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

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Generational Dynamics Web Log for 8-Jun-06
"Searching for a bottom."

Web Log - June, 2006

"Searching for a bottom."

I'm told by a friend who does a lot of Internet-based day-trading that we're seeing a familiar pattern almost every day: The market starts the day by rallying, and institutional investors jump on it and buy, hoping that the market has "found a bottom," meaning that it'll start to go up again.

Dow Jones Industrial Average (DJIA), Jan 2005 to June 7, 2006

Dow Jones Industrial Average (DJIA), Jan 2005 to June 7, 2006

Then it slips a little around midday, and institutional investors get nervous and sell what they bought that morning, causing the market to fall further, so that they end up losing money.

This is getting closer and closer to full-scale panic behavior. It appears that the panic scenario that I described last week is still being followed. The markets are still plummeting worldwide, the volatility is still very high, and the markets are still synchronized with one another.

As I said a few days ago, this pattern has to be broken if a full-scale panic is to be avoided. There is no sign of this pattern breaking, and the up-down intraday pattern is like a mini-panic.

As of this writing, around midday Thursday in Asia, Tokyo's Nikkei is falling like a stone, down about 2.9%, below 15000 for the first time this year. Other Asian markets are also plummeting, though Europe had a small rally on Wednesday. The Dow fell only a "modest" 0.65% on Wednesday. (It's now a few minutes later, and the Nikkei at first was down only 2.5%, but then started plummeting again, and is now down 3.3%. That's 1% variation in just a few minutes - talk about volatility!)

A web site reader wrote to me yesterday wondering about the Nasdaq crash in 2000. "You list the 2000 NASDAQ bubble crash as one of the major financial crises," she said. "Why isn't your generational clock restarted, thereby expecting another crash in 2070 instead sometime before 2010?"

The answer is that the Nasdaq crash was bad, and a lot of people lost money, but it was really a gradual decline, and wasn't a generational crash, in the same way that some wars aren't generation wars.

I guess at this point it's hard to explain, but if there's a real panic in the near future, then believe me, you'll see the difference. The market will fall 20% in a day or a few days, and investors will go into, well, full-scale unmistakable panic. It will immediately be followed by stories of suicides, of congressional investigations, and of demands to blame anyone who can be blamed.

The same answer applies to another question -- someone asked me whether the market has "crashed" already, since it's fallen so far in the last few weeks. The answer is that this is nothing compared to a full-scale panic.

As always, it's impossible to predict the date of a full-scale panic. It could happen tomorrow, next week, next month or next year. However, as long as the current market behavior continues -- high volatility, synchronized markets around the world, and evidence of panicky intra-day behavior, then a panic must be close. In other words, the wild behavior of the last few weeks simply can't continue forever. Either this behavior will change, or a panic will occur. (8-Jun-06) Permanent Link
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Generational Dynamics Web Log for 8-Jun-06 "Searching for a bottom."

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Generational Dynamics Web Log for 8-Jun-06
"Searching for a bottom."