A Continuing Bear Market

Unfortunately our Warnings Seem to be Unfolding

The evidence for a decline is well documented from an historical perspective as Ian Gordon points out so well. Equally convincing is the evidence of a gold price conspiracy as outlined in the gold price conspiracy law-suit waged by Reginald Howe. But as logical and convincing as the evidence is, virtually no one has cared to pay attention to it - until now.

Indeed the comparison with the last great market downturn, in the 1930's in unavoidable now because this past week the Dow lost 14.26% of its value. That is the fourth largest one week loss in history, the other three occurring during the Kondratieff winter of the last cycle. The other larger losses were: 1933 - 16.66%, 1940 - 15.48% and 1932 - 15.15%.

Why are the Masses Always so Wrong at Major Turning Points?

Why is it so hard for people to think outside the box and to believe what history has so clearly taught us? Or perhaps a more fair question is this. How can the masses of people so easily dismiss the lessons of history? Aside from the fact that most people can relate only to what they themselves have experienced, I think an observation by famed historian Oswald Spengler in his book "The Decline of the West" is most relevant to our current situation when he raises the age old question, "What is truth?" He then answers his own question as follows: "For the multitude, that which it continually reads and hears. A forlorn little drop may settle somewhere and collect grounds on which to determine 'the truth' - but what it obtains is just 'its' truth. The other, the public truth of the moment, which alone matters for effects and success in the fact-world, is today a product of the Press. What the Press wills, is true. Its commanders evoke, transform, interchange truths. Three weeks of press-work, and the 'truth' is acknowledged by everybody."

So it is with America today or I would argue even more so because now we are bombarded by TV which did not exist in 1926 when Spengler wrote those words. With TV, deliberate reasoning is even less common than when 'truth' is conveyed via the written word so the ability to define "truth" as the establishment may choose is even more powerful now, than in 1926 when another master at mass deception, Adolph Hitler used the press to rally the masses behind his 'truth.' The ability of TV to be used is especially dangerous in my view since those who control it are in effect our corporate elite. They now own and control the media. So, I would argue that we Americans are now in a position to be molded like putty for the by the will of the ruling class since technology now provides an even more efficient means for molding 'truth.' Indeed, has this not been the case with respect to Wall Street's buy and hold message thorough the 1990's? Given that technically we are more capable than ever of forging a dictatorial regime, we can only hope and pray that the Spirit of God, rather than that of our ruling elite prevails in America. After all, it has been our ruling elite who have manipulated the gold price as an underpinning of a very phony and excessively strong dollar that has suckered millions of Americans into the largest Ponzi scheme ever. And, we should have known we were in trouble when even NASDAQ TV ads compared our stock market to a gambling casino!

Markets remain overvalued.

As for the markets now, they are in a shambles even after last weeks plunge in value. Despite the Trillions upon Trillions of dollars of paper value lost, I do not see an end to the down turn any time soon. Indeed, stocks remain highly overvalued given plummeting earnings. This week the "earnings yield for the S&P 500 - suspect as those earnings may be - stood at just 3.82% despite the plunge in stock prices. Moreover, the only 1.62% of those earnings are paid out in dividends. By comparison, one can buy a 10-year Treasury and get a 4.70%. And, this income is exempt from state and local taxes.

We are in a Primary Bear Market - Stay the Course

In this week's "Barron's", the headlines screamed "Its Time to Buy Stocks." I do not believe that is true. I believe a more accurate perspective is highly acclaimed newsletter and market analyst Richard Russell. He noted that "the stock market in its collective wisdom knows more than Fed head Greenspan, President Bush, the US Treasury, the Congress and the top experts in government and private industry all taken together. Therefore, "in breaking to new lows on record volume, in reconfirming the primary bear trend, the stock market barometer is saying, 'the primary trend of the stock market and US business is down.' I don't care what Greenspan or Abby Cohen or Robert Rubin or any other expert tells us, the stock market barometer trumps them all.

"And the stock market barometer is saying, 'This is a continuing bear market. Prepare for stormy weather ahead."

Richard then went to say that the bear market is in its second and longest phase. The second phase is the trickiest, the most deceptive, the most erratic. This is because during the second phase of the bear market there continues to be mixed opinion as to what is happening, whether its really is a bear market, whether we should hold our stocks or sell them, whether the government will 'fix things' or whether it will fail."

Mr. Russell also noted that at the moment focus is on the Twin Tower disaster. But Richard noted, "this has become the convenient excuse for all those who have ignored the stock market barometer, for all those who have been so wrong, for all those who have cost investors trillions of dollars."

He also noted that intelligent investing requires people to learn to ignore all the talk of the experts and as he has been saying for a long time, the only expert is the stock market itself. You must watch the primary trends.

The third phase of the bear market is more clearly seen. Investors have become so demoralized that they finally call their brokers with orders to "get me out, I don't care what the cost is, just get me out." This is when true capitulation will have occurred. This is the point when people like David Tice and other contrarian investors will seek to quietly get back into the market. Now what we have to do is preserve our capital so we have some resources left when that much talked about but still far away event known as capitulation takes place. If the Barron's headline had said something like "Get out of Stocks", we might be inclined to think the bear market is over. Unfortunately in our view we are still fairly early on in the decline of American wealth and also the decline of a gigantic American Ponzi scheme fueled by printing press money in turn made possible by 1) detaching gold form paper money and 2) rigging the gold price from mid 1994 through the present time.

THE FED HAS NO BULLETS LEFT

The Fed has cut rates eight times for 350 basis points, plus fiscal stimulus to boot. All this was done while the economy was still growing and unemployment under 5%, and around 4% for most of the cuts. Now that a real crisis has hit the economy the Fed is left without any bullets. Plus, if anyone has noticed the rate cuts have not done a whole lot to shore up the sagging economy. The slowdown has come because expectations were set way too high and companies added capacity accordingly, not because money was too expensive to borrow. Demand has dried up and there are simply few capital investments that make sense, regardless of cost of capital. The overcapacity is widespread and will take years to work off.

There is a lot of talk about the overcapacity in the tech sector. However, the overcapacity problem is prevalent throughout the economy. In an address to the OECD, Tom Usher, chairman of USX, the largest U.S. steelmaker, said that global excess capacity is about 250 million tons a year, almost one-third of global production. Ian Christmas, secretary general of theInternational Iron and Steel Institute, said the industry's short-term outlook is "disastrous" and is "bad and getting worse."