This is a test



If it works it shows how the bear has mauled my 401K performance. Hey it worked, cool. On 7/10 I went to 70% in stocks and 30% still in income (safe) fund. If we go lower I'll up it to 80% in stocks, lower still 90%, finally reaching 100% around 700 on the S&P500. The red line shows the performance of the mix, the black line what a fully invested stock position would look like and the dashed line shows the safe 6% return from the fixed income fund.

_________________
Mike Alexander, author of Stock Cycles: Why stocks won't beat money markets over the next 20 years and
The Kondratiev Cycle: A generational interpretation http://csf.colorado.edu/authors/Alex...OCK_CYCLES.htm

<font size=-1>[ This Message was edited by: Mike Alexander '59 on 2002-07-14 17:18 ]</font>

Big news for me. Pfizer is acquiring Pharmacia (my wife's and my employer). We are getting a 40% premium on our stock (and we have a lot in my wife and my 401K's). This is the third merger for us, so I don't expect it to impact our operations in Kalamazoo, none of the others did.

Mike,

I don't claim any training in technical analysis, but your chart looks just like the head and shoulders charts of the S&P 500 that have appeared elsewhere. Those analysts believe it portends a big move down, but maybe it was only to 700 on the S&P.

Also, if you are moving into stocks, you must not accept the arguments by Robert Prechter in his new book.


To me, this is the best part of T4T. What good is it to see the future if you can't make money off of it?

It sure does. I don't buy the technical stuff. At anytime the technicians have a large variety of contradictory opinions. I don't believe short term movements are predictable.

I also don't think Prechter is right. His views are based on Elliot waves which in my book is stock voodoo. They belong with tarot cards and astrology.

Subject: Chartism.
I agree about Elliot Waves (Chartism taken to an insane extreme, but you could say the same thing about the Kondratieff Cycle). The real value in Prechter's new book is all the other stuff about the vast amounts of debt fostered by Federal Reserve policy, extreme PE ratios and the fact that this is the Greatest Mania of all times. Also the book is two books in one, the last half of the book is PRACTICAL advice about protecting you assets in a crash. No one financial adviser has all the answers. You have to listen to several, sift the data and MAKE UP YOUR OWN MIND. Nobody can think for you. Only you can look out for you, but Prechter's book can HELP you to do that.

Robert,

Your last name is not "Prechter", is it? Your post almost reads like the forward.

I just skimmed the book and, for being a doom and gloom forecast, two things stood out.

First, Prechter believes that even a terrible deflation would last only a relatively short time, say a few years, such as 1929-1932. Like our authors, his goal is to survive.

Second, Prechter's view of what is money and what is an IOU is just basic economics that everyone should remember. Basic liquidity stuff that is easy to forget with credit cards.

Curiously, Prechter is not a gold bug. If the fed collapses, then it would be good, but from a relative price perspective, he does not expect it to soar. If the fed collapses, we gots big trouble.

One more item that he just touches. Prechter cites a stat that 70% of all the greenbacks in the world are ourseas. If there is massive deflation, then cash is more valuable since it can buy more. Prechter just notes that 70% of that benefit would go to foreigners. But his implication is that the US might change its currency to make the old stuff worthless. And so the dollar collapses, as did the Euro, when everyone sells dollars.

I've done my own research. There is no case for what Prechter is predicting. He must be using his Elliot wave methodology.

Kondratiev waves aren't a technical tool like Elliot waves. All they are good for is identifying periods that are "similar" to those of today. It's no different from using the saeculum. In fact, there is a lot of evidence to support the idea that the K-cycle and the saeculum are the same.

There is a lot of focus among bears on debt. In the old days, the debtor would liquidate and the debt holders recieve a portion of what they were owed back. Liquidation can produce what is called a debt deflationary spiral, which is what Prechter is looking for. When liquidation was the norm, debt default was a real threat.

Today we don't do that. A company burdened with debt it can't service today does a "debt work out". Something along these lines: First the stock collapses to near zero, wiping out the shareholders. Then the company files chapter 11 (not 7) bankruptcy, cancels the old (now worthless) shares and issues new stock which it gives to the bond holders in exchange for their debt. Freed of interest payments, the business is now profitable and the market grants a rising value to their stock. In a few years, if the company is managed reasonably well, the bond holders get much of their investment back. Now if the bondholders had insisted on *liquidation* they would have gotten maybe pennies on the dollar. Instead they have been given a valuable asset in exchange for their bonds.

Government debt is not a problem since it can be partially monetized. Mortgage debt is collateralized. Worst case is questionable mortgage-backed paper would lose some value and trade like lower-rated securties. When you take government, mortgage and corporate debt out of the picture all you have left is unsecured personal debt (mostly credit cards) which carries a very high interest rate. Restructuring can solve this problem.

Yes folks with stock investments will lose money, but so far $7 trillion has been lost with hardly a whimper of protest. Bush is still very popular. Nobody at this board (especially economic conservatives like Marc Lamb, who as a small businessman and investor has the most to lose) has been complaining about losing money so I can't see how a few more trillions lost is going to be a problem--should that become necessary. I don't think it will.

<font size=-1>[ This Message was edited by: Mike Alexander '59 on 2002-07-15 12:38 ]</font>

Subject: I'm not Robert Prechter but I play him on this website.

I think you've run afoul of what Ol' Doc Richebacher would call a "fallacy of composition" Mike. If one or possibly a few firms declare Chapter 11 and screw their stockholders (and really their bond holders too) the economy as a whole could probably weather the shock. But if this is the beginning of the next Fourth Turning's depression and LARGE numbers of firms try to skate out from under their debt loads watch the strains on the system cause an economic crash. The loss of all that borrowed money HAS to come out of somebody's hide. Debt is debt. You can shift it around but ultimately it MUST be paid back, if not in money or goods then in blood, sweat and tears (lotsa tears).

As for the mortage market, it's too early in the game to see any strains there. That will come if and when the unemployment numbers go up. Ditto Shrub's popularity. He's gotten a lucky pass so far because of 911 but I think eventually the economy will get him just like it did his old man (It's the economy stupid!). The similarities are eerie. The average American is too dumb to understand what this stock market collapse means yet (if they had had any smarts the Bull Market would never have happened).

Having said all that, I'm still not convinced this is The Big One. Nobody can predict the future. The economy is a gigantic massively parallel computer running in real time, impossible to predict its gyrations. We'll just have to wait and see.

Another big down day. I bought yet again, now up to 80% stock index fund in my 401K.

How looooow can it go?

As low as it wants to.

On 2002-07-19 14:23, Mike Alexander '59 wrote:
Another big down day. I bought yet again, now up to 80% stock index fund in my 401K.

How looooow can it go?

As low as it wants to.

Are we there yet?

Are we there yet?

Are we there yet?




OW!!

Subject: Ssssssssssssssssss....

Hear that hissing sound? That's the sound of DEFLATION, specifically the Stock Market Balloon deflating. How low can it go? I recommend you hold off buying until Dow 200. Then you can get some REAL bargains!

Steve "The Littlest Bear" Puetz says it's all downhill from here:

http://www.stevepuetzletter.com/Shor...20Forecast.htm

BUT you can expect the usual short covering rallies designed to sucker the shoe clerks back in for another killing. Just don't be decieved! Speaking of the shorts I wonder how many hundreds of billions they made off of the elevator boys yesterday? Quite a few I imagine. These Shorts were all Bulls on the way up. These were the same people who foisted stratospheric valuations off on the unsophisticated on the way up. They are now shorting the same stocks with the same FIENDISH INTENSITY as they exhibited on the long side in the Bull Market. How I wish I were one of them!

Events are moving quickly. Here is yet another update.

http://csf.colorado.edu/authors/Alex...ar-update2.htm

I'm submitting it tomorrow. I'd appreciate any editorial comments you might post. Either send me an e-mail or post here.

Thanks

Michael,

Thanks for the update. I also bought some equities on Friday.

A couple comments:

- You discount a 30's depression, yet you use a previous peak in P/E of that decade as one of two historical peaks to project returns going higher in the next five years. Is this consistent?

- You switch from P/R to P/E in your analysis. I know you've explained the differences in previous work, but it's not clear how this impacts your latest analysis.

- Is there not a correlation between overshoot on P/R during bull markets and undershoot on P/R during the following bear markets? Given that you propose behavioral mechanisms for stock bubbles and busts wouldn't there be some larger relative overreaction on the part of investors because of the relatively greater overreaction on the upside during this latest bubble?

I think the market will be varying widely between around 5,000 to 10,000 (occasionally passing 10,000 but not for very long) until roughly 2020, when it will experience a boom even larger than the bull market of the 1990's (which was larger than the bull market of the 1950's, larger than the market of the 1920's, etc.). During the 1930's, the market had troubles staying above 100. In the 1970's, it had troubles staying above 1,000. Now it is 10,000. What, will the market be having troubles staying above 100,000 during the 2040's?

<font size=-1>[ This Message was edited by: AlexMnWi on 2002-07-21 01:05 ]</font>

Augh! Why do those websites have to use the S&P? Can't they use the Dow instead (which I am much more familiar with its peak and where it stands with certain closes)? Anyway, I would be somewhat surprised if the stock market crashed next week, (notice I said "somewhat") If you told me the market would crash next week last summer, I would have been completely surprised if it happened. I would still be much less suprised if it unfolds like it did during the 1970's with a bearish stock market, but the economy still not in depression.

6 Feet Under or Oh! Pioneers


"If we let rural America die, we shall lose a piece of ourselves." opines Mr. Joel Kotkin in the 21 July 2002 number of the Washington Post.


A good place to start is at the federal level, with a change in Washington's system of subsidies and transfer payments, which have drained rural communities of most of the spirit of innovation and self-sufficiency that characterized them in their pioneer days. Instead of remaining ruggedly self-reliant, as most Americans think of them, they increasingly depend, like the much-disdained urban ghettos, on their own forms of welfare -- farm subsidies, Social Security, grants to Native Americans -- to survive.


In 2001 alone, the nation spent $25 billion on direct subsidies to farmers, with billions more spent to subsidize water and power suppliers in various regions. The farm bill approved by Congress this session guarantees an even heavier expenditure over the next decade. These payments should be gradually supplanted with other initiatives -- targeted venture funds, development grants and assistance for building technical infrastructure -- that will help restore both the vitality and self-respect of these communities.


Massive federal aid to agriculture began in the 1930s, when "dust bowl" conditions on the Great Plains led to a great migration out of the heartland to rural California, Arizona and the Pacific Northwest. Over time, however, dependence on subsidies to save rural communities has spawned conditions that undermine the creation of an economic future, by sapping those communities of the motivation to take risks, invest and build new businesses. Subsidies also have the perverse effect of flowing largely to those least likely to bring change to rural communities, enriching elderly residents and out-of-state investors, who often have little interest in reinventing the local economy.


The ironic result is increasing impoverishment. After more than a half-century of subsidies and anti-poverty efforts, rural America suffers a higher concentration of poor people than urban areas. Rural residents, who may enjoy lower housing costs but have greater energy, telecommunications and transportation burdens, make barely 70 percent of the salaries earned by their urban counterparts, and more than one in five rural children now live in poverty. This extreme distress is spread across the American countryside. Eastern Kentucky is worse off relative to the rest of state than it was at the beginning of the early 1960s War on Poverty. Rural Mississippi and Arkansas continue to lag far behind both the metropolitan areas of their states and the nation.


Does matter if one is buried with a Federal shovel?

On 2002-07-20 22:15, Crispy '59 wrote:
Michael,

Thanks for the update. I also bought some equities on Friday.

A couple comments:

- You discount a 30's depression, yet you use a previous peak in P/E of that decade as one of two historical peaks to project returns going higher in the next five years. Is this consistent?

- You switch from P/R to P/E in your analysis. I know you've explained the differences in previous work, but it's not clear how this impacts your latest analysis.

- Is there not a correlation between overshoot on P/R during bull markets and undershoot on P/R during the following bear markets? Given that you propose behavioral mechanisms for stock bubbles and busts wouldn't there be some larger relative overreaction on the part of investors because of the relatively greater overreaction on the upside during this latest bubble?

An argument made using P/E is a valuation argument. They are independent of the economy.

The argument made using P/R is also a valuation argument and it gave similar results to the P/E argument. I mention it as supporting evidence.

Remember we are talking FIVE years here, the market can drop for another year and then rally for 4 and the bullish prediction come true. Yet the prediction would look wrong for a year after it was made.

I plotted the course of P/R in the figure. You can draw your own conclusions.

Did you find any glaring language errors or things that weren't clear? I'll be sending it out this afternoon.

Thanks

<font size=-1>[ This Message was edited by: Mike Alexander '59 on 2002-07-21 07:48 ]</font>

Subject: The single best investment.

I've been pondering the content of the book Conquer the Crash by Robert Prechter and also some commentary by Dr. Marc Faber in a recent issue of Strategic Investment. Is it possible to come up with an investment strategy which follows the Saecular progression? I believe so.

If you had invested in stocks during the last High you would have made money. If you had invested in commodities during the Awakening (including the commodity gold) you would have made money. If you had gone back into stocks during the Unraveling you would have made money. Now that the Unraveling is over what is the single best investment? Cash! So says Bob Prechter and the recent action in the Stock Market is proving him right. With the caveat that at the bottom of a deflationary crash "cash" might mean gold and silver in place of paper money in case the government tries to inflate its way out of a deflationary spiral by rolling the printing press.

So the progression would be: High-Stocks, Awakening-Commodities(Gold), Unraveling-Stocks, Crisis-Cash(possibly Gold) and then back into Stocks again once the deflation is over and another inflationary cycle begins. (If you had sold your stocks in early 1929 and held cash until late 1933 and then bought stocks, you would have been quite well rewarded for the Dow had almost doubled within a few years in the middle Thirties.)

Virgil, The state of rural America, yet another failure of the modernist 3rdGA and fodder for the fundamentalist counter-culture of the 4thGA. And on the financial collapse might I recommend "How Companies Lie: Why Enron is just the tip of the iceberg," by Richard Schroth and A. Larry Elliot. You might follow up by reading or retinking if you've already read "People of the Lie," by M. Scott Peck. Obviously there is a much deeper "cancer" on the society that presents an even deeper moral malignancy. Certainlly the Congress and the President are trying a failed system of closing barn doors after the fact in good 3rdGA fashion, attempting to asuage rather than lead. Bush is our first MBA president. Teaching in a school of business and management, I have come to know someting about how corporate people are taught to lie. HTH DMMcG

Subject: enjolias

Has anybody heard from enjolias? I'm worried about him. He hasn't jumped out a window or something has he? At best he probably has his hands full right now.

How about an update enjolias?

"But a third and perhaps lesser known index - the Wilshire 5000 - provides one of the most comprehensive snapshots of the market, aiming as it does to track every publicly traded, U.S.-based company. The Wilshire hit its ceiling on March 24, 2000. Since then, the market has lost $7 trillion in value and shed more than 1,000 companies. "




<center> :grin: </center>

Where in the world is Robert Rubin? asks Mr. Mark Levin of National Review. Sen. J."Morality" Lieberman is at a loss.




Yet, Lieberman knew
that Rubin, on behalf of Citigroup ? which had an approximate $1
billion investment in Enron and the potential of large merger and other
fees in pending deals ? on at least two occasions, sought personally
to protect Enron's credit rating. Still, as best as I can tell, Lieberman
has never asked Rubin to testimony before his committee. Furthermore,
Carl Levin, chairman of the Senate Governmental Affairs Committee's Permanent Subcommittee on Investigations, which is holding a hearing today on "The
Role of the Financial Institutions In Enron's Collapse," has, to
the best of my knowledge, not sought Rubin's testimony. (An inquiry I
made to Levin's subcommittee asking whether Rubin would be a witness at
today's hearing went unanswered.)

With the banks stocks getting hammered, are we getting near to the idea of "Your Own Private Mexico" aka "Too Big to Fail"? When will the bail-out bus be boarding passengers and who willl be allowed on?

Subject: Bear Market Rally

Don't be decieved. Yesterday's rally was a classic Bear Market short squeeze coupled with a jam job by the NYSE Members. Nothing has changed. This is just a Sucker's Rally designed to pull the shoe clerks and elevator boys back in for another killing.

Bingo!