	Generational Dynamics
	Forecasting America's Destiny ... and the World's

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Generational Dynamics Web Log for 21-Apr-05
Increasingly volatile stock market falls to six-month lows

Web Log - April, 2005

Increasingly volatile stock market falls to six-month lows

Investors are becoming increasingly risk-averse, indicating a major correction may be in store.

Stocks have fallen 1-2% per day in four out of the last six sessions, for roughly a 7% fall. Japan's Nikkei index has taken a similar fall, and as of midday Thursday, the Nikkei is down an additional 2%.

If there's going to be a major stock market crash, then this is exactly the type of situation that would be a prelude.

From the point of view of Generational Dynamics, a stock market crash to about Dow 3000-4000 is near 100% certain. As usual, Generational Dynamics tells you what the final destination will be, but doesn't tell you the path or how long it will take to arrive there.

S&P 500 index, 1950 to present

S&P 500 index, 1950 to present

In 2002, we predicted that America entering was entering a new 1930s Great Depression, with a fall to the Dow 3000 range by 2007. This was based on straightforward analysis using price/earnings ratios and growth trends, as illustrated by the adjoining graph.

When a stock market crash occurs, it happens after the kind of volatility we've been seeing. Thus, there's a possibility that we'll see a major stock market crash within the next few weeks.

This is not a certainty in this time frame, of course. A stock market crash is a certainty, but the precise time frame is not.

There are several reasons factors that indicate that it's coming sooner, rather than later:

The level of public debt has been increasing at an exponential rate, and is now at historically high levels with no sign of leveling off. It is literally impossible for this situation to continue much longer.

The US Trade deficit has been increasing exponentially. In fact, the level of imports (mostly from China) has been increasing exponentially, and the level of exports has been leveling off, indicating that our hollowed out economy is losing the ability to provide products that people want. It is literally impossible for this situation to continue much longer.

The Price/Earnings ratio index has been above 20 since 1995, a very long time by historical standards, and must fall to the 5-10 range before too much longer.

Analysts are in a state of denial about what's going on. The most bizarre claim was by Fed Governor Ben Bernanke, the man expected to become Fed Chairman when Alan Greenspan resigns next year. In a speech last month, Bernanke blamed America's public debt on other nations, saying that it was caused by a "global saving glut" in other countries of the world. This is a typical attitude of people in the Baby Boomer generation.

Investors are evidently becoming increasing risk-averse, indicating that the current credit bubble must burst soon.

I've computed the probability of a stock market crash before the end of 2007 as being above 50%. For reasons that I described last year, there's good reason why major disasters (Civil War, 1929 crash, Pearl Harbor, 9/11) are likely to occur in the fall of the year following a Presidential election, and so if a stock market crash is going to occur this year, I would expect it in the fall.

So it's possible that the stock market will temporarily recover from the past week's downturn. But this past week has been especially ominous, and I'm posting this notice to readers of my web site to be prepared for the worst in the next few weeks. (21-Apr-05) Permanent Link
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Generational Dynamics Web Log for 21-Apr-05 Increasingly volatile stock market falls to six-month lows

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Generational Dynamics Web Log for 21-Apr-05
Increasingly volatile stock market falls to six-month lows