Patterico's Pontifications

10/9/2008

How Low Will the Dow Go?

Filed under: 2008 Election,Economics — DRJ @ 8:20 pm



[Guest post by DRJ]

The Dow ended the day down 678.91 at 8,579.19, the first time below 9,000 since June 2003. The Dow is down significantly from its high last year but I think we could be near the bottom. Thus, I view recent losses as a correction and not a sign of an impending depression. Time will tell if I’m right. [EDIT: In other words, do not rely on me for investment advice!]

So here’s something to debate: I think a small part of this correction is the market reacting to a probable Obama win in November. If so, it’s a win the market doesn’t like.

UPDATE 10/11/2008: The Instapundit has a round-up of sources that also think the market is responding in part to the prospect of an Obama Presidency and a Democratic Congress.

— DRJ

85 Responses to “How Low Will the Dow Go?”

  1. What was the high?
    Air for 60% of that.

    Another Drew (930ac9)

  2. Obama doesn’t like capitalism. How do we know? Just ask any of his friends.

    It should only follow that capitalism doesn’t like Obama.

    Apogee (366e8b)

  3. Opps.

    “Aim”

    Another Drew (930ac9)

  4. Better Half and I are going to invest a pretty good chunk of change first thing in the morning.

    JD (f7900a)

  5. I’m thinking about it, too.

    DRJ (c953ab)

  6. We are alsio considering investing in a MBS fund.

    JD (f7900a)

  7. AD,

    I think the high was 13,930 on October 31, 2007.

    DRJ (c953ab)

  8. The sinking Dow is not the problem but a symptom of a huge problem.

    There is serious talk of nationalizing the many banks, tomorrow. And it’s coming from the white house.

    To blame it on a pending Obama win is utterly absurd [remainder of this sentence deleted. It’s either that or the comment doesn’t get published. No more insults from jharp. That’s why you’re in moderation. — P]

    And JD, curious as to what industries you feel are healthy enough to buy into.

    jharp (2282bb)

  9. JD – LOL. That’s good.

    I tried to do some bottom fishing this week, but didn’t time it as well as I thought I would. We’ll see how I do.

    We are also looking at some real estate locally for investment.

    SPQR (26be8b)

  10. SPQR – We closed on an investment property last week. The guy that handles our investments almost laughed when I asked him about MBS funds, but with Dems and Reps crawling all over themselves offering bailouts, rescues, programs, etc … it seems inconceivable that they will not recover to some extent. Why not make some money when they do? And if they do not, I was more patriotic by putting some actual skin in the game than Biden would be in taking it from me.

    JD (f7900a)

  11. #We are alsio considering investing in a MBS fund.

    Comment by JD — 10/9/2008 @ 8:33 pm

    Bold move. Good luck. I wouldn’t bet the grocery money.

    I’d be curious as to what specific MBS fund if you don’t mind.

    jharp (2282bb)

  12. We are looking at the Fidelity fund, but there are plenty out there. Who would be their grocery money, harp?

    JD (f7900a)

  13. It marked the end of a three week ban on short selling of 1000 stocks. Now they might consider reinstituting the uptick rule.

    I’ve seen way too much BS from the SEC to trust the market. Had owned small companies that were hammered to oblivion by naked shorting. In any case, learned the hard way that buy and hold makes little sense. If you have a profit, take them in a timely fashion. Short term who knows what the Fed and various wheeler dealers will wreak on the small investor. I’d avoid using margin at all costs. Some may recall the market sucked for fifteen years starting in ’67. Now I read housing market make take seven years or more to recover. The difference between now and earlier tumbles is that now we have a mountain of debt. JMHO. I may look at various commodity plays because inflation is the threat down the road.

    madmax333 (0c6cfc)

  14. DRJ – I agree with your premise about the market not liking the prospect of an Obama win and said so earlier on another thread in response to one of our trolls. They don’t seem to understand that the market doesn’t revel at the prospect of higher taxes, $800 billion of additional government spending right on top of a $700 billion bailout, and bigger government screwing up peoples’ lives.

    daleyrocks (d9ec17)

  15. I also think the market has been reacting to the possibility of an Obama presidency and this contributes to the downside move.

    As far as buying, this market action is insane and like most market movement, will do what the crowd least expects.

    Trying to pick a bottom is nothing more than gambling. What other past market action similar to this do you use as reference? None!

    I think the sidelines is the only sane place to be. There is no support anywhere in sight.

    Just think of all the advisers who are saying “don’t sell now.” Until capitulation occurs, the bottom will not be in place.

    PC14 (ec0516)

  16. IIRC, the standard for a bear-market is the aforementioned 40% drop (8358 on a high of 13930).
    If it is driven below 8000, no more bear, full-fledged panic, in all of the historic meaning of the word.
    Trouble, right here in River City….

    We have talked a lot about Obama being a second Carter Admin.
    My fear is that he will be a fifth FDR Admin.

    We may never be able to recover from that.

    (somebody get a galvanized bucket for Biden)

    Another Drew (930ac9)

  17. I am not good with investments, but our advisor has been spot on in almost every recommendation he has ever made for us. I suspect that the market may continue to get worse in the short term, but I also trust the American economy to recover, and recover we will. It may be a while down the road, but we do not invest short term, unless something drastically changes.

    JD (f7900a)

  18. Who would be their grocery money, harp?

    I meant it a figure of speech.

    Yet, plenty of folks do.

    I’m staying on the sidelines. I figure I’m not going to change my lifestyle with stock market winnings. I don’t have expensive tastes. My strategy is preservation of principle comes first.

    jharp (2282bb)

  19. Ridiculous, unfounded speculation, DRJ.

    Russell (3f853e)

  20. Nikkei 225 8,183.37 -974.12 -10.64%

    Hang Seng 14,816.32 -1,126.92 -7.07%

    Straits Times 1,961.96 -140.75 -6.69%

    Asian markets now. And tomorrow we socialize many banks as per George Bush.

    I think it’s only the fifth inning of an ugly game.

    And it’s Obama’s fault? Get real. It’s McCain’s fault for running such a lousy losing campaign and allowing Obama to win.

    jharp (2282bb)

  21. Russell really gave you a beat-down, DRJ.

    JD (f7900a)

  22. Well, if Russell says so. . .

    JVW (f93297)

  23. Ridiculous, unfounded speculation, DRJ.

    Comment by Russell — 10/9/2008 @ 8:50 pm

    Yes it is. As is my speculation. As is JD’s.

    There are very smart people who do this for a living. And they don’t know and if they did they would use it to part us with our money.

    jharp (2282bb)

  24. We have now been blessed with the presence of a disciple of that great Economist who single-handedly rescued the World from the Great Depression, John Maynard Keynes.
    What’ you been up to Russell?

    Another Drew (930ac9)

  25. The high for the DJIA was 14,164.53 exactly one year ago today. A 40% correction would take it to about 8500, less than 100 points from today’s close.

    JoeH (eeb280)

  26. Yeah guys, this is totally a reaction to Obama and not a systemic, global meltdown.

    PC (b4b303)

  27. Russell,

    My statements are based on many years of investing in the stock market and observing what makes the markets tick. So I agree this is my speculation but I don’t think it’s unfounded, and we’ll see if it’s ridiculous.

    DRJ (c953ab)

  28. PC,

    No one said this is totally about Obama. The most I said was that it might be a small part. Dispense with the hyperbole, please.

    DRJ (c953ab)

  29. Thanks for the correction, JoeH. Do you have a link?

    DRJ (c953ab)

  30. The market is saying “F this, I’m outta here.” Not really much more to say.

    Kevin Murphy (0b2493)

  31. Dow high – low today 850 points plus
    Vix near 60

    Survey of CEOs released have 75% saying Obama economic policies would be a disaster for the country and potentially could bankrupt the country in as little as 3 years.

    Obama’s economic team consists of many who were in power positions when the whole sub prime mess and FM/FM got kicked in the butt.

    That’s like putting Jamie Gorelick in charge of the CIA

    daytrader (ea6549)

  32. It is so incredibly racist to even speculate about Baracky in such a manner.

    JD (f7900a)

  33. That’s like putting Jamie Gorelick in charge of the CIA

    Well, at least Valerie could get her job back then. Probably be promoted to DOO.

    Another Drew (930ac9)

  34. I just heard that the Nikkei lost TEN PERCENT on Friday.

    ruh roh

    Ed (8d1569)

  35. Russell – Your expert opinion?

    daleyrocks (d9ec17)

  36. Ok DRJ, could you quantify “small part?” I can point to a dozen things that may be affecting the plunge, but for some reason Obama’s chances at the presidency doesn’t seem to factor in: LIBOR, LEH CDSs being settled, Citi potentially going under, Iceland having its assets frozen by the UK, the credit market locking up, Hungary on the verge of collapse, a financial arms race of countries guaranteeing deposits, the US talking about nationalizing banks, short sale ban being lifted, unemployment being up and expected to climb, etc.

    The bullish side of me sees a DOW of 7500. The bearish side sees 6000. YMMV.

    PC (b4b303)

  37. Since you asked how low can it go?

    My prediction is S&P 500 goes to 600.

    And I’m pretty sure I’ll end up ridiculed.

    And anyone who wants to preserve the option to ridicule, let’s see your prediction.

    jharp (2282bb)

  38. PC,

    It tough to go out on a limb but I think both of your choices are bullish.

    Dow might go below 5,000.

    jharp (2282bb)

  39. PC – Why don’t you take a stab at “quantifying” all of those factors you mentioned big guy. Go for it!

    daleyrocks (d9ec17)

  40. I would say 8000 would be a bear market bottom but watch out if it blows through that level and watch out for a dead cat bounce. I subscribed to Richard Russell’s Dow Theory Letters for 20 years and only quit after I retired. I’d recommend him for those looking for info although I hear he is ill lately. He is very conservative and a gold bug, both good things lately. I made some good money in past years following his advice and missed out on a lot by not doing so. I might even resubscribe to see what he thinks about the future now. It won’t be pretty but not many investment letters can survive reading back numbers 20 years ago. I never saw him go wrong. A week before the 1987 crash, he sent out an emergency letter telling his clients to get out of the market NOW. Two months later he had them buy back in.

    Mike K (2cf494)

  41. PC – What does you estimate the impact on the equity markets will be from unwinding the Lehman CDS positions. Haven’t counterparties made or dislosed provisions already? If not, why not?

    daleyrocks (d9ec17)

  42. daley rocks – You betcha! Probability that each event had an effect on today’s drop:

    the credit market locking up – 100%
    LIBOR – 100%
    LEH CDSs being settled – 80%
    unemployment being up and expected to climb – 60%
    short sale ban being lifted – 40%
    Iceland having its assets frozen by the UK – 30%
    a financial arms race of countries guaranteeing deposits – 20%
    the US talking about nationalizing banks – 20%
    Hungary on the verge of collapse – 10%
    Citi potentially going under – 2%

    PC (b4b303)

  43. A 40% loss in the value of the market from its high last year isn’t merely a “correction,” my friends.

    Metacom (b8c7e2)

  44. PC – Is that how you define “part?” Using your method, I’d put Obama in there at 100%. Is that the method you were asking DRJ to use?

    So what is the big exposure on the Lehman CDS unwind?

    daleyrocks (d9ec17)

  45. PC’s numbers added up to 462%. That is like the percentages of voters registered in places where ACORN has offices.

    JD (f7900a)

  46. No, it’s a bear market.

    I didn’t write this, but I agree with it and I’ll bet Russell does too. I just resubscribed but it won’t register me until tomorrow.

    Mike K (2cf494)

  47. PC,

    I think the major issue driving the market is uncertainty about the US credit/financial system, with talk about nationalizing banks being a major factor in today’s drop. I rate the ripple effect we’ve seen in the international markets as a close second.

    I think concern over Obama’s election is part of the unease about the financial system. If I had to put a percentage on it, I’d say it’s 5%-10%.

    DRJ (c953ab)

  48. I’m down 250 grand right now. My broker who manages accounts totaling a paltry 3/4 of a billion, has photos of GWB and Larry Kudlow on the dart-board in his office; and as I type this banks are being nationalized the world over.

    You’re living in a dreamworld. It’s pathetic.
    And no, Fannie and Freddie are not the cause of the crisis.
    You people are an embarrassment to the human race.

    Nanker Phelge (a273a1)

  49. ” I think a small part of this correction is the market reacting to a probable Obama win in November.”
    My god what lunatics.

    Banks being nationalized the world over and you go on like this.
    I’m down a cool quarter mil. and I’m voting Obama,
    Just like Warren Buffett.

    You people are living a fantasy.

    Nanker Phelge (a273a1)

  50. My last word today….

    The more the gummint intervenes interferes in the market, the more uncertainty will be generated on the trading floor, and the more nervous the market will be for the future. We are getting very close to the nationalization of an entire aspect of the economy, the first time that has happened since Truman tried it during the Korean War with Steel, and was promptly smacked down by SCOTUS.
    Unless someone steps to the fore and proclaims some kind of vision for democratic-capitalism in the U.S. that will assuage this nervousness within the investor class, great uncertainty will prevail, and the market will continue to tank.
    If those who have capital walk away from the markets, it won’t matter what they do in DC, nothing will get better (see Great Depression).
    Good Night, All!

    Another Drew (930ac9)

  51. Well, well, I guess the first one went through after all.

    Nanker Phelge (a273a1)

  52. There is nothing to suggest that the 40 companies that make up the DJIA are wroth 30% less today than they were one month ago.

    This is simple panic selling, and there will be a whiplash rebound.

    Is the economy headed for a recession that will impact earnings such that the shares of these companies should be lower?? Sure. But this is simply a buying opportunity. It is times like now that “Dollar Cost Averaging” is designed to take advantage of.

    wls (c1b09d)

  53. Nanker sounds a bit distraught. Probably voted for Barney Frank.

    To think that the LA Times once had the best editorial cartoonist in the world, and let him go.

    Mike K (2cf494)

  54. daleyrocks – The Lehman unwind is around $400 billion, iirc.

    JD – Reread what I wrote.

    DRJ – Thanks. I doubt Obama’s status in the polls is having much of a measurable effect, but reasonable people can disagree. Here’s a good post at The Corner.

    PC (b4b303)

  55. That’s the same Nanker who can’t answer questions about assertions in his comments on other threads btw. Absolute genius. Why would he need a broker to manage his investments?

    daleyrocks (d9ec17)

  56. PC – I’ve seen the $400 billion number. That’s not my question. If it’s unwinding swaps, haven’t people already provided for the pain?

    daleyrocks (d9ec17)

  57. PC’s numbers added up to 462%. That is like the percentages of voters registered in places where ACORN has offices.

    JD – I tip my hat to you, sir.

    Apogee (366e8b)

  58. “There is nothing to suggest that the 40 companies that make up the DJIA are wroth 30% less today than they were one month ago.”

    Yes there is. Supply and demand.

    “This is simple panic selling, and there will be a whiplash rebound.”

    Maybe so. But unlikely.

    “Is the economy headed for a recession that will impact earnings such that the shares of these companies should be lower? Sure.”

    I agree.

    “But this is simply a buying opportunity. It is times like now that “Dollar Cost Averaging” is designed to take advantage of.”

    Maybe so. Maybe not. I think not.

    Take a look at the balance sheets of Citi and Bank of America.

    And keep in mind AIG was a Dow component until two weeks ago.

    jharp (2282bb)

  59. wls – You are assuming that those companies were actually worth as much as they were trading for. P/E ratios may still be too high.

    daleyrocks – We’ll see tomorrow 😉 Seriously though, I don’t know. Fannie/Freddie CDSs settled between .90 – .99 (I was expecting a blood bath then, but luckily I was wrong). People are expecting the Lehman CDSs to settle for around .10. No one will know until tomorrow, but the market seems to be expecting a few hundred billion in losses.

    PC (b4b303)

  60. PC – From the way you’re describing it I’m assuming the $400 billion is the estimated net amount not the gross notional amount of the swaps affected. To have that kind of net impact assumes a lot of people went naked on the exposures they wrote rather than offsetting them.

    daleyrocks (d9ec17)

  61. Apogee – Reread PC’s description. The intent was not to add up to 100%. It was a dodge compared to what he asked DRJ.

    daleyrocks (d9ec17)

  62. daleyrocks – Everything I’ve seen referring to the Lehman CDS unwind is talking about losses in real dollars. Even if companies that were exposed somehow hedged, that money has to come from somewhere.

    As to dodging, put Obama around a .1% chance in the list then apply a logarithmic scale to where I would rate a real effect. The market is in an absolute panic and I doubt the presidential race is having any measurable effect right now.

    PC (b4b303)

  63. DRJ

    Here are 3 links.

    The first takes you to a Yahoo Finance interactive chart, where you can hover your cursor over price series and see the date and price at the top left of the chart.

    The second is to historical prices for the DJIA from 10/1/2007 to 10/14/2007 where you can see the actual closing prices.

    The third is a story from today from TheStreet.com which confirms it.

    http://preview.tinyurl.com/3jnt7b

    http://preview.tinyurl.com/4vjczh

    http://preview.tinyurl.com/3wlahz

    JoeH (eeb280)

  64. Personally I’m waiting until the cost of Iceland gets low enough, and then I’m scooping it up – I’ll be like a viking king and that’ll be sweet!

    I saw on BBC World News today that the Iraqi stock exchange actually gained something like 20% since September! Of course there are only 94 companies and everything is tracked on whiteboards (they noted they will be up on computers soon, but also noted power outages are still a real problem), but there you go. 🙂

    Bob Loblaw (6d485c)

  65. PC – Right. Log Obama’s truth telling instead.

    daleyrocks (d9ec17)

  66. Isn’t it a good thing that the world economy is slowing? Afterall, there is less oil being used and that means the Goracle should be happy with less global warming. I don’t have a clue what the downturn means for his carbon credit boondoggle. One sees that oil has plummeted from a high of $147 a barrel down to current $82 a bbl. OPEC is not happy with that and I’m sure Obama can’t be too pleased because $82 oil isn’t very good for bringing the price of gasoline up to the necessary Euroweenie standards in America. $8 a gallon would cut down more on use of fossil fuels.
    Have had my eyes of a South African company Sasol. They have been hit with the market downturn and a huge fine levied by the EU for past management’s bad anti-competitive acts in Europe. Of course they can appeal, but appeals process could run seven years or so and the fine has to sit in escrow. Imagine how great it would be under an Obama administration to have Euro type regulatory constraints. Yes, the government does a great job- most everything it touchs turns to shit.

    Nobama- Bend over America

    madmax333 (0c6cfc)

  67. Nothing like an article about a secular bear market to start off the morning.
    If you have the time to read it consider that the social security and medicare funding become real problems over the next 14 years as the boomers retire.

    voiceofreason2 (72d979)

  68. I think the market’s discounted an Obama win too. But it’s a vicious cycle, because the plunging market in turn drags McCain’s numbers down with it. The farther the market plunges, the more inevitable Obama becomes.

    BNJ (497d2d)

  69. FWIW, I think that the markets are reacting to the ridiculous government spending. Our problem is that there is too little money (make that wealth, more inflated money won’t help) available to the economy. And all DC wants to do is spend more. Pelosi and Obama are talking about another $150b “stimulus” package, presumably because the last one was so successful (sarcasm). McCain wants to spend billions more to pay for deadbeat’s mortgages.

    Government, especially in an election year, keeps telling us how they are going to solve our problems, entirely oblivious to the obvious fact that they are our problems.

    MJBrutus (78a680)

  70. I think that lurking behind all of this is….

    Obama bin Biden.

    Robert C. J. Parry (50a453)

  71. Dow under 7000 by Monday noon.

    htom (412a17)

  72. “I think a small part of this correction is the market reacting to a probable Obama win in November.” A very small part. This crisis is primarily caused by the popping of an enormous global credit bubble. I agree with most folks here that Obama is a crypto-socialist, but Obama did not destroy the Icelandic Krona, did not bring down Dexia and RBS, did not cause the record Asian equities sell-off. I agree with most folks here in hating the guts of Ayers and Dohrn, but A&D had nothing to do with the reckless 40:1 leverage of our investment banks, nothing to do with the truly terrifying $500T web of unregulated derivatives, nothing to do with skyrocketing credit spreads. Politics, as we stand here today, is a puny pathetic sideshow to the gargantuan financial reckoning we are witnessing. At best, politicians will make it only worse, and more protracted.

    gp (72be5d)

  73. Full disclosure: I’m voting McCain; I remain long equities; I bought global equity shares this morning.

    gp (72be5d)

  74. It’s those evil NYSE specialists! They’re driving down stock prices to scare you into selling, until they OWN IT ALL!

    Richard Ney (0b2493)

  75. I don’t know what’s going to happen. But with the G7 finance ministers meeting this weekend to “fix” everything (LOL) I am laying in a little cash and food just in case the banks are closed Monday.

    Patricia (ee5c9d)

  76. Thank you gp #68.

    DRJ I’m still a little hazy on the reasoning behind your interpretation of the patterns you are seeing.

    Are you saying a projected Obama win hurts the market coz the moneyed elites are convinced that Obama is a socialist? And what? They are convinced that, even though every politician since Regan knows that raising taxes on investment slows growth in the economy, that he will immediately raise their capitol gains and other taxes and so they aren’t investing NOW in case he does that later (well or aren’t investing in American institutions)?

    How could you, or really anyone, possibly pick that kind of signal out of the noise caused by all of the things (and more) that gp listed above?

    Or are you referring to the idea that there tends to be a downturn in the market when a new political party gets into the white house?

    In that case it’s not Obama per se that would cause the downturn but the fact that he is not a Republican.

    EdWood (c2268a)

  77. Ed, you should really try to put down People Magazine once in a while, pick up a copy of the Wall Street Journal, and read the Op-Ed page where many, if not most, of these issues are discussed at some length.

    The market is a casino that bets for, or against, future trends. If they think that economic activity will be worse in the future, they will pull their money out of equities, and put it into what they perceive to be safer investments. We have seen a large move from equities to Treasuries. Has anyone watched the Gold Market lately – I haven’t because I just don’t go there? But, I’m just a shmoe from the sticks, what do I know.
    Ask E.F.Hutton!

    Another Drew (e6d3fc)

  78. EdWood,

    People who invest in the stock market are generally capitalists. Obama is the candidate whose rhetoric is the least capitalistic, and he has a liberal voting record to boot. Like it or not, many capitalists view today’s liberal politicians as supporting socialistic policies.

    But my gut tells me the market was responding in small part to an Obama win. Of course, my gut could be wrong. It’s also possible investors are concerned about a Democratic Congress. After all, modern history shows it’s the Democratic Congress that kills the market. I think the reason for that is that Republicans were historically better on reining in spending but they lost their will during the Bush era of big spending. That’s why I favor McCain.

    DRJ (c953ab)

  79. “…my gut could be wrong…”

    To paraphrase those famous words:

    Show me us the money gut!
    **snicker,snicker**

    Another Drew (e6d3fc)

  80. #77 Gold is down today, surprisingly. If there’s one bright spot in all this, the dollar has recent strength. Folks are selling Euros, GBP, AUD, NZD and moving to USD. People still regard US treasuries as a safe haven. I don’t understand why.

    gp (4db77f)

  81. #77 Another Drew, I don’t read People magazine but you’re right anyway.

    DRJ- Why do you think John McCain is going to be able to fix Republican Congressional spending? Is he going to be a dictator? (Well, actually GWB set him up pretty nicely for that).

    I still think the best medicine for the Republicans is a very solid beating with at least 4 years in the corner. It would be good if they manage to win the majority of one house of Congress though to keep the Dems from doing what the Reps have been doing for the last 8 years.

    Maybe people will be so infuriated with having to pay for this latest fiasco that the traditional party gerrymandering won’t count for much in this election and there will be some random turnover in the capitol.

    EdWood (c2268a)

  82. Comment by EdWood — 10/10/2008 @ 2:12 pm

    Thanks for the compliment.

    About spending, McCain doesn’t have to do anything to restrain Republican-Congressional spending since the Gop will not be the majority party in either House of Congress (barring a miracle). He will be able to veto extravagant spending by the Dems, and to have his veto (hopefully there will still be enough Repubs to do this) upheld by the support from his own Party.

    He can enforce this by the simple expedient of depriving recalcitrant GOP members of Party support in future campaigns; or in a worse case scenario, actually have the RNC go out and promote, and fund, primary opposition to some of the spineless turds.

    Another Drew (e6d3fc)

  83. I agree with AD’s answer. As my earlier WSJ link explained, voters like divided government and since we know there will be a Democratic Congress, electing McCain is a good idea if you are worried about spending. That McCain believes and has long campaigned against earmarks and wasteful spending is even better.

    DRJ (c953ab)

  84. I saw this advice today. Prepare for two outcomes of the current credit collapse. For inflation go for the gold and silver. Physical is nearly impossible to buy right now. And at a huge markup. Sorry. You’ll have to go stocks or ETF.

    For deflation, go cash. Cash that can be accessed, of course. Bank runs and closures are ugly creatures. Ask any Argentinian. Or a really old guy that lived through the depression.

    Not a bad strategy, really. Gold will mark to market in either scenario. And cash will let you buy the phoenix companies in the next bull. Now the cash may not have much buying power if inflation sucks it dry, but then the stocks should be pretty cheap…that’s the deal with fiat currencies.

    If you’re convinced of deflation, then use Prechter’s book Conquering the Crash to clue you in to the safer harbors for your funds. Of course, he freely admits he’s been wrong umpteen times. But we’re talking WHAT to do if deflation/depression comes around. It’s not prediction, just preparation.

    Personally, I’m too small fish to use his strategies. My only recourse is to trade my way through this. So far, not too bad, not too good. Learning to click the send button a lot faster. Buy or sell side.

    allan (211482)

  85. Lately my mail has been inundated with buy Gold now sales puffery. Back in ’80 I purchased some au grade older silver dollars for $23 each. Nearly thirty years later the local dealers won’t pay anywhere near that price. The Hunt brothers once had silver around $50 an ounce. If you adjust the old highs for gold and silver, they would be much, much higher than current valuations. I just don’t think the average investor can avoid taking a screwing with physical metals. One gold/silver asset play is CEF of Canada.
    Most of us have much of our worth in home ownership. Current valuations in my neighborhood had been affected by those buyers who speculated, buying with nothing down or, at times, even getting 110% mortgages on the property. Now, there years later with prices often down 60% from the highs, these “investors” are merely abandoning and being forced into foreclosure or some have sold short. Why should the government bail them out now? Many never put any money up front to begin with in any case.
    We know the government cooks the books. That annual social security cost of living adjustment downplays actual inflation. I think one of Bush’s mistakes was signing off on precription drug benefits boondoggle. How can the fed do other than monetize the debt other than with running the money printing presses further? The Fed doe nots eem capable of raising interest rates at this point. Some say that precious metals are artifically supressed price-wise. Then you also have the spectre of our gummint making all kinds of rules to separate you from various forms of wealth. Easy enough for Obama to issue and executive seizing certain assets. What are you going to do- protest against The One? Racist! Assholes like Carville and that black bimbo “journalist” in Philly are suggesting denying the Presidency to Obama will mean riots. I could see riots if he wins…by his cretinous supporters in joyful exhuberance.

    madmax333 (0c6cfc)


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