The 1929 & 2007 Bear Market Race to The Bottom
Week 77 of 149
Another Monday Morning & Gold Was Down
Electrical Power Demand has Fallen 2.52%
3 April 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.
This is weekly closing data. It looks good. The DJIA has ended the past 4 weeks higher than the week before. But, the last time the DJIA closed lower for the week was the week when this Bear became #2 on the All-Time Bear Market's List. That sure seems like a long time ago, right? Heck no. It was only 4 weeks ago!
I don't have a crystal ball to see into the future. Maybe we are going into a new and significant Bullish phase in the market. And I will be the first to admit that historically, bears like me are a dime a dozen when Bull Markets are born. But it seems to me that a dime's worth of free financial advice, in the media today, also includes about 6 Bulls in the dozen. This being the second worse DJIA Bear Market since 1885, I would have thought a dime worth of free advice would have purchased baker's dozen of Bears during this rise in the DJIA. This is a concern of mine.
That was how it was for 1982 Bull Market blast off. In September of 1982, 4 weeks after the start of the most massive Bull Market in history, a dimes worth of free financial advice purchased 13 DJIA Bear along with 9 Gold Bulls for a bonus. I have a chart below showing how that 1982, long gold short DJIA trade worked out.
So, what am I looking for to prove a true bottom is in? Don't take me wrong. I'm not gleeful for what I see coming. I'm just placing current events within the historical context that I've absorbed in my studies of market history.
With some exceptions, my generation, the Baby Boomer Generation, is as dumb as a box of rocks. We really never left home, we just moved in with Uncle Sam. The government is going to provide Social Security and tax deferred retirement accounts for our retirement. Ditto for healthcare. When difficulties rise, we expect (on the whole) the government to respond to our needs. This allows us to use our income to pursue our pleasures on credit. Again, I don't include everyone on this.
BEARS EAT FINANCIAL GARBAGE. THEY LOVE IT!
And the tastiest garbage of all are worthless promises from worthless politicians made to gullible tax-payers sending 50% of their income to Federal, State and Local governments. The next tastiest treat the Bear loves is consumptive consumer debt, spent in the pursuit of pleasures, assumed during the previous Bull Market. During times of high unemployment, Bears get fat on this alone.
I don't get to make the rules. The world doesn't conform to my expectations of it. Bad things happen and I am powerless to stop them. But it seems that I have developed an audience for my views of the market. I have a moral responsibility not to sugarcoat my concerns. But you have a moral responsibility to yourself. You should not depend upon one source of information to make big financial decisions. I know I don't.
So, I'm really not looking for some price or BEV Point on the DJIA as a signal for the end of the Bear Market. I'm looking for general despair and hopelessness with the recognition that government assistance hurts more than helps. That day is coming.
If the DJIA soars to 20,000 and people still think there is something for them in the Social Security Trust Fund, or Fort Knox, and that Dr Bernanke's "liquidity injections" are anything but poison - I'm still a Bear! But if the market is moving up smartly, you have my permission to join the party. Bear Markets can have really good rallies. I just believe that the Bear will ultimately crash every party the Bulls have.
Below is my volatility chart comparing 2007's 40 & 200-day moving average closing price volatility with 1929 bear market volatility.
This volatility just will not stop! The 40 Day M/A is approaching the 200 Day at flank speed. That's navy talk for really fast. Well, to an old navy guy like me, this chart looks like a DRT's (Dead Reckoning Table) Surface Plot for the Battle of Jutland.
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 77 200 Day Moving Average Volatility: 1.46%
2007/09, Wk 77 200 Day Moving Average Volatility: 2.08%
This week saw not one but two 70% A-D Days!
Monday 30 Mar 2009: Net -75.96% Advancing - Declining Day
Thursday 02 Apr 2009: Net -73.73 Advancing - Declining Day
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."
Monday saw the DJIA down by 3.27%. Wednesday saw the DJIA up 2.01%. Thursday saw the DJIA up 2.79%. This market is making history as its +2% daily moves fill up the DJIA Volatility's 200 Day M/A.
From February 2006 to 2007, there wasn't a single 2% day in the 200 Day M/A. That's an entire year. This was also pretty much the case from 2005 to February 2007 too. The above explosion in 2% days started in July 2007 with news of liquidity problems with Bear Stern's Sub-Prime assets. Starting in the summer of 2007, from sea-level, this series blasted off. Twenty one months later, there are no signs of it leveling out.
My chart below is a side by side comparison of the Great Depression Bear's and our Bear's build up of +2% days in the DJIA Volatility's, 200 Day M/A seen above.
Each of the above plots starts as the 200 Day M/A has zero 2% days in it. Remember, Terminal Zeros are the last all-time highs of an old Bull Market and the beginning of a new Bear Market.
From the feedback I'm getting on my reports, people seem to think I'm making a case that the 2007/09 bear is a copy of the Great Depression Bear. There are similarities. They both crashed down into their BEV -40% line. Their volatility towers over other -40% Bear Markets.
However, there are differences too. For a very long period of time, the 1929/32 Bear's DJIA step sum was positive as the DJIA itself was being crushed. The Step Sum for the 2007/09 Bear was never positive. And now, look at the number of +2% days in these historical bear market's 200 Day M/As. The 1929 Bear took its time climbing to the 80 line, while the 2007/09 Bear took it out in a single bound. The 1929/32 Bear was pretty much finished (time wise) when it hit the 80 line. We will have to wait to see if this is also the case with the 2007/09 Bear. But personally, I think these two Bears are very different market animals.
Anyway, accumulating 80, 2% Days in the DJIA Volatility's 200 Day M/A has only happened twice in 109 years of DJIA history. We see this extreme only when something is seriously wrong with the market.
Bull markets don't do this!
Up or down 2% days, it makes no difference. Extreme volatility is a bear market phenomenon. Seeing a series of strong up-days is not unusual in Bear Markets.
In so many ways, this Bear is showing the potential of becoming the #1 Bear Market since 1885. (The potential, not a promise) Look at how the NYSE's Net 70% Breadth Days have been piling up since Feb 2007.
NYSE Net Breadth Formula
(Advancing Shares - Declining Shares) / Total Shares Traded
Monday was another NYSE Net 70% A-D day, as was Thursday. Since February 2007, something big changed in the stock market causing these extremes in breadth. To see so many 70% Breadth Days pile up, one after another, is disturbing.
Alan Greenspan's non-stop "liquidity injections" into the financial markets from 1987 to 2006 raised asset values to levels we now all regret. He was THE Bubble Master. Yet, for all the free whiskey Dr Greenspan was passing around, the NYSE saw only 14 Net 70% Breadth Days in the 19 years he chaired the Fed. Only one was a +70% NYSE Breadth Day, the other 13 were -70% Breadth Days. This is hard to believe, but it's true.
But note, this market has seen FOURTEEN 70% NYSE Net Breadth Days since 01 December 2008 and five of those were +70% A-D Days!
What does this say about the market? Only that the DJIA is priced in dollars. If the "policy makers" print a couple of billion dollars to feed the Bear, they can make things happen. Our "monetary system" has demonstrated the ability of creating hundreds of billions of new dollars in a matter of weeks for a targeted purpose. You know, "we have to save the financial system." So the prices we see in any market they target, is whatever the "policy makers" say they ought to be.
But, with such a monetary system, there will come a point in time when the dollar will be as worthless as the DJIA at 50,000. If the dollar ceases to function as money, a million dollars in the bank will buy its owner nothing. And that day is coming.
That day may be coming, but its not here just yet. So, if the trend is your friend, and you're making money, good for you! If you're out, I think it's a little late to join this rally. But what do I know? I know that this market could go very wrong in just a week or two. But it might be two weeks next October or October 2010. Expect this bear market to last a few years more.
My daily data has holes in it. Still it gives a good picture of the NYSE market breadth since 1933. To date, there have only been 212, Net 70% A-D Days (in the above data) since 1933. Beginning February 2007, we have seen 44 NYSE 70% A-D Days. Twenty percent of these 212 Net 70% A-D Days from 1933 to 2009 have occurred in the past 2 years. Something has changed!
I have a hole in my daily data. But my weekly NYSE A-D data from 1939 to the present will help to fill in the hole for the 1940s.
The weekly data confirms that the 2007/09 Bear is a market of extremes. And these extremes in volatility and breadth just keep piling up. If you demanded to know what I believe is the root cause to all of this, I would say the most likely reason is we are witness to a massive, politically inspired price-fixing scheme going bad. It might also be an social-engineered solution to reduce excess global population by eliminating rich people. (No doubt, this academic paper by Environmentalist Paul Ehrlich is another example of our tax dollars at work.) But corrupt Washington politicians is reason enough to explain our financial ills.
Politicians wanted personal retirement accounts in the financial markets to stand in for their Social Security fraud. Since President Johnson's administration, exactly like Bernard Madoff, Washington spends our Social Security taxes as quickly as they get their grubby hands on it. America's retirement fund has no more reserves than Madoff's Ponzi Scheme.
So the Greenspan Fed and Wall Street, (at the bidding of Congress) made a bull market in stocks and real estate markets. Everyone was going to retire comfortably rich on Easy Street with their IRAs and 401Ks.
Congress has some honest members in it. But in the main, it is populated with corrupt lawyers who will always place their selfish self-interests in front of the public's good. The multi-hundred billion dollar financial rescue legislation that slipped in the bonus package for AIG, is typical of what we can expect from them.
America's political class has taken control of the crisis they've created. Their main objective is public relations damage-control. I hope this isn't an environmentalist inspired involuntary-population control of the formerly wealthy people of the United States.
If these politicians lose power, they lose control of the information linking them to their activities in America's "regulated markets." Try as they might, most of the dirty laundry will still be aired to a very angry public some time in the future. This is their fear.
The weekly closing data with a BEV Plot looks more bullish than daily data plot using actual prices. The Step Sum is really looking good. But the DJIA with daily data looks like an old man chasing a kid when we compare these two plots. The 8000 DJIA is an important psychological level. I would like to see the DJIA just blow it away. But if the Dow keeps poking forward like Grandpa, that's not good. Bulls Charge Forward, not poke along like Grandpa. We'll know more next week.
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.
Another Monday Morning & Gold Was Down
Again, I woke up on Monday, 30 March, and gold was down big, as was the DJIA. This seems to be a frequent pattern in the past few years. But short term patterns can be deceiving.
Short term market moves are grist for financial news cycle's mill. But a longer-term look provides a superior perspective on how gold is doing compared to the DJIA. It's doing just fine. Silver is too.
As consumers of financial news seldom see a long-term comparative look at gold and the DJIA, I've made the following chart for your consideration.
Long Term Look at Gold and the DJIA
The above chart makes one thing perfectly clear. Gold and the general stock market are counter-cyclical to each other. There are exceptions to this general rule. During the 1980s and again from 2002-2007 we see gold and the DJIA rising together. But studying the market is not studying science. So don't expect precise mathematical relationships in financial statistics.
These two plots are based upon what people are doing. And that includes the "policy makers" too. We can assume that they've been very busy over the years assisting financial assets while dampening expectations in the gold and silver markets. But since 2001, gold has seen a bullish move that would be the envy of the general market.
Gold has risen from $200 to $1000 in eight years, about 250%. This is very similar to the DJIA rising in 8 years from a weekly closing of 784.34 in 1982 to over 3000 in 1990. The DJIA had an eight year increase of around 280%. Like gold now, the early 1990s saw the DJIA in a trendless market with no major up or down moves.
But early in the 1990s, the trendless DJIA was still a subject frequently covered by the financial media. Gold, in 2009, has mirrored this DJIA's 1982-90 eight year performance, but has been frequently ignored by the financial press. This actually has very bullish implications for the future price of gold. The public is mostly out of the old monetary metals. What happens to the price of gold when the public's attention turns to gold and retail investment demand goes up?
There are conspiracy theories concerning gold. Which ones are true or false will be revealed in time. The one theory I know is true is that everyone attending college is taught by their economic professors that debt is good and gold is bad. In the United States of 2009, a college education is typically financed with school loans, not gold coins. So maybe the professor is not exactly lying to his students. But college economics as taught today, largely ignore past episodes of monetary inflation. College students today have no idea of exactly what happened with John Law's Mississippi Scheme. So when they get a job at NBC, or the NY Times and Washington Post, it's easy for them to take Dr Bernanke's congressional testimony seriously.
Electrical Power Demand has Fallen 2.52%
Last week's data from Barron's had electrical power demand falling 2.52% from its 52Wk Moving Average highs. The Terminal Zero occurred in Barron's 11 August 2008 issue. When we see how infrequently a reduction of this size has occurred on the power grid's 52Wk M/A since 1930, this 2.52% reduction takes on an importance that belies its small size. Everything runs on electricity! The United States just went through a very cold winter. Cold winters create demand for power. Yet we still see a 2% decline in power consumption. This has happened only six times since 1930.
I don't need a ringing bell to tell me that the economy is contracting. This reduction in power demand will do nicely. Another sure sign of economic contraction is seeing the "policy makers" speed up their "liquidity injections." The chart below makes that point clearly. The vertical black line is on the power grid's August 2008 last all time high (Terminal Zero). Note how the Fed's printing presses responded instantly to the downturn in power consumption.
US Currency in Circulation = CinC (Red Plot)
It seems that the "debt is good and gold is bad" cabal is working overtime printing dollars. But then, "growth" has been redefined by Ivy League Economic Ph.Ds from actual units of production, like tons of stuff, into units of dollars. So we should not be surprised that the Keynesians have increased US "Economic Growth" by a factor of 240.92 since 1930.
Here is the link to Barron's "Pulse of the Economy." Take a look at all the economic measurements defined in US dollar terms. When the US dollar had a link to gold, (pre 1971) a dollar measurement of inventories or production may have made sense. But in the chart above, we can see that since 1971, the production of dollars has outstripped the production of electrical power demand to a ridiculous extreme. Unless you're a corrupt politician, why would anyone, take anything, any economist would say seriously?
I have no doubt that Dr. Bernanke, from Princeton University, will be "growing the economy" with ever greater "injections of liquidity" in the days, weeks, months and years to come. When the good doctor wakes up in the morning, it's with the expectation that before he goes to bed, he will "grow" the economy by a few billion dollars. This is why Congress appointed him to his job at the Fed. This is what he does for a living, and he does it very well.
And we will watch as unserviceable debt crushes power demand while the best and brightest from Princeton "grows" the economy in the weeks, months and years to come.
3 April 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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