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Stock Market Forecast Bear Market City!

July 26, 1999

"Stock prices have reached what looks like a permanent high plateau... I expect to see the stock market a good deal higher than it is today within a few months" Irving Fisher, Professor of Economics, Yale University, Oct 15, 1929

"The markets generally are now in a healthy condition... values have a sound basis in the general prosperity of our country" Charles E. Mitchell, president of the National City Bank, October 15, 1929

U.S. equities have been in a brisk bull market for 16 years, and a 'mania' since 1995. This unprecedented rise, overvaluation and volatility has set the stage for an unprecedented correction and bear market. The Dow has been wildy fluctuating and recently rallied to 11,100 and is obviously on its last legs. As this site was predicting, new highs and the magical 10,000 were within reach, but with doubts. The recent rally only confirms that we will experience a devastating decline and now on full crash alert , followed by a bear market of massive proportions.

As of June 23, according to the FED model, the market is 44.5% overvalued and the recent rally is not sustainable. We may have passed the top. However, Dow 12,000 may be reached! and cannot be ruled out.

There is no real basis for these high market we soon shall see! The next several months will produce continued volatility, with a high likelihood of major declines occuring after the summer peak (may not exceed Dow 11,600-- assuming the peak hasn't already happened ) The Big months to watch for are July, AUGUST and September--and of course, October.

What we are seeing now is the classic post-crash rebound-rally after last fall's declines, which makes everything seem "back to normal." Following it will be a constant, agonizing decline throughout the latter half of 1999, especially the last quarter. The U.S. will join the rest of the world in recession/deflation in due time--no bubble lasts forever, nor do they slowly deflate, as we saw in 1929. Watch for higher interest rates. Make no mistake about it; the bull is nearly dead and the overall trend will be down. How long will it last? Oh, 16-20 years.

This is WITHOUT taking the economic effects of the y2k computer bug into account. Factor y2k into the picture, and we have a truly disastrous long-term outlook in all areas of the investment market. Especially if there is an international bank run in late 1999. In addition to this reaction, we will experience a decline of more than 30% of its current value by the end of this year (and this is probably optimistic, as we will probably see a 90% crash like the 1929-1933 bear with one exception: it will happen in less than a 24 months period.) Expect a possible liquidity-crisis sell-off in late fall 1999. Eventually it should reach a trough of between Dow 400 to 1000 by 2003 in accordance with the Elliott Wave principle. (assuming civilization doesn't collapse)

It likely that we will see a replay of the 1929 bear market, and the DOW would plunge to triple digits. It is a virtual certainty such a decline will begin in the months ahead. In my opinion, there has never been a better time to 'Take the money and run.'

Two charts showing striking similarity to the 1920's run-up:

There was an old saying that went: "When the average Joe Public starts entering the market en mass, then a crash is imminent....". This is what's happened in the 1990's as baby boomers and the public plow their savings into the market for retirement and internet traders take part in the boom. Historically, maket valuations are about 50% of GDP. Before the 1929 crash it was 87%. It is now over 125% of GDP. Many dreams will vanish as the 16-year-old bull market ends.

There is a mistaken sentiment that double digit gains will always be made. Historical charts show that over the VERY long term (generations) stocks do in fact earn better returns than other instruments...however, they tend to go through 16-20 year periods when it's either bullish OR stagnant. For instance, from 1966-1982 ,the Dow barely moved. In real purchasing power, long term stock investors LOST money. In fact, long term, dividend re-invested, inflation and tax adjusted S&P 500 annual returns are!! Since 1871 it averages only 1.46% !

The current long-term secular bull market that began in 1982 is soon to come to a close.. We may then have another 15-20 year stock stagnation. It certainly will not continue the recent absurd meteoric ascent for very long. Note that the degree of rise exceeds the level seen just before the crashes of 1987 and 1929. As of July, 1999, price to earning levels are insane: 35-to-1 for the S&P 500 and 28-to-1 for the Dow.

Also, bulls presently outnumber bears 3-1 !This means that everyone who will invest is already invested, It's now insane speculation, excess Asian and foriegn capital (flight to quality) and "irrational exuberance" that is maintaining the commanding heights. DOW 11,600 or 12,000 may be surpassed. If it does rise as such (and beyond), then the crash will be even more deadly than previously thought: "The bigger they are, the harder they fall!"

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