The 1929 & 2007 Bear Market Race to The Bottom
Week 73 of 149
2007/09 DJIA Bear Now #2!
Monday Morning Gold Was Down
Looking at February 2036 @ 4 ½
Economic Growth / Decline & the Power Grid
US Oil Refinery Capacity 1935 to 2009
6 March 2009
Color Key to text below
Boiler Plate in Blue Grey
New Weekly Commentary in Black
Here is the BEV chart for the Bear Race.
As we can see, the Bear is not having what the "policy makers" are offering. Trillions of dollars in "economic stimulus" is only making him hungry for more. I've mentioned before that this bear was looking at the 1929/32 Bear with envy. To the 1929/32 Bear, our Bear still looks like a lovable little cub. To prove he's no patsy for "policy," I still think our Bear will take out the BEV -60% line by June. I hope he doesn't have April written on his calendar!
The table below shows the rankings for -40% DJIA Bear Markets from 1885 to 2009. Previous tables used weekly closing prices. This week's table uses daily closing prices. It makes a difference.
If the high or low was on a Tuesday and then the market moved 2% by the end of the week, something was missed. Since these rankings are not going to change for decades to come, (unless the 2007/09 Bear takes out the 1932 bottom) I thought I'd construct the definitive DJIA Bear Market Table.
There was some shuffling in the standings, but all things considered, the change from weekly to daily closing prices are small.
The BEV Chart below displays the above information, but with its former weekly closing price format. In the table, I also started using the prices as published in my source reference instead of my factor adjusted series of the DJIA. This affected only the 1896 & 1903&7 bear markets' prices, but not their BEV percentages.
Comparing the table (daily data) with its BEV Chart (weekly data) shows the differences. Not much. But daily data is more precise for the table, while making no practical difference in a BEV Chart.
Below is my volatility chart comparing 2007's 40 & 200-day moving average closing price volatility with 1929 bear market volatility.
Every week we see the 200 Day M/A rising up. The 40 Day M/A has reversed and now it too is rising upward. Extremes in volatility are Bear Markets events. And this Bear is the most volatile bear market in history!
Note: 2007 values are actually positive. They were inverted so 1929 would fit on top and 2007 on the bottom. So for 2007, please forget the negative valuations and focus on the percentages.
(Remember, with the 2007 data up is down and down is up!)
1929/32, Wk 73 200 Day Moving Average Volatility: 1.40%
2007/09, Wk 73 200 Day Moving Average Volatility: 1.96%
Historically, daily 1% swings from the previous day's closing price in the DJIA, while not uncommon, should not occur on an almost daily basis. The stock market is running a fever with its "Persistent, Extreme Volatility."
We saw not one but two 70% Net Advancing - Declining Shares Days this week! This are extremes in market breadth.
Monday 02 March was a -82% A-D Day as per Yahoo.
Thursday 05 March Was a -78% A-D Day as per Yahoo.
I have a data gap for the 1940s, but looking at what I have, there are only 207 days with 70% A-D Breadth since 1933. Note all the strong up days in the 1930s!
Barron's did not publish this data until April 1933. So we are not looking at the 1929/32 Bear Market crash. But the 1930s were difficult times for investors. I see the increase in frequency of 70% A-D Breadth days since April 2007 another indicator how dangerous our current Bear is.
The Step Sum has made a big move downwards. This creates a lot of upward pressure that needs to be relieved. I'm not writing my weekly articles with the intent that my readers should use my data as a timing service. But just looking at this chart tells me that we may have a few good weeks coming our way.
But there is still awful news of corruption in the financial markets that has yet come into the light of day. Treasury Secretary Geithner is having difficulty finding people to fill posts in the Treasury Department. This is most unusual!
This may be due to unpaid tax issues, as Geithner himself had. Also, anyone qualified to fill such a post would need experience in the financial markets. It could be that such experience gained from 2000 to 2009, would tell anyone with a brain to lay low and avoid such a government post. Most likely both reasons are Geithner's problem. Serves that Income Tax Dodger right!
The Step Sum is an indicator of market sentiment. When the underlying sentiment is bullish the Step Sum will rise. 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.
Monday Morning Gold Was Down
Being a night person, I woke up on at 9:45 AM (Central Time) on Monday. As I started my day, I looked at the Kitco Spot Gold & Silver Prices.
I've been following the markets long enough to know that only one thing will make gold and silver fall like this: the Stock Market is in trouble.
I turn on the TV. CNBC was reporting that the DJIA was falling to levels not seen since 1997.
Looking at the price chart of the DJIA, nothing could be clearer. But in 1997 the market was going up, not down. That was not noted. Had the "experts" on CNBC had any sense of market history, they would have discussed the real story. The DJIA on 02 March 2009 had become the second deepest DJIA Bear Market since 1885.
On a day like this, "policy" does not allow gold and silver to go up.
I don't sit and listen to CNBC all day long, but from what I heard, these facts went unreported. As was any suspicion that by "injecting liquidity" into AIG (again) the "policy makers" were once again forcing US dollar and US Treasury Bond holders (worldwide) to make good Wall Street's gambling debts.
This really irks me. I have to report to the IRS any income or successful trades I make so I can * pay * my taxes. The Feds know everything about my finances. It's a yearly exercise all Americans must do so the government can show us who really controls our lives. But then I hear the Chairman of the House Banking Committee whine that he doesn't know how the last tens of billions they gave to AIG was spent. That can't be true unless he wants it that way.
If Congress was really upset they would send in the IRS. Those tens of billions of dollars from the US Treasury are a taxable issue to someone who had business with AIG in defrauding purchasers of AIG's credit default derivatives.
Legally, the IRS could go after crack cocaine pushers for not declaring their drugs profits. The FBI couldn't touch Al Capone for bootlegging during prohibition, but the IRS did the job for failure of paying income taxes. The IRS doesn't need to ask for a search warrant, or permission from the congress to investigate this sorry affair. They just show up, kick in a few doors, confiscate computers, seize assets, and toss people in the clink until they cooperate. While they wait for their victim to break, they have a two hour press conference on the 24 hour cable news channels on details on their investigations.
Do you see any signs of that happening? No, because that is not going to happen.
That tells us all we need to know about what The Congress, President Obama, Treasury Secretary Geithner and the Head of the IRS knows about the "missing tens of billions" sent to AIG with "no questions asked." They know enough and are fine with it. What we see on TV is theatre for the masses. Congress's real work is done far away from the prying eyes of the media. So don't get sucked into the dog & pony show Congress gives on TV.
So why does gold and silver go down on a day like this? That's the wrong question to ask. What people need to ask our elected leaders is how much gold is left in Fort Knox that has not been pledged to unknown third parties? One day we'll see. You had better lower your expectations of how much gold the US actually owns.
The corruption in Washington is all-consuming. That includes the regulators of our markets.
Looking at CFTC data on the Gold Commercial Traders, I've made a Step Sum of their long-short holdings. When they are net long, it's a +1, when they are net short, it's a -1. Since 2001, the gold commercials have not reported a net long position to the CFTC. This just looks wrong, but it looks alright to the CFTC. What do you think?
As I understand it, the gold commercials (silver commercials too) are for the most part, those same NY financial firms that are on the receiving end of the TARP program that no one in Congress knows anything about. We can't know for sure who these firms are. It's against the law for the CFTC to disclose information on the commercials or their activities. Who wrote that law? The US Congress did.
If these gold commercials are JP Morgan, Goldman Sacks or AIG, why should anyone expect these serial bunko artists to treat the gold and silver markets any differently than they treated the high-tech and sub-prime mortgage markets?
The Silver Commercials have never reported a net long position since 1986. NOT ONE LONG POSITION IN 23 YEARS OF REPORTS! Can you see signs of market manipulation below? The CFTC can't.
For years Ted Butler & silver investors have complained to the CFTC about excessive shorting of silver by unknown parties on the Comex. But as we have seen with the SEC on the Madoff's Ponzi Scheme, having the markets regulated by the Federal Government only created a huge uncooperative bureaucracy that screened criminal activity from a trusting public for years.
Is that what we are seeing in these charts? I can't say for certain as there is no transparency at the Comex or the CFTC. What I can say is that higher gold and silver prices raise questions even on CNBC as to what is happening in the financial markets. When "policy" is financed by the printing press, "policy makers" see higher gold and silver prices as a failing grade for their "monetary policy." Note that excessive and uneconomic short positions on the Comex would depress the price of gold and silver. So allowing the usual suspects to short excessively in the gold and silver futures market would be a good "policy" for the counterfeiters at the Fed & US Treasury.
It's logical that a government who can create trillions of dollars from nothing and then pour them down a rat hole in New York's financial district would not object to these same financial interests manipulating the gold and silver markets below fair value. One hand washes the other.
I don't pay attention to the daily prices of gold and silver when they take the big hits. The "policy makers" have been bushwhacking gold and silver on a regular basis since 2000, while they've supported the stock and mortgage markets. But things have not gone their way for the past 9 years.
One of these days gold and silver prices are really going to take off as the DJIA goes down. I suspect things will really get interesting then. Maybe even the financial media will do a criminal investigation of the regulators themselves. They could, but don't count on it.
Looking at February 2036 @ 4 ½
There was a big rush away from the stock market into the "safety" of the US Treasury Bond Market a few months back. So how did that work out? Not too good for the long bond purchasers.
As we can see, the yields on the US long bonds have risen, and the prices have fallen. Let's take a look at this bond's price with a BEV Chart.
This bond has dropped to the BEV -18% line since December 2008. Last December's current yield of 2.7% (taxable) did nothing to cushion this blow. How was this bond's performance compared to the DJIA?
Rarely do bull markets in bonds rival those in the stock market. But as we can see, the bear markets do. I have to note that the fall in US Long Bonds is directly related to how long the bond is. The longer the bond has to wait for maturity, the worse the fall has been since December 2008.
Bond losses in the next few years are going to be massive. It's foolish to purchase any long bond in today's market.
Economic Growth / Decline & the Power Grid
Barron's, since their 05 August 1929 issue, has published weekly US Electrical Power Consumption data. This data is a real gold mine for the ups and downs of the United States' economy. Reading Wk 58 would be a good refresher for what is being shown below.
Here is the weekly electrical power consumption with its 52 Wk M/A from 1930 to present.
The chart below has the data above indexed to August 1930 along with CinC (US Currency in Circulation).
Electric power consumption is yet one more economic statistic where we can see the effects of the US closing its gold window in August 1971: currency creation unconnected to economic activity. That was not so when the dollar was backed by gold.
Over the years "economic growth" has been redefined. Actual production figures of tons of steel or secondary indicators such as railroad boxcars unloaded were once used to describe economic growth. But with academics now in charge of estimating "economic growth," economic growth is now described in US Dollars. In an inflationary economy, any dollar measurement of economic activity is dubious information.
Since 1930, "economic growth," as seen in CinC, has increased by almost 250 times. However electric power consumption has increased by a factor of only 44 in the last 80 years. Without a doubt, I'll take what the power grid says about economic growth over what an economist would have me believe.
The difference between CinC and the power grid is a basic indication of how much more we are paying for the same economic activity only now with credit card debt. Aren't those banks the Congress is bailing out with the TARP Program significant players in credit cards? I believe they are!
The reason I'm covering the power grid again in Wk 73 is because its 52 Wk M/A has fallen below its BEV -2.00 line as of Barron's 02 March 2009's issue.
This has happened only 6 times since 1930. We see the economic contraction after the Dot.Com Bubble deflation in 2000. It caused a power decline of 2.28% two years later. The economy suffered a 4.12% decline in 1983. We will have to be patient to see how far electrical power consumption falls in the next few years. My expectations are that it will fall between -4% and -8% before it is all over. That would indicate a severe reduction in economic activity. I hope Mr Bear is not targeting that 17% reduction in 1933.
If it should drop below its BEV -8.00% line, it will be a measurement of how ignorantly academics like Greenspan and Bernanke have managed credit creation. But the Chairmen of the House and Senate Banking Committees would know nothing about that either.
I will be covering the power grid anytime it drops another .05%. I expect we will see this chart again.
US Oil Refinery Capacity 1935 to 2009
I don't believe refinery capacity over the decades is as good an economic indicator as electrical power consumption. Electrical power consumption is largely domestic, with some power imported from Canada, but what doesn't run on electricity? For the US refining industry, this was most likely true from 1935 through the 1950s. But since that time, petroleum products consumed in the US are often refined elsewhere.
We don't see the data from 1929 to 1935, but in 1935 we see this series starting at 65% of full capacity. I assume this is an increase from even deeper lows during the Great Depression.
The 1970 to 1980 era is of interest in today's market as 2009 is remarkably similar to the Post Watergate era. The country voted out the Republicans and left-leaning Democrats gained control of Congress and the White House.
We can see the effects upon the domestic oil industry from the October 1973 Oil Shock. Not much. But after Jimmy Carter entered the White House, with a "progressive" congress still in place, the US refining production crashed to levels not seen since 1935! New taxes and regulations are never good for any business.
Here's a clip from Michelle Malkin's Blog on Obama and the coal industry. Democrats had plans for the domestic energy industry 40 years ago. They have plans for domestic energy now. Exactly what those plans are, and how they will affect us in the years to come, we will just have to wait to see. But will not be good for your retirement account.
6 March 2009
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.
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