June 1929
Forbes Magazine |
The following is what Forbes magazine wrote, just four months before the 1929 Stock Market crash:
"For the last five years we have been in a new industrial era in this country. We are making progress industrially and econom- ically not even by leaps and bounds, but on a perfectly heroic scale.
Again, Forbes wrote in October 1968, the following just before a six-year slump began that saw share prices shoot down by 60% in actual terms.
"As the result of all that has been happening in the economy ... during the last decade, we are in a different - if not a new-era and traditional thinking, the standard approach to the market, is no longer in synchronization with the real world."
... have you noticed similar in the media recently ....
-- Fire Sale --
U.S. Treasuries |
"Japan, the largest single holder of U.S. Treasuries at the end of 1997, has now turned into the largest seller. On April 13th, Japan sold $12.1 billion worth of Treasuries in a single day !
"Interest rates in the U.S. shot up ten basis points overnight. Traders didn't know what to do. A Salomon Brothers bond trader was quoted as saying, 'It was the first time we had ever seen anything like this before. We hadn't seen the magnitude.'
"But Japan's record dumping of U.S. paper last month wasn't the first shot. It was just the loudest in a barrage of U.S. Treasury selling that began late last year. The bankrup countries of Southeast Asia, now holding nearly $100 billion of U.S. Treasuries, have been quietly selling over the last few months. China and Hong Kong have largely held onto theirs, but they hold another $100 billion -- a good portion of which could also flood the market."
Source: The Fleet Street Letter; May 1998. For subscription: (800) 433 - 1528 (U.S); Outside U.S; (410) 783 - 8440. Fax (410) 783 - 8438.
Folks, it you have been keeping up with these pages, then you know this is very serious. When foreign countries start selling off our debt, U.S. Sec- urities (Treasury Notes), to raise much need capital; shore up their currency; and increase the value and exchange rate of their currency, then those securities come back to the U.S. and our central bank monitizes them.
This causes interest rates to skyrocket; your bonds/securities become practically worthless--in a word, it will set off the worst depression the United States has ever experienced. One of the main reasons is because now our government has to raise the needed cash to pay off our Treasury Notes to foreign governments holding them. It will desperately need liquidity.
Just remember ! When countries holding our debt start selling in the aggregrate of billions, we are in serious trouble.
Fifteen years ago, Japan was doing fine, now it is in serious trouble. And their trouble threatens us, the same as Southeast Asia's. The financial scene goes something like this:
Their (or another's) stock market plummets. In 1990, Japan's was around 40,000; but currently, it has plummeted to about 16,000, in just about 8 years. Japan's share prices fell; they accumulated $600 billion in bad depts on various Japanese banks' books, their unemployment is soaring; goods are no longer moving because consumers are not are not buying--liquidity has dried up; all point to a country about to have a "Total Collapse."
Their economy has been in a recession for over eight years and with a "Total Collapse" looming in the not-to-distant future, this will not only be bad news for them, but us (America) too. Singapore's recent prime minister said that if Japan doesn't come around soon, it will lead to a "worldwide economic collapse."
The U.S. is the first, Japan is the second world's largest economy and that is bad for all, with their present economic woes. Their economy is larger than England and Germany's taken together. What happens in Japan economically, is felt; the same if the U.S. falters, around the world.
Japan's way of doing business (real estate bubble, easy credit, etc.) brought them down; it also helped in bringing down the Southeast Asian Tigers. But; here's the rub, their extremely low interest rates brought on their troubles, and have actually created a boom (bull market) here at home.
In order to raise money, they have little choice but to sell off our debt, spoken of earlier. This could be the trigger that starts a spiral-down of the stock market, ending in a "Total Collapse" for use. As their stocks fell; investors sought new grounds for investing, and this helped create our bull market (more money poured into our market from overseas and home).
We also have easy credit, "invest for the long-haul," "put your money where it makes more than the 'old' passbook savings" (and that is mutual funds), the 125 % home equity loan, etc...
The problem worsened for the Japanese, however. In order to halt the falling economy and to stimulate growth, they cut interest rates. That failed. The economy took a further beating-- the YEN fell more.
Now, the Central bank of Japan has bought U.S. Treasuries (high-yields). At the end of last year, the Japanese had purchased $300 billion plus. They are holding more of our debt than other countries. For instance, Germany and England hold the sum total of $400 billion.
Recall earlier, we said that Southeast Asia is approximating $100 billion in our Treasury Securities. China and Hong Kong $100 billion.
By buying our Securities, this pushes our interest rates down. This in turn gives the American consumer and corporate giants more borrowing power, they can borrow money for less payback. This easy credit gets larger and larger, as interest rates go even lower. The unwary American consumer doesn't know the process, nor does he care.
He just sees an opportunity and goes for it. Also, various financial advisors project larger and larger earnings, but when the credit bubble bursts (it can't sustain itself forever--Japan, and other countries start selling off our Securities to shore up their own), then the "House of Cards" we have built here comes tumbling down too, as Kurt Riche- bächer is fond of saying. You are now in the Bear Market....and it ain't going to be pretty this time for sure !
Consider for instance the Home Equity Loan. The Fleet Street Letter, May 1998 (for subscription (800) 433 - 1528) says,
" In California and elsewhere, you can now borrow up to 150 percent of the value of your home. What happens to the money? No one knows for sure, but it looks like a good deal of it ends up in stocks. And why not, when you can borrow at 7 percent and deposit it in a mutual fund that makes a 20 percent annual gain? "
The problem, folks, is that when the mutual funds goes,
so goes your HOME !
| Indicators For A Bear Market |
"Martin Zweig, a one-time newsletter writer and now a professional money manager with a well-earned reputation as the best market timer in America. Zweig is also perhaps the best scholar on the U.S. stock market today. He says that at least one of three conditions have accompanied all major bear markets: |
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High P/E Ratios :---Source: The Fleet Street Letter; June 1998. For subscription: (800) 433 - 1528 (U.S); Outside U.S; (410) 783 - 8440. Fax (410) 783 - 8438. |
"In todays market there can be little doubt that we have excessive P/Es. I understand the interest rate argument, that we have very high P/Es because of low interest rates. But you still can't ignore the fact that S&P 500 P/Es are the highest they've ever been and the NASDAQ is priced at 72 times earnings.
"It also doesn't justify individual Dow com- ponents like Coke trading at 50 times earnings. We have had lower interest rates in our history, but never P/E ratios this high. No matter how you try to hide it, stocks are ridiculously expensive and they have been that way for a long time."
The Wall Street Underground, Vol. 3, No. 8, October 1997, says it this way:
"... the mutual funds are promising they can turn all Americans into millionaires in a decade. This can happen. It's a great lie. No one points out the one key problem with all this. The companies these people are investing in are seeing their share prices double every two years. But they are only making enough profits to justify doubling every 30 years or more.
"That's right. Based on earnings, it should take 30 years to create this new stock market wealth. Wall Street is magically doing it in one year. Think about it. Wall Street has priced 30 years of earnings into one year of stock market gains."
For subscription to The Wall Street Under- ground, call 612-890-3553.
The crux of the matter is simple folks:
- Share price doubles every two years.
- Your profit shows you should double, justifiably every 30 years or more; but Wall Street or your money managers are telling you within a decade, you'll be millionaires.
Note this: The new, next instant million- aires will be those holding Gold and Silver. Call Ellen Petty, (toll free) 1-800-328-1860, at Investment Rareties Incorporated. She's a precious metal's expert broker.
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Deflation :---Source: The Fleet Street Letter; June 1998. For subscription: (800) 433 - 1528 (U.S); Outside U.S; (410) 783 - 8440. Fax (410) 783 - 8438. |
A significant indicator is computers. New computers now are selling "for 10 to 15% less..." than a 1 or 2 years ago. The Web Masters of this Web Site also have degrees in electronics and computer interest and repair. They have notice JDR Microdevices and others have lowered their prices practically across the board for parts; especially motherboards. What we are telling you folks is extremely significant --the bellwether for the market recently has been the,
up-to-now, technology stocks.
"Compaq is actually giving away monitors--one of the most expensive components in a compu- ter system. Plus, with consumer demand being driven by credit, it should only take a small, sustained downtrend in the Dow to see prices on other assets really begin to fall. After a seven-year spending spree, America is going to find itself with a lot of excess inventory once consumer confidence wears thin.
"And there is another sign of deflation--the decoupling of the bond market and the stock market. Twice in the last six months, in October's panic and in late May, the bond market has rallied decisively at the same time as the stock market has fallen dramatically. This only occurs with regularity during deflation periods.
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Inverted Yield Curve : |
"When short-term rates are higher than long-term rates." Two of the indicators have been satisfied; we are very, very close to the Inverted Yield Curve.
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Dow Theory
"A rational and fundamental system like Zweig defines is fine for under- standing the long-term implications of today's market. But how can we know that the bear market has really started right now? Well, throughout history there has only been one way to time the market, and New Era or not, Dow Theory is still the best way to know when it is time to step out of the market. The Dow Theory is based on a series of Wall Street Journal editorials by market watcher Charles Dow.
"William Peter Hamilton first organized it as a theory in his book The Stock Market Barometer, published in 1922. It is the oldest technically oriented trading system that is still in use today. The system is very simple and extremely accurate.
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Dow Theory : |
"Dow Theory predicts a bear market when both the Dow Jones Industrials and Dow Jones Transport bear market when both the Dow Jones Industrials and Dow Jones Transport averages 'break down,' meaning that they both fall below established support levels at the same time.
- "The system works like a switch. Either it is on, or it is off. And it doesn't turn on or off very often, but it does so with great accuracy.... Note that as of this writing, both indexes are below their sup- port levels, at the same time, triggering a Dow Theory sell signal.
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"Recently two professors, William Goetzman of NYU and Alok Kumar of Yale, back-tested the theory rigorously and found, as will be reported in an upcoming issue of the Journal of Finance, that Dow Theory works--and they ignored the profits of selling short! In other words, in their modeling, they assumed that when the Dow Theory signaled a sell, investors went to cash. "
The whole point of this is it's better to be out of the market a year too early than a day too late.
---Source: The Fleet Street Letter; June 1998. For subscription: (800) 433 - 1528 (U.S); Outside U.S; (410) 783 - 8440. Fax (410) 783 - 8438.
| Meteror Storm And The Stock Market Crash
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"The world's economy is dependent on nearly 500 space satellites for telephone service, navigation, TV and weather observation. In November the earth will be hit by the biggest meteror shower in 33 years. The Leonid storm is expected to damage or destroy an unknown number of satellites. Most of the meteors are the size of grains of sand but they move so fast they hit with the impact of .22 caliber bullets.
"Building and launching replacements could take months or years, so here's a warning. If communications are seriously disrupted, it might trigger a stock crash."
---Source: Last Days Journal, July 1998, a reprint of Richard Maybury's U.S. & World, Early Warning Report; June 1998 (for subscription: (800) 509 - 5400), as reprinted in the June 25 issue of The Reaper.
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