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Generational Dynamics Web Log for 29-Apr-05
Another ominous day for the American economy

Web Log - April, 2005

Another ominous day for the American economy

Stocks fell 1.3% on Thursday as volatility continues, growth slows, and other indicators are lower.

The business news:

DJIA, April 28 2004-2005

DJIA, April 28 2004-2005

Quarterly GDP (Gross Domestic Product) increases, 2004-present

Quarterly GDP (Gross Domestic Product) increases, 2004-present

Nervous investors pushed the Dow down 128 points to 10070, as Wall Street stocks fell 1.3-1.4%, continuing a volatile up/down pattern. The Dow is down 6.6% since January 1.

A new Commerce Dept. report showed that GDP increased only 3.1% in the first quarter, down from 3.8% in the preceding quarter. Analysts had been expecting a 3.5% increase.

Inventory levels spiked up, indicating that consumers aren't purchasing the goods being manufacturing. Manufacturing output has been showing weakness recently, and an increase in inventory levels often means more factory layoffs or closings.

Imports soared 14.7%, while exports increased only 7%, indicating that our balance of payments situation continues to worsen.

I've been forecasting since 2002 that we're entering a new 1930s style Great Depression, and that the market would fall to the Dow 3000 by the 2006-2007 time frame. With the balance of payments and public debt continuing to grow exponentially, and with stocks overpriced by 100%, using standard price/earnings measurements, there's certainly no reason to revise that forecast now.

As I discussed last week, the continuing market volatility is very ominous, because it creates the kind of environment that precedes a market crash, provided the right kind of trigger occurs. These negative GDP and related figures could provide that kind of trigger in the next few weeks.

This is not a certainty, of course; perhaps the stock market will fall only slightly, or will recover and go up again. But Generational Dynamics predicts that such a crash must occur in the next few years, and with greater than 50% probability before the end of 2007.

Normally optimistic financial analysts yesterday expressed far more concern than usual.

"Business capital spending growth slowed markedly and, with the slump in capital goods orders late in the quarter, may portend an earlier and more abrupt slowdown than we had reckoned on," said David H. Resler and Gerald Zukowski, Nomura Securities International, as quoted by the Wall Street Journal.

The Economist reports that a recent analysis shows American consumers will have to cut spending by 1/3 for ten full years, just to cut the deficit in half. "For America's consumers, that will be an unpleasant shock. Prudent central bankers should be preparing them for it."

But central bankers are doing nothing of the sort, and that's the problem.

A reader recently asked me whether my prediction of a stock market crash could ever be proved wrong, or would I always just say "Wait till next year."

My response is that I'll begin to have my doubts about my prediction as soon as something is done to show a change in direction. I watch these figures every day, and they constantly get worse. The balance of payments keeps growing exponentially. Public debt keeps growing exponentially. The Medicare / Medicaid / Social Security packages are growing out of control, and Washington is doing nothing about it.

And nobody really shows any signs of giving a damn. Even the Fed is living in a fantasy world, if we're to judge from the bizarre February speech by Fed Governor Ben Bernanke, where he blamed America's public debt on other saying that it was caused by a "global saving glut" in other countries of the world.

In the meantime, I'm warning my readers again that the economy is exhibiting extremely ominous signs right now, and a great deal of caution is in order. (29-Apr-05) Permanent Link
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Generational Dynamics Web Log for 29-Apr-05 Another ominous day for the American economy

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Generational Dynamics Web Log for 29-Apr-05
Another ominous day for the American economy