level that so many stock market watchers called a “bottom” at the time we published our warning, Beware Relief Rallies in November 2008. Are we finally close to a bottom? The Real DOW, so reliable for so many years, still says, No.

    Back in 2006 – seems so long ago, doesn’t it? -- we received numerous objections to the Real DOW analysis, along the lines of “You aren’t counting dividends!” and “You guys are so negative!” Most were not that polite.

    We figured that when the market finally tanked that companies that paid dividends were likely to cut the dividends to conserve cash. GE’s recent move to cut dividends by nearly than 70% is a good example. In any case, dividends or not, the market was entirely over-inflated, as any sentient being could see by looking at our chart. The mean reversion trip to the 1.64% curve started off slowly in 2006 due to inflation while the nominal price rose, and has accelerated downward at a fast and furious pace since early 2008 in nominal terms. Expressed in the Real DOW, it all looks like one continuous correction.



    The good news is that the DOW may be more than half way or more through the mean reversion process. The bad news is that we may still have a long way to go.



    If the Real DOW overshoots as much as it did last time the stock market reflected a relatively minor debt deflation, we are only about half way through the correction.

    Keep in mind our Real DOW is, well, real – that is, inflation adjusted; during the previous debt deflation bear market, stocks declined rapidly in nominal terms then in inflation-adjusted terms. Note that in Real DOW terms, the entire 1966 to 1983 period appears as one continuous bear market, first disinflationary then inflationary. Likewise, the more extreme debt deflation bear market that started in early 2006 during the inflationary weak dollar period and continued into the disinflationary period that started at the end of 2008; in Real DOW terms, the decline is continuous.

    There are several ways that the DOW can go on to the queasy lows shown above. One way is for inflation to rise and for the DOW to fall only moderately further in nominal terms. We might, for example, see the DOW fall to 5000, our long-term DOW target, while inflation rises into double digits as occurred between 1975 and 1980, in early 2012. But that's just a guess, of course.

    Trying to figure out exactly how the Real DOW will finally meet up with the 1.64% curve and how much it may overshoot -- and when -- keeps us busy, but we have since March 2006 not doubted that it eventually will.

    How deep a Modern Depression?


    We started to talk about The Modern Depression back in April 2006. October of that year we pegged its commencement to Q4 2007, and with Friday’s Commerce Department announcement of GDP contraction in the US at a 6.2% annual rate in Q1 2008, 60% higher than the consensus forecast of 3.8%, we now issue a range of forecasts for the length and depth of the Modern Depression.

    Our first analysis focuses on US GDP. Later analyses will delve into output, exports, tax receipts, savings, investment, current account, and other key measures of the Modern Depression economy.

    Methodology

    We weigh major macro-economic antecedents, economic policies, and policy results comparing The Great Depression and the Modern Depression to arrive at best, medium, and worst-case scenarios.


    Economy contracted to GDP reached 10 years previous

    Current Modern Depression GDP Forecast


    Eight year cycle: Economy contracts to GDP reached 5 years previous, recovers in four years

    Subscribers can read the complete analysis at Modern Depression: Focus on US GDP ($ubscription)

    iTulip Select: The Investment Thesis for the Next Cycle™
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    Last edited by FRED; 03-03-09, 09:41 AM.

  • #2
    Re: Real DOW Update: Still looking for a bottom?

    EJ,

    This whole thing is starting to get funny. I have gone from bars on the windows, guns guns guns, and a lot of freeze dried food, while sitting in my front room stroking a gold eagle chanting MY PRECIOUS.

    To god damn what's up with that BS - this is not the life I want to live, I like a Foie gras appetizer, bone-in ribeye with a nice chocolate souffle for dessert. There arn't any freeze dried chocolate souffles btw.

    Something happened to me not sure what but I decided to kick some ass, U know the old "I'm mad as hell and can't take it anymore" stuff.

    Any ideas on how best to do that? I have three daughters 12, 14, and 18, I will do whatever I have to do to protect them, but what can we do as a group to handle this situation? You have connections in government, who do we back? Who should I throw my support behind?

    Your forcasting has been second to none, but now for me it is time to act. The old live or die in the attempt - play for blood thing. (I have never lost any big battles this lifetime and this won't be the first - and U can take that to the bank)

    Hey Jim sorry for my inappropriate posts - I wish you nothing but good fortune.

    your friend
    rick
    Last edited by rabot10; 03-02-09, 06:39 PM.

    Comment


    • #3
      Re: Real DOW Update: Still looking for a bottom?

      Its Amazing Ej, everyone has been thrown by this.....Hudson/Schiff/My Dog Tara......They don't know if Gold is going to $500 or $5000..........Its like the rule book has just been tossed out the window & it being made up as we go along.......i hope you keeping notes!

      Mike

      Comment


      • #4
        Re: Real DOW Update: Still looking for a bottom?

        I like how EJ has become (on a relative scale) an optimist.

        Comment


        • #5
          Re: Real DOW Update: Still looking for a bottom?

          Originally posted by EJ View Post
          We might, for example, see the DOW fall to 5000, our long-term DOW target
          On the Real Dow graph, we're at about 59, with a possible low-end target of around 25, or a decline of another 58%. In today's dollars, that would be the same as going from Friday's close of 7000+ to about 3000.

          Another way to look at it is that if you optimistically exclude GM, the P/E of the Dow is currently around 10. The Great Depression saw average P/Es of around 5 before the index recovered; that would be a drop of another 50%, assuming constant earnings -- or from 7000 to about 3500.

          However, earnings are collapsing, and current forecasts assume a significant recovery this year that won't materialize. If earnings continue their decline, that would suggest a floor much lower than 3500, and probably well below 3000 as well.

          Comment


          • #6
            Re: Real DOW Update: Still looking for a bottom?

            Originally posted by RickBishop View Post
            Something happened to me not sure what but I decided to kick some ass, U know the old "I'm mad as hell and can't take it anymore" stuff.

            Any ideas on how best to do that? I have three daughters 12, 14, and 18, I will do whatever I have to do to protect them, but what can we do as a group to handle this situation? You have connections in government, who do we back? Who should I throw my support behind?
            Step 1: Realize that government is the cause of the current problems. It can therefore never cure them, but only make them worse.

            I was at a similar point a couple of years ago. My solution was to withdraw from the system and move out of the country. Seemed like the safest thing to do for my family, and I'm very happy with that decision.

            If I had stayed, it seems to me that increasing public awareness would be the best approach to causing real change in the system. Organize rallies, peaceful demonstrations, etc -- not on the Internet, but in real life.

            Comment


            • #7
              Re: Real DOW Update: Still looking for a bottom?

              EJ,

              The real Dow curve at 1.64% growth seems very similar to the Real Potential GDP curve you showed in thread (http://www.itulip.com/forums/showthread.php?p=80285#post80285)






              From the late 1920 to say 1970 real potential GDP goes up by 3 where DOW goes up by 3.5. So is the Real Dow just a function of GDP growth? I hope I am not asking something blatantly obvious to the more knowledgable. It seems reasonable there should be some correlation but sad that DOW is fairly close so as to say we only get stock growth from population increase?
              "The issue ... which will have to be fought sooner or later is the People versus the Banks." Acton

              Comment


              • #8
                Re: Real DOW Update: Still looking for a bottom?

                Originally posted by RickBishop View Post
                EJ,

                ...U know the old "I'm mad as hell and can't take it anymore" stuff.

                Any ideas on how best to do that? I have three daughters 12, 14, and 18, I will do whatever I have to do to protect them, but what can we do as a group to handle this situation?
                Rick, I offered much the same advise here over a year ago, do the following:
                • Mitigate expenditures. Ensure you and your family have the financial assets to make it through the next several years.
                • Surround yourself with your friends and family. Do your best to make sure everyone you care about makes it through, especially your kids.
                • If you have the means, buy a few arable acres. Learn some farming and ranching basics. Be independent.
                • Learn or exercise a skill or two that will be appreciated in a scaled down economy.
                • Help your local government learn to understand that we're not as likely to return to the old economy as to invent a new economy. Help these people figure out a path.
                • Anger is not a scarce commodity and will become less scarce over the next few years. Save yours for a time when it may be more valued.
                • Relax and enjoy a smaller life, this downturn will pass at its own pace.

                Comment


                • #9
                  Re: Real DOW Update: Still looking for a bottom?

                  Originally posted by RickBishop View Post
                  EJ,

                  This whole thing is starting to get funny. I have gone from bars on the windows, guns guns guns, and a lot of freeze dried food, while sitting in my front room stroking a gold eagle chanting MY PRECIOUS.

                  To god damn what's up with that BS - this is not the life I want to live, I like a Foie gras appetizer, bone-in ribeye with a nice chocolate souffle for dessert. There arn't any freeze dried chocolate souffles btw.

                  Something happened to me not sure what but I decided to kick some ass, U know the old "I'm mad as hell and can't take it anymore" stuff.

                  Any ideas on how best to do that? I have three daughters 12, 14, and 18, I will do whatever I have to do to protect them, but what can we do as a group to handle this situation? You have connections in government, who do we back? Who should I throw my support behind?

                  Your forcasting has been second to none, but now for me it is time to act. The old live or die in the attempt - play for blood thing. (I have never lost any big battles this lifetime and this won't be the first - and U can take that to the bank)

                  Hey Jim sorry for my inappropriate posts - I wish you nothing but good fortune.

                  your friend
                  rick
                  If I may Rick,

                  Do what EVER the fuck you want to do, what's right for you, what you think is best for you, what makes the most sense for you, but what ever you do, don't do nothing and wait.

                  We are in one of those times and they are VERY RARE where we actually feel as though we are alive, where we have a genuine fear of the unkown, the only parallels that exist are the explores that (re)-discovered new lands or were the first to do something.

                  WE ALL GET to be first at DOING something this time, buy only if you choose to do something.

                  If you've read hemingway, then you know the concept of the hemingway hero. All it means is that you met life head on and lived and made a choice, and lived with the consequences be they good or bad. Nothing is garunteed, and life is much more interesting when we rediscover this little fact. So many have assumed so much for so long that we are now truly in the "undiscovered country". It's all new, every day the world that was dissappears at an exponenetial rate.

                  So lest you think me a hypocrite, I will share MY CHOICE with you.

                  My choice is:

                  I'm sick of living the life that is easy and safe, I'm sick of living where I don't want to, I'm sick of waiting for things to happen before I can do something, a perpetual victem of circumstances.

                  So,

                  I'm going Remote for a year to Iraq so I can Buy A house where I want to and move my family into it while I'm deployed. When I get back, I'm getting out of the military and going back to school.

                  Not the smartest thing sure, but it is the choice I choose to make because I CHOOSE to live the life I want, not the life that I'm supposed to live or the safe life.

                  It seems so natural, we all make choices everyday, but at this time for the first time in MOST OF OUR LIVES, making a choice now means risking DIRE conscequences that are very real if we screw it up.

                  So I would say to you choose to live while you can and while you are able. I don't know what comes this way, but IT WILL NOT STOP ME FROM LIVING.

                  I hope that helps, and no I'm not EJ, but what I bet he will say is that we are past the point of offering prognostications and advice and that we are to the point of FIATH and GUT INSTINCT (at Least I AM). So I'm going with my gut, and if I flail or fail, so be it, BUT I WANT TO FAIL OR FLAIL ON MY TERMS. And success if it comes, will be all the more sweeter.

                  Peace out bro!

                  V/R

                  JT

                  Comment


                  • #10
                    Re: Real DOW Update: Still looking for a bottom?

                    Originally posted by jtabeb View Post
                    'm going Remote for a year to Iraq so I can Buy A house where I want to and move my family into it while I'm deployed. When I get back, I'm getting out of the military and going back to school.
                    I did not know you were in the military! :eek:

                    Comment


                    • #11
                      Re: Real DOW Update: Still looking for a bottom?

                      Originally posted by orion View Post
                      EJ,

                      The real Dow curve at 1.64% growth seems very similar to the Real Potential GDP curve you showed in thread (http://www.itulip.com/forums/showthread.php?p=80285#post80285)






                      From the late 1920 to say 1970 real potential GDP goes up by 3 where DOW goes up by 3.5. So is the Real Dow just a function of GDP growth? I hope I am not asking something blatantly obvious to the more knowledgable. It seems reasonable there should be some correlation but sad that DOW is fairly close so as to say we only get stock growth from population increase?
                      The source page has a lengthy technical description of how the Real Dow is constructed, including the 1.64%/year curve. From a quick read through, it looks like the 1.64% was calculated from the Dow data itself for curve fitting.

                      This does not necessarily mean "no" to your question, but the real dow page does not make any mention of GDP or population. There could be some underlying correlation though. Perhaps 1.64%/year is the annual population percentage equivalent of one sucker born every minute.;)

                      Comment


                      • #12
                        Re: Real DOW Update: Still looking for a bottom?

                        Originally posted by BadJuju View Post
                        I did not know you were in the military! :eek:
                        It's all in my profile.

                        (and from what I can tell, most of my peers are sick of it too)

                        V/R

                        JT

                        Comment


                        • #13
                          Re: Real DOW Update: Still looking for a bottom?

                          Originally posted by jtabeb View Post
                          Not the smartest thing sure, but it is the choice I choose to make because I CHOOSE to live the life I want, not the life that I'm supposed to live or the safe life.
                          In many ways, you are a man after my own heart.

                          It's not quite the same sentiment, but the spirit of charting your own way is close to what I was trying to express in this motto I wrote in college. Partly I was writing about choosing your own path and values, and partly I was writing about how we are ultimately the only ones who can safeguard what system we live under, and what measure of justice is achieved in life.

                          A cold universe admits to no purpose, nor does it
                          pass judgement. Senseless or inspired, noble or profane,
                          it can draw no distinction. These tasks are for you alone:
                          to define meaning for your life and values for your soul.
                          Compromise, yes, and band together when you can. Learn
                          to trade what is preferable for what is imperative, but do
                          not hesitate to champion your way amidst this democracy
                          of ideals. Blood and conflict alone - not gods nor fickle
                          human decency - stand between all you hold dear and
                          slavery to monstrous standards.


                          Originally posted by jtabeb View Post
                          It seems so natural, we all make choices everyday, but at this time for the first time in MOST OF OUR LIVES, making a choice now means risking DIRE conscequences that are very real if we screw it up.
                          I've had the same feeling recently -- like all the chips are on the table, and the choices I make now will have far-reaching consequences.

                          Comment


                          • #14
                            Re: Real DOW Update: Still looking for a bottom?

                            Originally posted by ASH View Post
                            In many ways, you are a man after my own heart.

                            It's not quite the same sentiment, but the spirit of charting your own way is close to what I was trying to express in this motto I wrote in college. Partly I was writing about choosing your own path and values, and partly I was writing about how we are ultimately the only ones who can safeguard what system we live under, and what measure of justice is achieved in life.

                            A cold universe admits to no purpose, nor does it
                            pass judgement. Senseless or inspired, noble or profane,
                            it can draw no distinction. These tasks are for you alone:
                            to define meaning for your life and values for your soul.
                            Compromise, yes, and band together when you can. Learn
                            to trade what is preferable for what is imperative, but do
                            not hesitate to champion your way amidst this democracy
                            of ideals. Blood and conflict alone - not gods nor fickle
                            human decency - stand between all you hold dear and
                            slavery to monstrous standards.




                            I've had the same feeling recently -- like all the chips are on the table, and the choices I make now will have far-reaching consequences.
                            There must be something in that Oregon water!;)

                            Comment


                            • #15
                              Re: Real DOW Update: Still looking for a bottom?

                              EJ,

                              if you used pre-Clinton methodology to calculate inflation adjustment to the Dow (as provided by Shadow Government Statistician Williams) would that alter your chart considerably? Would we be closer to the bottom then?

                              EasternBelle

                              Comment

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