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Over
the last few days, I have received dozens of emails and phone calls asking
for my projections as to just how low this market can go and in what time
frame.
As all
my loyal readers know that the markets, oil and the economy have been
unfolding almost exactly the way I had been projecting them to act as early
as two years ago (check my archives at gold-eagle.com). I don’t mind
admitting that even I was surprised by the recent sharpness and ferociousness
of the drop. But you ought to know me by now; I never just come up with
numbers. That would be purely guess work and you can guess as good as I can.
Before I attempt to answer your questions, as much if not more to clarify my
own thinking, I will examine the reasons why and how we got here in the first
place. Because it is only in understanding where we came from can one
possibly have an Idea of where we are going.
In an
effort to find some good article on the subject, I read a great many pieces
written by individuals who I greatly respect, but was sad to learn that not
one had any idea as to what is really happening. Although every article was
written by experts in their respective fields, I discovered that most were
not economists and the few that were could not grasp the essence of the real
problem. All were experts like Jim Cramer, a Harvard Graduate who in his own
words is steeped in Keynesian, Galbraithian, economics; has no idea of how
Economics really works. They all center their focus on consumption (using
that tired cliché; the consumers are 70% of the economy) and their
solutions always end up with them throwing money at what they perceive to be
the problem and cutting interest rates. Another ½ point cut should do
the trick Right? Or inject a few more $trillion, that would do the trick. If
that was the right answer the USA who spends by far more money/per student on
public education than any other country, would have the best instead of the
worst education system. In order to decipher the problem, we will have to go
back to the very basic principles of economics.
KARL
MARX & J.M. KEYNES VS ADAM SMITH & HENRY HAZLITT
The
debate between Socialism and Free Market Capitalism raged on ferociously for
almost 100 years. It ended suddenly in 1972 when President Nixon, the leader
of the party that supposedly represented Free Market Capitalism, announced that
“we are all Keynesians now” while he set about fixing prices.
Empirical evidence has clearly shown that everywhere from the smallest
socialist enclave, the Kibbutz in Israel to Cuba, to the USSR and all the way
to China, Socialism has failed miserably. However when it comes to academia,
Socialism has taken over completely. So much so that all of the original
bastions of Free Market Capitalism, led by the freest society ever to grace
our planet, the USA, has finally succumbed to the Socialist disease.
Sounds
like pretty harsh words, but true nonetheless, as economists from all sides
of the isle focus their concentration completely on CONSUMPTION while
ignoring savings and investment. The Western World is rife with economists
from the Ivy League schools, London School of Economics and the Sorbonne
University all seem to have forgotten two of the most basic and important
principles. They
are:
- Savings is
always equal to investment and if there is NO Real Savings, there can be
NO real net new investment.
- Without
INVESTMENT, there can be NO improvement in the overall standard of
living. Increasing the size of the pie with the free market determining
who gets what, works. Having the government redistribute the pie ends up
not only shrinking the pie (in real terms), but also saddles it with
additional overhead so that no one is ever satisfied with their allotted
share. The socialist’s excuses for failure are always the same:
There was not enough socialism: We need to do more of it by completely
eliminating first GOD and all other freedoms and concentrate on
Socialism.
Instead
of using just plain Common Sense, this very basic LAW of Economics has gotten
lost in the universal concentration on consumption and the Consumer
representing 70% of the economy. The fact that consumers are also first and
foremost wage earners and that rising earnings and increasing employment can
only come about by having strong and growing companies has been lost by the
takeover of Marx and Keynesian anti-business philosophies and thinking.
SUPPLY
and DEMAND, the foundation of all economic theory and the first chapters
taught in every school (all of which have for 50 years been using text books
written by Socialist professors) is completely ignored in the real world,
especially when it comes to Investing and interest rates. How many rate cuts
do you need when each cut is followed by a 1000 point drop in the stock
market, before one realizes that rate cuts at this time are exactly the wrong
thing to do? And yet the Media and the Economic mavens keep calling for more
rated cuts.
Supply
and Demand is the mechanism that achieves the ideal allocation of all
resources scarce or otherwise. Interest Rates, if allowed to float freely and
find their own level, are the mechanism that allocates our savings to the
most productive investments so as to produce the highest possible standard of
living. It is only when Interest Rates are manipulated artificially too LOW
that we get a severe misallocation of investment that wastes our precious
resources (Labor, Capital and Materials); so that we end up with the problem
we have now -- a five year oversupply of over priced homes, bad loans made to
unqualified people and an overall level of debt unsurpassed in the annals of
human history, accompanied by rapidly rising inflation. To continue to lower
interest rates is the obvious WRONG answer. If you dig yourself into a hole,
common sense should tell you to first stop digging, and you should not need a
degree in economics to determine that.
A
STIMULUS PACKAGE
You
can call it a stimulus package if you want, but if the majority of the money
goes to consumers, it is a WELFARE Package plain and simple. AND it will do
more harm than good not only to the economy, but especially to the very
people who have been targeted as needing it most. Let us use an example for
clarification purposes. Take an average, middle class, two income family of
four who, after working two jobs brings home $50,000 and does not pay any
Federal Income Tax. They received $600 each or $1200 total. If this money did
not come out of savings, but was paid for by printing money and/or monetizing
the debt, it caused Inflation to increase by an additional 3%; that would
mean that this family saw a DECREASE in their purchasing power of $1,536
($51,200 x 0. 03% or $1,536) thus leaving them with a $336 deficit. But the
losses are much more far reaching than that. The same kind of action spreads
throughout the entire economy infecting savings and investment. The worst
part is, once we understand that the standard of living cannot increase
without increasing investment, it becomes obvious that we have done much more
harm than good not only to the middle or low income class families, but to the
entire economy as a whole. Especially in destroying job creation.
On
another scary note, I recently heard a discussion on the Financial Channel
centering around the ideas of Bulldozing Homes to prop up the price of homes:
Once more confusing cause and effect, exactly as was done by FDR in the
1030’s. If nothing else we could house homeless families in those
vacant homes Using that same argument the Iraq war should do wonders for our
economy. What is better than War to destroy things?
HISTORY
REPEATS
It is
a most oft heard phrase of mine, since it forms one of the cornerstones of
any of my analyses and since I don’t have a crystal ball, I look to the
past in order to attempt to pear into the future. According to the Bills that
I have heard about working their way through Congress, there seems to me to
be no way out of avoiding an almost exact reply of the 1930’s.
Let us
examine Japan (the world’s 2nd largest economy) and see if we can learn
something the easy way, by observing the mistakes of others instead of
repeating those same mistakes on our own. Japan has been in recession for
more than 20 years (I am using this as an example instead of our Great
Depression which was too long ago for most people and too fraught with lies
and misconceptions). In 1990, Japan’s Real Estate Bubble, which was as
large if not larger than ours, Burst for exactly the same reasons - 1%, zero
down loans. Their government, in an effort to stave off a recession, went
about doing exactly the same things that we are doing today (0% to 1%
interest rates, bailing out the banks and starting huge construction projects
to create jobs). After more than 20 years of doing exactly the same policies,
they are still mired in recession. Even though, unlike us, the Japanese have
a personal savings rate of 40%, their government is in just as deep in debt
as we are. Do you think that Japan has a different set of Economic Laws than
we do? The Real Laws of Economics that the world must live by, whether they
like it or not, has been set in place by the Creator and given to us in the
Bible. If we don’t heed his advice; we end up suffering the
consequences: Recurring Recessions and Depressions, all of our own making. It
only took man 3000 years until Adam Smith in 1776 wrote his book, The Wealth
of Nations which is taken straight out of the bible, where he set forth in
plain English what these laws are and how they work. Thomas Jefferson tried
his best to have these laws be set into our Constitution and that resulted in
13 agrarian colonies growing into the most powerful economic force the world
has ever seen. in less than 100 years WHY? Because Capitalism is synonymous
with FREEDOM - individual freedom and capitalism is the only system that
works. Unfortunately our politicians, like the clergy, think they know better
than GOD and one by one attempt to set aside his laws for their own greed,
aggrandizement and their burning desire to increase their personal power...
THE
ECONOMY: WHERE TO NOW?
Looking
back into the past to a similar place and time I am forced to conclude that
we are at a time most similar to 1929 only in a much weaker position
economically, if not militarily. With $12 trillion in debt most of it owed to
Foreigners, We are also facing $60 + Trillion in entitlements and two
Presidential Candidates promising even more spending, we are at war on two
fronts and the American people are in deeper debt as a percentage of their
income than they have ever been. There is also the obvious and there is no
doubt in my mind that a DEPRESSION is already baked into the cake with the
only question still to be answered being: When will it start and how long
will it last? For over a year now, I have been projecting a Recession
starting in the 4th quarter of 2007 or early 2008 that will sink into
Depression by 2009 or early 2010 at the latest There is NO ONE on the horizon
that even has a clue what our main problems are and there fore there is no
possible way of not sinking into Depression. As far as the Recession is
concerned, we are already in it. Unfortunately based on what I have seen and
heard from the campaign, both candidates are Socialists and neither of them
has any ideas as to what measures must be taken to get us out of Recession,
If we are lucky their political promises are just that political promises and
nobody really expects them to be kept. However they are just the beginning of
our problems.
THE
STOCK MARKET - WHERE TO NOW GREEN COW?
Now,
for the bad news. We have already had two consecutive confirmed DOW THEORY
SELL SIGNALS in less than 9 months in conjunction with two head and shoulder
confirmed break downs and we are in the midst of a world wide financial
crises, the likes of which have never been seen before, in which every
attempt to solve the problem has actually made the problem worse. Going back
to 1929, a similar place and time and in conjunction with USING ELLIOTT WAVE
THEORY my initial downside target for the DJII is between 6000 and 7000 some
time between the next week or two and the end of January 2009. We should know
by next week which scenario will be unfolding. A fast 2000 point breakdown or
we may have one more big suck in rally back to as high as 11,000 to destroy
what’s left of the remaining buy and hold bulls. But, the coming
LOW will not be the final low. Again, going back to Elliott wave
and the lessons of history, the coming low will be similar to the 1929 LOW
which was then followed by a large suck-in rally into the 1930-31 (2009-2010)
correction and then a final crash down to below 4000 into 2010.
THE
GOOD NEWS
The
Stock Markets made their all time lows in 1932 before the Depression was at
its worst. Even though the Depression raged on through WWII and did not end
until 1946, there were tremendous opportunities to make money. So stay tuned
- what is better than to be able to make IT coming and going? Although I WE
cannot do anything about the crash and the Depression from occurring, it does
not meant that we as individuals cannot protect ourselves and perhaps to even
prosper.
SPECIFIC
TRADE RECOMMENDATIONS ARE RESERVED FOR SUBSCRIBERS ONLY
Markets
have plunged despite the worlds Governments continued Manipulation (on a
scale never seen before) in a complete abandonment of capitalism, with $
trillions of fresh “out of thin air” money -- none of it (despite
the rhetoric) going to the people. This will not stop the slide or produce a
Bull Market (not even in the short term). Instead, it will by definition
produce Hyperinflation the Governments of the world throw more and more money
at the problems in their attempt to avoid both a Depression and a Crash that
will Match or even surpass the worst of crashes. Don’t you think it is
imperative that you stay ahead of what is coming by subscribing TODAY and not
waiting for two weeks to get my forward looking interpretation letters free
but only after a 2 weeks delay? Do not delay in finding out ASAP how the
coming changes will affect both the economy and stock markets , while there
is still time for you to do something about it!
Aubie Baltin CFA, CTA, CFP,
PhD.
UNCOMMON COMMON
SENSE
2078 Bonisle
Circle
Palm Beach Gardens FL.
33418
aubiebat@yahoo.com
561-840-9767
Also
by Aubie Baltin
Please Note: This
article is for education purposes only and is designed to help you make up
your own mind, not for me to make it up for you. Only you know your own
personal circumstances so only you can decide the best places to invest your
money and the degree of risk that you are prepared to take. The Information
on data included here has been gleaned from sources deemed to be reliable,
but is not guaranteed by me. Nothing stated in here should be taken as a
recommendation for you to buy or sell securities.
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