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

[Sharky]

Re: Real DOW Update: Still looking for a bottom?

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.

[Sharky]

Re: Real DOW Update: Still looking for a bottom?

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.

[goadam1]

Re: Real DOW Update: Still looking for a bottom?

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

[Mega]

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

[rabot10]

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

[EJ]

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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