I've been gone for two weeks, and the BEV Plot has yet risen sufficiently to force me to move my data box. I beginning to think I might not have to. Looking at the DJIA above, after the 10-month move upwards, it's time for a correction.
Let's take a quick look at Volatility and Volume. Remember: The Bear loves Volatility while the Bull loves Volume.
The DJIA is going up, but the Bulls have no enthusiasm in their work. Don't ask me where the Bear is. All I can say is he is nowhere near Wall Street. So since 09 November (the last 42 trading days), the market runs neither hot nor cold.
It's remarkable that in the three trading days prior to 10 November, the DJIA saw more movement than in the past 42 days, two full months!
Here's a BEV Chart covering the same period. No volatility at all! A year ago, we could expect the DJIA moving 4% or 5% in a single day. In October of 2008, as the DJIA plunged down towards its BEV -40% Line, twice it * moved up * plus 10% from its previous day's close. To be sure, the big up days are almost exclusively Bear Market events. A year later, the DJIA has taken 42 trading days to move up 3 lousy BEV Points! What a difference a year can make.
Well what's changed? I believe it's the extent of market control the Federal Government has assumed since the October 2008 Congressional Hearings on the Sub-Prime Mortgage Credit Crisis. Remember, Bernanke & Paulson asked for, and received from Congress, "New Tools" for insuring "Market Stability." But is this low Volatility a sign of "Stability?" Whenever I'm handling something fragile, I'm very careful not to shake it too much when I have to move it. I get the sense this market is a very fragile market, and so the "Policy Makers" have placed this market on lockdown. I mentioned above we are due for a correction after a 10-Month Upswing. I doubt we will see one anytime soon.
Let's look at the DJIA's daily volume.
We need to remember that within the dashed oval there were two major holidays that typically produce low volume. But still, where was the traditional "Santa Clause" rally during the Christmas Season? The most likely reason Santa never came to Wall Street in 2009, was he was scared off by a few bursts of Anti-Aircraft Fire from the roof of the New York Federal Reserve Building. But you can be sure Doctor Bernanke would deny this. It seems the "Policy Makers" are developing a fear of heights, and don't appreciate anyone, including Santa, from doing something stupid.
I don't expect much upside is left in this market. I'm waiting for when the stock market again, routinely sees days with the DJIA moving in excess of 2%, and NYSE has 70% A-D days in Market Breadth. Then we'll know the Bear Market has resumed his work in earnest. I don't care to predict when this will happen, but I know rising interest rates will be the key in understanding the Bear's timing. Just understand: a lot can change from one January to the next.
I don't know how much longer the DJIA will be Baby-Stepping upwards. But market history tells us when Volatility returns, the most likely result will be a decline in market values.
The DJIA's 8-Count has been at 0 since 19 November.
The Step Sum Chart is remarkable. The Step Sum is just the sum of the Net Up-Down days of the DJIA. Seeing a strong move in the Step Sum for the DJIA, one would expect the DJIA itself to display some zeal in life. Instead, the DJIA is limping along like the walking wounded.
Below we can see how the relationship between the DJIA, and its Step Sum changed after October 2007. From the 09 October 2007, BEV Terminal Zero (last all-time high), to early 09 March 2009 BEV -53.78% Bottom, the second deepest DJIA Bear since 1885, the Step Sum declined by 25 Days during this 356-Trading-Days Period. Only 25 Days?
Understand, during any given period of market history, in Bull or Bear markets, the number of up or down days are almost equal. Since 02 January 1900, to 08 January 2010 (110 years of market history) there have been 29,947 NYSE-Trading Days. Yet as of 08 January 2010, there have been a net of only 1336 Up Days in those 29,947 NYSE-Trading Days.
So there is a small bias in the Up minus Down-Days Data that I call the "Step Sum", and the Step Sum has proven to be a very good indicator of market sentiment for the past 110 years. However, when a divergence between the DJIA and its Step Sum develop, something is usually not quite as it seems. Seeing the DJIA's Step Sum charging ahead like a Roaring Bull, while the DJIA itself moves timidly upwards for the past two months, is a point of concern I have with this market. Either the DJIA is poised like a compressed spring, ready to lurch upwards after its Step Sum, or the Step Sum will collapse back down to the DJIA. In the second case, I don't think the DJIA would be able to maintain its current valuation.
If this Bullish Market Correction within a larger Bear Market is to continue, the DJIA had better get the lead out of its pants. But then it may just trend mindlessly along its BEV -25% line for the foreseeable future. As matter of "Policy", the DJIA might have no other choice.
The Step Sum is an indicator of market sentiment. When the underlying sentiment is bullish, the Step Sum rises. When bearish, it falls.
Think of the "Step Sum" as the sum total of all the up and down price "steps" in a data series over time; an Advance - Decline Line for a data series derived from the data series itself. Logically, bull markets will have more net up days, while bear markets will have more net down days. Understanding the Step Sum is no harder than that.
There's something to be said for looking back at the past year before considering the next. So I've constructed a table using weekly closing prices of the Dow Jones Total Market Indexes (DJTMI), along with other economic and monetary indexes I've frequently used in the past year. The data is from the first issue of Barron's for 2009 & 2010, listing year end data for 2008 & 2009. I highlighted inflationary sensitive indexes with a black field and gold letters. Major indexes are pale green with black text.
Considering what can be reasonably expected from investment returns, 2009 was an outstanding year for investors!
Or was it? After the Bear's hammering of asset values from September 2008 to March 2009, investors were shell-shocked during the first half of the year. Did you; or anyone you know, make the dive into the market's selling panic from December to April? I doubt many people recovered their nerve until June or so, after the lion's share of the above profits were already made. But taking a plunge into a nightmare was the only way to make the big money in 2009. A quote from a Rothschild comes to mind: "Buy when there's blood in the streets." What was good advice in the 19th Century still holds in the 21st. But this is easy to say in the first week of January 2010. But in the first quarter of 2009, not only was there panic in the guts of most people, but who had money to buy?
So who was buying early last year? To be sure, the "Policy Makers" were hosing down Wall Street with "Liquidity", adding a trillion or so dollars of buoyancy to the markets. But there were also professional investors who sold when the stock market was topping, or in its early stages of decline (October 2007 & 08). They kept their cash on the sidelines, waiting for an opportunity to Buy Cheap.
March 2009's crash was predictable from as long ago as the summer of 2007. When Bear Sterns first reported it's portfolio of AAA Rated Sub-Prime Mortgage Assets were illiquid, it was a good indication of a pending disaster. In the last half of 2007, the stock market was having an excellent recovery from the lows of 2002. In the second half of 2007, there was nothing wrong in taking profits after a strong recovery, and staying out of the market for a few years. With the coming liquidity issue in the Sub-Prime Mortgage sector, well reported in the financial media (2007-08); going into cash, being patient, and waiting for a panic selling reentry point made sense.
But it's easy to see this looking back. What's hard for most people to accept, is that in January 2010, an identical situation is apparently coming our way sometime in the next few years.
I'm no one's Investment Advisor, but I believe another round, or two, of panic selling is unavoidable before Mr. Bear is finished with us. After all, the credit and debt problems present in the financial markets from the DJIA's October 2007 top to its March 2009 bottom have not been resolved; these problems have actually increased. So since October 2007 nothing has changed, except now Washington has made it worse. If the Credit Crisis didn't make you "Get the Hell out of Dodge City" in 2007, maybe it should in 2010.
This is the time to reduce one's exposure to market risks, and maybe sell 50%, or more, of ones financial assets. If you decided to go 100% cash, selling into market strength a little at a time in the next month or two, I wouldn't try to talk you out of it. Taking advice from Rothschild of old, you may want to wait for some "Blood in the Streets", with cash on hand. To get out - to go away - and stay away for the next year or two seems a good market strategy right now. Until the Unfinished Credit Crisis becomes another Congressional Crisis, with Dr. Bernanke and Secretary Geithner testifying on the need for a new round of TARP and bank bailouts, I wouldn't even consider coming back in the financial markets.
But for the same reasons I'm bearish on the financial markets, I'm bullish on Gold, Silver and Mining Companies. If you take my advice, be sure to place about 10%, or more of your capital, in Precious Metals assets. I can recommend Junk Silver, and Gold and Silver Bullion Coins. Sorry - I don't do stock recommendations.
Let's take a look at the same data for the first decade of the 21st Century. It's useful seeing how things have gone since the top of the High-Tech Bubble. What struck me was how Gold, Silver, Copper and the Mining shares (especially Coal!) have been top performers not just for the past year, but for the past decade. Too bad there isn't a way to invest directly in Barron's Gold Mining Index (BGMI). The BGMI was in the top 10% of these investments in the past year and decade. But I'm the only person to note this. It's a mystery why Barron's has faithfully compiled this weekly data series since 1938, while its editors and columnists choose to ignore the most historically significant gold mining index of the 20th Century.
Analyzing these two tables for the past year and decade, the obvious conclusion is 2009 was just another year in the continuing 10-Year-Bull-Market in Gold and Silver, while it will most likely prove to be a single bullish correction in a continuing Bear Market in the General-Stock Market.
In normal circumstances, it's advisable to be shopping around the market sectors that had fallen below 50% from their highs. But these are not normal circumstances. Let's face it, when Congress had authorized the Federal Reserve and US Treasury to "Stabilize" the Financial Markets with a few Trillion in Inflation and Derivatives, there can't be a single real-market-driven valuation used in computing either of the two above tables - not one! The Auto Manufacturing stocks were up 154% for the year because the "Policy Makers" made that happen, while the Non-Ferris Mining Companies were up 145% in 2009 because the "Policy Makers" couldn't stop that from happening, but I'm sure they tried.
Had the US Government gotten out of the way, and let the market find its own level, do you think the DJIA would have declined only to its BEV -53% line last March? No way! We would have seen at least a DJIA BEV -60% and possibly a BEV -70%, or deeper Bear Market Bottom. But Doctor Bernanke and Secretary Geithner, at the direction of Congress and the White House, are recklessly engaging in daily Unprotected-Bear-Market Interruptus with their Tarp, and "Economic Stimulation Programs."
These programs are financed with massive inflation and debt creation. As our current problems are the result of massive monetary inflation and debt creation, I fail to see how more of the same will produce a different, desirable outcome.
"Insanity: doing the same thing over and over again and expecting different results."
- Albert Einstein
That's why I believe 2009 was just another year in the continuing Bull Market in Gold and Silver, while most likely will prove to be a single bullish correction in a continuing Bear Market for the General-Stock Market.
That is - Gold closed up 9 years in a row in US dollar terms. But as we see in the table below, since the High Tech Market top in 2000, buying, and holding gold was a winning strategy in many other currencies too.
With so many up years for Gold, in so many currencies, are we near the top? Not with our "Policy Makers!" Overvalued Gold is a frequent claim made by the "Experts" on CNBC since 2001, as are their perpetual recommendation of High Tech and Financial stocks. My Tables above shows their scorecard.
Remember, these "Experts" are on TV to make money for the people who sign their paychecks, not for the general population. Let's take a look at the American Stock Market from 1990 to 2000, a time when the Financial Media's "Experts" (in the main) never saw the Bull Market in the general market coming to an end.
Take a moment and compare Gold's performance for the last 10 years with the S&P500 or the NASDAQ's from the 1990s. Gold's gains are inline or underperformed the 1990's Stock-Market Bull. But the point I'm making, is during the 1990's, continuing to January 2010, consumers of the Financial Media's investment advise are exposed to a relentless anti-Gold, Pro-Financial-Assets Bias. When we consider the magnitude of the Financial Media's hostility to Gold (Silver doesn't exist in their world), seeing it closing higher for nine straight years (in US dollars) is amazing!
"It's a game fish that swims upstream!"
- James Dines, Editor of The Dines Investment Letter
Gold's performance for the past 10 years may be amazing, but seeing the High-Tech and Financial shares, (the Financial Media's perpetual favorites) with negative returns for the past 10 years, as CNBC and their ilk, have continuously promoted these companies, for years, to the general public is an outrage.
The day is coming when it will be Gold's turn to see a massive bear market, but in 2010, no one can say with certainty when this will be. But what we can do is examine market history for clues of how long Bull Markets have taken in running their course. So let's examine two different Bull Markets:
Both these Bull Markets lasted * 26-years *.
Below is the weekly BGMI data from 1953-83. As always, when charting the decades, Monetary Inflation (aka "Capital Gains") makes the early years lay flat; and so unreadable on a chart. So I've placed a table in the chart listing some key price points and percentages.
How did I select these dates and BGMI prices? I used my BGMI, BEV Chart to determine the tops and bottoms in the BGMI.
In BEV Charting, a formula converts every data point into a range of percentage, bound by 0% (new All-Time High) and -100% (Total Wipeout in Valuation). No other outcome is mathematically possible. Here is the formula for the 04 Jan 2010 issue of Barron's.
On my Excel file, this formula asks every data point in the BGMI data series, rows 9 - 3737 (3729 issues of Barron's, from 25 July 1938 to 04 Jan 2010), a question:
If it is, the formula assigns that data point a 0% for that week. If the formula sees a previous value higher than the latest data point, it registers it as a precise negative percentage below its last All-Time High. The result is an amazing "Bear's Eye View" (BEV) of the BGMI from 1953 to 1983, containing a 26-year Bull Market (1954-80) in the Gold Mining Sector.
Seldom, if ever noted; when the BGMI is inflating, Financial Assets tend to stagnate or deflate. The 1960s and 70s were wonderful years for Gold Mining Investors, but lost decades for Stocks and Bond investors.
From 1965 to 1983, the issue price of Barron's rose from $.35 to $1.25.
The Dow Jones 10 Utility Bond Average in 1992 did recover to its 1947 price level, but what a $100 bought in 1992 was considerably less than what it purchased in 1947.
I consider all Capital Gains as merely the consequences of inflationary flows in the valuation of an asset class being inflated; values that one day deflate faster than they inflated. This is true for the 1974-2000 DJIA Bull Market. But I don't consider the DJIA from 2000-07 as part of the later 20th Century DJIA Bull as the "Policy Makers" were so obvious in their efforts in driving the DJIA up to its the October 2007 14,164 top. This 2002 quote from our current Times Magazine, Person of the Year (POTY) Award says it all.
"…there are several measures that the Fed (or any central bank) can take to reduce the risk of falling into deflation. --- Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.
By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation. Of course, the U.S. government is not going to print money and distribute it willy-nilly."
- Ben S. Bernanke, Federal Reserve Board Governor, November 21, 2002.
In November of 2002, the Real Estate Bubble had only begun, while deflating Stock Valuations were still front page news.
The timing of Dr. Bernanke's speech made it obvious that the deflating assets he was referring to were deflating stock valuations, and the increase in the DJIA to over 14,000 in October 2007 was purely an Inflationary event. Exactly like our March to December 2009 Stock Market bounce. For this reason, I only consider the DJIA Bull to have lasted from 1974 to 2000; 26 Years. Let's take a look at it.
As always, Monetary Inflation (aka Capital Gains) makes nonsense of the early years of a Bull Market when data is charted as published. From the first week of 1973 to December 1974, the DJIA saw its first BEV -40% Bear Market since 1942. But unless you knew that, does the chart below even give a hint of Market Panic in December 1974?
As always, the "Bears Eye View" provides proportion to a market series that spans decades. Note how I maintained the BGMI's 1953-83 BEV Chart's scaling (0% to -80%) for the DJIA's BEV Plot below. This allows for comparison of scale between the two charts.
Since 1938, the DJIA's losses and gains are tiny compared to the BGMI. I strongly suggest you stop reading, like right now, and compare the gains, given in the tables for each of the * 26-Year * Bull Markets for the DJIA and BGMI Charts. As you just saw; there's no Bull like a Golden Bull! If the "Best and the Brightest" in Government and Finance see fit to place a monetary quack, and POTY Award winner like Dr. Bernanke in charge of managing the US$, the Bull Market in Gold, Silver and Mining Shares have a long way to go before we should consider selling them.
Dow Jones -40% Declines From 1885 to 2008 is the article that inspired this race of 1929 & 2007 Bear Markets. You may want to read that article to understand my "BEV Chart."
Dow Jones Industrials Average Market Volatility is the source for my volatility studies.
The Lundeen Bear Box and Step Sum is the source for my Lundeen Bear Box and Step Sum Chart
Note For the Record: Mark Lundeen does not want a devastating bear market in the next two years. However, in full view of Congressional Market Oversight Committees and under the supervision of Government Regulatory Agencies, things were done that I believe will make a historic bear market inevitable. If you have a problem with this bear market, contact Washington, not Mark Lundeen.