The 1929 & 2007 Bear Market Race to The Bottom
Week 61 of 149
A Billion, A Trillion, What's the Difference?
19 December 2008
Color Key to text below
Boiler Plate in Blue Grey
New Weekly Commentary in Black
Here is the BEV chart for the Bear Race.
The weekly closing price BEV (Bear's Eye View) results for week 62 in the Dow Jones' 1929 & 2007 bear market's race to the Bottom are as follows:
1929-32: -54.15% from its all time weekly closing high price of 380.33
2007-08: -39.13 % from its all time weekly closing high price of 14,093.08
The table below gives the historic standing for the DJIA 40% bear markets as of 19 December 2008. The 2007-08 DJIA is in 6th place.
It's been 10 weeks (mid October) since the 2007-08 DJIA bear became a -40% bear market. Six weeks later it moved from #9 to #6 on the above list. Since then not much has happened in the stock market, if one goes by the price of the DJIA.
The BEV chart above is based upon weekly closing prices, so we only see what has happened from one Friday to the next. On a weekly closing price basis, the DJIA has only gained 1.10% in 10 weeks (Mid October to mid December). Not much of the traditional "Santa Claus" rally. So we have a major -40% DJIA bear market that refuses to go down with the US Auto industry in crisis, no resolution to any debt issues and a major scandal surfacing.
There have been no shortages of unpleasant surprises to provide a reason for the DJIA to make a try at the #5 position. But then the "policy makers" have floated financial markets upon an ocean of "liquidity."
For Wall Street, if you have trash, the Fed's got cash.
I expect this market to oscillate 5% above and below the -40% line until the "policy makers" become overwhelmed by market gravity. Don't hold your breath.
Below is my volatility chart comparing 2007's 200-day moving average closing price volatility with 1929 bear market volatility.
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.
1929, Wk 62 200 Day Moving Average Volatility: 1.11%
2007, Wk 62 200 Day Moving Average Volatility: 1.78%
(Remember, with the 2007 data up is down and down is up!)
Historically, daily 1% swings from the pervious 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."
Volatility is calming down but still is excess to the 1929-32 bear market. The best explanation for the market calming down is that in a major bear market people become accustomed to bad news. That plus much of the previous Bull Market's excesses have been corrected.
This week we had only 2 days with closing prices moving over 2% from the previous day's close. One was an up day the other a down day and nothing much happen to the DJIA price for the week. This seems to be a theme for the bear market, lots of volatility without much price action.
In the chart above I have plotted how many 2% day are contained within each daily 200 day moving average data point for each trading day since August 1900. This is a chart covering 108 years. The data point for 19 December 2008 stands at 66.
The 2007-08 bear market is really interesting! To take the DJIA from its BEV terminal zero (last all time high) on 15 October 2007 to its first piercing of the -40% BEV line on 24 October 2008 took 43 days with 2% volatility. That is something to be expected. BUT since 24 October 2008, we have seen an additional 34, 2% days that has moved the market up only 1.10%! Like I have mentioned before, there seems to be a disagreement between the bear and the "policy makers" on which side of 8000 the DJIA should be on.
Well the bear isn't going anywhere. It seems that the "policy makers" are settling in for a long siege too. In this week's report I've included a table listing the -40% DJIA bears from 1885 to 2008. Included is how long each bear market lasted. Some bear markets are short and so sweet, while others bears are long, drawn out and ugly.
The bear can't help being a bear. His reason for existence is to clean up after the previous bull market's mess. But the "policy makers" have no good excuse for being block heads! They are responsible for the past bull market's orgy of horrible credit excesses and now they are leaving even more garbage for the bear to feast upon. This is exactly what is needed to make this a very prolonged, more painful than necessary and ugly bear market.
The "policy makers" think that they can do anything they want to do with the "free markets." "Free markets? Not with them around!
At some point if they don't smarten up and let nature take it course, the American financial markets will lose international credibility. Not that they currently have much. I can see New York City becoming a poorer version of Detroit Michigan because these politicians, academics and bankers believe themselves above the law of supply and demand.
I watch CNBC with the volume off during the day time. I like to see the ticker showing the prices of the various markets. It's a bad habit really. The prices are all "policy statements" and have nothing to do with reality. The Treasury bond market is a disaster waiting to happen.
The "policy makers" hate gold and silver investments. You should love them.
The Step Sum is an indicator of market sentiment. When the underlying sentiment is bullish the Step Sum will rise. When bearish it falls.
With the DJIA going no place fast, the Step Sum has decided to move down decisively.
I have heavy red lines atop the BEV -35% and -45% lines. To awaken this bear market's inner bull, the "policy makers" have been hosing down the bear with cold "liquidity" from the market's opening on Monday to the Friday's market's closing hour. But looking at this weeks Step Sum plot (Red Plot) it seems to me that the bear is looking to take the DJIA down to the BEV -45% line.
Can he make it?
I wouldn't bet on it any time soon! But like I said before, this bear market has all the makings for one long and ugly bear market.
How many dollars does it cost to get an Economics degree from Princeton? What ever it is, it is a total waste of money!
Think of the "Step Sum" as the sum total of all the up and down "steps" in a data series as prices change over time. An Advance - Decline Line for a data series derived from the data series itself. Logically, to have more up days than down days during a bull market makes sense as does having more down days than up days during a bear market. Understanding the Step Sum is no harder than that.
A Billion, A Trillion, What's the Difference?
Watching the financial news on Monday, my mind went numb. The Bernard Madoff fraud has figures of $50 billion dollars being tossed about. The Madoff's fraud will have horrible consequences for people far from Wall Street and Palm Beach, Florida. But lately there has been losses in the credit market much larger than $50 billion. But they are losses with a difference.
What's the difference between Madoff's $50 billion fraud and the scandal of congress giving Wall Street $700 billion a few months ago? This vast unconditional gift to investment banking was to cover losses that resulted from activities that only a few decades ago would have been instantly recognized as fraudulent. But a few decades ago, the US congress would not have been accessories before the fact with such white collar crime. And then we saw the Federal Reserve increase its balance sheet by $1.2 trillion dollars from October to December. Will history show that Chairman Bernanke had a higher sense of fiduciary responsibility than Bernard Madoff? Considering the reality of who writes history books on the Federal Reserve, Bernanke will be a hero. Don't be surprised to see a new building constructed in Princeton University named after Bernanke dedicated to studying his "monetary policy."
Are there any other differences between the fraud of Madoff and those of the "policy makers?" Plenty!
The Madoff scandal was a Ponzi scheme very similar to the Social Security System, but his scheming did not fund the hopes and dreams of "policy", so it was illegal. The $700 billion to Wall Street was just another "smash and grab" operation the US Revenue Service has done at the expense of the US Taxpayers for decades. The mess they made of my wallet coming through customs taught me not to ask any damn fool questions.
And another thing; the people Bernard Madoff ripped off got theirs with a minimum of paper work and quick service that is so typical of the private sector. But who needs excellent service on the down side? Look at the good fortune of the owners of dollar-denominated assets the "policy makers" are rescuing. They will have to take a number and wait their turn for what they have coming for them like the rest of us. The assets are dead, but the dreams are alive.
That is good! So what's the hurry with some people for the demise of the US dollar? These maniacs say they want honest money but that's not true. What those people want is money that is worth something. "Honest money?" I'll show you in hard mathematics of how honest the current US dollar is:
US$ = Zero.
The post Bretton Wood's dollar is the most brutally honest monetary unit in the history mankind! So what is the problem?
No problem yet. We all know that any Economics Ph.D from Princeton can make trillions of dollars dance on the head of a pin. When you consider the minuteness of a dollar when compared to the relative vastness of a pin head, who doubts that even a Harvard or Yale Man could do it? But there will come a point in time when even a Princeton Man will run out of space on his pin head for all of the dancing dollars being created. That's when the biggest mass panic to get clear of certain destruction since Godzilla destroyed Tokyo starts in earnest.
Watch gold and silver. Better yet buy some gold and silver and then watch them. There will be other signs too.
How much longer the current Federal Reserve Notes will be denominated using the current designations of $1, $5, $10, $20, $50 and $100 notes? Depends upon how successful the current "policy initiatives" are. The banks will be down sizing their credit card operations in the very near term. One trend I see coming is cash in hand needed for shoppers at the food market again. Bernanke's "quantitative easing" could very well produce a future $100 Federal Reserve Note with the purchasing power of the current dime (1/10 of a dollar). New notes of much greater than $100 will be needed or the cash drawers in cash registers everywhere will be to small to hold the cash coming into a store.
Expect great changes to the current US coinage system too. "Policy initiatives" may create a hybrid $100 coin made from recycled plastic Coke bottles. With two such eco-friendly units of the full faith and confidence of the United States, a green minded individual could purchase a down-sized Whopper (minus the fries and Coke) and help save the planet sometime after 2010.
Last but not least, pity the humble counterfeiter. When the Bureau of Engraving's Federal Reserve Notes becomes as respectable as any other criminal's work product, how is an honest crook to make his dishonest living?
Mark J Lundeen
19 December 2008
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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