Daily Investment Interpretations Archive

July 1, 2008, to December 31, 2008

January 1, 2009, to June 30, 2009

May 7, 2008, to June 30, 2008

2008-12-31:  The markets rose again today. The NASDAQ added 26.33 (1.7%) to close at 1,577, the Dow expanded 108 (1.25%) to close at 8,776.39 and the S&P 500 tacked on 12.61 about (1.42%) to end the year at 903.25. Oil popped $5.57 a barrel to end 2008 at $44.60 a barrel, and gold gained $14.30 to $864.30 an ounce. The VIX fell 1.63  to 40.
    The year 2008 saw $6.9 trillion in market wealth evaporation... and this after losses from October, through December, 2007. The S&P 500 is off 38.5% for the year, its worst year since 1937, and 42.3% from its October 17th, 2007, high of 1,565.17. The Dow is down 33.8% for the year, its worst showing since 1931, and 38% from its previous peak. The only reason these numbers aren't worse is the result of the year-end rally
    The markets are basically in a trading range, rising slightly over the past week or two. They're also settling down, with smaller excursions in price.
    This article, Street looks to '09 with relief after terrible '08, includes these quotations,
"In addition, some analysts believe the market will improve because so many investors have pulled out, leaving little room for more selling.

"'Given the nasty carnage how much further risk is there?
' said David Darst, chief investment strategist for Morgan Stanley's global wealth management group.
"David Kelly, chief market strategist at JPMorgan Funds, said the prospects for the market are 'exceptionally uncertain.'"
"'The great risk is we are in a wait-and-see economy,' Kelly said. 'What Obama needs to do is turn this into a do-it-now economy, give people a reason to buy.'"
    Another article, Uncertainty for 2009, quotes top economist Edward Yardeni saying,
"It will definitely be a great pleasure to bid farewell to 2008. It was a horrible year for just about every investor and every asset class. But we'll only be able to say good riddance to 2008," he added, "if 2009 isn't worse or the same. I'm looking forward to 2009 being a recovery year for the U.S. and global economies. All the enormous stimulus efforts that are being provided by governments around the world should revive global economic growth," he added. "Diversification might actually start to work again."


2008-12-30:  The markets rose today. The NASDAQ gained 40.38 (2.67%) to close at 1,550.7, the Dow posted a rise of 184.46 (2.17%) to end at 8,668.39 and S&P 500 copped a gain of 21.22 about (2.44%) to 890.64. Oil backed off to $38.29 a barrel, and gold slipped $5.30 to $870.00 an ounce. The VIX fell 2.27  to 41.63.
    With a few trading hours left in 2008, I think we can assume that the Santa Claus rally, such as it was, is about over. Real action may not resume until next week, when everyone gets back from their holiday vacations and the New Year kicks into high gear.
    The markets are basically in a trading range, rising slightly over the past week or two. They're also settling down, with smaller excursions and reduced volatility.


2008-12-26:  Another humdrum day in the stock market. Today's session saw a rise in the market indices of around half a percent, with the NASDAQ rising about 0.35% to close at 1,530, and the Dow and S&P 500 increasing about 0.5% to 8,516 and 873, respectively. Oil rose to $37.71 a barrel, and gold rose about $23.20 to $871.20 an ounce. The VIX fell minutely from 44.8 to 43.4.
    This is a quiet time of year and there may not be much action before January 2nd.


2008-12-24:  The stock market continues to mark time, with nothing pushing it decisively up or decisively down. Wednesday's half-day session saw a rise in the market indices of around half a percent, with the NASDAQ rising about 0.2% to close at 1,525, and the Dow and S&P 500 increasing about 0.6% to 8,468 and 868, respectively. Oil rose a little to $36 a barrel, and gold rose about $10 to $848 an ounce. The VIX fell minutely from 45 to 44.8.
    This is a quiet time of year and there may not be much action before January 2nd.
    Please note:
2009 ECONOMIC OUTLOOK.


2008-12-23:  The stock market slipped a little bit further today. The NASDAQ Composite gave up almost 11 points (-0.71%) to close at 1,522; the Dow slid 100 points (-1.18%) to 8419, and the S&P 500 backed down 8.47 points (-0.97%) to 863. Oil ended at $39.13, and gold fell to $838.10. The VIX rose slightly to 45.
    Dr. Irwin Kellner warns about the dangers of inflation a year from now when all of the money "printed" by central banks begins to circulate more freely in the world's economies:
A year from now, the problem will be inflation, says Irwin Kellner.  
    Mark Hulbert warns against counting on the January Effect to influence stocks this year:
Hulbert's January Effect warning.
    Michael Ashbaugh's Tuesday technical analysis may be found here: Crash of 2008: The final chapter.


2008-12-22:  Stocks didn't change hugely today, so let's look at a bigger picture before reciting today's market action.
    Paul Krugman thinks that "Late next year the economy should begin to stabilize, and I’m fairly optimistic about 2010." But he also warns that it will be a more subdued economy, since it can't be fueled by ever-rising indebtedness and a near-zero savings rate. Also, it will take more than a year or two of economic stimulus. A new boom, he observes, "
would have to be enormous, raising business investment to a historically unprecedented percentage of G.D.P., to fill the hole left by the consumer and housing pullback. While that could happen, it doesn’t seem like something to count on." Dr Krugman cites the New York Times' Thomas Friedman's concurrent article, "China to the Rescue" Not!": "As my colleague Tom Friedman recently pointed out, much of China’s economy in particular is built around exporting to America, and will have a hard time switching to other occupations." Mr. Friedman points out that there is an unwritten contract between the Chinese government and the Chinese people to the effect that the Chinese public will accept an authoritarian regime as long as it can continue to deliver a rapid rise in the Chinese standard of living (in keeping with a "revolution of rising expectations" on the part of the Chinese populace). Mr. Friedman quotes Frank Gong, head of China research for JPMorgan Chase, saying, "the world should not have a false hope that China can cushion the global downturn by stimulating its domestic demand in a big way. The best thing China can do is keep its own economy stable.” In other words, we're on our own.
    I'm getting signals from a few advisory services that light may be beginning to show up at the end of the tunnel.
    Now to today's market talk. The indices were down a percent or two today. The NASDAQ fell about 32 points (-2.04%) to end the day at 1,532, the Dow pared 59.34 (-0.69%) to 8,520, and the S&P shaved 16.25 points or (-1.83%) from its opening price to close at 872. Oil was unchanged at $39 at $39.85, and gold added $9.80 to end the day up at $847.20. The VIX dropped slightly to 44.56. I received an analysis last Friday prepared by Bernie Shaeffer, in which Dr. Shaeffer addresses the Dramamine-demanding plunge in the VIX to about half its peak value of 89.53 on October 24. Dr. Shaeffer concludes that a continued defensive posture is still in order, although homebuilders and financial might be good long investments, while shorting energy and technology.


2008-12-19:  Stocks marched in place today. The NASDAQ advanced 12 points (0.77%) to 1,564, the Dow gave up 26 points (-0.3%) to close at 8,679, and the S&P rose 2.6 (0.29%) to 888. Oil dropped $2.36, and gold fell $23.40 to $837.40. The VIX lost another 2.41 to end the day at 45.
    The continuing decline of the VIX is a bullish sign. However, the market indices are recoiling from their... resistance levels?... of around 1,600 for the NASDAQ, 9,000 for the Dow, and a little above 910 for the S&P 500. A visit to the Minyanville village square has been rewarded with two articles:  and   The first of these two articles, The Rally We've Been Waiting For?, suggests that "We might have yet another try to reach the top of the channel, which remains in the vicinity of the 940 target. Will that be the Santa rally we’ve all have been waiting for?", but that, the pattern looks like the rallies in May and in August a little before they broke down. 
    The second article, Dr. Prieur de Plessis's Greenback Down for the Count?, observes that although the dollar may stage a relief rally against other currencies, the downtrend will then resume.

The devaluation of the dollar is a subtle form of inflation, in that it boosts the costs of imported goods, which, thanks to the outsourcing of some U. S. manufacturing, is now an important part of our durable goods buffet. Dr. de Plessis says of this: "On Tuesday, the Federal Reserve signalled they were hell-bent on pursuing an 'inflate or die' approach to rescuing the ailing US economy and fending off the forces of deflation. The Fed is now inflating at a level possibly not seen by a developed nation since Weimar Germany".
    “'Either we are going to pay for our policy sins via higher interest rates or via a weaker dollar. And for an economy as levered as the one in the US, the former choice is not an option,' said Minyanville Professor Stephanie Pomboy. 'So a weaker dollar is the natural valve'.”
    Dr. de Plessis suggests that the precipitous fall of the dollar shown in the above graph may give rise to a "relief rally" or "dead-cat bounce" before it drops again. But he adds, "
Lastly, a sustained break in the uptrends of the US dollar and the Japanese yen -- low-yielding currencies previously used for funding risky investments -- should indicate that forced selling due to deleveraging is starting to subside. As this situation plays itself out, we should see a return of confidence and a calmer period for stock markets in general, and also some support for precious metals and commodities."
    "Lastly, a sustained break in the uptrends of the US dollar and the Japanese yen -- low-yielding currencies previously used for funding risky investments -- should indicate that forced selling due to deleveraging is starting to subside. As this situation plays itself out, we should see a return of confidence and a calmer period for stock markets in general, and also some support for precious metals and commodities."
    Mark Hulbert offers this article, 2009 Honor Roll- Bruised but bullish..
    Peter Brimelow has provided this. Brimelow's Top Ten for 2008.

2008-12-18:  Stocks declined by a couple of percent today for no strikingly obvious reason. Oil fell to its lowest price in four years: $36.25 a barrel, bringing it closer to the Goldman Sachs prediction of $30 a barrel. The NASDAQ Composite ended the day down 26.94 (-1.71%) at 1,552, the Dow lightened up 219.35 points (-2.49%) to close at 8,605, and the S&P subtracted 19.14 (-2.12%) to finish at 885. As mentioned above, oil closed at $36.25, and gold dwindled a little to 860.60. The VIX dropped 2.5 to 47.34. This behavior of the VIX seems to me to be significant. Normally, when the markets fall, the VIX rises. The fact that the VIX is gradually falling seems to me to suggest calming waters (not that this trend can't reverse at any time).  
    Here's a most-interesting and compelling review by the author of the predictions he published at the end of 2007 for 2008:
Five Themes You Need to Know for 2008: Final Report Card.  His prognostications were remarkably accurate, which lends credence to his current forecast: Five Things You Need to Know: Point of Recognition Still Ahead of Us


2008-12-17:  The markets sagged a bit today, with the NASDAQ falling 10.58 (-0.67%) to 1,579, the Dow slipping 100 points (-1.12%) to 8,824, and the S&P shrinking 8.78 points (-0.96%) to 904. Oil remained unchanged today at about $40 a barrel, while gold rose another $25.80 to $868.50. The VIX dropped 2.53 to 49.84.
    All of the pages and pages I've written here aimed at one simple but elusive bit of knowledge: is the stock market going to enter a new multi-year bull market or is it going to drop below its October lows? As usual, clear-cut answers are as scarce as snowflakes in the Sahara. Paul Krugman, in a paragraph entitled "ZIRP!" (Zero Interest Rate Policy), says that America has turned Japanese... that "This is the thing I’ve been afraid of ever since I realized that Japan really was in the dreaded, possibly mythical liquidity trap. You can read my 1998 Brookings Paper on the issue 
here." He concludes: "Seriously, we are in very deep trouble. Getting out of this will require a lot of creativity, and maybe some luck too." Kevin Depew thinks that full recognition of the severity of this crisis still lies before us: Five Things You Need to Know: Point of Recognition Still Ahead of Us. Two other commentaries buttressing this viewpoint are Fed Slashes Interest Rates; Nothing Happens and Prieur de Plessis' After the Rate Cut?.
    Four articles that point to the possibility that the market has turned up from a major bear market bottom are: Economic deterioration slowing, Market Defies the Odds, Bad News, S&P Rally, S&P Resistance, and Four Tips for a Post-Volatile Market. So here we are again, facing either the princess or the tiger. Looking at the one-year chart of the S&P 500 (below) this current rally looks like the beginning of a new bull market. But the 10-year chart of the S&P 500 (also below) tells a different story. The current rally is fully consistent with the "sucker rallies" that occurred on the way down to the 2003 bear market triple bottom, and the rallies that defined the triple bottom itself. Another difference is that this isn't a classical inflationary depression but rather, a deflationary depression--a liquidity trap.
    In the meantime, the Cabot China and Emerging Markets Newsletter has given a very limited "Buy" signal for two Chinese investments. I can't list the stocks that the newsletter recommends, since that information is irestricted to paid subscribers of the newsletter, but one of them I can mention since it's the Chinese play in which I've previously invested: the FXI iShares TR FTSE ETF Index fund. 
Chart for FXI
The Newsletter doesn't recommend taking more than a small position in its two recommendations, and I wouldn't recommend this, either, in light of the fact that this isn't a typical recession, but a once-in-a-century event. 
    Since we now know that, since 1994, our prosperity has been fueled by going deeper and deeper into debt, we may expect to emerge from this day-of-reckoning transition with a lower, sustainable level of living in our futures. But that suggests that a rapid return to "business as usual" and a new bull market might be farther off than some of our pundits postulate. 


2008-12-16:  The market roared today when the Fed lowered interest rates by ¾ % to zero or almost zero, and declared war on recession: Fed goes to Defcon 1. The NASDAQ Composite rose 81.55 points (5.41%) to 1,590, the Dow advanced 359.61 points (4.2%) to 8,924.14, and the S&P 500 soared 44.61 (5.14%) to 913.18. Oil is basically unchanged, at $44.00 a barrel, while gold is up $6.20 at $842.70 (presumably in anticipation of inflation once the economy begins to pick up, with all this Federal Reserve money creation). The VIX fell 4.39 to 52.37.
    It remains to be seen what kind of follow-through today's advances will have, but it doesn't automatically follow that the markets will rise after the Fed lowers interest rates. More than once this year, the market has remained inert or has fallen after the Fed announced a cut in the Federal funds rate.
    Some of the Fed's actions have already borne fruit. For example, the LIBOR (London Inter-Bank Offering Rate) has fallen below 2%, as has the TED (Treasury-Eurodollar) spread. The commercial paper market has thawed to the point at which private lenders are moving back into the marketplace. Mortgage rates have fallen, and mortgage activity has increased. This sort of progress would tend to show up in concurrent indicators but not yet in lagging indicators: No quick relief with rate cut, but consumers may benefit in 2009. Fed Chairman Bernanke  announced today that the Fed will provide support for private mortgages and for credit card debt: Promises from the Fed in plain English, and Fed slashes rates, vows to keep them low for some time. Still, there's no guarantee that the Fed can break this vicious circle of layoffs leading to reduced sales leading to further layoffs: Drop in consumer prices is most since 1932.
    Michael Ashbaugh's report today (Ashbaugh on bear-market-rally scenario ) concludes that if the S&P holds above 900, then it will probably go to 1,000. At the same time, the primary trend remains firmly down (until, of course, it turns up).
    Mark Hulbert debunks the Santa Claus rally myth: Sorry, but there's no Santa Claus, while Peter Brimelow investigates the market for gold: Brimelow on what's driving gold. And finally, in case we're beginning to feel any comfort from this levitating market, there's Farrell's very scary Christmas.


2008-12-15:  The markets fell today just about exactly as much as they rose on Friday. The NASDAQ Composite dropped 32.38 (-2.1%) to  1,508, the Dow declined 65.15 points (-0.75%) to hit 8,565, and the S&P 500 shed 11.16 points (-1.27%) to close at 869. Oil closed down $1.77 at $44.51, while gold gained $16 to $836.50. The VIX rose 2.48 to 56.76.
    I reported on Friday that, "... yesterday's (Thursday's) Cabot China and Emerging Markets Report has this to say, 'The market is tantalizingly close to flashing us a new buy signal, but it's just not there yet. If the market cooperates, we could get a buy signal within a few days, and we'll be off and running!' So we might be back in the Chinese market within a fortnight."
    Maybe. Maybe not. The news is unremittingly bad. Of course, stock markets traditionally turn up when they seem most justified in turning down.

    Meanwhile, we wait.
Federal Reserve sets stage for Weimar-style Hyperinflation
After rate cuts: The Fed's new ball game


2008-12-12:  The markets rose a little today, with the Treasury Department okaying the deployment of a few billion $ in Bank bailout funds for the Big Three. The NASDAQ Composite rose 32.84 (2.18%) to reach 1,541, the Dow increased 63.8 points (0.75%) to hit 8,629, and the S&P 500 tacked on 6.15 points (0.7%) to end the week at 880. Oil closed down slightly at $46.53, as did gold at $820.50. The VIX fell 1.5 to 54.28.
    So where do we go next? are we in a primary bear market or are we in a primary bull market? The Aden sisters say, "Watch the Dow industrials.... it'll be positive above 8,900, but if it rises above 9,000 and then 9,600, the rebound rise will clearly be under way."
    In that vein, it's also worth noting that yesterday's (Thursday's) Cabot China and Emerging Markets Report has this to say, "The market is tantalizingly close to flashing us a new buy signal, but it's just not there yet. If the market cooperates, we could get a buy signal within a few days, and we'll be off and running!" So we might be back in the Chinese market within a fortnight. 
Outside the Box:: Stocks are cheaper, but still no bargain


2008-12-11:  The markets fell today, with the NASDAQ Composite relinquishing 57.7 points (-3.68%) to land at 1,508, the Dow divesting itself of 196.33 points (-2.24%) to finish at 8,565, and the S&P dropping 25.65 (-2.85%) to end at 874. Oil fell $.0.47 to close at $47.01, while gold added $17.80 to reach $826.60. The VIX remained essentially unchanged at 55.8.
    The forecasts fall into two opposing camps: (1) things are going to get  worse for at least the next year Chief Financial Officer Survey: Historic Recession to Last Another Year, Toyota  to cut output by more than 1 million vehicles in 2009, and Next up, look for states to come hat in hand to D.C., and  (2) the stock market has turned around and is on its way up in anticipation of an economy that will turn upward next June (Peter Brimelow's Is bear market finally over?, Peter Cardillo says the worst is past, Hulbert on Ford Equity's bold prediction, and No [The] end in sight?). (I have re-titled the last article because, far from predicting "No end in sight?", the article says that a survey among economists leads to a forecast of this recession's end next June, consistent with a stock market upturn right about now.)
    So which are we experiencing: the onset of a  new bull market, or a sucker rally in an ongoing bear market? (We know we're in a super-bear market.)
    Meredith Whitney. Managing Director of Oppenheimer, anticipates at least another 18 months of financial crisis. Ms. Whitney thinks we are entering a new phase of this downturn, driven by many, many more job losses, including job losses from state and local governments. Also, new regulations requiring credit card companies to lower the ceilings on their credit card limits could "push a lot of consumers over the brink". She says, "The market for financials is nowhere near the bottom."
    Right now, the U. S. after-hours Futures and Markets Indicators are down 4½-5% on the collapse of the auto bailout. The Senate has just rejected the bailout plan, calling for greater union concessions.
    Also, one of the worst scandals in the history of the stock markets has just broken. Bernard Madoff, the former chairman of the NASDAQ exchange, has told two of his employees that he has perpetrated a $50 billion fraud, fleecing investors who placed their money in his care. Madoff accused of securities fraud  He used their principle to enhance returns for new investors. 


2008-12-10:  Todd Harrison was right about "turnaround Tuesday". The NASDAQ Composite dwindled by 24.4 points (-1.55%) today to1,547, the Dow shrank 242.85 points (-2.72%) to 8,691, and the S&P shriveled by 21 points (-2.31%) to close at 889. The official reason given for the decline was that corporate outlooks today were disappointing. Oil ended the day up $1.35 at $43.19 a barrel, while gold rose $4.90 an ounce to $774.20. The VIX checked out at 59.
    An article in today's New York Times, Dire Forecast for Global Economy and Trade, summarizes a new World Bank forecast issued today that warns that 2009 will see a global recession, with capital inflows to developing countries dropping by 50%. Also, they don't see any obvious exit from this swamp. The U. S. consumer isn't going to continue to run up debt in order to continue consuming. (Deutsche Bank has generated an even gloomier forecast, with global growth dropping next year.) Meanwhile, Forecaster of the Month: Worst of recession upon us, top forecasters say. These forecasters, Brian Bethune and Nigel Gault, were the most accurate for the month of November. Their forecast from here? They think the December payrolls report will be "another very bad number", although not as bad as it was in November. Looking ahead, they predict that "The shakeout in financial services will take several more months." They mention that construction workers may be able to barter their services, but no one needs the services of an investment banker in exchange for a haircut or a tune-up.
    Michael Ashbaugh, Ashbaugh on the bear-rally case, says the primary trend is firmly down.
    Mark Hulbert writes that Ford Equity's model points to a 'Market bottom by year-end', and that stocks are the most undervalued they've been since 1974.
    Paul Farrell argues that Wall Street is preparing to inflate a new bubble: Ten clues that tell us a new Wall Street bubble is inflating
    So what will happen tomorrow? Perhaps the markets will continue marching toward a penetration of the S&P = 1,000 level, as Todd Harrison are suggesting as a target for the "Santa Claus" rally.


2008-12-9 (Before the Bell):  Minyanville's Todd Harrison is predicting (Dare we ask Santa for S&P at 1,000) a fall today (Turnaround Tuesday) followed by a climb above 1,000, followed (eventually) by lower lows than we've seen so far.
2008-
12-8:  As predicted, the markets rose today. The NASDAQ climbed 62.43 points (4.14%) to1,572, the Dow swelled by about 300 points (3.46%) to 8,934, and the S&P increased 33.63 points (3.84%) to 910. Oil was unchanged, while gold rose $43.71 to $769.30. The VIX dropped 1.44 to about 58.5.
    The cause of this bullishness was Barack Obama's announcement of a public works program, and the pending bailout of the Big Three automakers.
    O. K. What's next?
    Michael Ashbaugh will report tomorrow morning, and I'll update this page when he does. One call is for another 100-to-200 points on the S&P and another 1,000-to-2,000 points on the Dow before this Santa Claus rally turns down again for the rest of the winter. My favorite stocks are Suntech (STP), Sunpower (SPWRA), Vestas Wind Systems (VWSYF), and First Solar (FSLR). My favorite alternative energy fund is the Powershares Wilderhill Clean Energy Technology Exchange-Traded Fund (PBW). My suspicion is that in his inauguration speech, President Obama will announce a major alternative energy initiative not unlike President Kennedy's Apollo program announcement, and that alternative energy stocks will take off. (If that happens, I'd expect to see U. S. companies like Sunpower and First Solar become the primary beneficiaries of such an initiative. Hm-m-m. I'll have check my alternative energy knapsack to hunt for leading U. S. alternative energy players.)
    I'll be writing more here tomorrow, and maybe, later tonight if new guidance appears before morning.


Early on 2008-12-8:  After thinking about it, I must retract what I wrote below about using January, 2010, calls to achieve a 6-to-8-fold rebound when the Chinese stock markets rebound. The Chinese stock market was at a highly overpriced valuation in 2007, reaching an average P/E ratio of 38-to-1. Everyone was waiting for the bubble to burst, and burst it did. While the same thing could happen again, it would seem to be as bad an idea to bet again on such an overextended market as it was in 2007. 
    Also, considering the dangers and uncertainties of the times, we'll probably want to ease back into investing more cautiously than usual. It won't be "business as usual". 
    Finally, given the world's great enthusiasm for Barack Obama's fiscal stimulus plans, I may be doing what I usually do: acting as a contrary indicator, and bailing out of the market at just the moment when it's time to buy in. (Europe and Asia are advancing strongly on giddy optimism over Barack Obama's just-announced plan to boost the U. S. economy, coupled with market relief over a probable auto bailout program. U. S. futures appear to be up sharply.) So let me offer no advice to stay out of the stock market today because I'm in no position to offer advice. I, personally, will "play it by ear". In the meantime, the economic news continues to deteriorate.
2008-
12-7:  Because of the temptation to buy into a rising market... and the market may well rise again tomorrow (Monday),...  I'm going to update tonight with the advice I just received from the Cabot China and Emerging Markets newsletter (encapsulated in Peter Brimelow's review of this newsletter: Cabot's remains bullish on China). Paul Goodwin, who edits the Cabot China and Emerging Markets newsletter, says that his proprietary indicators have come very close to issuing a buy signal for Chinese stocks, but it hasn't quite happened yet. The FXI is down by about 2/3rds from October, 1987. January, 2010, deep-in-the-money-calls might give us a 6-to-8-fold rebound when a buy signal is issued. Chances are that China may recover before the rest of the world, given China's enviable, cash-rich status. It may take some readjustments for China to transition from an exporting economy to one emphasizing internal consumption, but with 1.2 billion domestic customers, the potential would seem to be there. Hang tight!
    One other interesting consideration: over the past three months, the economy's decline has sharply accelerated. Like other forms of exponential growth, that acceleration of the acceleration can't be sustained very long before saturation occurs. The economy's fall will begin to level out when or before its collapse begins to impact people's food supplies (and hopefully, long before that happens). Once that plateauing becomes evident, the stock market could respond by turning upward in anticipation of a recovery. And of course, this may already have happened, but given the wild twists and turns of this market, it might be advisable to wait a little longer for reassurance.

2008-
12-5:  The markets rose today in the face of the worst unemployment report since 1974: U.S. job losses worst since 1974 as downturn deepens: 533,000 jobs lost, not including 30,000 employees who died during the month or farm employees. (I haven't the first clue why the stock market rose today.) The NASDAQ rose 63.75 (4.41%) to 1.509.31, the Dow gained 259.18 (3.09%) to 8,635.42, and the S&P 500 climbed 30.85 (3.65%) to 876.07. Oil fell to $40.81, dipping below $40 a barrel at one point during the day, and gold declined to $752.20. The VIX fell to about 60.
    Before discussing the possibility that the stock market is sneaking up on a turnaround, a graph is in order. As you can see in the left-hand graph,

 employment has just about fallen off a cliff in the past three months. It's gone from an average rate of 82,000 a month earlier this year to 419,000 a month for the past three months. Also, the September and October layoffs were revised sharply upward, something that could happen to  November's 533,000+ 30,000 when the new numbers are reported early in January. In addition, 621,000 additional employees this month were forced to switch from full-time work to part-time work, and 432,000 were dropped from the rolls because their unemployment

compensation expired. Add it all up and you have 995,000 who were laid off or died this month and another 621,000 who were forced into part-time employment... in one month's time. Meanwhile, most of the layoffs being announced now won't occur until after January 1. Happy New Year! And these layoffs will trigger others.
    Retail sales are also falling rapidly.
    When this collapse began. the average level of consumer debt reached 117% of personal income. Here are two articles of possible interest.
Dr. Doom Foresees Much More Pain: So Why Is Roubini's 401(k) All in Stocks? and The liquidity trap.


2008-12-4:  The markets fell today on news of 30,000 additional layoffs (in one day) including 4,600 layoffs at Dupont, considered to be a bellwether company for the economy as a whole, and also because of worse-than-expected retail sales numbers for every company except Walmart. (Even Target's sales were down 10% and Costco's sales were down 5%!) The NASDAQ Composite was down 46.82 (-3.14%) to 1,446, the Dow was off 215.45 (-2.51%) at 8,376.24, and the S&P 500 shed 25.52 (-2.93%) to close at 845.22. Oil, at $43.94, ended the day at a four-year low. Gold fell $5.00 to close at $765.50. Predictably, the VIX rose to 63.64.
    The government is expected to report tomorrow (Friday) that this has been the worst November for job losses in 30 years, with an unemployment rate of 6.8%. So what's holding up this market? Given all the hedge and mutual fund liquidations that are supposed to be taking place, how come the market indices aren't flat-lining? There are a couple of possible clues. One is that the markets aren't going to do what most investors expect them to do. Another is that the efforts by the world's governments may taking hold The only question is: will the efforts be sufficient? The following article, Credit Crisis Watch: LIBOR Eases Whilst UK Spread Soars on Sovereign Debt Risks The Market Oracle Financial Markets Analysis & Forecasting Free Website, written by Dr. Prieur du Plessis, observes that the Libor, after easing sharply from 4.82% to 2.13%, has recently risen slightly to 2.18%, as has the Treasury-Eurodollar spread, TED. This has led to a major improvement in the credit situation, but it still isn't normal. Another interesting development is a drop in mortgage rates: Price slide in focus  Average 30-year mortgage rate at lowest level since January   Fed stokes mortgage apps  U.S. homes now undervalued?  followed by a  surge in mortgage applications in response to an effort to halt the real estate implosion. This brings us face-to-face with the hair-raising layoff rate and the vicious circle it generates in the real economy. I've been led to believe that the antidote to this is fiscal stimulus, especially in the form of programs that generate real wealth. Theoretically, this will happen after Barack Obama is inaugurated, but in practice, it might occur sooner. As the outlook darkens, additional efforts are being made to correct the situation. There is talk now that Secretary Paulson may request the remaining $350 billion in TARP money.
    And, of course, the markets never go straight up or straight down. They always undulate their way wherever they're going.
    You might want to take a gander at Paul Krugman's latest thoughts on the future of the economy. Dr.Krugman muses that there only a few tens of billions of dollars worth of infrastructure tasks that are "shovel ready". Tax incentives may have little effect, and it may take the better part of a year to get a coherent jobs creation program underway. By that time, unemployment rates could reach double-digit levels (particularly given the acceleration we're seeing in monthly layoff numbers, and the negative feedback loops that must inevitably ensue as people lose their jobs and their incomes).
    Eventually, the downward spiral should level out, but it would seem to me that we probably had quite a bit of potential slack in our economy when this downturn began. If an additional 10% of the workforce were laid off, that would entail a 15% unemployment rate....
    Although it seems as though the stock market is marking time, when you look at the 10-year chart o the S&P 500 below, it's stunning how fast the market has fallen this past few months.
    Rationally, you would expect a Big-Three automakers bailout tomorrow, followed by a market rally. We'll see what actually happens.
    Here are two more articles that might be of interest.
Impact of Deflation and Death of the Economic Decoupling Theory
Stock Market Deflationary Trend Scenario Into 2013


2008-12-3:  The markets rose again today. The NASDAQ Composite gained 42.58 points (2.94%) to 1,492.38, the Dow amassed 172.6 points (2.05%) to close at 8,591.65, and the S&P segued up 21.93 (2.58%) to end the day at 870.74Oil approached a four-year low at $45.95, while gold sagged to $770.50. The VIX dropped to 60.72
    November may be worst month in 30 years for U.S. workers. (We'll know on Friday.) Mark Hulbert: Lessons learned from Harvard's 30% endowment loss. Meanwhile, State Street has just announced that it will cut 6% of its workforce, and even Adobe is going to cut 600 jobs. It would seem to me that what's significant about this is that for every job cut, there are several other people who will be impacted by this job loss. Right now, the two industries that are adding jobs are the federal government and health care. Since the first of the year, about 1.5 million jobs have officially been lost from the U. S. economy, while about 1.5 million jobs need to have been created to keep our unemployment levels steady, leading to a shortfall of about 3 million jobs so far in 2008. (The unofficial unemployment rate, including those who have been forced into part-time work and those who have given up seeking work, is alleged to be about 16%... 1 in 6.) More to the point, the rate of monthly job loss has doubled or more since the first half of this year. I don't ever remember anything like this during the 1981-1983 recession or during the latter part of the Great Depression. (I was too young to know what was happening from 1929 to 1932.) Also, I don't ever remember anything like the rate of corporate collapse that we're seeing now. (Of course, we didn't have the Internet then to keep us intimately informed regarding what was happening.) During the Depression, major U. S. corporations continued to function profitably. 
    Of course, cars, tires, etc., last a lot longer now than they did then. 
    This brings me to the Big Three automakers. I don't see how there can be a market for their, or any other manufacturer's automobiles. Presumably, long-haul semi tractors will wear out every few years and have to be replaced, as will buses and other commercial vehicles. Still, I'll bet there will be more of an effort to keep the turnover of vehicles on the road or the farm at a minimum.
    Here are two concurring articles that just appeared a few minutes ago: R.I.P., Detroit and Christmas first, disaster later. In 2005, GM was losing $2,331 on every car it sold, while Toyota was making more than $1,400 a car. GM's average hourly wage was $73 an hour; Toyota's was $48. One eye-opener in the second article is the phrase, " ...when the depth of the problems in 2009 is only just beginning to be perceived." The author, David Callaway, editor-in-chief of Marketwatch, concludes, "Will there be a Santa Claus rally in stocks this year? Depends on whether his sleigh was made in Detroit." :-) 
    From Minyanville: China First to Recover from Recession?  
    Also from Minyanville comes this: Market Valuation vs. Real Returns. What the author concludes is that on an historical basis, given the S&P 500's current P/E ratio of 14.9 (I assume he's referring to the S&P 500), it's in the middle of the normal P/E range, with only average real returns expected for the next ten years. (Based upon the super-bear market concept, I'd bet on below-average real rates of return for the next six-to-eight years. Since the next four-to-two years would fall within the next super-bull market, that wouldn't be inconsistent with his ten-year average real rate of return.) But none of this reflects the sudden, precipitous rates of decline of the world's economies. Average economic patterns don't describe what we're currently experiencing.
    The more I look at and think about this, the more it looks as though what governments are doing isn't thwarting the downward spiral of layoffs, leading to declining sales, leading to further layoffs. And it takes months of calendar time for these layoffs to send people out the door, and to inspire further layoffs. Also, we started from a fairly fat-Fiscal stimulus measures later this month or early next year might stem the tide, but at the moment, the layoff announcements keep coming.
    Here's Michael Ashbaugh's Tuesday technical analysis: Ashbaugh on S&P correction. His conclusion: stay on the sidelines for now.


2008-12-2:  The markets rose today, with the NASDAQ gaining 51.73 (3.7%) to 1,450, the Dow adding  270 (3.31%) to close at 8,419, and the S&P swelling 32.6 points (3.99%) to end at 849Oil ended at $47.82, and gold advanced to $783. The VIX fell to 63
    Why did the markets rise today? I'm sorry, but I don't have a clue. Here are two articles: Mark Hulbert: For first time in 50 years, stocks yielding more than bonds and Brimelow sees oil bull looking for bounce. But there isn't a lot of guidance that I can find. At this time of year, a lot of dumping of toxic assets is taking place so that investment funds can enter the new year with relatively clean balance sheets. As I mentioned last night, hedge fund and mutual fund  redemptions are taking place, leading to dumping of stocks and other worthy assets in order to raise cash.
    Here's a commentary on today's action: Bulls regroup after sell-off.
    The real question is whether the world's governments can stem the receding tide with heroic monetary and fiscal measures, or whether we're doomed to remain in a degenerative spiral. I certainly have no definitive answer to that question. But I'm having to day-trade in and out of the market (in a small way), and I've made a little money this way. I've learned the hard way that this market is so unpredictable that don't know from one day to the next how the market will open the next day. For example, yesterday, as the market swooned, I bought 200 shares of QID, the Proshares Ultra Inverse NASDAQ 100 index fund. It went up a couple of thousand dollars over the course of the day. I should have sold it before the close yesterday. Instead, I ended up putting in a sell order before the market opened this morning. As a result, I lost a portion of the potential gain because the market went up today. Still, it turned out to have been right to sell it this morning. I made a thousand dollars or so. But this is an exceedingly volatile marketplace.
    Here's something from Minyanville: Captain Obvious to World: America's In a Recession 
Sears dying a slow death


2008-12-1:  The markets tanked today, with the NASDAQ relinquishing 137.30 (8.95%) to land at 1,398, the Dow parting with 679.95 (7.7%) to close at 8,149, and the S&P giving up 80 points (8.93%) to end at 816. For the Dow, this was the fourth-largest single-day percentage drop ever. Oil fell $5.15 to $49.30, and gold collapsed $42.20 to $776.80. The VIX rose 6.87 to 62.71. The cause seems to have been global economic weakness. The National Bureau of Economic Research has officially confirmed that the U. S. has been in recession since December, 2007. That's a full year, and we're sliding deeper. It will get worse before it gets better.
    The real reasons for today's market slide probably won't become available to the public until tomorrow (that being the usual pattern). Today, the markets gave back about 60% of the gains they made over the past five trading days.
    Here's an interesting set of advice for the intrepid investor: Three ETFs to consider if the Dow retests lows, and The Investment Rate and a Greater Depression. The author argues that the Dow will retest its week-ago low of 7,400, and that this will provide another opportunity to buy in at the bottom. However, this will be a trade only for short-term traders. Longer-term, he believes that we are headed for deeper economic malaise... either stagflation, or a "Greater Depression".
    Last week's issue of Business Week contained a feature article warning that The Subprime Wolves Are Back. It lists several companies that are using an agency (the FHA - Federal Housing Administration) that hasn't preciously been cited in the subprime fiasco, but that soon will be. These corporate entities are carrying on the pre-2007 subprime practices with would-be home buyers who are incapable of meeting their mortgage commitments. Another warning is coming in the credit-card arena where finance companies are continuing to push credit cards to the vulnerable. One banker cited his university-student daughter who continues to be bombarded with pre-approved credit cards. His daughter knows better than to take the hook, but not all men and women her age have fathers who are bankers, and who can caution their daughters against taking the bait of easy credit. Credit card defaults are rising rapidly. Tonight, on TV, within the space of a few minutes, I heard two ads offering to provide applicants with Christmas cash, no credit checks required, given the titles of their cars. Don't have enough money to go home this Christmas? No problem! Just sign over the title of your car (i. e., pawn it), and you can have the cash that you need this holiday season. 
    So maybe there's more pain coming than has been priced into the current stock indices.
    Here are three good articles:
How to play offense and defense in December
How to play a re-test
Dark December


2008-11-30:  Thanksgiving holiday sales were up 3% this year over 2007. That's not a lot, but it's a lot more than expected. On the other hand, profit margins must have been pretty thin, and the outlook for the entire season, at least as posted in the popular media, isn't terribly high. Still, shoppers didn't spurn the sales.
    Here's a good article, Bottom feeding is for catfish, by the author of the "Getting Technical" column for Barron's Online. Also, Mark Hulbert has this to offer for tonight: Mark Hulbert: Risky this year to bet on year-end bounce for small-cap stocks. One other factor might be the end-of-year redemptions for hedge funds and mutual funds.
2008-
11-28:  The markets were only open half a day today, but nevertheless, the indices managed to advance about 1% today, leading to a fifth consecutive day of market gains, a record unsurpassed since 1932. The NASDAQ rose 3.47 (0.23%) to 1,536, the Dow climbed 102.43 (1.17%) to 8,829, and the S&P 500 added 8.56 (0.96%) to 896. Oil was unchanged, and gold added $8.80 to close at $819. The VIX increases about a point  to 55.84.
    As might be expected, the news is getting upbeat... "Market Snapshot: U.S. stocks look to further recent gains in December"  a prerequisite for a market rally. It's too early to tell, I'm sure, but the preliminary news is that sales today were robust. We'll know better by Sunday night, and I'll post an update when we get there--that is, on Sunday evening. By then there may be additional commentary available.


2008-11-26:  The markets advanced again today The Dow has climbed higher in the past four trading days than at any time since 1932. The NASDAQ rose 67.37 (4.6%) to 1,532, the Dow increased 247.14 (2.91%) to 8,727, and the S&P sashayed up 30.29 points (3.53%) to 888. Oil dropped $1.08 to $53.36, while gold fell $9.20 to $811.30. The VIX fell 5.98 to 54.92.
Update: This just in:    Mark Hulbert: Stocks' four-day rally exhibited impressive technical strength


2008-11-25:  The Dow and the S&P added half a percent today, while the NASDAQ Composite fell half a percent. The NASDAQ lost 7.29 points (0.5%) to close at 1,465, the Dow accrued 36.08 points (0.43%) to end at 8,479, and the S&P eased up 5.58 (0.66%) to 857. Oil and gold were essentially unchanged. The VIX fell 3 points to 60.9.
    The real news today was about the Fed's $800 billion plan to bolster consumer lending and housing: Fed unveils $800 billion plan to bolster lending, housing.
    Michael Ashbaugh makes it clear that the long-term trend in this market is down: Ashbaugh pits rally vs. crash momentum.
    Here is what looks like a well-seasoned set of thoughts about what might be coming next: Does This Rally Have Legs?. The author is calling for as much as an 18% boost in prices between now and January.


2008-11-24:  The stock market continued its advance today, climbing 5%-to-6½ %. Although I haven't seen any definitive commentary about it, I'm thinking it could be optimism about the bold talk coming out of Team Obama, but it may be something else entirely that's driving this rally. This may be a bounce within a bear market. 
    The NASDAQ Composite rose 87.67 (6.33%) to 1,472, the Dow gained 397 (4.93%) to 8,443, and the S&P ascended 51.78 (6.47%) to close at 852 (up 100 points in two days). Oil rose to $53.65, and gold advanced to $819.50. The VIX fell to 64.70
Update, 11-25-2008:   As I pondered above, optimism about the bold talk coming from Team Obama has been cited as one of the causes of yesterday's rally, but another upbeat piece of news was the federal bailout of Citigroup, reassuring investors about how far the Fed will go to insure financial assets against losses. Paul Krugman is critical of this bailout, and David Weidner argues that We can't afford the Citigroup deal.
    The good news is that homes in the West are selling better; the bad news is that banks are unloading them at fire sale prices.
    One other piece of good news: the fall in energy prices has had a stimulating effect upon the world's economies.
    As early as next week, the Big Three automakers are supposed to return to Congress with a detailed funding request, and with a plan to repay their loans.


2008-11-21:  The stock market staged the predicted rebound today, climbing between 5¼ % and 6½ %. The NASDAQ rose 68.23 points or (5.18%) to 1,384, the Dow advanced 494.13 (6.54%) to 8,046, and the S&P 500 ambled up 47.59 points (6.32%) to close at 800. Oil meandered to $47.59, up $0.51, while gold exploded, gaining $43.10 to end the day at $791.80. The VIX tumbled to 72.67.
    That's nice, but what's going to happen on Monday?
Paul Krugman on our "lame-duck" administration: The Lame-Duck Economy
    Paul Krugman is concerned about what I mentioned last night: the fact that Treasury Secretary Paulson seems to me to have withdrawn from his active role. Dr. Krugman is concerned that irreversible damage might be done He says that, "Yet economic policy, rather than responding to the threat, seems to have gone on vacation. In particular, panic has returned to the credit markets, yet no new rescue plan is in sight. On the contrary, Henry Paulson, the Treasury secretary, has announced that he won’t even go back to Congress for the second half of the $700 billion already approved for financial bailouts. And financial aid for the beleaguered auto industry is being stalled by ... " [the] " ... political standoff between Democrats who want Mr. Paulson to use some of that $700 billion and a lame-duck administration that’s trying to force Congress to divert funds from a fuel-efficiency program instead." He suggests that, at the pace at which events are unfolding, a lot could go wrong between now and Inauguration Day.
Fewer stocks are hitting new lows.
    One of my investment advisories is pointing out the fact that the number of stocks hitting new lows has been falling over the past few weeks, something that always occurs at market bottoms. Selling pressures are easing up!
Two ways of looking at what's going on
    I have the impression that there are (at least) two ways to look at what's going on.
    One is that this will be a recession lasting about four quarters, and that although there is talk about dire outcomes, the stock market will turn up some time soon in anticipation of a recovery. The stock market will seemingly defy common sense in that the economy will still be sinking when the stock market turns around, because this is what always happens.
    The other point of view is that this time, it really is different... that this time, those who hold that "the more things change, the more they remain the same." will get skunked... that this is the once-every-century perfect storm that doesn't fit the investment pros' rule book. The stock market slips down a slope of hope. The markets took three years to reach bottom during the Great Depression. You know that every time there was bear market rally between 1929 and 1932, investment pros were saying, "That last sell-off was it. That was the bottom and now we're on our way up."
    We'll see.
    The only way I know to approach this is to play it by ear. Today, I sold about all of my mutual funds that aren't closed to new investors. (If I sell those, I can't buy back into them.)
    Yesterday, I received the latest issue of Cabot's China and Emerging Markets newsletter. It's advising its investors to remain 100% in cash. That sounds like a good idea to me. If I invest any money, it will be a small fraction of my cash in order to limit potential losses.
    When the markets finally turn around--and it might occur in China before it happens in the U. S.--there should be ample opportunity to recoup our losses. I'm counting on my various sources of information to give me some idea about when this will happen. Right now, the rate of decline of the economy seems to me to be accelerating.
    I'll try to pass along some of the suggestions that services like Morningstar are suggesting on their websites.
Back in the present, layoffs are being announced at a stunning pace.
    It will take a while before these layoffs are fully felt, since people won't actually go out the door for a little while after a layoff is announced. It will be a while after that before unemployment benefits run out-- although even the threat of a layoff should be enough to spook consumer spending. We'll know better after the holidays just how much they've affected consumer spending.


2008-11-20:  Well, the stock market broke down again today. The NASDAQ pared 70.3 points (-5.07%), the Dow exfoliated 445 (-5.56%) to close at 7,552, and the S&P 500 parted with 54.14 (-6.71%) to end at 752. Oil hit a new low of $49.62, and gold rose to $748.70. The VIX panicked and closed at 81. The proximate cause of this further ecdysis was the fact that Congress dropped the idea of bailing out the Big Three before Congress adjourned, but has set a deadline of December 2nd for a new plan. Besides the bailout breakdown, there was a smörgasbord of bad news. For example, J. P. Morgan announced that it will cut 3,000 jobs, whereupon its stock fell 18%. Jobless claims jumped to their highest level since the early 90's.
    To the best of my knowledge, this is the worst percentage pullback for the S&P 500 since the Great Depression. At 7,552, it's now down about 51.5% from its 1,555 high last October. Equally significant is the speed with which this has happened, and the lack of meaningful rallies along the way. The S&P 500 has fallen from 1,300 to 750, or -42%, in months. That's really tantamount to a slow crash.
    My personal notion is that we might witness a bounce after two days of relentless price erosion.
    Kevin Depew sees conditions ripe for a trading rally: Five Things You Need to Know: If This Is a Low, It May Hurt You.
    This week's issue of Businessweek includes a "Business Outlook" page by James Cooper entitled, "The Profit Squeeze Has Only Begun". Mr. Cooper explains that stock analysts are forecasting that fourth quarter 2008 earnings on the S&P 500 will rise 24.7% from their 2007 fourth-quarter levels even as third-quarter 2008 actual earnings fell 14% from last year's third-quarter earnings. Analysts are also forecasting 2009 earnings that are up 13.1% from 2007 earnings. Obviously, this is wildly optimistic, and Mr. Cooper notes that the stock market has dismissed this as nonsense by falling through the floor. He also predicts that earnings will get considerably worse before they can get better. He concludes,
    "Based on analysts' upbeat expectations, stocks look cheap right now, but in this harsh business climate, earnings disappointments could extend far into 2009, especially if the economy fails to mount a solid recovery." 
    I found the following material, posted by "RonPaul08" on the comments page of this article: Commercial-mortgage delinquencies to double: Fitch. The total debt here adds up to $53.668 trillion. (I don't see any indication that this also includes unfunded Social Security liabilities.)

Just a thought...

Total Federal Debt: $10,668,000,000,000
Total business debt: $10,500,000,000,000
State and local debt: $2,500,000,000,000
Household debt: $14,000,000,000,000
Financial sector debt: $16,000,000,000,000

Total US population over 16 yrs old: 235 million
% of this population employed: 60%
Working individuals who carry the burden for the debt: 141 million


So, national debt burden per individual is $76,000
TOTAL DEBT per working individual (who carries debt burden):
$380,625.

National average wage for 2007: $40,000.

Now, ask yourself if $40k can support debt service on $380k.

Feel free to give input on these numbers. they are approximations.



http://factfinder.census.gov/servlet/STTable?_bm=y&-geo_id=01000US&-qr_name=ACS_2006_EST_G00_S2301&-ds_name=ACS_2006_EST_G00_

http://www.ssa.gov/OACT/COLA/AWI.html

2008-11-19:  Well, it finally happened. The stock market broke down today, falling 5% to 6½ %, depending upon the index, from its already low levels, and "breaking decisively below its support", as technical analysts would probably put it. Of course, given this crazy market behavior, the stock market could easily soar tomorrow morning, and then turn around tomorrow afternoon and fall out of bed again.
    The NASDAQ Composite shed 96.85 points (-6.53%) to end the day at 1,386; the Dow tumbled 427.27 points (-5.07%) to close below 8,000 at  at 7,997; and the S&P sacrificed 52.54 (-6.12%) to land at 807. Oil fell to $52.95, and gold rose to $736. The VIX finally shook off some of its relative complacency and climbed to 74.26
    Apparently, at least a part of today's decapitation is being attributed to the three CEO's of the Big Three automakers, GM, Ford, and Chrysler, flying to Washington individually on their three, $36 million, luxurious private jets to beg for public money in time for their multimillion-dollar year-end bonuses. Congress didn't approve the $25 billion bailout that GM has requested, leading to stock market concerns about the effects of millions of additional layoffs on the economy. (I'm thinking that the real problems is: who's going to buy the vehicles that the Big Three manufacture if they are kept afloat a little longer?)
    I imagine that the bailout will ultimately take place, and that there may be a one-day stock market boost when it happens.
    Meanwhile, the layoffs continue to cascade.
Later: As usually happens, I wasn't able to find out what was happening to cause the stock market sell-off until it was too late, but I've just learned that:
(1) Congress will recess either today or tomorrow until next year. If a bailout bill isn't passed now, it will be next year before the issue can be taken up again.
(2) The media are stating that one or more of the Big Three may have to file for bankrupt by the end of this year. Once an automaker files for bankruptcy, no one wants to take a chance on its products, in terms of warranty coverage, resale value, and parts availability.
(3) Treasury Secretary Paulson has announced that he won't seek any additional bailout money beyond the first installment of $350 billion. The job of rescuing the economy will fall to the next administration. (Is he retiring two months early?)
    Paul Krugman has a few brief comments: the most significant of which, for me, is: Corporate cost of borrowing. He concludes by remarking that "This just keeps looking uglier." Given a refusal to bail out the Big Three, and the lack of anyone at the tiller at the Treasury Department, there's no telling what will happen by the end of January.
    Another unpleasant factor: after a couple of months of stability in the financial sector, Citigroup appears to be heading for the rocks.
    The New York Times says, "Stocks Are Hurt by Latest Fear: Declining Prices".


2008-11-18:  The stock market taunted us today. The NASDAQ rose 1.22 points (0.08%) to 1,483. The Dow added 151.17 points (1.83%) to 8,425. The S&P 500 advanced 8.37 points (0.98%) to 859. Oil ended unchanged at $54.42. Gold dropped to $732.70. The VIX dropped a bit to $67.64.
    Note that the S&P hit 827 an hour before the closing bell, followed bya 32-point hike in the last hour of the trading day.
    The main  news was a record 2.8% fall for U. S. inflation: However, excluding a 0.2% decline in food prices and a 12.8% drop in energy prices, core, producer prices rose 0.4% in October. The best guess is that this 0.4% increase in the core rate of producer price inflation is the last gasp of previous commodity price hikes:  Record 2.8% fall for U.S. wholesale inflation.


2008-11-17:  The stock market fell again today. The NASDAQ dropped 37.8 (-2.29%) to 1,482, the Dow gave up 223.73 points (-2.63%) to close at 8,274, and the S&P 500 parted with 22.54 points (-2.58%)slipping to 851. Oil is at $55.29 a barrel, and gold at $742 an ounce. The VIX ended at about 67.
    Citigroup announced to its employees this morning that it will be laying off another 50,000 employees, bringing its recent layoffs to around 70,000, or 20% of its workforce. Merry Christmas, everyone! J. P. Morgan is mulling thousands of additional job cuts. Here's a Minyanville article about a possible triple bottom for the Dow and the S&P 500: Jeff Saut- A Triple Bottom for Dow, S&P 500?, Here's another article concerning GE: Op-Ed: Could GE Collapse?.  And here's a cautionary advisory from "The Motley Fool": The Biggest Threat to Our Economy. Finally, here's a forecast from Paul Farrell: Paul B. Farrell- We'll be in Great Depression 2 by 2011 -- here are 30 reasons why.
    Yesterday, I pointed out that Dr.Martin Weiss and Mike Larsen were advising that the markets would tend to fall between now and the end of the year as hedge funds sold stocks to cover their periodic redemption requests. The markets fell about 2½ % today. EEV, the Proshares Ultra Inverse Emerging Markets Fund and QID, the Proshares Ultra Inverse NASDAQ 100 Fund rose by 5½ % and 6%, respectively. I'll get interested if the indices broach and close below their 848 close. That will be the signal for a further market shakeout. Of course, the problem is that every seasoned investor will also be tracking this barometer. A break below 840 could lead to another head fake like the trap that was sprung last Thursday, when the S&P dipped to 820 and then soared to end the day at 911. Heigh, ho! Never a dull moment! (I'm reminded of the ancient Chinese curse: "May you live in interesting times.")
    Here are two more comments from (Dr.) Paul Krugman: Fannie Freddie data and After the stimulus.


2008-11-16:  Something else has just occurred to me: it may be a long time before the economy gets back to "normal". Apparently, for the past few years, the economy has been funded by going deeper and deeper in debt. Consequently, the new norm, when we gradually reach it, may be more subdued than what we've known for the past few years.
    A counter-argument to what I've just argued is what occurred during the 1990's. The level of indebtedness soared during the Reagan-Bush, Sr. years, and fell during the Clinton years, and yet, the economy certainly boomed during the Clinton years even as the national debt fell (see below). We had the dot.com bubble, but the money was there to fuel it. 
    My Sunday invitation to subscribe to the Weiss newsletter has just pointed out that Friday was the last day for hedge fund investors to submit their requests for redemptions. The hedge funds have until the end of the year to sell enough stocks to finance their redemptions. The newsletter editors are suggesting that this could exert downward pressure on equity prices starting as early as tomorrow.
    One bright spot in this otherwise dark and dreary sky: the fall in gasoline prices, and a possible retrenchment in food prices will give us consumers more money to spend on Christmas presents. The flip side to this is that this energy price collapse merely removes the added insult of stagflation from our economic outlook, compared to last spring when rising energy prices were piling insult upon injury as we stared into the looming recession that is now upon us. Still, people will have more jingle in their pockets this Christmas season than was evident even six months ago. We'll probably know better after the Thanksgiving weekend how much of Christmas the Grinch can steal.
    Here are Paul Krugman's latest: Fannie Freddie Phony; and Cars.

2008-
11-15:  Something has just occurred to me. The deflationary recession we're experiencing right now has no parallel in living memory other than, possibly, the Great Depression... and there are major differences between this downturn and that one. (I just read that this decline appears to be accelerating.) Dr. Krugman's hope is that the incoming administration will be bold enough to turn conventional wisdom on its ear in order to arrest this death spiral. But if they're not bold enough, then what? Also, no living economist can have had hands-on experience with a deflationary depression. I know that a lot must have been written about it, but when you're dealing with a once-in-a-century event, experienced experts are hard to find. (Only six months ago, some of our leading stock market pundits were predicting a turnaround at least in the stock market, if not in the economy, by the second half of this year.) Dr. Krugman is honest about not knowing what's coming. (See today's blogs: Brad Setser is scaring me and Macro policy in a liquidity trap wonkish.) We'll have to play it by ear, but I'm not prepared to assume that we're out of the woods. For one thing, the federal government has used up $290 billion of its initial $350 billion in bailout monies, and I'd be surprised if Secretary Paulson hasn't let it be known that he'll be back for the other $350 billion within the next few weeks. (Of course, this new money will be used to help individual mortgage holders rather than banks.)
    In the meantime, one might get the impression that every porker on Wall Street is lining up at the trough. I read yesterday that American Express is requesting permission to convert to a bank so that they can apply for all that delicious money. Of course, GM is seeking $25 billion (a paltry pittance compared to $700 billion, no? yes?) Do you think that GE might be close behind GM, followed by a gaggle of mid-sized multinational corporations with gigantic trick-or-treat bags, flanked by their Congressional representatives?
    What about our national debt? Will all these bailouts bankrupt us?
    I can't answer that question, but here's where we stand on our national debt as of six weeks ago:

    Our national debt has been higher during and just after World War II, but it's getting up there. (It might be worth noting that if our GDP drops during this recession, that would have the effect of boosting the ratio of GDP to national debt.)

2008-
11-14:  In another wild roller-coaster day, the stock markets sagged by about 4½ %. The NASDAQ was underwater all day, never breaking the surface. It closed down 79.85 points (-5%) at 1,517. The Dow backed up 337.94 points (-3.82%) to end the day and the week at about 8,500. The S&P 500 divested itself of 38 points (-4.17%) to close at 873--33 points above its 840 low. Oil went to about $57, and gold rose to $742.50. The VIX escalated to 66.31
    Dr. Paul Krugman published an article today entitled, Depression Economics Returns For me, his most important statements were that he doesn't expect another Great Depression, and that although he isn't sure, he doesn't expect the unemployment rate to reach the 10.7% level of the 1982 recession. He thinks governments will have to lead us out of this through massive fiscal stimulation; he hopes they will be bold enough to undertake the requisite deficit spending.
    Warren Buffett is continuing to buy stocks. Ben Bernanke said today that some conditions are improving. (Last spring, he said that inflation wasn't an imminent threat. I questioned that at the time, but he was right and I was wrong. All of a sudden, prices began to fall.)
    Mark Hulbert offered this: Hulbert on irrational exuberance.
    Peter Brimelow presented this: Aden sisters still jumpy.
    These observations are important in terms of our investment planning.


2008-11-13:  Well, the unfathomable happened. The NASDAQ rallied 97.5 points (6.5%) today to end the day up, at 1,597, the Dow advanced about 550 points (6.67%) to 8,635, and the S&P annexed 59 points (6.82%) to exuent stage right at 911.29. But this happened only after the indices fell about 3.5% before turning around and heading back up. Why? I haven't a clue. The jobless rate hit a new high of 516,000, the highest since September, 2001, during the last recession. George Soros told Congress today that we're heading into a very severe recession, and possibly, a depression. Crocs lost 50% of its value in one day, and one-third of homeowners are losing money. The Federal deficit ballooned to $237 billion in one month, GE shares fell to a 12-year low at $16.89, and GM fell to $2.95, giving GM a total market value of $1.8 billion. A billionaire could buy the company if he/she wanted it. Of course, GM's earnings-per-share is -$40.14. It has fallen by a factor of more than 10 in a year's time.
    Oil ended at $58.55 a barrel, while gold swooned to $705, after falling below $700. The VIX? The little spalpeen has skidded to about 60.
    Kevin Depew predicted yesterday on technical grounds that there would be a brief, sharp, counter-trend rally for the next 12 days, through the end of November: Five Things You Need to Know: Is This the Bottom?. Then it's back to the salt mines. In another Minyanville quote from Wednesday afternoon: "Bulls are conscious of a sharp counter-trend rally in the works. One option can be to dip a toe in the Ultra S&P 500 (SSO). Keep an eye on S&P 840 for any signs of a reversal.". Obviously, both of these prophesies were spot-on. Another eye-opener: Everyone Agrees: Worst. Economy. Ever. Still another opinion concerns gold: Minyan Mailbag:: Gold to Break to Upside, Dollar to Collapse
    The markets have held above their lows for a little more than a month now, if we consider today's action to be holding above 840. A bounce is in the forecast, but not a longer-term recovery. For one thing, GM and Ford are going on life-support. The problem is: they got where they are under their own power, and the same management is still in charge at both companies. The consensus is that they will become holes in the water into which the government must pour more and more money... that their "rescue" will only perpetuate the problems that took them down in the first place. Now GE is giving disturbing signs of following in GM's and Ford's footsteps. AIG is a bottomless pit for federal funds, even as its management publicly frolics at the taxpayers' expense. 
    Are we going lower after a technical bounce? We've had these kinds of jumps three other times in the past month.  
    Chuck Jaffe: Collectibles offer comfort, not investment profits 
The Rapidity of the Early-October Decline
    What's nothing less than stunning about the October decline through October 10th is the speed with which it occurred. The 7-day crash began on the 2nd of October and concluded on the 10th of October, during which time the S&P 500 fell from 1,160 to 840... 320 points or 27.6%... in 7 trading days! Since then, for 24 trading days, the stock market has remained in a highly labile trading range. But as the 10-year S&P chart shows, everything over the past couple of months is very compressed with respect to time... which makes this current contretemps seem more climactic, and possibly more dire than most.


2008-11-12:  Today has seen panic selling and a retest of the October 10th lows. The NASDAQ Composite closed today at 1,499, down 81.69 points (-5.17%) from its previous bear market low on October 27th of 1,505. The Dow fell 411.3 (-4.73%) to close at 8,282.66. but still above its lowest previous close of 8,176 on October 27th, and above its October 10th intra-day low of 7,882.51. Likewise, the S&P 500 closed above both its October 10th low of 840 and its October 27th close of 848, but only barely, down 46.65 (5.19%) to end the day at 852.30. Tomorrow may be the moment of truth when the markets either rally strongly or break to new lows. Oil fell to a new low of $55.18 a barrel, while gold lost $14.58 to close at $718.30. The VIX marched back up to 60.
    The official causes for today's rout were a profit warning from Best Buy and a restructuring of the bailout plan by Henry Paulson that apparently didn't meet with Wall Street's approval.
    We are where we are. It may be that I should have sold out in 2000 and invested elsewhere but I didn't. Now it's too late to sell out in 2000, and the urgent problem is one of short-to-intermediate-term tactics rather than that of long-term strategy. Today, I bought shares of the Proshares Ultra Inverse Emerging Markets Fund (EEV) to hedge against further losses in UUPIX. Then I sold them again at the market's close, having made a modest profit on them during the day (though not as great as the loss on UUPIX.). Tomorrow, if the augurs point downward, I plan to buy back EEV at the opening and to add enough QIV (the Proshares Ultra Inverse  NASDAQ 100 Fund) to hedge the rest of the mutual funds I own. If the market continues to fall tomorrow, I'll sell almost all of my mutual funds tomorrow afternoon along with some or all of the morning's purchase of inverse ultra funds that hedge them, and vacate the stock market. I'm interested in buying inverse funds to hedge my mutual funds because, between the beginning of the day and the close of the day when the mutual funds are evaluated, they can lose thousands of dollars. I hope to offset those one-day losses with the inverse index funds.
    It's always possible that the market indices will turn around tomorrow and soar, but it's hard to see any potential catalyst for such a surge. Only if the indices tread water tomorrow will we sidestep a "moment of truth". If the averages break below their October lows tomorrow, and especially if they close below their October lows, then there's no way of knowing how much farther down they'll go before they hit the next plateau.

2008-11-12 (Continuation from Last Night):  The reason I didn't act on my conclusions in 2002 was because, for one thing, I wasn't certain that these super-cycles are real. At that time, the sample size was three-and-a-half super-cycles. For two other things, the stock market had gotten about 50% above any previous overbought conditions--off the chart-- and I supposed that there would have to be a deflation before the stock market could begin to rise again. In other words, maybe (I said to myself) we weren't in a super-bear market but were simply coming back to earth after peaking in the stratosphere. The other "other thing" didn't show up until after the stock market had recovered. That was the idea that we were doing very well with overseas business. Maybe the rest of the world had decoupled from the U. S. markets, and we could rely upon overseas profits to interrupt our historic domestic super-bear semi-cycle. But we now know that the rest of the world hasn't decoupled from the U. S. markets. Other countries are, if anything, in more trouble than the U. S.


Caveat:  I want to emphasize that I absolutely don't know what the stock market is going to do next. I read what I can and after that, it's a judgment call. 

2008-11-11:  Today was a down day on Wall Street. The NASDAQ slid 35.54 points (-2.22%) to close at 1,581, the Dow doffed 176.58 (-1.99%) to 8,694, and the S&P skidded 20.26 (-2.2%) to 899. Oil hit a two-year low at $58.85, and gold gave up $13.70 to close at $732.80. The VIX jumped a little to 61.44.
    It's Tuesday, and Michael Ashbaugh has published his weekly technical analysis column: Ashbaugh sees S&P at critical juncture. Mr. Ashbaugh observes that last week saw the first two-day, 10% correction since 1987, "placing the near-term technical outlook back on dangerous footing". He adds that "the long-term backdrop's been horrible for some time". He sets short-term technical support at 900. He observes that a break below 900 would probably lead to an eventual retest of the 840 October 10th low. (Of course, the S&P closed at 899 tonight.) He sets the Dow's support level at 8,600 and the NASDAQ's support at 1,600. He states, " ...in this fast-changing backdrop, the trading rally evaporated almost immediately, with bearish implications for the U.S. markets." He more-or-less concludes, "Capital preservation remains the primary objective, followed by risk management, and the effort to find spots for near-term gains." In the meantime, we're looking for a retest of the October 10th lows which will either lead to a bounce or a breakdown.
    I'm stunned with the conclusions of my re-examination of super-bull markets and super-bear markets. I explored this topic of super-bull and super-bear markets in April, 2002, but I lacked the courage of my convictions. 

Later:  The Sandman just found Amber tonight at 10:45 p. m. I've run out of time and will have to finish this in the morning, but it seems to me that I had some topical information in 2002. But the bear market dragged on until the middle of 2003, and then it soared for four more years until last October, and I didn't listen to myself.
Mark Hulbert: Some advisers lose big despite anticipating financial panic

(To be continued)


2008-11-10:  Today was what passes for a quiet day. The NASDAQ fell 30.66 (-1.86%) to 1,617, the Dow lost 73.27 (-0.82%) to close at 8,871, and the S&P closed down 11.78 (-1.27%) to 919. Oil ended at $60.80, and gold added $12.30 to hit $746.50. The VIX jumped to a somewhat more nervous 60.
    Today, Deutsche Bank downgraded GM to "Sell", driving the penultimate nail in GM's coffin: GM's road to nowhere. GM stock dropped $1.00 a share to $3.36 a share, down from $44 a share last October, and $92 a share in 2000. Also, Circuit City filed for bankruptcy today.  
    Meanwhile, Blue Chip Economic Indicators predicts that this current recession will be longer and deeper than the 2001 or 1990-1991 recessions.
    Surprise! Starbucks shares are under pressure. (I'd expect Starbucks to be a poster child for an upscale boutique that would be hurt by a belt-tightening recession. I should think that it would be the sort of luxury that you wouldn't eliminate, but might curtail if you were watching your pennies.)
    Also, Goldman slashes Indian growth forecasts. Two other articles are: Hulbert says Camelot wasn't that shiny and Paul Farrell's King Henry's bailout like Rummy's Iraq. Also of possible interest: Tempting yields for brave ETF investors.


2008-11-7:  The stock market indices rose today, climbing 2½ % to 3%. Better yet, much of this rise took place in the last five minutes of the trading day, implying strong end-of-week buying interest. The NASDAQ Composite gained 38.7 points (2.41%) to close at 1,647, the Dow added 248 points (2.85%) to end at 8,944, and the S&P increased 26.11 points (2.91%) to hit 931. Oil was essentially unchanged for the day at $61, and gold added $2.00 to end at $734.20. The VIX slumped to 56.1.
    This certainly wasn't because there was good news today. Au contraire, the unemployment rate, running 6.1% in September, and expected to hit 6.3% in October, actually clocked in at 6.5%... worse than  its worst reading in the 2001-2002 recession, and the worst since 1994. And this is only the beginning, folks. Today, top hedge fund managers used words like "funereal", "shock and embarrassment", "carnage", and "rubble", and on Oct. 16th, one of them wrote, "In the third stage of a bear market, everyone agrees things can only get worse. There's no doubt in my mind that the bear market reached the third stage last week." (the week of the October 10th bear market low).
    In the meantime, Todd Harrison reaffirmed today (November 7th) his conclusion that the stock markets have seen their 2008 lows (on October 10th). Then tonight, the Cabot newsletter is advising that the Economic Cycle Research Institute's Weekly Leading Index has hit its lowest level on record, dating back to 1949. The implication is that the forecast two to three months out calls for levels of distress not seen since World War II. Basically, the economy is falling off a cliff. 
    Paradoxically, the Cabot newsletter thinks that the stock market may be building a bottom here, since it's looking out six months or so into the future. The newsletter says that in order for this is to happen, the market indices will have to retest their bear market lows, typically five to eight weeks after those lows occur. Right now, on November 7th, we're sitting exactly four weeks out from the October 10th lows, so by or before the 5th of December, the markets should revisit their October 10th lows. If they pass that test and turn up... if the S&P holds above about 850, and the Dow doesn't go below 8,000... there's a good chance that we've seen the worst in this bear  market (though not in the economy; that will take another six months). So what should we do right now? In terms of playing this rally, nothing. If the market retests its October 10th lows and passes them, that will be the time to buy. If it retests its October 10th lows and fails them, then we'll be glad we didn't buy anything now, and we might (or might not) want to cash in some of the equities we have left, since new lows will be in the offing. If the markets don't retest their October lows, then when they peak later this year or early next year, that will be a signal to sell at the intermediate top, since the bottoming process necessary for a true recovery won't have taken place.
    The Cabot newsletter is quick to state that even if the markets pass a retest, it may still signify only an intermediate peak, and they cite the two-and-a-half month rise in April and May as an example of what we might expect.
    I have an uneasy feeling that this may be more of an economic storm than some may anticipate, but maybe federal stimulus plans can forestall this downward spiral. But it would seem as though it will take a long time for the world to pay off its debts and then, at least for the United States, to rebuild its pool of investment capital.
    Here is a good article by Kevin Depew: Five Things You Need to Know: Why Not Hyperinflation?
    GM announced today that it had burned through $2.5 billion of its savings last quarter, and that it might face bankruptcy next spring without a federal bailout. "Brother, can you spare a billion or two?"


2008-11-6:  Another dark day at the bourse. The major indices are down about 5% again today. They're still significantly above their October 10th lows, but they've given up about 2/3rds of their recent gains. There's bad news from all quarters. One of the startling straws in the wind is the precipitous rate at which layoffs are occurring. Tomorrow will see the latest government numbers on employment (which are expected to be bad). To lend perspective to this outlook, only a few months ago, we were being told that overseas economies would continue to buoy U. S. industry because of its overseas markets, and that this time, the rest of the world would be decoupled from the U. S. Instead, the whole world is underwater.
    The NASDAQ fell 72.94 (4.85%) to 1,608.70, the Dow gave up 443.48 points (4.34%) to close at 8,695.79, and the S&P backed up 47.89 points (5.03%) to end at 904.88. Oil fell today to $61 a barrel in anticipation of reduced demand, while gold lost $10.20 to $732.20. The VIX moved up to 63.38 as the level of angst rose.
    The Motley Fool has recommended that no one get back in the market until the Dow surpasses 12,000. The latest Cabot China and Emerging Markets newsletter still recommends a 100% cash position. Its author mentions that current levels of volatility are virtually unprecedented. With the market indices up 11% in one day, and then down 10% a few days later, there's no way to invest with any confidence that we won't be pistol-whipped. The rip tides and cross-currents are just too great.
    I've been receiving newsletter solicitations the last few weekends that have been telling me that "Black Monday" was at hand (the stock market was about to tank), and that if I signed up for their newsletter ($995), untold riches could be mine. The first time this happened, four weeks ago, on October 10th, the S&P 500 closed at 899. It then proceeded to jump 90 points on "Black Monday". From there, it worked its way down the rest of the week to close the week at 940.55 on October 17th. That weekend, I received another exhortation to sign up before Monday before the bottom fell out of the market. On "Black Monday", October 20th, the S&P climbed 42 points. The rest of the week it fell, closing at 877 on Friday, October 24th. Then it fell 28 points on "Black Monday", October 27th, hitting its lowest close at 848 (but not penetrating its intra-day low of 840) but rose the rest of the week to close 120 points higher on Friday, October 31st. This last weekend, it treaded water on Monday, November 3rd, rose on Tuesday, and fell on Wednesday and Thursday. Shorting the market wouldn't have paid off, especially if you started that first weekend, when it closed at 899. Its closing price tonight was 905. In the meantime, I've been exhorted every weekend about the imminent market collapse. If I had subscribed to this advice a year ago, I'd probably be a lot better off now, but between then and last spring, I was following the advice of Mark Hulbert's best market timers, who were recommending staying the course. And, of course, if this is the kind of meltdown that occurs once every century... or maybe once every other century... then you can't fault Mark Hulbert's best market timers too vigorously for failing to pick up on this stealthy storm.
    By the by, my Roth IRA's had hit $863,000 last October thanks to the option strategies that I had employed coming out of the August pullback. In the absence of the "black swan" event that we're experiencing, my portfolio should have crossed the million-dollar mark within a couple more weeks, at which point, or by the 1st of December, whichever came first, I planned to scale back, setting aside $600,000 in cash, and surfing the stock market with the remaining $400,000. But the highly unexpected happened: we had two corrections in rapid succession, and I'm lucky that I escaped with no more damage than I've incurred. On the bright side, the farther down the stock market goes, the greater the potential for a dramatic recovery. (The only reason for not jumping in now to snap up bargains is that this has been a very rapidly accelerating collapse, and there's no way to be sure just how far down the bottom will be or when we'll get there. Under any other circumstances, I would advise riding it out, and would have more money than I do in the stock market.)
    My point in mentioning this is that this was the third time that I've made a killing in the stock market and then lost most (though fortunately, not all) of my gains through well-intentioned but bad advice. This is why I'm hopeful that you can avail yourself of beaten-down stocks and/or mutual funds to recoup losses you might have incurred over the past year. But not yet. And of course, this wouldn't work if too many people tried the same ploys at the same time. (If everybody tried to buy at the same time, they would drive up the prices of the stock(s) or ETF(s), and if everybody tried to sell at the same time, they would drive down the prices of the stocks or ETFs.)
    Right now, with the VIX at historic highs, option premiums tend to make options fool's gold in my opinion. In the meantime, ultra-ETF's are my preferred vehicles for navigating these treacherous waters, but right now, even these are off-limits for me, except for hedging those stocks and mutual funds that I don't want to sell... e. g., Suntech (STP), First Solar (FSLR), the Wilderhill Clean Energy Fund (PBW), and Vestas Wind Systems (VWSYF).
    Meanwhile, from Mark Hulbert, Shades of Camelot? Let's hope not, and from Peter Brimelow, Brimelow on profiting from street smarts.
    If I sound as though I really know what I'm doing, please don't be taken in by my line of patter. I've made catastrophic blunders, like selling my Baidu (BIDU) at $106 to buy KAL Energy Systems (KALG) at $1.40 based on a story I heard on the Internet. I know! Anybody with two brain cells to click together knows better than to spring for a song-and-dance about a stock pushed on the Internet. But shucks, it sounded so convincing!
Chart for KALG
Then there was buying call options on the iShares China index and riding it into the dirt. But it's late. Maybe tomorrow, I can recount more of my goof-ups. (But don't let Tommie Jean know what kinds of mistakes I've made!)


2008-11-5:  The Lord giveth and The Lord taketh away. And The Lord just tooketh. The Dow plummeted nearly 500 points (486.01 points, to put a finer point on it) (5.05%) today to 9,139.27. Gee, whillikers, Sandy! What hath God wrought? Are they that disappointed about a Barack Obama presidency? Not according to Mark Hulbert: What does Wall Street think of an Obama presidency? Mark Hulbert concludes that Wall Street has been indifferent to who was ahead or behind in this Presidential sweepstakes. The reason given for today's retreat is a renewed awareness of the economic Grinch that threatens to steal Christmas.
    The NASDAQ shed 98.48 points (%) to end at 1,681.64, and the S&P divested itself of 52.98 (%) to close at 952.77. Oil was essentially unchanged; gold lost $14.90 to $742.40. The volatility index (VIX) jumped to 54.56.
    Many pundits are calling for a tradable year-end rally. "Tradable" means that professional traders might want to ride it up to its zenith and then short the market as it tumbles back down later this year or early next year. But one fact that I think we might want to bear in mind is that the stock market is a zero-sum game... one person's gain is another person's loss... and the key players in this game are the ones who manage the most money--in other words, professional investors. This means that the stock market will, by definition, behave in ways that confound the expectations of professional investors!!! The reason is that if there are any profitable trading patterns discernible by professional traders, including artificially intelligent trading programs, a lot of other professional traders will also discern the patterns and will start utilizing them to try to make money. But soon, a sufficient number of big-money players will be betting on the same side of a trade that the odds of beating the market will go below 50-50, and they'll begin losing money. Applying that to our year-end rally, if very many investors come to expect it, it probably won't happen, or if it does happen, the market may be so volatile and treacherous that it won't be tradable by reasonable traders.
    I'm trying to write up something titled, "Should I Buy Into This Stock Market Rally?" The short answer is: probably not, but there may be some useful information and strategy that would apply to such a decision. But it's hard to find time to write all this material. Tonight, for example, Amber and I have had to help Dora, Boots, Ickey the Iguana, and the baby jaguar rescue Benny, the Blue Cow, from the Gooey Geyser before the Gooey Geyser went FERFOOFLE! (We made it in the very nick of time.) However, I would reiterate: things aren't as bad as they may seem, nor are your present losses irreversible (unless you took your money out and spent it). And the talk about "it may be 2020 or 2030 before the stock market returns to its 2007 high": that might or might not be true, but that doesn't mean that you can't soon recoup your losses a lot sooner than that. I have every confidence that the No-Load Fund X mutual funds such as UNBOX and FUNDX, which are down at about half their peak values, will continue over the long haul to crank out the 15%-per-year to 18%-per-year average long-term rates of return of the No-Load Fund X newsletter even through a secular bear market. Last October, Janet Brown's No-Load Fund X newsletter had averaged a 19.2%-per-year average rate of return since its inception in 1970. That record included 12 years of the 16-year, 1966-to-1982 super-bear market. Similarly, the Prudent Speculator newsletter at its peak last October had cranked out a 19%-per-year average rate of return since it opened its doors in 1980. The corresponding mutual fund, the Al Frank Fund, VALUX, hasn't been around that long, but it was doing very well until last winter. (One way to play this recovery would be to switch to these funds as they come back up.)


2008-11-4:  Wonder of wonders! the markets registered a major advance today, ahead of the Presidential and Congressional election results. The NASDAQ snagged an additional 53.79 points (3.12%), closing at 1,780.12, the Dow pegged 305.45 points (3.28%) to reach 9,625.28, and the S&P rallied 39.45 points (4.08%) to reach 1,005.75. Oil jumped $6.62 to hit $70.07 a barrel on hopes for a stronger economy, while gold added $30.50 an ounce to close at $757.50. The VIX fell to 47.73. 
    Michael Ashbaugh released his Tuesday technical analysis of the stock markets: Ashbaugh's market recovery checklist. He's unable to give a clear signal, but if the market averages exceed certain upside resistance levels, then the given averages have a good chance of trending higher, whereas, if they penetrate certain base levels, they stand a good chance of moving lower. He suggests that this rally offers trading opportunities, bur unfortunately, they've already advanced so far that it probably isn't wise to try to trade at these elevated levels. This analysis, coupled with all the other technical analyses I've read, is consistent with the notion that technical analysis has the same predictive value as fortune cookies and tea leaves. This should come as no surprise. A widely available technique for accurately predicting what's coming next in the stock market is an oxymoron. Once the accurate prediction technique becomes well-known, everyone will try to use it and it will no longer work.
    The reason for today's market boost seems to be that Wall Street credit markets are loosening up (though not our Main Street markets).


2008-11-3:  The markets managed to finish the last day before Election Day largely unchanged in spite of the fact that "The wheels have come off auto spending." Ford sales are down 30%, G sales are down 45%, and even mighty Toyota is 23% underwater. In addition, the Institute for Supply Management reported that U. S. industrial production is down at 1982-recession levels.
    The NASDAQ eked out a gain of 5.38 points (0.31%) to reach 1,726.33, the Dow fell  points 5.18  (0.06%) to close at , and the S&P dropped points 2.45 (0.25%) to depart at 966.30. Oil fell $3.90 a barrel to close at $64.30 while gold added $8.60 an ounce to reach $726.80. The VIX ended at about 54.
    Meanwhile, Hugh Johnson says the bottom is in: Bottom is in, says Hugh Johnson — but don't buy stocks just yet  
    The stock market's resistance to bad news could reside in the fact that the credit markets seem to be thawing--but... Fed Says Banks Tighten Loan Standards Most on Record (Update2). This comes as no surprise, with consumers and companies retrenching with breathtaking rapidity. Ford announced today that its sales have slumped 30%, while GM advised that its sales are off 45%. At those rates, these corporations would only be able to support a fraction of their present workforces. And further layoffs imply further sales shortfalls. (Most people can get by for a while without buying a new car.) Long-lived, big-ticket items will probably be hit the hardest in the months (years?) ahead.


2008-11-1:  Sam Stovall, the Chief Investment Strategist at Standard & Poor's, is forecasting four quarters of recession, ending with the second quarter of 2009. Given that the markets generally turn up 4 to 6 months before the economy bottoms, the stock market should start back up no later than late January, 2009. Given also that the current rally is expected to end anywhere from late November to late January, the October 10th intra-day low of 840 might mark the low point on the S&P 500 for this bear market. In the meantime, Minyanville's Kevin Depew states: "I believe the magnitude of this bear market is far greater than 2002 but is being vastly underestimated by policymakers and investors." I'm disposed to believe Kevin Depew and the other pundits who foresee a deeper, darker, longer period of economic malaise than Mr. Stovall is projecting. I've lost too much money this past year listening to business-as-usual pundits with batting averages of zero.  
    When we read the conflicting opinions of experts, we're always left with the question, "Which expert is right?" Reading conflicting experts' opinions has the effect of negating any expert advice they might give us--like reading a weather report that says, "Today will be warm and sunny, unless there's a violent thunderstorm, followed by heavy snow." The problem is: the experts don't know. Here, for example, is yesterday's column written by Nobel-Prize-winning economist Paul Krugman: When Consumers Capitulate.Which brings me to the question: what about all these ads telling us how we can make tons of money if we'll only subscribe to their news service? And that brings us to Mark Hulbert's Hulbert Financial Digest, the "Consumers Reports" for financial newsletters. If you actually follow the advice offered by these newsletters, you'll usually lose your shirt. Only two newsletters have outperformed over the long haul: John Buckingham's (formerly Al Frank's) The Prudent Speculator, and Janet Brown's No-Load Fund X. These newsletters have averaged between 16% and 19% per year (depending upon when you compute these averages) over the 28 years that Mark Hulbert has been publishing his newsletters. Several others have beaten the markets over the long haul, although not by as much as the two front-runners. Other newsletters have performed better, and even much better, over the past five years, and they may outperform from here on out, but they haven't had time to develop the long-term track records of the two frontrunners. As for the newsletters that promise huge gains in six months, these are generally snake-oil salesmen who play upon our perceptions that others who are "in the know" are doing hugely better than we are. But I would suggest that Nobel Prize-winning economists don't know with certainty what's going to happen next, and that those who talk with great assurance and who appear to have deep understanding don't know what they're talking about. If they did, they wouldn't be talking about it, and wouldn't be selling you advice. They'd be trading their own accounts, and keeping very quiet about it. "Those who know don't talk, and those who talk don't know."
    More about this later.


2008-10-31: The markets climbed again today. The Nasdaq gained 23.43 (1.32%) to 1,720.95, the Dow added 144.32 points (1.57%) to 9,325.01, and the S&P inflated 14.66 points (1.54%) to 968.75. The VIX fell to about 60. Oil rose $1.85 to $67.81, while gold fell $20.30 to $718.20. Stocks posted their worst month in decades in October. There is some sense that we may enjoy a year-end rally, but the pundits I read are more than convinced that it's time to Take Profits and Get Out!. Kevin Depew, in an excellent article, Five Things You Don't Want To Know, says, 
"(2) I believe the magnitude of this bear market is far greater than [the]2002 [bear market] but is being vastly underestimated by policymakers and investors." 
    His article quantitatively supports his assessment.
    Mr. Depew suggests a target of 1120 on the S&P 500 for this current year-end rally (about 15% above tonight's close--not all that great considering that at 968.75, the market has already risen 13% above Tuesday's opening of 848.92 (in four days), but in his view, the situation is highly dangerous, and this rally represents a selling, rather than a buying opportunity (unless you want to gamble on trading the rally). In 2003, a peak was reached about three months after the intermediate bottom. For us, three months would correspond to the last week in January. Probably the best bet for us would be to gradually sell along the way.
    Mr. Depew has produced another chart comparing the current market behavior with the 2003 market pullback (see below). Note how fast and far the 2008 market decline has been compared with both the 1974 dip and the 2003 valley.


2008-10-30: Gross Domestic Product contracted at an average 0.3% rate in the July-through-September quarter. The classic definition of recession is two successive quarters of GDP contraction, so we won't have confirmation before January whether or not this contraction fits the classic definition of a recession, but given the ongoing decline in nearly every economic metric, it seems assured that we are, in fact, in a recession. Other data shows a further thawing of the current credit freeze and is credited with contributing to today's market advances. The NASDAQ advanced 41.31 (2.49%) today to 1,698.52, the Dow added 189.73 (2.11%) to close at 9,180.69, and the S&P rose 24 points (2.58%) to end the day at 954.09. The VIX fell from 66.99 to 63.69.
    Another important consideration is that, at least in the commodities markets, we're seeing dramatic deflation. Mark Hulbert has just called attention to this in Deflating prospect. for perspective on what's happening to the consumer: Beaten down, American consumers burrow deeper
    After contemplating the stock market's hills and valleys between 1929 and 1932, I've realized how difficult it would be to try to guess when to get back into the market. There were six bear market rallies (please see the chart in yesterday's discussion) as the market  worked its way down from its 1929 high of 381 to its 1932 low of 41 Fortunately, we don't have to do that. Cabot's China and Emerging Markets newsletter has had a sterling track record for the past few years, and has been reducing its subscribers' exposures to the stock market for the past year. It's presently recommending 100% cash. I'm going to depend upon it to tell me (and you) when to get back in the market. I'm also going to seek opportunities to go toward cash. I've begun this trek by selling 1,200 shares of UUPIX for $8.26 a share that I bought last week for $5.42 a share.  
    There's some slight reason to believe that a November rally might already have started. Two weeks ago, after the greatest single-day point rise in market history, the indices gave back their gains two days later. This time around, they rose a couple of percentage points today (two days after the second-greatest point gain in market history). The markets are overdue for a bear market rally. This could be the beginning, as described in this interview: 'November will be better than October' (audio). The speaker observes that bear market rallies generally retrace 1/3rd to 1/2 of  their down-leg, and generally last three weeks to three months. He projects, as a likely high-water mark, 10,000+ and maybe, 11,000+ on the Dow (1,000 to 2,000 points--11% to 22%--above the Dow's current close). (This would correspond to 1,050 to 1,150 for the S&P 500.) Three weeks from now would be November 18th, and three months from now would be January 18th. Fridays have recently been down days. so we may not see meaningful action until next week. If there is such a rally, it could be an ideal time to lighten up. Of course, it will seem at the time that the rally is just going to keep going, but stop-loss limits, and experts' advice should provide some advance warning of an intermediate top. It would also be wise to sell gradually as markets rise.
    To sum it up:
(1) You might not want to buy or sell until we have further confirmation that this market is going to rally further.
(2) If it does continue to rise, then it might be a good time to lighten up by selling (gradually) stocks or funds.   
    San Francisco Federal Reserve Chairperson Janet Yellen had this to say today about the economy: Fed's Yellen Says Recent Data on Economy `Deeply Worrisome' and Fed's Yellen: US economy contracting significantly. Ms. Yellen has been upbeat in her assessments in the past. 
    Another article points out that No one's safe from contraction
    American Express announced today that it will lay off 7,000 employees, or 10% of its work force, which is why most stock market seers are predicting that we're not on the threshold of another primary bull market. (There's also the fact that we're in a secular bear market, with a wild guess at an end-date of 2014 to 2016.)
    Tomorrow, I'll try to add advice from some of my other investment newsletters.
    I want to reiterate that there are ways to make back money faster than we lost it. UUPIX at a price of $8.26 a share is still down by a factor of nearly 9 from last year's high. Also, emerging markets may recover before, and more than, U. S. markets.


2008-10-29: Today's market action looked like a subdued version of the "treading-water" market action on Tuesday, October 14th after the 900+ -point Dow run-up on Monday, October 13th. That price action was followed by a drop the next day (Wednesday, October 15th) that was as large as its 900+-point leap on October 13th. It now remains to be seen whether or not tomorrow (Thursday, October 30th) registers the same kind of plunge that we saw on Wednesday, October 15th.

    One interesting difference is that although we're bumping along the bottom, we still haven't penetrated the October 10th low. The S&P 500 yo-yoed up and down today, rising steeply 30 points to 970 twelve minutes before the markets closed, then falling 48 points in ten minutes, followed by an 8-point recovery in the last two minutes (playing out after the closing bell). Presumably, investors looking to dump stocks did so when the market rose just before the markets closed. Once this wave of selling ended, bargain hunters stepped in to bottom-fish.
    The NASDAQ Composite gained 7.74 points (0.47%%) to close at 1,657.21, the Dow dipped 74.16 (0.82%) to end at 8,990.96, and the S&P shed 10.42 (1.11%) to 930.09. The VIX rose 3 points from aboout 67 to about 70. Oil rose $2.18 a barrel to about $70, and gold rose $13.50 an ounce to $754.00
    Unless tomorrow changes the outlook, there's a generally downward bias, with the lows lower and the highs lower. More important, layoffs have accelerated dramatically. One article today, Shades of 1974, says, 
    "Jobs are being lost so fast unemployment could rise from 6.1% in September to 8% at the end of this year or early in 2009. With housing prices still falling at 15% to 20% compared with 2007, there is no buffer at all for the consumer, especially if the he loses his job. His lack of access to credit is both historic and remarkable."
    This quotation substantiates the sudden surge in layoff announcements that I've noticed within the past few weeks. Unemployment reached the 10% level during the 1981-1982 recession--the worst recession since the Depression (when unemployment hit 25%). But that was a recession brought on by high interest rates designed to wring inflation out of the economy. The current recession is accompanying an across-the-board deflation of all types of asset values from commodities through real estate to equities, as financial IOU's for several times the total value of all the real assets in the world are somehow discounted or repudiated or whatever it takes to bring the promises in line with what can really be delivered. Coupled with the need for banks to deleverage themselves from a 50-to-1 leverage ratio to a 10-to-1 leverage ratio and the risk that if they loan money to another bank, that bank may fail, anyway, is a deepening recession (Depression?) that threatens defaults on personal and business loans because of layoffs and bankruptcies. By comparison, the Fed, under its new Chairman, Alan Greenspan, had been raising interest rates in 1987 to cool the economy and preempt inflation. When the crash occurred, Chairman Greenspan promptly and wisely lowered interest rates, short-circuiting a recession/depression. This time, lowering interest rates is pushing a string, since the problem lies in banks' understandable unwillingness to risk lending no matter how cheaply they can borrow the money to lend. Fear is outweighing greed. The article concludes:
     "As Bernanke looks into the early part of next year, it should not be hard for him to imagine a jobless rate which moves over 10% and quarterly GDP drops of 3% or 4%. He has one last chance to slow the economy's momentum in that direction."
    Another article, No quick fix in the cards for Fed, includes,
    "This is big-time. The economic forecast is remarkably weak," said Brian Sack, a former Fed staffer who's now a Fed watcher with Macroeconomic Advisors.
    The article states,
    "The aggressive stance is needed because financial market conditions remain hostile to growth and the outlook for the economy grows darker by the day.", and it concludes,
    "The last Fed forecast was completed back in June -- at which time the central bankers were not even forecasting a downturn. Instead, their central tendency showed a period of "sluggish" growth and an unemployment rate topping out at 5.8%."
    I think this last statement is particularly telling. This is how fast the sky has darkened, and the storm clouds have piled to west in angry blue.
    Another excellent article is available at Minyanville.com,
Investing Strategy at the Crossroads, Part 1
Investing Strategy at the Crossroads, Part 2
    All of these articles underscore the need for extreme caution. Are we like pre-Columbian natives on a Caribbean isle watching the approach of their first (Category 5) hurricane?
    We're lucky we haven't had to cope (so far) with more-significant bear market rallies that really test our faith in lower lows. The plot below shows how the stock market tried investors' souls as it worked its way up-and-down, but generally down, over a three-year period.
[1929.bmp]
    We'll see what tomorrow brings.


2008-10-28: Wonders never cease! Bounding 885.39 (10.88%) in one day to 9,065.12, the Dow has bounced dramatically off its October 10 lows... its second largest point jump in stock market history (the sixth largest percentage-wise) after its 925-point, 10.9% hike on October 13th. The NASDAQ and the S&P 500 have followed suit in the face of nearly universal agreement that the stock market could only go lower. The NASDAQ has sprung up 143.57 points (9.53%) to 1,649.47, and the S&P has vaulted 91.59 (10.79%) to 940.51. The VIX has fallen from yesterday's closing value of about 80 to today's close at about 67. Gold and oil dropped only slightly in price today.
    This is a reminder of how difficult it is to try to time the stock market, and how the market defies the consensus. The stock market may well turn around and plunge lower from here... I personally suspect this may happen... but when I wrote, "Look out below!", I certainly didn't expect the indices to explode upward like this the next day. And of course, the stock markets don't do what most people expect them to do.
    In We are expecting the worst, says Cantor Fitzgerald's Pado, Mr Pado points out that at this time of year, companies are trying to look as bad as they can so that when they report year-end results, they'll shine by comparison. Also, the housing inventory data looks worse than it really should because banks have turned to multiple listing services to get rid of the houses on which they have foreclosed as soon as they can. This both  increases the number of listings of the homes and reduces the prices of the homes as banks race to dodge the costs and hassles of untenanted-home ownership.
    In A treacherous backdrop for bulls and bears, Michael Ashbaugh notes that all three indices are pointing down. He mentions, however, that although the NASDAQ Composite has broken below its October 10th intra-day low, neither the Dow nor the S&P 500 has done so, and had failed to penetrate that low on the 16th and again on the 22nd, which is what makes it a treacherous call that could go either way. And now, of course, the indices have rebounded strongly again. (One of the interesting questions will be that of whether today has given us a second greater-than-9-to-1 up day in the markets in 11 days.)
    On  Monday October 13th, when we had the fifth biggest up-day in stock market history, it was followed by a basically unchanged day, on Tuesday and then a fall on Wednesday below Monday's opening. We'll see what happens this time. We're due for a bear-market rally, but there's general agreement that there's too much optimism (the VIX notwithstanding) to permit today's surge to be the start of a new multi-year bull market. My notion is that with layoffs on the rise, with adjustable-rate mortgages due to reset all next year, and with employment mainstays like Ford and General Motors staring into a chasm, we're in for more down markets. But it's also true that the stock market turns up four to six months before the economy hits bottom. The only thing I know to do is to play this pragmatically a day at a time.
    Today, I sold 100 shares of QLD (the Proshares Ultra NASDAQ 100 ETF) at a slight profit, along with 500 shares of General Steel, Inc. (at $3.30 a share). I did this to raise a little extra cash. I would have had about $330 in extra profits if I had kept the QLD until the end of the day, but there was no way of knowing first thing this morning that we would have a nearly 11% rise in the indices for the day. I also bought 25 shares of the Inverse Ultra Emerging Markets Exchange Traded Fund, EEV when it was on sale this afternoon, as a counterweight to my UUPIC Ultra Emerging Markets mutual fund.  
    Here are two scary articles:
Bank of England: Risks remain for financial system
Europe on the brink of currency crisis meltdown    
and a not-so-scary counterpoise: Mark Hulbert:: Analogies to Great Depression needlessly scary.  
    One important footnote to Mark Hulbert's citing of dividends to mitigate losses during the depression: corporations cut their dividends to by-far the lowest levels in history during the dot.com boom, and while they've risen somewhat over the past eight years, they're still far below Depression-era levels. (I don't know the current dividend yield on the S&P 500, but I'm going to guess that it might be in the 3%-to-4% range.)  
    Asian markets are up again tonight (they closed higher yesterday after falling earlier in the evening). Personally, I don't plan any special moves until we see a stock market pattern that looks a little more durably optimistic. There's still plenty of "upside potential" if the markets continue to percolate, but there's also a good chance of another bear market rally even if the markets do follow through tomorrow. (UUPIX is still down by a factor of 11 from last year's high. The Proshares Ultra NASDAQ 100 fund, QLD, is still down by a factor of almost 4 from last year's high.)


2008-10-27: World markets fell dramatically Sunday night, and so far, are falling again tonight. At 1,723 just now, China's Shanghai Composite is at 28% of what it was (at 6,092) a year ago. Paul Krugman has explained why this is happening: Paul Krugman: The Widening Gyre. What he basically says is that Secretary Paulson, although moving in the right direction, (1) hasn't insisted that banks loan out the money the Fed has made available to them (and they're not), and (2) top officials have denied that Fannie and Freddie debt is backed by the full "faith and credit" of the U. S. government, thereby undoing what the Freddie and Fannie bailouts were supposed to do: reassure potential lenders that Freddie and Fannie are safe bets. As Dr. Krugman puts it, "Things continue to fall apart." 
    The center is not holding.
    Here in the U. S., the NASDAQ Composite fell 46.13 (2.97%) to 1,505.90, the Dow slipped 203.18 (2.42%) to 8,175.77, and the S&P tumbled 27.85 (3.18%) to 848.92, or about 9 points above its October 10th intraday low of 840. The VIX ended at 80.06. Oil fell a little farther to $62.27 a barrel, and gold rose to $742.50 an ounce.
    It doesn't take a lot of imagination to figure out why banks don't want to lend. With layoffs mounting and unemployment rising, there's no telling who's a safe individual borrower and who isn't. Similarly, if companies or other banks fall fail, they're no longer safe investment bets.
    Mark Hulbert has just published this: Mark Hulbert: Dow has failed its retest of early-October lows.
    Look out below!
    Two inverse ultra funds are the Proshares Ultrashort S&P 500 Exchange-Traded Fund (ETF), and the Proshares Ultrashort QQQ (NASDAQ 100) ETF (QID).


2008-10-24: World markets crashed overnight. The Hong Kong Hang Seng fell 8.3%, Japan's Nikkei Dow dropped 9.6%, (from a 1990 high of almost 40,000!).

Chart for NIKKEI 225 (^N225)

 the Singapore Straits Times lost 8.33%, and the Seoul Composite shed 10.57%, Not all foreign markets participated in this bloodletting. China's Shanghai Composite only fell 1.92%, (chart below) 

Chart for SSE Composite Index (000001.SS)

and the Australian All-Ordinaries declined 2.73% (see below).

Chart for ALL ORDINARIES IDX (^AORD)

    Another way to look at this is that these markets have great potential for a recovery. Sooner or later, they'll come back lean and mean.
    European stocks fell more in line with the U. S. markets by about 3% to 5%.
    The Dow was tipped to fall by more than 1,000 points today, and U. S. market futures were so depressed that further trading was halted until the markets opened. However, in practice, although the Dow fell 500 points (about 6%) to 8,189.79 shortly after the markets opened this morning, it ended the day down 312 points or about 3.59% at 8,378.95. This is a lower close than its October 10th close 8,451.19 by about 72 points, at no time during the day did it approach the October 10th low of 7,882.51. The NASDAQ Composite relinquished 51.88 points (3.23%) to end at 1,552.03. The S&P dropped 31.34 (3.45%) to land at 876.77. The VIX hit a high of 89.53 before closing at 79.13. Oil fell back $3.69 to $64.15 a barrel in spite of an OPEC agreement to reduce oil production by 1½ %. Gold rose $15.60 to $730.30.
    I'll try to add to this tomorrow, particularly with regard to how we might recoup the losses that this bear market has inflicted upon us, and the steps I've taken (and am taking) to recoup my own losses.


2008-10-23: Another wild day at the bourse. The S&P 500 swung from a high of 922.77 to a low of 858.44 and then rose to close up 11.33 (1.26%) at 908.11. The NASDAQ fell more than 100 points but closed down 11.84 points (0.73%) at 1,603.91. The Dow varied over a 500-point range, closing up 172.04 (2.02%) at 8,691.25. The VIX was today's real newsmaker, spiking to an all-time high of 96.4 before closing at 67.8. 
    So far, the S&P and the Dow, with intraday lows of 858.44 and 8,243.87, respectively, are still holding above their October 10th lows of 839.8 and 7,884.82, but the NASDAQ Composite broached its October 10th low point of 1,542.45 today with a new low of 1,533,35.
    Oil rose $0.45 to $68.30 a barrel; gold fell $20.50 to $714.70. (Institutions are liquidating gold to raise cash.)
    The news today was abominable, with layoffs, pullbacks, and other financial woes erupting worldwide. 
    Alan Greenspan, testifying before Congress today, said, "those of us who have looked to the self-interest of lending institutions to protect shareholder's equity (myself especially) are in a state of shocked disbelief." (Greenspan switches on CDS) There's a back-story here. Half a century ago, when he was 25 years old, Alan Greenspan was introduced to the radical ultra-conservative, Ayn Rand. What happened then is what seems to me to be not uncommon: a charismatic guru indoctrinates a young and impressionable acolyte. An Wahhabi Islamic cleric was said to have convinced the young Osama bin Laden in his formative years that an American presence on holy Arabian soil was arrant sacrilege. Paul Wolfowitz and Richard Perle are alleged to have been influenced by Leo Strauss, Albert Wohlstetter, and subsequently, Senator Henry "Scoop" Jackson, for whom they worked as Congressional Aides. This would seem to be mirrored in the Bush Administration's neoconservative foreign and domestic policies. And so it was with Alan Greenspan. Ayn Rand opened Dr. Greenspan's eyes to topics and issues beyond economics, such as history and the human condition. The young Alan Greenspan also absorbed, or resonated with Ayn Rand's ideas about laissez faire capitalism, and her cult of "me-first", and of personal self-fulfillment at any cost. Ayn Rand subscribed to the libertarian model of virtually no government involvement with individuals or industries, and Dr. Greenspan carried this into Federal Reserve policy. My own perception has been that capitalism is based upon "eat-or-be-eaten" competition. If a corporation refuses to adopt a highly profitable, new (sometimes dodgy) strategy espoused by its competition, it must either follow suit or fall by the wayside. This means that corporations must constantly push the envelope, getting away with as much as they can. Also, in this day and age, the men who run corporations only need to hold the CEO slot for the few years it takes to fashion their golden parachutes, and then they can bail out. Because of this, it seems to me that, like an elementary-school classroom, capitalism requires external controls. There can certainly be too much control, but it's my impression that there can also be too little. Apparently, Dr. Greenspan believed that industry would somehow regulate itself.  But he's intellectually honest enough to publicly admit that his model was wrong.
    Mark Hulbert observes that after a year-long bear market, the current S&P 500 Price/Earnings ratio is still 18.1: Mark Hulbert: Valuations are low only if you have short memory. That's a long way from the single-digit P/E ratios found at the bottom of secular (~16-year) bull markets. The S&P 500 would have to reach 400-450 to mark a super-bull market turning point. Ouch! 
    A considerably more optimistic picture emerges from Peter Brimelow's article, Stocks' bottom may be in sight. Mr. Brimelow's conclusions are based upon Dr. Jeremy Siegel's work at the University of Pennsylvania's Wharton School of Business. The two charts below show updates to Dr. Siegel's famous chart showing the long-term, inflation-adjusted return of the stock market from 1801 to October 10, 2008. As depicted in the second chart, the broad stock market has fallen to an inflation-adjusted low not seen since the bear markets of 1982 and 1974. Of course, the 1974 bear market, severe though it was, didn't mark a secular bear market bottom; that didn't occur until August, 1982 (when as Mr. Hulbert explains, the P/E ratio fell below 8). But at least, the 1974 trough signified a cyclical bear market low.

I have more to tell, but it's bedtime. "Tomorrow will be another day."


2008-10-22: Another day of (even bigger) pullbacks. The NASDAQ fell 80.93 points (4.77%) to close at 1,615.75, the Dow shed 514.45 points (5.69%) to end up at 8,519.21, and the S&P dropped 58.27 (6.1%) to 896.78. After spiking to 81.45, the VIX closed at 69.65. So what happened? Apparently, it was gloomy earnings forecasts for the 4th quarter rather more than 3rd-quarer earnings, along.with downbeat news from around the globe. This morning, Todd Harrison published this sobering assessment of what's happening, and of what might be in store for us: The Other Side of the Trade: Bear Trap!. Meanwhile, oil rose $0.62 to $67.37, while gold dropped again to $735.20, along with other falling commodity prices. (At least, this eases inflationary pressures.)
    The real question is always: what's next? Are We Headed Toward Another Great Depression? Or only a nasty recession? As the charts show, so far, the markets haven't fallen below their lows on the 10th and 16th of October. They may tomorrow, but tonight, they're still afloat. 
    With respect to a Great Depression, the governments of the United States and the rest of the world are doing everything in their power to avert such an outcome... are doing the opposite of what the United States did that brought on and prolonged the Great Depression of the 1930's. (I suspect that we're lucky that an expert on the Great Depression, Dr. Ben Bernanke, is the Chairman of our Federal Reserve.) On the flip side, the hole we've dug for ourselves appears to be significantly worse than it was in 1929, and there's no assurance that we're near the bottom, since an economic downturn can feed upon itself, and can confound the process of recapitalizing ourselves.
    Will the markets will continue to fall tomorrow, or will they right themselves before they penetrate the October 10th low?


2008-10-21: A day of pullbacks. The NASDAQ plunged 73.35 (4.14%) to 1,696.68, The Dow dropped 231.77 (2.5%) to 9,033.66, and the S&P plummeted 30.35 points (3.08%) to 955.05. The VIX rose slightly to 53.11. Bad earnings reports and downbeat news about the economy are blamed for the decline. For example, higher insurance rates are forecast. Crude oil closed at $70.89 a barrel, and gold gave up $22 an ounce to end the day at $768 an ounce.
    Michael Ashbaugh has published a well-received article: Michael Ashbaugh's checklist for a market recovery. He concludes that it's definitely too early to break out the champagne just yet, and enunciates the changes that would have to occur in order to herald a bear market bottom. Mark Hulbert also has an interesting article: VLMAP offering directions to wealth? Also from mark Hulbert tonight: The difference between panic and capitulation. Mr. Hulbert concludes that the recent panic and stratospheric VIX readings didn't signal the capitulation and total disavowal of stock investments that occurs at a major market bottom. The major market bottom is yet to come.


2008-10-20: The Dow rose 411.46 points (4.67%) today to 9,263.68 as indications began to appear that government interventions are thawing the credit markets, as Fed Chief Ben Bernanke supported plans for additional economic stimulus (Bernanke backs more economic stimulus), and as the index of leading economic indicators unexpectedly rose 0.3%. The Nasdaq tacked on 8.74 points (3.43%) to close at 1,779.03, and the S&P 500 added 58.74 (4.77%) to end at 985.40. The VIX fell to about 53... still in terrified territory, but not at the Halloween fright levels of the past week or two.


2008-10-17: It looks to me as though the markets may have successfully retested their lows today. Of course, we'll have to see what kind of follow-through we have. The Nasdaq climbed 89.38 points to close at 1,717.71, the Dow added 401.35 to close at 8,979.26, and the S&P 500 advanced 38.58 points to hit 946.43. Oil fell $4.69 to end the day at $71.23 a barrel, and gold fell $34.50 to 804.50. After hitting an all-time high of 81 this afternoon, the VIX ended at 67.61.
    Uh,oh! One thing the rally isn't: a key reversal, says Mark Hulbert.


2008-10-16 (5:00 a. m. CDT): Stock futures are pointing higher before the opening this morning. S&P futures are 6.6 points; the Nasdaq is up 7 points; and the Dow rose 38 points before the opening bell this morning. Peter Brimelow: Wipeout Wednesday

2008-
10-16 (6:00 p. m. CDT): These are fateful, historic days. The stock market crumpled again today, with the Dow falling 733 points in its second largest point drop in history. What's so significant about this pullback is that the world's governments have just pledged trillions of dollars and historically unparalleled measures to combat the credit crisis. Further, this would appear to be Wall Street's response to Fed Chairman Ben Bernanke's luncheon speech (as described below) before the Economics Club of New York: Bernanke sees long slowdown, but still confident: More difficulties lie ahead but we'll get though them, he tells Wall Street.
      The Nasdaq Composite closed below last Friday's close, but the Dow and the S&P 500 remained a few points above their Friday close. If, tomorrow, the indices successfully retest their Friday lows and turn up, then we may be able to expect a rally lasting through the end of the year. But if they don't, then look out below! Once again, it's "falling-knife" time... time to sit tight and see where this market goes.
    Today was filled with dour news about a shrinking economic outlook and ever-more layoffs. 
    The Nasdaq parted with 150.68 points (8.47%) closing at 1,628.33. The Dow offered up 733.08 points (7.87%) to hit 8,577.91. The S&P 500 proffered 90.17 (9.03%) to end the day with 907.84. The VIX leaped 14.12 points to end at 69.25. Oil hit a new low at $73.52, and gold remained essentially unchanged at $839.00.
    The Proshares Ultra Emerging Markets Fund fell to a new low of $7.93 tonight. When the time is right, that should be a great buy but not yet--not until we see what this market will do next.
    Several bear-market strategists such as Bill Gross of PIMCO, PIMCO's Bill Gross on Where We Go from Here, the managers at Longleaf Partners, Longleaf Leaders See Sunny Days after the Storm, and market forecaster Jeremy Grantham, Grantham- Stocks Haven't Been This Cheap since 1987, who predicted the current crisis when everyone else was oblivious are now saying that we're near a bottom. 
    I'd be delighted to pick up a few thousand shares of UUPIX at $4 a share. 
    There will be numerous earnings reports tomorrow


2008-10
-15 (12:00 noon CDT): Wall Street pundit Michael Farr tells Marketwatch's Andrew O'Day that there will be more economic pain to come, but that Warren Buffett is buying again and that the bear is almost back in his cave: [audio] MarketWatch Morning Stock Talk: Farr: Buffett is buying, and so should you.
    Fed Chairman Ben Bernanke is telling Wall Street that although there will be an economic slowdown ahead, inflation pressures are moderating as commodity prices continue to fall (something which will take time to show up in trailing-month statistics). He is advising that inflation worries were overstated, and that we have avoided the errors that led to the Great Depression. The economy isn't a disaster. 

2008-
10-15 (9:00 a. m. CDT): A retrenchment following Monday's galloping high is to be expected, but that doesn't make it any easier to bear. All the news out there today is bad. This week will see a number of threatening economic and earnings reports. And of course, there's no guarantee that we've seen this year's lows. These are unprecedented stock market conditions. So what could make the markets go higher? News that the credit freeze is thawing. Balanced against this is the growing realization that this recession will be bad. Supposedly, some sort of recession is already priced into stocks, but there are recessions and there are recessions. The news is certainly stoking more fear and worry. At the same time, there are phenomenal bargains available right now that pay high dividends. We've been through a selling frenzy. But we'll see.


2008-10-14: I hope day trader par excellence Todd Harrison is correct because I've bought a number of shares of the Proshares Ultra Emerging Markets Fund (UUPIX). Mr. Harrison is speculating that we'll see a new low in 2009, but for the rest of 2008, the markets may rally. UUPIX appears to me to be the ideal investment vehicle to ride to an intermediate market recovery. Of course, if the markets tank, I may have to sell at a loss to recover my cash. (The bulk of my cash is still safely on the sidelines.)
    Today, the markets closed lower, allegedly because of profit-taking after yesterday's bellwether run-up. The Nasdaq fell 65.24 points (3.54%) to 1,779, the Dow lost 78.62 points (0.82%) to 9,311, and the S&P 500 parted with 5.34 points (0.53%). The VIX rose 0.14 to 55.13
    There isn't much in the way of articles so far tonight except for this from Mark Hulbert: Corporate insiders still bullish: Todd Harrison has just published Have we seen the 2008 trading low?. Asian and European stocks are down a few percent after two days of record rallies.
    I guess we'll get up and pelt around the track again tomorrow.

2008-10-14 (11:30 a. m.): Day trader Todd Harrison has concluded that we've probably seen the trading low for 2008: Harrison: Low is in. (He also notes that the markets advanced 11%+ yesterday; merely holding their gains would be a show of staying power. On the strength of his assessment, it might make sense to consider nibbling at stocks and funds during this modest sell-off. The markets may go lower and retest their lows, so a gradual re-entry into the marketplace might be the astute gambit.)

2008-10-14 (10:30 a. m.): So why are the markets drifting lower? Ostensibly, at least, because of profit-taking after yesterdays' massive run-up. This may, in fact, be "Turnaround Tuesday", though the markets may be fated to trade higher in coming days and weeks. At the moment, with the indices flattening, it's time to sit and watch.

2008-
10-14 (8:45 a. m.): Bear in mind that stocks and exchange-traded funds (ETFs) already have the futures incorporated in their prices. Right now, the S&P 500 is at 32.72, and the prices of stocks and funds have dropped a bit from their opening highs. There will be backing and filling today, but Europe and Asia are up several percent (Japan's Nikkei Dow closed up 14%), and I imagine the U. S. markets may close up also. 
    
2008-
10-14 (8:00 a. m.): The market futures are sharply higher this morning, with the S&P 500 up 47.6 points and the Nasdaq up 51.5 points. Although I expect the market indices to retest their lows in the next few weeks, I plan to buy more equities this morning, primarily because everyone else is expecting the markets to retest their lows.


2008-10-13 (7:00 p. m.): The markets jumped about 11.5% today on optimism that the dramatic rescue measures pledged by the world's governments will work (and maybe, partially upon the willingness of the world's governments to close ranks and aggressively attack a common crisis). The Nasdaq vaulted 194.74 points  (11.81%) to 1,844.25, the Dow jumped 936.42 points (11.08%) to close at 9,387.61, and the S&P 500 catapulted up 104.13 points (11.58%, the greatest daily percentage gain since 1933) to 1,003.35. This was the Dow's largest point jump ever, as was probably the case for the other two indices. There was a little profit-taking on the Dow and the S&P 500 near the close, but nothing major. The VIX fell from 71.42 to 55.
    Missed today's rally? So did I, but we may have a better chance. Todd Harrison is predicting (Random Thoughts: Saved by the Bell) that tomorrow may be "Turnaround Tuesday". Of course, the markets could go higher tomorrow, but sometime this week, there ought to be a knee-jerk pullback. And this is probably not the bear-market bottom for this multi-year cycle. Our financial houses have many times as much debt as they have assets. How these tens of trillions of dollars in unfunded IOU's will be sorted out and who will be left holding empty bags must be adjudicated after the credit markets have thawed. Even if its an intermediate bottom, the markets will probably retest their Friday lows. Here are more cautionary notes: Two Ways To Play: Monday's Dow Pow! mentions that Google, which closed today at $381, could go as high as $430-$450 before it would be time to take profits. Hugh Johnson, former guru for First Albany, now trading on his own ticket, cautions, Hugh Johnson: Stay on defense, that today's action isn't yet a marker for even an intermediate-term rebound: Mark Hulbert reminds us that today was a Classic buying stampede, with a better than 9:1 ratio of rising versus falling stock prices, but it will take another 9:1 buying panic to confirm that Friday's low was a meaningful turning point. He observes that September 30 was also a 9:1 up day, and it was followed by eight consecutive days of major stock market losses.
    So what should we do tomorrow? The U. S. credit markets were closed today for Discoverer's Day, but the three-month euro Libor (London Inter-Bank Offered Rate) posted its biggest decline this year and the dollar Libor had its steepest fall since March. These inter-bank lending rates are measures of credit liquidity, and it appears that a thaw in these rates may finally be here. Tomorrow's report on the TED (Treasury-Eurodollar) spread will be eagerly anticipated, since it's a dipstick for U. S. inter-bank credit availability. In the meantime, prices are continuing to rise in after-hours trading . Also, Japanese stocks skyrocket (up 13% so far tonight). If the markets appear poised for further gains, how should we invest? Today, Todd Harrison bought QLD (the Proshares Ultra QQQ--Nasdaq 100--ETF--Exchange Traded Fund) in the morning and sold it again into the close. QLD rose an astonishing $8.19 or 24.59% today.
Chart for QLD
  
     He also owns a little EEM (the iShares Emerging Markets ETF), up $5.59 or 22.77% on the day,
Chart for EEM

Weatherford International(WFT), up $3.66 or 27.88% today, 
Chart for WFT

 United States Liquified Natural Gas Company (UNG), up $0.25 or 0.85% today.
Chart for UNG
    Other barn-burners today were Suntech (STP), up 26.48%, and First Solar, up 22.58%, both of which I described yesterday.
    If you're thinking that some of us... me, for example... made a killing today, think again. Although I did very well with the little bit of equity I owned, I've been afraid to invest very much in these roiling waters. The last few weeks have featured some of the most dramatic displays of financial fireworks in living memory. 
    If we're heading into an intermediate rally in a longer-term bear market, then the stock indices have already gained (in one day) something like half what they'll make in the entire intermediate rally.
What I Plan to Do::
    I plan to play it by ear. If the markets continue to rise, I'll hang on to the handful of stocks I bought today, and I may buy more at the opening. If the markets plateau and then start to fall, I'll sell if they lose more than half what they're gained. If stocks start to fall from the opening bell, I'll sell what little I bought Friday and yesterday.
    It's worth noting that the Proshares Ultra Emerging Markets mutual fund, UUPIX, climbed 40.28% today, to $12.05 a share. Its previous high was about $72 a share, so it can still 6-fold from here. The closing time for purchasing it is half an hour before the market closes. One problem with buying it when its price is rising rapidly is that, by the end of the day, its price may have risen significantly before you can actually purchase it. The way I'm trying to circumvent this is to buy twice as many $'s worth of EEM in the morning as a surrogate for UUPIX, and then reselling my EEM shares just before quitting time, That way, I can capture approximately the day's gain (or loss) on UUPIX. (Since I have excess cash, I can afford to put part of it to work for the day.) Another stratagem would be to buy the $20 January, 2010, call on EEM (-YVKAT). That would give approximately a 2:1 leverage on EEM, analogous to the 2:1 leverage afforded by the Ultra Emerging Markets Fund (UUPIX), so I'd only have to set aside half as much money for the day. The drawbacks to using call options are, first, there is a much larger spread between the bid and asked prices (which can lead to higher transaction costs), and second, the fact that, unlike Exchange-Traded Funds, it can take some time to buy and some time to sell these options.
    Other choices for heady additional gains may be Suntech (STP), 
Chart for STP
QLD (the Proshares Ultra QQQ--Nasdaq 100--ETF--Exchange Traded Fund, shown above),
and PBW (the Powershares Wilderhill Clean Energy Portfolio)
Chart for PBW
    I'll update this in the morning, and I'll try to update again during the day.

2008-
10-13 (8:00 a. m.): This article, Making sure gains in stocks aren't fleeting, explains why some caution might be in order with regard to stocking up on stocks just yet. Intraday boosts of 4%-to-5% aren't uncommon in this chaotic market environment. Basically, it says that by Tuesday, the initial optimism will have run its course. Bad earnings reports will be coming in, and the recession is still deepening. If the markets are up by >10% by weeks' end, then it will be time to call this a significant rally.


2008-10-12: One reason advanced for Friday's fall in the on-paper price of gold is that various organizations were selling their gold futures to raise cash. The price of gold for actual delivery rose to $903+ an ounce on Friday night.
    The two articles below contain discussions vis-à-vis what's happening at the present time. 

Exploring the worst-case scenario

Understanding the Market Panic
  

What Should We Do Tomorrow?
    For most of us, probably nothing. The stock market has been so unprecedentedly volatile that it probably makes sense to simply wait a little to see what's coming next. There's an international effort on track to rescue the global economies. We'll have to see how the markets respond to this in the morning. (One article, The Fed's Next Options, isn't very optimistic, but this may be more about investor psychology than anything else. With the world's governments taking dramatic steps to support financial institutions, the markets could turn at any time. And if not, the thundering herd may simply have to wear itself out.) Personally, I could imagine that the world's governments, acting in unison, should be able to rescue the world's real economies. But we'll see.
Later (8:00 p. m.):
    Asian stocks are up significantly in early trading, by 1.5% in New Zealand to 5.8% in Australia, and U. S. market futures are also up (25 points for the S&P 500). Still, one lesson I've learned is to tread cautiously, buying or selling a little at a time. Even if the market turns up tomorrow and stays up for a while, economic conditions are going to get worse before they get better. The stock market generally bottoms four to six months before the economy hits bottom.


2008-10-10  What a day of thrills, chills, and spills! It's been Mr. Toad's Wild Ride. After trading as low as 7,884.82 and as high as 8,890.85 in the last half-hour of trading... a 1,000-point range and the largest on record... the Dow finally closed down 128 (-1.49%) at 8,451.19. The Nasdaq and the S&P 500 followed suit, with the Nasdaq up 4.39  points (0.27%) on the day, closing at 1,649.51 (basically unchanged), and the S&P 500 down 10.7 (1.18%), closing at 899.22 .The VIX went ballistic, setting an all-time high at almost 77. (It didn't exist during the Great Depression.) The VIX closed at .69.95  The Dow began the week at 10,602.64 and ended the week at 8,451.19, falling 2,151.45 points or 20.29% on the week.
    Oil closed down at $77.70 a barrel (its lowest price in a year), while gold tumbled to $859.00 an ounce. Why did gold fall? I haven't a clue.
    There doesn't seem to have been any particular news today. The President's speech was a non-event... basically, a pep talk. Lehman's auction of derivatives yielded 10¢ on the dollar. U.S. stocks surge higher into the close on hopes for G7 move
    The G7 meeting in Washington produced a vague, five-point plan to deal with the accelerating economic meltdown:
Paulson details bank plans
Read text of G7 communiqué
Cooperation, but did G7 go far enough?
   
    Two more banks fail and Morgan Stanley: Fighting for life 

    Here are a few articles that might be of interest.
[video] A Bad Week For Markets
Grasping for tea leaves in 1929 market data  
Billionaire money manager Ken Fisher pooh-poohs 1929 talk
Dow's missed turn   
It's up to the banks, not the governments, to calm the waters  
Close to the edge: BlackRock strategist Bob Doll says this bear market's in its "terminal stages" but it's not over yet.


2008-
10-10 (8:00 a. m.)  The herd is stampeding. S&P 500 stock futures are down 29.50 as of 8:03 EDT this morning. All my investment newsletters are recommending standing pat and letting the markets continue their crash. Don't worry about this, and don't sell into this falling market. Of course, I can't really know and there are no guarantees, but my guess would be that the top of the next rally should lie somewhere near or above the markets' current levels. Major market players are now being driven by blind, unthinking panic. Many of them may be managing hedge funds or large pools of money, and may want to get out before more damage is done to their reputations, or they might simply follow loss-minimization rules. A great short-to-intermediate-term buying opportunity lies somewhere dead ahead. It might be worth noting, though, that there may be little intra-day rallies as the markets work themselves lower. I'll probably wait until the markets retrace at least half their daily losses before I commit money to anything (other than, possibly, gold and inverse funds). 
    I just placed an order for a few more shares of gold (GLD) at the market price, and for 50 shares of QIV to offset the 50 shares of QLD that I bought following Todd Harrison's advice. (In the mean time, with the market in frantic flight, he has sold his QLV .) Potential buyers (like me) are sitting on the sidelines waiting to see how much farther this market will fall. This means that once the selling is exhausted, and this market finds a near-term bottom, it will turn upward on high volume and an enormous burst of cash will suddenly flow back into the markets. It's like a stretched rubber band. (The sheer rapidity with which this is happening augurs well for a V-shaped dead-cat bounce.) At the same time, Asiatic and European markets have continued to crash. It ain't over till it's over. I'm standing back and getting ready to buy Suntech (STP), more QLD, and more Vestas Wind Systems. I might also buy some Sunpower (SNPWA) stocks, and up my holdings in First Solar (FSLR), but not yet. This is still falling-knife time.


2008-
10-9  Whew! Bad today and expected to get worse tomorrow: Callaway: Oct. 9 is D-Day for Dow. What should we do? I hesitate to suggest what you should do because this market is so fickle and hyperactive. After thinking about it, I've decided that I'm not going to attempt to short the market tomorrow by buying an inverse ultra fund. Rather, I'm going to wait for the inevitable relief rally that has to come somewhere in here. What's taking place right now is panic selling, with the good sold alongside the bad. The only reason I'm not already aggressively buying is that we may still be in the early innings of this meltdown. After all, in 1929, it took three years after Black Monday and Tuesday for the economy and the stock markets to reach bottom in 1932. (The stock market didn't recover until late 1954--25 years after the fall began.) Tomorrow, when the market opens, I plan to buy substantially more gold (GLD) than the 50 shares I currently own. The GLD fund purchases actual physical gold and stores it in proportion to the money invested in the fund. A Minyanville article, Minyan Mailbag: The Gold Disconnect, endeavors to explain why gold hasn't already gone higher. The article observes that investment-grade gold is virtually unobtainable at market prices: see the American Precious Metals Exchange site. This APMEX site will sell you a one-kilogram bar of .9999 Fine Gold at the instantaneous price of $29,978.28, and they will buy it back from you for $29,317.58. The U. S. mint is still selling gold proof coins at their original prices (which have been well above the melt values of the coins... e. g., $1,119.95 for an American Eagle One-Ounce Uncirculated Coin). A week ago Monday, APMEX would sell you the gold coins of your choice for a few dollars over their melt prices. Not any more! The few coins still available run 15%-20% above their melt prices. A this moment, the only American Eagle One-Ounce coins available from APMEX are 2001, 2004, and 2005 proof coins for $1,181.10, and 2002 One-Ounce proof coins$1,146.10. Their inventory is falling more each day, reflecting the run on gold that's taking place around the world. (South African Krugerrands seem to be unavailable.)
    To recap what the markets did today, the Nasdaq fell 95.21 points to 1,645.12; the Dow tumbled 676 points to 8,579.19, and the S&P lost 75.02 points to close at 909.92. The Dow has fallen 40% from its 2007 high exactly one year ago today of 14,199. Since Monday morning, when it opened at 10,325, the Dow has fallen 1,746 points, or about 17% (in four days). But the really interesting index was the VIX, which peaked at almost 65 and ended the day at almost-64 (63.92). That makes the VIX at least one-third higher than its highest prior reading of about 48 over the past 15 years. And that, in turn, makes this already the deepest bear market since 1987. It would be interesting to know whether or not today marked a capitulation of the bulls, with a greater-than-9:1 down-to-up volume ratio but I don't know where to look for that information. Assuming that tomorrow starts as expected with an initial move downward, it could become a turnaround day. There's a reflexive rebound coming up ahead somewhere.
    The markets have fallen about 25% since a week ago Monday. By contrast, in 1974, it took more than three months for the markets to drop 25% after their peak in mid-March, 1974. Also, the S&P 500 took almost five months to fall 10% from the dip at which the updated pink overlay stops to the first dip in early July, 1974. By contrast, the current curve would show a drop from 10,459 on September 18th to 8.579 (1,880 points) on October 9th--an 18% drop in three weeks. The 2008 curve has now deviated sizably from the 1974 curve in that the 2008 market profile is much steeper.
    When I begin to buy ETF's again, I'll probably purchase QLD.
    The two charts below depict the "
Sum of currency in circulation, reserve balances with Federal Reserve Banks, and service-related adjustments to compensate for float. Calculated by the Federal Reserve Bank of St. Louis"
Graph: St. Louis Source Base
Fred Graph
    The rate of rise for this measure of money is approximately $50 billion a week.


2008-10-8  Gold is up $24.50 to $904.50, and oil is down $1.11 to $88.95. The markets yo-yoed up and down today, but eventually closed down, with the Dow shedding another 189 points to close at 9,258.10. In three days, the Dow has fallen from 10,325 to 9,258--or a trifle over 10%. Today marks the one-year anniversary of its all-time intra-day high of 14,199... a decline of 34.8%. At its intra-day low of 9,196, it was off 35% from its intra-day spike a year ago. (Officially, it's down 34.6%.) The International Monetary Fund warned today that the world is tipping toward recession. Also in today's news, the world's central banks reduced interest rates ½ %. Obviously, this move had no huge positive effect upon the world's stock markets. (The general consensus seems to be that the problem now isn't the cost of money but concern about the abilities of borrowers, and particularly, in light of continuing bank failures, of banks to repay loans.) MetLife's announcement that it needs to raise more capital, presumably because of exposure to American International Group, Lehman Brothers, Washington Mutual, and Freddie and Fannie spooked insurance investors. Meanwhile, the Fed has given American International Group another $37.8 billion amid a public relations scandal in which AIG spends $440,000 wining and dining 70 outperforming agents for a week at a plush spa ($6,300 per week per agent) and is preparing the same kind of  treatment for another group of employees: AIG, Castigated for Resort Event, Plans Another One Next Week.
    The Nasdaq fell 14.55 points to close at 1,740.33, while the S&P gave up 11.29 points to end the day at 984.94. The VIX hit a new all-time high of 59 today before closing at 57.5. Peter Brimelow writes: Dow Theory signals end of bear market.
  
    A "dead-cat bounce" would seem to me to be entirely appropriate at any time now. I think it's a measure of how grim the morrow appears that this hasn't already happened, after a three-day, 1,000-point slide in the Dow. But with governments thinking outside the box and springing surprises every other day, this is an unusually volatile and unpredictable marketplace.


2008-10-7  London Bridge has fallen down! The Dow dropped 508.39 additional points today to 9,447.1, bringing it roughly 78 points below yesterday's minimum. So much for an intermediate market bottom! Of course, an intermediate market bottom can still happen soon, but it didn't happen today. The Nasdaq Composite fell 108.08 points to 1,754.8, while the S&P 500 divested itself of 60.66 points, closing at 996.23. These indices are now off a little more than 1/3rd from last October's highs. (By contrast, the 1974 market debacle saw the Dow bottoming 48% off its January, 1973, peak... 15% lower than where we are now.) The VIX closed at 53.68, after hitting 54.09... a little less than yesterday's high of 58.24. Oil rose $2.25 a barrel to $90 today, while gold advanced $15.80 to $882.00 an ounce. More to the point, gold is becoming more difficult to find, and increasingly larger premiums are being charged for it. The United States mint has just announced that it will somewhat curtail its gold sales because of the run on gold.
    I've reprinted below the Kevin Depew chart that compares the 1974 bear market to the current bear market. The markets are falling much faster than they did in 1974.
    With markets off by 1/3rd from their year-ago highs, the holdings of pension funds and individual retirement accounts must be presumed to also be down by 1/3rd. What will happen if the markets fall by 2/3rds or more as they did during the 1930's Depression?
    As the economy falters, federal tax receipts also decline, leading to greater budget deficits even without federal bailouts. This looks like a vicious circle with no end in sight. Of course, a lot of what's happening is driven by perhaps-justifiable insecurity--in other words, is psychologically based. 
    Today, the Fed set up a program to deal in commercial paper... something necessary for daily business operations. Several countries have announced interest rate cuts, including a 1% rate cut in Australia. (One article tonight observes that the "Fed giveth with well-received liquidity step, taketh away with Bernanke growth fears". Fed Chairman Ben Bernanke observed today that slow growth may be a greater threat than inflation.) In the meantime, the consensus view among economists is that this is going to get worse before it gets better, and that another year or two may pass, with a further, sharp contraction of the world's economies, before a durable turnaround occurs. Normally, a consensus like this would be a contrarian signal that a market turnaround is at hand, but maybe not this time. (However, there are various predictions that an intermediate-term rally is about to happen, although the question is: from what level?)
    Asia is falling sharply again tonight by 3%-to-5% so far. Tomorrow should be another jolly day for our own  bourses.
    Here's Michael Ashbaugh's latest discussion of the current state of the stock market indices: Indexes at downside targets: Ashbaugh.


2008-10-6 (10:30 p. m.)  The Asian markets are down again tonight but so far, by 1%-to-3% rather than last night's 5%-to-6%. Market expert Jim Cramer today, speaking to serious stock traders, warned them to take out of the stock markets any money they might need for the next five years: Cramer: Dow Could Drop Another 14%, Oil's Going to $50. I interpret that to suggest the possibility of a long, severe recession or even, conceivably, a depression. Here's another call for an intermediate-term rally: Time To Go Long, For A Short Time? The author recommends the Profunds ultra-S&P 500 ETF, SSO.

    Gold is still available, although at prices that tend to run a bit on the high side (for popular items). 
2008-
10-6  Oil ended the day at $87.81 a barrel, down $6.07 for the day. The Nasdaq Composite closed at 1,862.96, down 84.43. The Dow at one point had 806 points, but the markets rallied toward the end of the day, and the Dow closed down 363.35. The S&P 500, off 80 points at its low for the day, ended at 1,056.89, down 42.34 from its opening value. The VIX reached 58.24 before closing at 51.7. Beginning an hour before their close, the markets rallied smartly, regaining about half their maximum daily losses. So far, there's been no explanation of what turned stocks around... in order, I'm sure, to allow the big-money investors to load up on stocks before the rest of us were told why we might want to participate. 
    It has just come out that talk of global intervention boosted the market in the last hour of trading U.S. stocks end off lows on talk of global intervention. In dealing with this crisis, the U. S. is said to have advantages over the European Union in that the Treasury Department, the Federal Reserve (central bank), and the White House are better able to coordinate their efforts to combat financial problems, whereas in Europe, the machinery isn't yet quite as closely knit to support such an integrated approach.
    Apparently, the Fed and the Treasury made a mistake in not rescuing Lehman Brothers. The problem is that many other institutions owned shares in Lehman Brothers. When the Primary Fund announced that it couldn't quite return $1.00 per $1.00 invested, it sent a chill up the spines of investors all over the world, and started a wholesale flight from stocks, corporate bonds, and money market funds into gold and Treasury-bill funds. But money market funds invest in commercial paper. With the flight of capital from conventional money market funds, the market for commercial paper dried up. And commercial paper is the grease that lubricates the gears of commerce. Also, like banks, conventional money market funds are partially backed by mortgage-based securities (collateralized debt obligations) in an effort to "juice" yields. And banks are afraid to lend to each other because banks are in shaky shape and are going bankrupt.  
    The grief is worldwide, with banks failing all over Europe. It looks as though deflation is coming rather than inflation: Warning of 'deflationary bust'. This will mean that asset prices, including the price of gold, may fall. (Gold might be a special case because of its value as a security blanket.) One might ask: how can we have deflation when the world's central banks are printing up all that money? The answer lies, I assume, in the "velocity" of money. If the Fed were to create $100 trillion (only the U. S. Fed can create the world's reserve currency: $) but were to keep that money out of circulation, it would have no inflationary effect because it would be unavailable. Money is a medium of exchange, and how inflationary it is depends not only upon how much money is available but also upon how rapidly it changes hands... thus, the "velocity" of money. Right now, the Fed is making beaucoups out-of-thin-air dollars available to banks, but the banks aren't lending this money out but are hanging on to it in order to beef up their reserves. Consequently, for practical purposes, it might as well be sitting in Treasury vaults. If there is a thaw in this credit freeze and the money begins to flow again from bank to bank and from bank to business entity, then the Fed will have to move quickly to reduce the money supply to control inflation.
    This is a crash in slow motion.

What should you do now? Here's an interesting article by Todd Harrison: Random Thoughts: Capitulation Now? and another that suggests the possibility of a coordinated rate cut on "Turnaround Tuesday": Random Thoughts: There's a Sale at (for) Pennies!.Things got so bad today that you knew the world's governments are going to step in soon and take some steps. And when they unpredictably do, then at least temporarily, markets will go up. And that's a time when you'll want to cover your bets that the markets will fall further.
     Mr. Harrison seems to be entertaining the idea of a tradable 10% to 15% rally before the markets swoon again. What I did today was, first thing this morning, buy enough QID (the ultra-inverse exchange-traded fund for the Nasdaq 100) to at least partially offset the mutual fund losses that I expected to take at the end of the day. Then this afternoon, when the market was near its bottom, I bought 50 shares of Vestas Wind Systems. Vestas has been running $132 a share recently, having doubled from the $65 a share I paid for shares in June, 2007. This afternoon, I was able to pick up my 50 shares for $71  a share. In the meantime, Vestas has been performing like an Olympic gold medalist, with various wind turbine contracts coming its way. In addition, last Friday, U. S. wind turbine subsidies were renewed and expanded. I also bought 200 shares of Chinese photovoltaic company, Suntech, for $28 a share--their lowest price in almost two years. Thirty-percent solar tax subsidies were extended for eight years, and their $2,000 cap was removed. Morningstar has given them a four-star rating, and has recently lowered their fair market value from $80 a share to $70 a share. In the afternoon, as the markets turned up, I sold my QID for a small profit and bought QLD instead. I didn't make much money on these transactions, but at least they were slightly profitable, and hedged me against further losses. I bought these alternative energy stocks because I'm convinced that they have a bright future. I'm willing to hold them for a while until the alternative energy market turns up again.
    It was scary buying stocks when the VIX has reached the highest level in the last 15 years (10 points above any other high), but I gambled on what Todd Harrison observes in his articles above. You need to buy when you're afraid to buy--when it seems as though anyone in his right mind would eschew the stock market. (Of course, if we're heading into a Great Depression, then anyone in his right mind should eschew the stock market. These stocks could go a lot lower before they go higher.)
    So what should you do? Well, one ploy might be to watch the market indices with an eye toward a sudden upwelling in stock prices, signaling a coordinated global rate cut or other major financial surgery, and then know what you want to buy. Todd Harrison suggests, among others, QLD).
    A few good articles are linked below.

Will the Bailout Work?, Part 1
Will the Bailout Work?, Part 2
Op-Ed: The Second Great Depression-
Random Thoughts: The Unfreezing Process

2008-
10-6 (6 a. m.)  The cat is among the pigeons. The spot price of gold for delivery has been rising all (Sunday) night long, and at this moment (6:00 a. m. CDT), is up $26.80 from its closing price last Friday (10/3/2008). Oil has fallen below $90 a barrel on an expectation of slowing global economies. Asian markets are down 1.95% for the ^KLSE to 10% for the Jakarta Composite, ^JKSE., with an average loss of, perhaps, 5%. European markets are underwater 5%-6%. U. S. stock futures have been rising during the past hour (possibly because of U. S. Treasury intervention?)
    These numbers are sizable, but they don't reflect an all-out panic.
    Last Friday, we had an unexpectedly large loss in jobs: 159,000 Jobs Lost in September, the Worst Month in Five Years. The chart just below, taken from this New York Times article, shows the recent fall in jobs along with the job changes during the 2001-2002 recession.
Monthly Change in Number of Jobs
    On Saturday, I channeled a couple of leading economists: Princeton's Paul Krugman, writing for the New York Times, Paul Krugman: Edge of the Abyss, and Dr. Paul Krugman's Blog, and Harvard's Dr. Martin Feldstein, described as one of the top ten economists in the world, and the man who would now be the head of the Fed if it weren't for his age (83). Both of these economists are calling for a severe recession, if not Depression 2.0. Dr. Krugman notes that, "Normally sober people are sounding apocalyptic, with Joel Prakken of Macroeconomic Advisors saying that the world seems to be on 'the edge of the abyss'", (a phrase echoed on Friday by the Prime Minister of France, Francois Fillon, who says "the world is on the edge of the abyss".) Dr. Feldstein writes, The Problem Is Still Falling House Prices - Feldstein - WSJ.com. Both of these men are signaling worse outlooks than what's appearing on the nightly news--understandably, in view of the need to avoid panic in the streets.
    What form would an economic meltdown take? Of course, I can only fantasize, but I'm thinking that there would be a massive sell-off on Wall Street of stocks and corporate bonds, a run for gold, and a run on banks... all of which has already occurred to a limited degree. On Thursday afternoon, I was preparing to buy a  one-ounce U. S. golden eagle, but I didn't buy it right away. (I figure we probably won't ever sell it, but will keep it for Amber.) When I came back an hour later, they were no longer available. The U. S. mint will sell them to you, but you'll pay through the nose for them.
    The problem with owning actual gold is (it would seem to me) that of getting your money back out. It costs you a premium over the melt value of your purchase, and in addition, you have to pay a rather steep shipping and handling charge (e. g., $19.50). Then to sell it, the buyer has to somehow authenticate your gold, and then is at liberty to dicker with you on how much he/she will offer you for your gold. You also have the problem of storage, and, maybe, insurance. A billionaire who can buy in bulk and store his/her gold in a bank vault can take advantage of economies of scale (not to mention hiring a precious-metals expert to handle the details), but we can't do that. One possibility might be a set of sterling silver, or a deal with a dental lab.
    Here are a few more articles:

Fed Watch: Rate Cuts Increasingly Likely 
Economist's View: "We are Going over the Edge"
"The Fires are Becoming More Frequent and More Serious"
Judith Warner: Waiting for Schadenfreude
Dr. Paul Krugman's Blog
   
Some of the readers' comments are as valuable as the articles themselves
    What should you do? Several market watchers are calling for an intermediate bottom here, but the waters are treacherous. But if the markets rise at all, I would recommend either selling remaining stocks/mutual funds, or buying sufficient inverse funds to hedge against further market drops. For example, I own 50 shares of QLD, and I bought 50 shares of QID to offset further QLD losses. (In this example, I would probably be money ahead to sell both and hold the cash in a U. S. Treasury money market fund.) I also own some mutual funds that if sold, would fetch today's closing prices. Buying additional QID shares for today to protect my mutual funds from further losses would probably be a good idea, since I can't sell them until the close of business today.
2008-
10-6 (8 a. m.)  Gold is now up $28.80. The Fed is moving aggressively to try to avoid a meltdown. Europe is hurting because European banks got together this weekend but couldn't agree on any actions. As of this moment, European losses range from 2.66% on the FYSE 100 to 7.65% on the (Vienna) ATX. S&P futures are down about 22 points.


2008-10-3  The house passed the now-$800 billion bailout bill today, and the stock market fell. After rising more than 300 points before the bill was signed, the Dow ended the day down 157.47 points at a new low for this bear market 10,325.38. The Nasdaq fell 29.33 points to a new bear-market low of 1,947.39. The S&P 15.95 to its new bear-market low of 1,099.23. Go figure! The VIX closed at the very high level of 45.14. This is clearly a financial crisis of epic proportions. While this bailout package is projected to avoid an utter collapse of the world's economic system, no one is tipping it to avoid a further fall in housing prices or a reduction in the severity of the gathering recession. All anyone can say is that it would be worse without this.
    A few weeks ago, the insurance giant, American International Group (AIG), was rescued by the Federal Reserve with an $85 billion loan in return for a controlling interest in the company. Now the company has spent $61 billion, with $54 billion for collateral (in other words, partial payments) on its debts, and will soon be seeking more money. $61 billion is a pretty high burn rate for a few weeks' time. There's an estimated $46 trillion ($46,000 billion) in credit default swaps out there, though they certainly aren't all owned by AIG. Still, only a few trillion dollars owed by AIG would surely tax the Fed's ability to pay (if that's what's really what AIG must cover). And AIG is only one of the perps. There are the various banks, brokerages, and insurance companies who may soon be bellying up to the Fed's loan window, not to mention major manufacturers like Ford, GE, and GM. What we're seeing so far may only be the beginning.
    It's been hard to know whom to believe in this market malaise. so far, though, the pessimists have called the market trend correctly. 
                                                    (To be continued tomorrow)    
The Reckoning: Agency’s ’04 Rule Let Banks Pile Up New Debt
The Reckoning: As Credit Crisis Spiraled, Alarm Led to Action
Paul Krugman: Raising the white flag of surrender — to Medicare     
Early Boomers and the Economic Mess - Robert Reich
Rotten Economics and Rotten Teeth - Richard H. Serlin
The Problem Is Still Falling House Prices - Feldstein - WSJ.com
MarketBeat - A State of Panic- The Credit Markets
Oct 2, 2008 Breakdown Approaches Climax Jim Willie CB 321gold ...
Jesse's Cafe Americain- TED Spread Soars to a New Record


2008-10-2  It's more-or-less official: the economy is in recession. Oil fell to $93.57 a barrel on a rising dollar. The markets dropped almost as low as their closing prices on Monday. The Nasdaq lost 92.68 points to 1,976.72; the Dow shed 348.22 to close at 10,482.85, and the S&P fell 46.78 to 1,114.28. After peaking at 46.5, the VIX ended the day at 45.26. Amazingly, gold dropped $43.00 to $844.30! (Lower gold prices seem to have stimulated the purchase of gold coins to the point where it's hard to find a 1-ounce golden eagle at $9.95 over the melt price.)
    The customary advice when stock markets fall is: "Hang on! Don't try to time the markets. You'll only lose." Normally, I would be emitting the same advice, but this isn't a normal bear market. My advice is to sell ASAP, and hope to buy back in before the markets go too far back up. (There are strategies involving ultra ETFs and call options that can help you amplify your gains when the markets finally do head higher, but right now is no time to be a long-term buy-and-hold investor. I'll advise when such strategies become advisable again.)
    Today, I bought 50 shares of QID, the Proshares ultra-Nasdaq ETF, as a hedge against further declines in the 50 shares of QLD that I own. Of course, I'd probably be farther ahead to have simply sold my 50 shares of QLD this morning. I also bought 40 more shares of the gold ETF, GLD, when it was down this afternoon.


2008-10-1  The markets basically treaded water again today. A somewhat-improved bailout has passed the Senate tonight by a vote of 74 to 25. A follow-on vote in the House is expected on Friday. Warren Buffett will state on TV tonight that the U. S. economy is suffering cardiac arrest and is flat on the floor. Today, Toyota reported a 38% drop in truck sales and a 9.3% decline in Prius sales. The economy is still declining, and the U. S. is generally conceded to be in recession. Oil ended the day at $98.53, while gold jumped $6.50 an ounce to $887.30.
    The general consensus is that we haven't hit bottom yet in this worst economic crisis since the Depression... one that could possibly eclipse the Depression of the 30's before it's over.
    The Nasdaq fell 22.48 points to 2,069.40, the Dow lost 19.59 points to 10,831.70, while the S&P 500 gave up 3.68 points to close at 1,161.96. The market is holding its breath to see how the bailout comes out.
    The VIX closed at 39.81, or about where it was last night.
    I'm looking for strategies for making money, or at least avoiding further losses going forward.
    One strategy that seems to me to be a losing proposition is buying and taking delivery of gold. The problem seems to me to lie not in buying the gold at the going rate, but in selling it again without taking a loss. The dilemma is: once you take possession of your gold, how will you verify its authenticity to a potential buyer? How will a buyer assure himself or herself that your gold isn't counterfeit? Gold-plated copper? When you buy gold from a reputable dealer, you'll probably be willing to take on faith the claim that the gold you're buying is pure gold, but buying from a private citizen would be a less-certain move, and might require testing of your gold, limiting potential customers to vendors with the equipment to conduct such tests. Also, a potential buyer may only be willing to offer you a fraction of the purchase price of your gold. No store could take gold as legal tender because they also would have no ready way of verifying its authenticity. Of course, if true hyperinflation develops, then physical gold might return as a default medium of exchange, but right now, it seems to me that it's not practical. I'm looking at gold mining stocks and the gold ETF, GLD, which buys and stores actual gold.
Update: I've just read that there's a run on gold ingots and gold coins. 
    This may well be centered in countries that don't have the equivalent of Federal Deposit Insurance Corporation insurance on their bank deposits, so the fact that this is occurring in some countries around the world doesn't necessarily mean that we in the U. S. would be well-advised to follow suit.
    One problem is that all our money is stored in the form of paper records and magnetic traces. FDIC insurance has convinced us (me included) that U. S. bank deposits are secure. Most of us have never experienced the loss of savings through bank failures--a common occurrence in the early 1930's, but I don't expect this to happen in any currently-likely scenario.
    One other problem concerns the amount of gold that's available for purchase. Around 500 tonnes (metric tons) or around 13,000,000 Troy ounces of gold are produced worldwide each year for investment purposes. At $1,000 an ounce, that would amount to about $13 billion. By contrast, the estimated value of all U. S. money market funds is $3.1 trillion, corresponding to about 3.1 billion Troy ounces of gold, or about 238 times the amount of gold available globally for investing each year, and that doesn't include bank deposits and CD's. Consequently, unless I'm missing something, the price of gold would have to increase many-fold to back the world's currency.
    The graph below shows the price of gold over the past 40 years. The upper curve gives the inflation-adjusted price of gold, while the lower curve delineates its price in absolute dollars. The price peak in the early 80's was a reflection of the double-digit inflation that was occurring then. As confidence rose that inflation was coming under control, the price of gold dropped to a minimum in April, 2001. Note the steep rise in the price of gold after President Nixon took the U. S. off the gold standard in 1972. 
Image:Historical price of gold.png


2008-9-29  The stock market did, in fact, turn around today, consistent with what happens when there's such a spike in the VIX. Oil jumped $4.27 a barrel to $100.64. The Nasdaq Composite rose 98.60 (4.97%) to 2,082.83, the Dow climbed 485.21 (4.68%) to 10,850.61, and the S&P 500 shot up 58.25 (5.27%) to 1,166.36. The VIX fell to 39.39 (still a respectable number). So, of course, what's next?
    Here's what several advisors have to say about that.
    Michael Ashbaugh says, "Too early to celebrate". Mark Hulbert offers:
What Dow Theory had to do with Monday — and today and We haven't hit the bottom yet.  Among the other advisories are:  Brimelow's September to remember, Market Meltdown: What Happens From Here, Home-price plunge shows no sign of ending, and Despite Monday's bloodletting, a bottom may not be in for stocks. I think what's significant going forward is that the financial world seems to be on an accelerating downhill course, with a lot of credit unwinding still to come. The stock market may turn up, with the Senate voting on a bailout tomorrow night, and the House expected to address this topic later in the week, but this won't mean that anything but a tourniquet has been applied to the problems. Of course, I only know what I read, and the stock market is notoriously treacherous. If a coming event is even remotely obvious, the markets will already reflect this influence. Mark Hulbert has this to say about today's stock market action: Dead-cat bounce or fresh new bull? My current plan, right or wrong, is to sell or hedge what I have left in mutual funds, and remain in cash. (I purchased a small position in inverse funds, as I recommended on September 21, but sold them at a small profit when the markets jumped again on September 25 and 26.) 
    I might short the markets if we get a bounce out of the current Congressional actions, but at the moment, that remains in the future. I'm also buying a little gold as a hedge against a falling dollar.


2008-9-28  What a day! Wachovia was in fact the next domino to fall, having been bought out by Citigroup. (Citigroup is at least partially foreign-owned.) The bailout plan was roundly defeated in the House of Representatives today, setting up the markets for a great fall. The three indices have posted new lows for this bear market. The Dow was down 777.68 points to 10,365.45. This was its largest point loss in the history of the stock market, although at 7%, it fell well short, on a percentage basis, of the October 26, 2007, plunge of 22.6%. The S&P dived 106.58 points ro 1,106.39. The Nasdaq closed at 1,983.73, down about 200 points or about 10% on the day. The Dow ended the day at 10,456.64, off by 686.5. The S&P clocked out at 1,106.39, down 106.58, an 8.79% loss. Oil fell $10.52 a barrel to $96.37. in anticipation of slowing global demand. The VIX jumped 11.98 points and peaked (at 48.5) at just a hair shy of its 15-year record of 49.53 back on October 3rd, 1998, during the Long-Term Capital Management collapse. It closed at 46.72, the highest close since the Crash of '87.
    The media have observed tonight that today's losses in the stock markets cost more than the price of unfreezing the credit markets.
    The two charts below show the inverse relationship between the S&P 500 and the VIX. Normally, when you get a spike like today's peak, it signals a market turnaround. However, these aren't normal times. The pundits on CNN tonight pointed out that the members of the House went home after this morning's vote to campaign for re-election(!) (Lots of luck!) They're also predicting that without passage of some kind of rescue bill, companies, both small and large, won't be able to meet their payrolls. Still, I'm hopeful that there will be at least a temporary recovery sometime this week, although I guess there's no assurance that this will happen.
    This is revealing itself to be a major, major crisis. What concerns me is the fact that U. S. interests have written IOU's for $180 trillion on total U. S. assets of $50 trillion. Further, the kind of money the Fed can provide is peanuts compared to the total amount of money they're trying to protect. For example, the Fed has set aside $50 billion to insure $3,100 billion in money market funds. I'm sure the Fed can come up with additional money if it's needed, but how much money can the Fed print without totally debasing the dollar. (This is why many experts are recommending investing in gold.
    Tomorrow will be another interesting day.




2008-9-26  The price of oil fell slightly, ending the week at $106.89. The markets pretty well treaded water again today, with the Nasdaq down 3.23 to 2,183.34, the Dow up 121.07 to 11,143.13, and the S&P climbing 3.83 points to end the week at 1,213. The VIX ended at 34.74.
    The credit market bailout plan is "back on track", to quote House Speaker Nancy Pelosi. Congress will work on it this weekend, hoping to have something out by Monday morning.
    Washington Mutual Bank collapsed last night (the biggest bank collapse in U. S. history) and was bought out by J. P. Morgan. (Massive customer withdrawals seem to have deep-sixed WaMu.) Now, Wachovia Bank appears as though it might be the next domino to fall.
    It's been a tumultuous two weeks, with the fall of Fannie Mae, Freddie Mac, Lehman Brothers, AIG, Merrill Lynch, and Washington Mutual. Goldman Sachs and Morgan Stanley were saved only by conversions into banks. Now Wachovia stock is declining amid talk of it following other banks and brokerage houses into oblivion. So far, the remaining financial titans are J. P. Morgan, Wells Fargo, and Bank of America. (Citigroup survives as a subsidiary of Bank of America.) 
    This is a momentous shakeup, and it may be far from over.
    Meanwhile, although the stock markets may surge after a bailout plan is approved, there is a divide between those who think October will see the market bottom for this long-term market cycle, and  those who think that the credit markets still have a long way to go (down). Mark Hulbert presents an article that supports the October turnaround scenario: Top market timers remain more bullish. On the other side (the latter scenario of extended decline) are a number of articles by Todd Harrison: Freaky Friday Potpourri: Conversation with Mr. Practical, Random Thoughts: What Happens if We Don't Rally On the Bailout?, Random Thoughts: Animal House, Random Thoughts: Engine Room, More Steam!, and Random Thoughts: Storm Clouds?
    My personal expectation would be for a bounce when the bailout plan is approved, but given the unending fall of dominoes, I'm skeptical about a long-term turnaround (see Emergency measures). Some market strategists are calling for a selling climax sometime in October followed by a climb throughout the rest of the year. But I'll be slow to embrace a market recovery, given the monstrous mountain of debt that's allegedly unwinding. Todd Harrison has forecast two possible scenarios: an attempt by the Fed to reflate the world's economies to "monetarize" the debt through rapid inflation, or at least long enough to get past the elections (a little over five weeks hence), or a continuation of the asset deflation that has recently begun. Current forecasts are for home prices to drop quite a lot farther. Rapid inflation could have dire consequences for the enthronement of the dollar as the world's reserve currency, but deflation has equally dire consequences, including runs on banks, and the wholesale dumping of equities.
    What to do?


2008-9-25  The price of oil rose slightly, while the equity markets climbed heartily on reports that Congress had agreed on a bailout deal. The Nasdaq climbed roughly 31 points to 2,186.57, the Dow gained about 197 to 11,022.06, and the S&P added 23.3 to close at 1,209.18. The VIX fell 2.37 to 32.82. Then after the close came word that the White House had tried a bait-and-switch at a meeting that Senator Chris Dodd called "a disaster". In the meantime, the economy continued to deteriorate. The German Finance Minister opined that the U. S. may no longer be the world's financial superpower. Superpower no more? Japanese banks rushed in to gobble up distressed U. S. banks: Banks return to world stage, and after the market's close, Washington Mutual became the "biggest bank failure in U. S. history". There's talk tonight about an imminent Fed rate cut: Quick Fed interest-rate cut may be in the cards.
    New Zealand and Ireland have fallen into recession.
 
    Better get a good night's sleep. You're going to need it in the morning.


2008-9-24  The price of oil dropped a little today to $105.73, and the stock market remained pretty well unchanged. After jumping up and down all day, the Nasdaq added 2.35 points to reach 2,155.68, the Dow subtracted exactly 29 points to close at 19,825.17, and the S&P 500 lost 2.35 points to 1,185.37. The VIX closed down a little at 35.19. It looks as though everyone is waiting to see what Congress will do with the $700 billion bailout plan. Mark Hulbert has published this article today: Financial crisis's unkindest cut of all. (Michael) Ashbaugh says backdrop is chaotic.
    One fact is clear: this financial crisis is getting some attention.


2008-9-23  The price of crude oil fell back to $106 a barrel today, while the markets fell about 1½ %, presumably because of arguments and a speed bump on Capitol Hill regarding the Paulson-Bernanke bailout plan. The Nasdaq backed up 25.66 points to 2,153.33, the Dow coughed up 161.84 points to close at 10,854.17, and the S&P declined 18.87 points to 1,188.22. This leaves them about 3½ % above last Wednesday's lows. The VIX jumped to a bullish 35.72.
    Here is today's article by Todd Harrison helping to explain what's going on and what's coming next. Shock and awe.


2008-9-22  The price of crude oil leaped $16 a barrel today to $120 a barrel, setting a new all-time, one-day, price-hike record, while the markets gave up today what they gained on Friday. The Nasdaq dropped 95 points to ~2,179, the Dow lost 372.75 to 11,015.69, and the S&P 500 sacrificed 48 points to ~1,207. The indices are off about 23%, and are officially in bear country. Meanwhile, the VIX closed the day at 33.85--well above its 20-ish levels a month ago.
    Bummed out about having to use the children's college money or your retirement savings to help pay for the yachts and private jets of the high-rollers who cashed in on their Ponzi schemes and are now making you pay to cover their debts? So am I, but I'll concentrate here on what's going on, and where things might go from here.
    Here is an article by Todd Harrison, Minyanville : Market Commentary, Investing Ideas, Global Finance, The Economy.
    In the article, Mr. Harrison presents two charts, the first of which is haunting. In the first chart, Minyanite Kevin Depew overlays the current S&P 500 chart on the S&P 500 chart for the great 1974 bear market. (I'm reproducing it here in case it expires on its present site.) Note that the chart depicting the current stock market profile starts 7 months plus a week later than the 1974 (1971-1976) stock market history. The S&P peaked in January, 1972, at before entering upon its disastrous 48% decline, while it peaked on July 17, 2007, and again, higher, on October 11, 2007, in the current cycle. The Dow peaked at 1,051 in January, 1973, and then fell 45% to 577 around the first of October, 1974. In terms of our current situation, this chart evidently ends when the S&P 500 bottomed last Wednesday. Then on Thursday and Friday, the markets jumped about 8% in two days, or not quite as much as they did in the comparable February-to-March, 1973, time interval. A corresponding situation here is that the markets would remain range-bound for the next month before starting a steep decline to something like 850 on the S&P, arriving there around the end of April, 2009. Then if past is prologue, it would hang there into June, 2009, before starting a climb that would bring it back in March, 2010 to about where it is now. It would be 2011 before the markets really recovered to their 2007 high water marks.
    It will be interesting to compare this 1971-1976 S&P 500 chart with what actually transpires over the two or three years. 
    Of course, this is a once-in-a-century crisis, and is more traumatic than was the state of affairs in 1974.



    The second chart in Todd Harrison's article illustrates that banning short-selling doesn't prevent stocks from going down.


2008-9-21  My instincts, and what I'm reading suggest that Thursday's and Friday's stock market rallies may be ephemeral. One key video article states that a low-key, retail run on banks is already taking place: Top Economist: Americans Should Worry About Bank Deposits if Congress Doesn't Act - Tech Ticker, Yahoo! Finance. The quoted economist says that all will be well provided Congress increases the amount of money held by the FDIC to insure bank deposits. Right now, the FDIC (Federal Deposit Insurance Corporation) is down to about $50 billion in reserves, insuring $1 trillion in bank deposits. But undoubtedly, Congress will provide the necessary reserves. Of course, given the guarantee of adequate backup, no run on the banks will take place. (If you withdrew your money at the bank, where would you put it? It could make your mattress pretty lumpy, not to mention the fact that you would risk theft and loss by fire.) I think keeping a couple of weeks cash on hand is probably not a bad idea, although I think the chances of a financial meltdown going beyond the incipient phase is slim to none. And you could always use your credit card(s). Short-term, I don't think there's anything to worry about, although from an investment standpoint, I'm about 80% in cash, and I would have cashed in or hedged the remaining 20% of my mutual funds on Friday if we hadn't had a 2:30 appointment Friday afternoon. 
    Tomorrow, if the market should plunge, I'll buy enough shares in the Proshares ultrashort Nasdaq ETF, QID, or the Proshares ultrashort S&P ETF, SDS, to offset my U. S. mutual funds, and shares in the Proshares ultrashort MSCI Emerging Markets Fund, EEV to compensate for declines in my emerging markets funds. Of course, I'll only need to hold those ETFs until the end of the day, at which point, I can sell both my ETFs and my mutual funds. I think, given the alleged once-in-a-century character of the current financial upheaval, cash is the preferred state for the amateur investor.

    Here's a surprising forecast that suggests to me the advisability of being in cash: Fund Managers Brace for Global Recession
    Here are discussions of the recent federal bailouts.
Gov't bailouts common, but effectiveness debatable  - Yahoo
In Pictures: What Billionaires Say About the Wall Street Crisis  - Yahoo
Two Economists on the Recent Financial Upheavals  - Yahoo
Sure stocks look better, but what happened to the credit crisis?
Stocks brighten, but what about the credit crisis - MarketWatch
Uphill climb ahead for stocks  - Yahoo
Americans Get Ready for an Enormous Tax Bill Tech Ticker, Yahoo! Finance

     Here are articles that address the safety of our money.
Is My Money Really Safe?  - Yahoo
Investors flying to safety, but not panicking -- yet - MarketWatch
Unrest has investors questioning risk fundamentals Financial News - Yahoo! Finance

2008-9-21: 10 p. m. Update: It has just been announced that Goldman Sachs and Morgan Stanley will be converting to bank holding companies. This conversion will allow them to open branch offices as banks, enabling them to amass capital by taking in cash deposits. They will also be eligible for Fed bank loans, and will be given Fed bridge loans to keep them afloat until they can attract enough deposits.

2008-9-20  Amber woke up with a fever this morning, so it will be after noon before I can finish preparing this.
    Thursday afternoon, if the U. S. government hadn't intervened dramatically, I suspect that there would have been massive sales of mutual funds starting yesterday, and that there might have been runs on our banks starting next week. I know I was worried about what to do to safeguard Tommie's and my savings and investments. Should we open Swiss bank accounts? Buy gold? Are U. S. treasury bonds safe? The Federal Deposit Insurance Corporation is running low on money, and in any case, it wouldn't be possible to instantaneously return all the cash invested in all U. S. money market funds and bank accounts. As some commentators have put it, we were staring into the abyss Thursday morning. And in the abyss was a cratering of the world's economies. Fortunately, the U. S. government is taking dramatic steps to restore confidence in U. S. financial markets.
    So how did we get to this point, and where might we go from here?
    In 1933, Senator Carter Glass and Representative Henry Steagall introduced the Glass-Steagall Act that banned commercial banks from underwriting stock issues. The reason for this was that, during the Roaring Twenties, banks hyped the Initial Public Offerings (IPOs) of companies they were underwriting to unsuspecting bank customers, relying on their conservative banking credentials to promote overpriced stocks of shaky companies. As the linked article puts it, "[Oct. Nov. 1999] After 12 attempts in 25 years, Congress finally repeals Glass-Steagall, rewarding financial companies for more than 20 years and $300 million worth of lobbying efforts. Supporters hail the change as the long-overdue demise of a Depression-era relic.".
    "The Glass-Steagall repeal was the worse domestic policy decision that the Clinton Administration ever made, and that’s saying something. Furthermore, it’s only going to get worse from here going forward."
    Prescient commentary!
    Fast forward to 2000: In May, 2000, the Federal Reserve raised the federal funds rate to 6% in an effort to reduce inflation associated with the dot.com boom. This had the desired effect of withdrawing money from circulation, slowing the economy, and lowering the rate of inflation. As an unwanted side effect, it slowed the economy sufficiently that it tipped the U. S. into a mild recession, starting in the third quarter of 2000, and lasting through the second quarter of 2001. The recovery that followed was a jobless recovery, with many high-paid manufacturing and professional jobs outsourced and their former employees forced into much lower-paid service positions. 
    The Federal Reserve began cutting the federal funds rate in January, 2001, in an effort to stimulate the economy, and continued to reduce it until it reached 1.75% in December, 2001. It then slowly declined to 1.25% in November, 2002, dipping to around 1% until May, 2004 (perhaps to aid President Bush in the upcoming election?) and then rising to 4% by the time of the election. This meant that, for 2½ years, the federal funds rate remained below 2%.
    Banks immediately took advantage of the repeal of the Glass-Steagall Act. After all, if your competitor was offering stocks and bonds, you'd better offer them, too, or risk falling behind. At the same time, 30-year fixed-mortgage interest rates fell to 5+%---levels not seen since the 50's and 60's. Borrowing rates for banks,  savings and loans, brokerage firms, etc., themselves, became less than the rate of inflation, and lending took place on a massive scale. Banks found a way to partially offload the risk of mortgage defaults by selling the mortgages to professional mortgage companies, and later, by slicing up mortgages (to spread the risk) and repackaging them as CDOs (Collateralized Debt Obligations) with one mortgage spread among several CDOs. In addition, techniques were devised to leverage these CDOs so that for every $1 in "real" assets (based up appraised housing prices), $10 or $20 in "paper value" could be sold to unsuspecting customers who thought they were getting secure fixed-income investments. Also, packages of CDOs could be bundled into super-CDO's, with mixing and matching, to the point where it became unfeasible to unravel the tangled webs they wove.
    In the meantime, banks and mortgage companies were loosening mortgage requirements and pushing mortgages the way credit card companies were pushing credit cards. The baby boomers, perhaps because they were sending their children through college or perhaps (in some cases) to live beyond their means or flip houses, were borrowing money as never before. They were encouraged to borrow back the principle they had built up in their home loans in order to pay off their usurious credit card debt. And so the housing bubble developed, with toxic mortgages interlarded with high-quality mortgages in CDO's and CDO's of CDO's.
    Among the consequences of this tangled web that financial intermediaries wove are (1) banks keep declaring greater losses as home prices continue to fall and the value of their collateral continues to diminish, and (2) banks have become reluctant to loan money to each other, or to anyone else. It doesn't matter how much money the Fed prints or how large M3 becomes if banks simply hoard money to beef up their banking reserves.
    While this was taking place, the Bush administration cut taxes, primarily for the rich, while simultaneously boosting the DoD budget to the point where the U. S. has by far the highest per capita military costs of any country on the planet. The U. S. has 5% of the world's population, but 47% of its military budget... 18 times the average, per capita military expenditure of the rest of the world! (In the interest of truth in advertising, it needs to be stated the U. S. military budget as a fraction of U. S. Gross Domestic Product, has been falling over time, so. although our military budget is high compared with what it would have been if we hadn't decided to invade Iraq and Afghanistan, it isn't unusually high compared to its Cold War levels.) As a result, our budget deficit began to grow rapidly during the Bush administration, since the administration was financing the our tax cuts, our wars and our "constabulary duties" by borrowing money from foreign investors. (We have to borrow the money from foreign investors to pay the interest on our national debt because U. S. savings rates have fallen to their lowest levels in our 227-year history.) This, combined with our appetite for foreign oil, is leading our leaders to sell parts of the income-producing properties in the United States (our banks and brokerage houses, for example) to foreign investors. In other words, not only are we borrowing money to pay the interest on our national debt (while the national debt climbs higher and higher); in addition, we're selling foreign investors more and more of the income-producing properties that we need to pay down our national debt. This has led legendary investor, Warren Buffett, to liken our situation to that of a farmer who sells off more and more of his income-producing land to finance his high-rolling lifestyle. ("Another day older and deeper in debt.") When the day of reckoning finally arrives, the farmer will be as poor as a church mouse.
    With the economy slowing down, the government is taking in less money. At the same time, the cost of the bailouts of Bear, Stearns, Fannie Mae, Freddie Mac, AIG, and perhaps other financial institutions to follow, plus guaranteeing money market funds to the tune of $50 billion, the federal government is on the hook for 700-billion additional dollars.
    Talk about a perfect storm!
    So where do we go from here?
    The editor of the Wall Street Journal said last night that politics is ruling what happens for the next month-and-a-half. Our politicians are desperate to postpone a financial collapse at least until after the November elections, since many of them are running for re-election. And had the government not moved to staunch the leaking of red ink, the world's economy would have... They generally don't publicly go beyond this point... possibly to avoid frightening the public? 
    Todd Harrison, who's been prophetic so far, believes that the Fed's latest moves have sold the future to buy the present. Todd Harrison has this to say about the government's current moves: Freaky Friday Potpourri: Martial Law For the Markets, Random Thoughts: Tying History Up With a Bow. Also, here's an article by Kevin Depew, Five Things You Need to Know: Where Were You When the Fun Stopped?, and another by , Short Sellers' Brave New World that give their takes on what's coming next. 
    There is some belief that the glow over the government's moves, at a cost quoted at $700 billion, requiring an increase in the national debt ceiling from $10.6 billion to $11.3 trillion, will stimulate the stock markets only temporarily. (To paraphrase the late Illinois Senator Everett Dirksen, "A trillion here, a trillion there, and the first thing you know, you're talking about real money!") At the moment, I'm inclined to this point of view and plan to use this breathing space to sell most of my few remaining mutual funds, and to convey myself even further into cash. I may also hedge my few remaining mutual funds (closed funds like the Janus Overseas Fund and the Fidelity Contrafund that I can't buy back if I sell) by buying shares in an S&P 500 ultra inverse fund. But of course, no one can be sure just what's going to happen next.

2008-9-1
9  Well, "tomorrow's exciting episode" certainly was exciting! I'll have to write about this tomorrow morning, since it's too late tonight, and since this deserves some extended discussion. I should be able to update this before noon on Saturday.


2008-9-18  The big news today is the VIX. It opened at 36.1, spiked to 42.1, and then settled back to close at 33.38... and this qualifies as a major turnaround signal. (We have to go back to 2002 to find another VIX spike this high, when the VIX reached the 40's on three occasions.) The Market indices behaved inversely, with the Nasdaq Composite opening at 2,137, falling to 2,071, and then closing up 100 points at 2,199; the Dow opening at 10,609, dropping to 10,460, and then closing up 400 points to 11,019.69; and the S&P beginning the day at 1,057, bottoming at 1,135, and ending the day up 50 points at 1,205.71, or only 8 points below where it closed on Tuesday. What's perhaps most significant is that in every case, the markets staged a significant rally after such spikes in the VIX, and in late 2002, touched its absolute bottom for the 2000-2003 bear market. (It didn't start back up until 2003 after retesting its 2002 bear market bottom.) 
    Today, central banks flooded the world's economies with liquidity. However, the boost that turned the tide was a plan to establish a bailout agency: Bailout agency on table: Sen. Schumer. Britain has barred short sales altogether in an effort to stop the trashing of leading financial corporations by short sellers/rumormongers. So far, my concerns that money market woes might initiate a run on money markets haven't materialized. There have been major withdrawals from money market funds, but not enough to melt them down: $90 billion pulled from money funds. This crisis is far from over. Gold closed at $897 an ounce today, up $47 an ounce from yesterday's close, and up $117 from Monday's close: Can Congress put Wall Street together again? Obviously, concerns remain over the integrity of the world's financial and monetary systems. In spite of its apparent turnaround, are the markets apt to relapse soon because of further shocks to the financial system? Stay tuned for tomorrow's exciting episode.
11:00 P. M. Update: I'm anticipating various commentaries on today's dramatic market action, and here's the first of them, from Mark Hulbert: Thursday Dow drama set bullish tone. I notice that's he's calling for short-term bullish consequences rather than, necessarily, a major market bottom. He mentions that 87.8% of all stocks rose in price--just short of the 90% required to confirm an intermediate-term rally, and "even shorter still of the double nine-to-one up days that have particularly bullish intermediate-term significance". Mark Hulbert also observes that the Hulbert Stock Newsletter Sentiment Index (HSNSI) didn't register as high a level of fear as it did at the time of the July low.


2008-9-17  Once again, it's been quite a day. The price of oil rose $6 to $97.16 a barrel while gold rose $70 from $780 an ounce to $850 an ounce, as financial dominoes continued to fall. Washington Mutual has put itself on the auction block. Goldman Sachs and Morgan Stanley are seeking suitors. The federal government is taking an $85 billion, 80% stake in the insurance giant American International Group (AIG)--borrowing the $85 billion from banks, backing it with a federal guarantee, and charging AIG 11.2% interest. 
    The Nasdaq Composite plummeted 109 points today to 2,098.85, the Dow doffed 450 points to 10,605.66, and the S&P relinquished 57.21 points to close at 1,156.39... losses of the order of 4.5%-5%. The VIX rose 4 points to 36.22. While the VIX is high enough to signal a turnaround, it decidedly is not. In the past, when a stock market bottom has occurred, the VIX has spiked up and then receded to close somewhere near where it began the day. Today, it closed at the top of its range, suggesting that it will trend higher tomorrow. 
    Part of what's so unnerving is the fact that three money market funds that had significant investments in Lehman Brothers and AIG are unable to return quite all their investors' money to them. Of course, the elephant in the room is: how much farther will this go? With major banks and brokerage houses suddenly falling away after claiming that the worst was behind them, everyone is wondering who else will fail. Small investors can spread their money among several bank accounts, each of which is insured up to $100,000, but high-net-worth investors can't insure their money so easily. I tried today to shift my cash from the Fidelity cash reserves to the Fidelity U. S. Treasury money market fund but it didn't work. I'll probably try again tomorrow. I don't think it's urgent, but better safe than sorry. I have 2/3rds of my money in cash, and another 40% in a locked arrangement that maintains its value. I'll probably convert that to cash also, since there's no particular advantage to what I'm doing over holding the money in cash. That will put me 4/5ths in cash, and I recommend cash until this market sorts itself out. Some forecasts are calling for years of travail.
Worst is yet to come, investment strategist warns. It took three years, from 1929 to 1932, to reach the bottom of the Great Depression.
    Here is the latest Michael Ashbaugh interpretation: Volatility soars:: Technical Indicator. A measure of how serious this is appears here:
Libor (London Interbank Offered Rate), TED (Treasury Eurodollar spread jump, and something a little more upbeat is given here: Capitol Report: Fed still has lots of firepower. (The Shanghai Composite tonight, at 1,831.61, is down to about 30% of what it was last summer (~6,100)! Hong Kong's Hang Seng China Enterprises, at 16,428.29, is about half what it was last fall (~32,000)).
    Of course, it always looks darkest just before the dawn, but I think there's enough carnage out there that the stock market isn't going to turn up tomorrow.


2008-9-16  It's been quite a day. The price of oil fell another $4.56 a barrel to $91.15. After dropping this morning, the markets rose to end the day significantly higher. The Nasdaq Composite climbed 28 points to 2,207.90, the Dow added 141.51 points to 11,059, and the S&P scampered upward by 20.90 points to end at 1,213.60. Surprisingly, these points were added after the Fed held rates where they were, suggesting that in their playbook, inflation is trumping the economic slowdown.
    Tonight, it has been revealed that the U. S. Government will buy an 80% stake in AIG for $85 billion. Goldman Sachs came out below expectations this morning, but Morgan Stanley exceeded forecasts. Washington Mutual is another possible casualty-to-come.
    After reaching a high of 33.6 this morning, the VIX closed at 30.3.
    Here are Mark Hulbert: Have investors capitulated?, Todd Harrison: This too shall pass, and Paul Farrell: Paul B. Farrell: The doomed 'Turkeys' have opened up the 'Magic Piggy Banks'
    One harrowing happening after the close today: Money market fund halts redemptions, and Cloud over money-market funds. The financial advisory service Seeking Alpha is advising its clients to immediately transfer their money market funds to U. S. Treasury funds or to Federal Deposit Insurance Corporation-insured deposits at banks. Monies greater than $100,000 are to be split into multiple $100,000 accounts spread among several banks. (This will probably lead to a run on money market accounts as they are converted to Treasury funds or withdrawn and sent to banks.) As an example of how this works, the Primary Fund has an intrinsic loss of about 1.2% because of investments in Lehman Brothers, but because 60% of its investors have already withdrawn their money with no losses, the current level of loss is 3%. Presumably, anyone who withdraws their money from now on will get 97¢ on the dollar. But note that the greater part of the fund's money was withdrawn in the past day or so at $1 on the dollar by investors who knew something was amiss. In all likelihood, the fund notified insiders and institutional investors so that they could withdraw with no losses, sticking the remaining 40% with the bill. That's how the game is played.


2008-9-15  Today, the price of oil fell 5% to $95.71, while the equity markets flew south for the winter. With Lehman Brothers declaring bankruptcy, Merrill Lynch selling itself to the Bank of America, and AIG seeing half its value wiped out as it seeks $40 billion to shore up its shaky finances, the markets are decidedly worried. The Fed is pumping more money into the economy. Goldman Sachs and Morgan Stanley, who have been cited as, possibly, the next dominoes to fall, have been asked to lead a banking consortium that will attempt to shore up AIG. ("Loans made to automakers in doubt") The Nasdaq Composite fell 81.36 points to 2,179.91, the Dow lost 504 to 10,918, and the S&P shrank 58.74 to end the day at 1,192.96. The VIX hit 31 at this morning's opening, fell to 27 later in the morning, and then climbed to 31.7 at the close.
    Meanwhile, Peter Brimelow writes: Veteran oil bull still snorting.


2008-9-12  The price of oil rose slightly to $101.18 as Hurricane Ike bears down on Galveston and Houston. Otherwise, the market remained little changed, with the Nasdaq up 3 points to 2,261.27, the Dow down 11.72 points to 11,421.99, and the S&P up 2.65 to 1,251.70. The VIX jumped 1.27 points to 25.66.
    The skeleton that is rattling around in the closet is the question of what will happen to Lehman Brothers. And after Lehman Brothers, what about AIG?


2008-9-11  The price of oil is now at $100.87 a barrel, in spite of the fact that Hurricane Ike is targeting the Houston area. In the meantime, the markets rose significantly. The Nasdaq ended higher at 29.52, the Dow is up 164.79 to 11,433,71, and the S&P 500 ratcheted up 17 points to 1,249.05. The VIX dropped to 23.49.


2008-9-10  The price of oil fell to $102.58. The Nasdaq climbed 18.89 points to close at 2,228.70, the Dow rose 38.19 to 11,268.92, and the S&P gained 7.53 points to end at 1,232.04. The VIX gave up another point and fell to 22.54. Taken all-in-all, it looks to me like a technical bounce from a somewhat oversold state, while the long-term trend continues to be downward.


2008-9-9  The price of oil fell approximately $3 today to $103.26 in spite of Hurricane IKE heading for the Gulf Coast. This had no positive influence on the stock market, which tumbled head-over-heels. The Nasdaq dropped about 56 points to about 2,210. The Dow shed 280 points to 11,230.73. The S&P lost 43.28 points to 1,224.51. The VIX rose nearly three points to 25.47. So what happened? Lehman Brothers, which was on the chopping block at the time of the Bear Stearns bailout, announced that a deal to raise new capital from Korean investors had fallen through. (Presumably, when they performed due diligence, they discovered just how parlous a state Lehman Brothers was in.) :The Lehman Brothers stock price swooned 40%, while the next bank in line for the execution block, Washington Mutual, declined in price by 20%.
    Here are articles by Paul Farrell, Michael Ashbaugh, and Mark Hulbert.


2008-9-8  The price of oil was basically unchanged today at $106.34 even though Hurricane Ike may hit Gulf Coast  installations. The Nasdaq rose 13.88 to 2,269.76; the Dow leaped 290.43 to 11,510.74; and the S&P jumped 25.48 points to 1,267.76. The VIX fell 0.4 points to 22.64. The yeast that provided this leavening was the takeover by the government of Fannie May and Freddie Mac. I suspect that this glee will be short-lived, but here's a chart that plots the VIX on top and the S&P 500 on the bottom. Notice how the upward spikes in the VIX match the downward spikes in the S&P 500. The S&P 500 is trending downward but the bear-market rallies begin when the VIX spikes upward.
    Here's a new article by Todd Harrison (whose article provides the link to the table below)


2008-9-5  The price of oil dropped another $1.66 to $106.23. The markets basically treaded water. Clearly, the markets are no longer bedeviled with inflation, but are now obsessed with the poor performance of the economy. The Nasdaq relinquished 3.16 points to 2,255.88, the Dow added 32.73 to close at 11,220.96, and the S&P 500 ended up 5.45 to 1.242.31. The VIX dropped one point to 23. 
    Unemployment edged up to a five-year high of 6.1%. Some additional articles of interest might be: Inflation expectations at five-year low, Fed is 'powerless' against this recession, says Kellner, Foreclosures, delinquencies rise, and One-Man March.    
    Mark Hulbert has published, Stock market may already be voting in presidential race and Hulbert's take on the pessimism quotient. Mark Hulbert concludes that investors aren't sufficiently pessimistic to signal a turning-point in the markets. 
    What's happening appears to me to be another down leg in the markets.


2008-9-4  The price of oil dropped to $107.89 a barrel today, but the markets took a tumble on no praticularly obvious bad news. The Nasdaq dropped 74.69 points to 2,259.04. The Dow plummeted 344.66 to 11,188.23, and the S&P gave up 38.15 points to close at 1,236.83. The VIX jumped 2 points to close at 24. There's pessimism for tomorrow in anticipation of an employment report that's predicted to be a real downer.
    In the meantime, James Dines sees market pessimism as cause of optimism: Worse before better. (Peter Brimelow)


2008-9-3:   The price of oil dropped a little further today in spite of three new hurricanes in the Atlantic. A worldwide economic slowdown seems to be overpowering oil shortage concerns. In the meantime, the Nasdaq fell 15.51 points to 2,333.73, the S&P declined 2.6 points to 1,274.98, and the Dow rose 15.96 points to 11,532.88. The VIX fell from 21.99 to 21.43. (U.S. stocks finish mostly lower in face of economic jitters)
    In short, not much happened.
    Mark Hulbert has released the article Wanted —more pessimists.


2008-9-2:   In terms of the financial markets, Hurricane Gustav was a no-show. Oil dropped $5.75 a barrel to $109.71 on expectations of a slowing global economy. The markets responded by falling slightly throughout the day because of talk of an OPEC production cut. The Nasdaq fell 18.28 points to 2,349.24. The Dow shaved only 26.63 points to end up at 11,516.92. The S&P dropped 5.25 points to close at 1,277.58. And the VIX jumped to 22, betokening relatively high rates of anxiety. Meanwhile, here is Todd Harrison: Traders ready for a September to remember.


2008-8-29:   Hurricane Gustav is growing ever larger, with tropical storm force winds having escalated from a 50-mile radius a couple of days ago to a 160-mile radius tonight. It will probably become a Category Three hurricane on the Saffir-Simpson Scale before it hits western Cuba tomorrow night. After that, it's all warm, open water until Gustav collides with the Louisiana coast Monday night. Surprisingly, the price of oil fell slightly today to $115.46 a barrel. But the Nasdaq plummeted 44.12 points to 2,367.42, the Dow dipped 171.65 points to 11,543.55, and the S&P 500 relinquished 17.65 points to close at 1,282.83. The VIX rose 1.22 points to close at 20.65. 
    Today's decline in equities is being attributed to (justifiably, in my opinion) uncertainties over what Gustav will do to Gulf oil production, as well as Dell's profits dropping 17%, and a decline in personal incomes and consumer spending.
    Brimelow on danger of real interest rates.


2008-8-28:   Even though Gustav is heading straight for the Gulf of Mexico and is tipped to be at least a Category 3 hurricane, oil dropped $2.56 a barrel today to $115.59. (Go figure.) At the same time, the markets galloped, on a much-better-than-expected second quarter GDP report plus increased orders for durable goods. (A less-favorable third quarter and an abysmal fourth quarter are expected.) The Nasdaq rose 29.18 points to 2,411,64, the Dow climbed 212.67 to 11,715,18, and the S&P ratcheted up 19 points to 1,300.68. The VIX ended at 19.43. The markets are remaining afloat. 
    Mark Hulbert has just published this article about How bad is September for the stock market.


2008-8-27:   Oil jumped $1.88 to $118.15 today because of fears that Hurricane Gustav will tear up the oil facilities in the Gulf of Mexico. (It's currently aimed straight for New Orleans, although that's very tentative at this early stage.)
    The indices rose today, with the Nasdaq climbing 20.49 points to 2,382.46, the Dow rose 89.54 points to 11,502.51, and the S&P increased 10.15 points to 1,281.66. The VIX dropped to 19.76.
    Michael Ashbaugh has provided another public technical analysis (yesterday): The Technical Indicator: Battle intensifies between large and small caps, and a private technical analysis today entitled, The Technical Indicator- S&P stabilizes again near major support. Mark Hulbert has published: "Banks winning by losing?" However, one interesting straw in the wind is: "Inflection point: Short sellers exit financials en masse". This suggests that short sellers believe we've seen the bottom in financial stocks and in most technical stocks.


2008-8-26:   Oil jumped $1.16 to $116.27 a barrel as Hurricane Gustav heads straight for the Gulf of Mexico. It's path has shifted so that it no longer threatens the Cuban mainland but is, possibly, free to grow to a stronger hurricane inside the Gulf.
    The markets closed basically flat, with the Nasdaq down 3.62 to 2,361.97, the Dow up 36.62 to 11,412.87, and the S&P up 4.67 to 1,271.51. The VIX has ended the day at 20.5. Mark Hulbert: Contrarians wonder where all the bears are


2008-8-25:   Oil closed down slightly today at $115.11. Hurricane Gustav is headed for the Gulf of Mexico where it may well interfere with offshore oil production. The indices moved sharply lower today as worries about the financial sector resurfaced. The Nasdaq Composite fell 49 points to close at 2,365.59. The Dow lost 241.81 points to end the day at 11.385.25. The S&P 500 declined 25.36 points to close at 1,266.84, while the VIX jumped to about 21. What's worrisome about this is that the chart pattern suggests to me the possibility of a new breakdown to lower lows. (Unfortunately, none of the technical market forecasters whom I monitor has emerged to read the runes.)


2008-8-22:   Oil fell back today to where it started yesterday as Russian troops withdrew from Georgia, and the markets responded accordingly. The Nasdaq hopped up 24.59 points to close at 2,414.49, the Dow advanced 201.02 points to 11,628.06, and the S&P rose 24.59 to 1,292.18. The VIX fell 0.8 points to an ominous 18.6... entirely too much complacency for today's dour outlook.


2008-8-21:  Oil leaped $5.62 a barrel today on heightened U. S.-Russian tensions to end the day at $121.18.  Freddie Mac shares dropped a little further to $3.16. The Nasdaq gave up 8.7 points to close at 2,380.38. The Dow advanced 12.78 points 11,430.21, while the S&P rose 3.18 to 1,277.72. Amazingly, given the dour outlook, the VIX fell 0.6 points to 19.82.
    To sum it up, the markets failed to fall again today.
    Mark Hulbert has published a follow-up article, No one's perfect all of the time, discussing his previous article, Music to a bull's ears.


2008-8-20:  Oil closed higher again today at about $115 a barrel, presumably on the strength of Russia's incursion into Georgia. Freddie Mac shares touched a low of $2.95 today before closing at $3.25. However, the Nasdaq managed to eke out a gain  of 4.72 points to 2,389.08. The Dow added 68.88 points to close at 11,417.43. The S&P 500 waxed 7.85 points to 1,274.54, giving the rally a crutch to prop it up another day. The fickle VIX fell to 20.42.
    To sum it up, today, the markets failed to fall. Tomorrow... ?


2008-8-19:  Oil closed higher today at $114.53 a barrel, and stocks closed lower. The Nasdaq dropped 32.62 for the day, closing at 2,384.36. The Dow relinquished 131 points to close at 11,348.55. The S&P fell 11.91 to close at 1,266.93. The VIX closed out the day at 21.28.
    The reason for another day of declines was more bad news. U. S. producer prices rose 1.2%in July, the highest one-month jump since 1981. Economists were expecting an 0.3% jump. Housing starts fell 11% from last year. Freddie Mac shares declined further today to $4.11, down by a factor of roughly 15 over the past year when it sold for roughly $60 a share.
    What's disturbing to me is that today marks the end of higher lows and higher highs for the major indices. They've moved outside their channels.
    Michael Ashbaugh is presenting his current technical analysis of the behavior of the stock market: Ashbaugh eyes technical crossroads. Mark Hulbert finds cause for optimism in terms of company insiders' purchases of their own companies' stocks. A Merrill Lynch economist sees trouble ahead for equities based on credit spreads: Credit spreads, which represent the gap between corporate debt and Treasury yields, have been a pretty good predictor of how stocks perform - and they're not looking good. And Chuck Jaffe warns of further credit woes that still lie before us: Credit crisis will hit everyone.
    My personal, uneducated notion is that the Fed is trying with might and main to keep the economy afloat at least until the election by printing money and bailing out institutions like Bear Stearns, Freddie Mac, Fannie Mae, and possibly a host of other institutions that are too big to fail (such as the Federal Deposit Insurance Corporation). The problem is that this is money-supply inflationary. We've also been suffering from worldwide demand-pull inflation, but that's beginning to subside as the economies of the world subside. Unfortunately, U. S. exports, which have been the silver-lining in the current cloud-darkened sky, may be slowing because of  sagging overseas economies. But inflation caused by a rapidly expanding money supply takes about two years to fully mature, and hedge fund manager John Castle is warning that inflation may hit double-digit levels as early as next year (Bracing for Inflation) as a result of the lowering of interest rates that has already occurred. If so, that could virtually force the Fed to raise interest rates, possibly tipping us into a deep recession/depression.  


2008-8-18:  Oil closed under $113 a barrel today, at $112.87. The markets fell significantly, with the Nasdaq losing 35.54 to 2,316.98, the Dow dropping 180.61 to 11,479.39, and the S&P falling 19.6 points to 1,278.60. The VIX added 1.4 points to close at approximately 22. Concern today seemed to center around Fannie Mae and Freddie Mac, and further losses for Lehman Brothers. (Freddie Msc closed today at $4.39, down from $21 a share in June and $65 a year ago. It's looking ever more likely that the Federal Government will have to recapitalize Fannie Mae and Freddie Mac, wiping out the investors who still hold their stocks. Also, I believe I read that Freddie Mac's subordinated debt was cut from AAA to A- by one of the major credit ratings agencies.
    Two trenchant articles that deal with U. S. expenditures that might potentially generate U. S. budget problems are George Monbiot's, "The US missile defence system is the magic pudding that will never run out." in The Guardian, and Paul B. Farrell's, "Why we love 'America's Outrageous War Economy'" in Marketwatch.


2008-8-15:  After falling as low as $111 a barrel, crude oil ended the day at  $113.77, down a $1.24 a barrel. The stock market responded with modest changes. The Nasdaq Composite fell 1.15 to 2,452.52, the Dow rose about 44 points to close at about 11,660, and the S&P added 5.27 points to reach 1,298.20. The VIX ended the day at 19.58, which is not terribly good.
    Mark Hulbert has just published "Why not to expectthe same old bull", and Peter Brimelowhas presented, "The agile Adens". Meanwhile, "Report: Lehman in talks to sell $40 bln in real estate assets". Ouch! Chicago's Fed President predicts Sluggish growth in Fed forecast through 2010.


2008-8-14:  Crude oil dropped a $1 a barrel today from yesterday's close at $116 to a close today at $115. The stock market responded by rising somewhat. The Nasdaq rose 25.05 points to close at 2,453.67; the Dow advanced about 83 points to close at 11,615.93; and the S&P rose 7.1 points to 1,292.93. What's particularly significant about these moves is the way the averages are marching up within a "trend channel". The trend is clearly upward, with higher lows matching higher highs. 
    The VIX, after spiking up at 22.25, lapsed back to 20 34 at the end of the session.
[audio] Your Money with Chuck Jaffe: 'Massacre of a year' has turned auto stocks into a wait-and-see proposition


2008-8-13:  Crude oil pushed a bit higher today to $116 for no particularly compelling reasons known to me. The indices fell a bit further. The Nasdaq fell 2 points to 2,428.62. The Dow 109.51 points to 11,532.. The S&P 500 relinquished 3.76 points to close at 1,285.8. The VIX ended the day at 21.56. The news continues to be uniformly bad. Still, it wasn't a terribly eventful day.


2008-8-12:  In spite of the fact that crude oil closed at $113 a barrel today, the Dow and the S&P 500 were thrown for a loss. The Nasdaq fell 9.34 points to 2,430.61. The Dow tumbled about 140 points to 11,642.47, while the S&P gave up 15.73 points to close at 1,289.59. The VIX rose to 21.13. The reason lay in further massive financial company losses. (For some reason, the U. S. trade deficit was down 4% last month.) Goldman Sachs was downgraded from "Buy" to "Hold" by Deutsche Bank. J. P. Morgan Chase announced a further $1.5 billion write-off for the quarter. Morgan Stanley is buying back $4.5 Billion in auction-rate securities, while Wachovia Bank revised its second-quarter loss lower to reflect a $500,000,000 pretax hit on auction-rate securities. UBS revealed that its clients withdrew $40 billion during the quarter.   
    Todd Ashbaugh has released a new public technical discussion, "Clearing the hurdles: Ashbaugh", pointing out that the indices have made substantive gains over and above their volatile ups and downs. 
    Todd Harrison is suggesting that the S&P might make it to the 1,325-1,350 range before encountering a sudden, sharp sell-off.  "Monday Morning Quarterback: Perception and Reality", "
Random Thoughts: Recipe for a Perfect Storm", "Set-Up Into Turnaround Tuesday, Answers I Really Wanna Know: Turnaround Tuesday?", Random Thoughts: Is a Commodity Bounce Coming? Todd Harrison also asks,           Have you read Professor Sedacca’s three-part series on the tale of two markets and what it means for stocks? .   Among the topics discussed in Professor Sedacca's three-part series is the example of Freddie Mac. Freddie Mac is a private company that sells stock and issues dividends. The mortgages it holds exceed (I believe) more than $1 trillion in value. During the last few years, the company got a little adventuresome, so the federal regulators who monitor the company insisted that Freddie Mac maintain a capital surplus as a protection against mortgage defaults. Then came the mortgage meltdown. Freddie Mac had to sell more than $50 billion in preferred stock to raise reserve capital, culminating last June in the need to raise another $5.5 billion to replenish their reserves. Freddie Mac common stock was selling for $25 a share in June, down from $60 a share a year ago. There are 750,000,000 shares of common stock outstanding. At $25 a share, the company was worth about $18.75 billion, so selling $5.5 billion more would have diluted the shareholders' value about 25%. The company management decided to wait a few weeks to see if the stock price wouldn't recover. Bad idea! Instead, the price has dropped to $5 a share, lowering the company's capitalization to less than $4 billion, making it impractical to sell $5.5 billion in additional stock.
    Credit card debt continues to rise as desperate consumers, no longer eligible to tap their houses for low-rate loans, rely on credit cards to make it month-by-month. Then there's this: China to top U.S. in manufacturing in 2009: analysts.


2008-8-11:  After clipping $113 a barrel, crude oil rose to close at $114.45. The stock market responded accordingly, with the S&P peaking at 1,312¾ before closing up 9 points at 1,305.32. The Nasdaq climbed almost 26 points to 2,440. The Dow scored 48 points to 11, 982. 
    The VIX fell to 20.1.
    Although there are dismal warnings about what lies ahead, the stock market continues to make a steady intermediate-term recovery.


2008-8-8:  Oil fell to $115 a barrel today and the stock market took off like moonshiners chased by the "revenooers". All three indices notched new highs relative to their July lows. The Nasdaq climbed 58.37 points to 2,414.10. The Dow soared 303 points to 11,734.32. The S&P 500 lofted 30.25 points to 1,296.32. And the VIX fell to 20.66. It would appear that we are in an intermediate-term rally, perhaps through the November election as predicted by Todd Harrison. Of course, the primary driver for this volte-face is the falling price of oil. The financial news continues to surprise on the downside.


2008-8-7:  Another bad day for the markets. Oil rose slightly because of a Turkish pipeline disruption, while various financial firms unveiled new losses. (The insurance conglomerate AIG suffered a huge loss of $5.4 billion.) Even Toyota has reported a 28% drop in net profits. The Nasdaq fell 22.64 to 2,355,73 as the Dow gave up 224.64 points to end at 11,431.43. The S&P 500 fell 23.12 points to 1,266.07... percentage-wise, twice as much as the Nasdaq.
    The VIX ticked up a point to 21.15.


2008-8-6:  Oil closed another dollar lower today at $118.58 on news that the U. S. Petroleum Reserves have risen. The popular indices eked out modest gains today, with the Nasdaq rising 28.54 points to 2,378.37, the Dow advancing 40.3 points to 11,658.07, and the S&P 500 adding 4.31 points to close at 1,289.19. This was in the face of quite bad news from Freddie Mac, which posted a loss of nearly a billion dollars... much larger than expected. Today saw a continuation of the advance that began on July 16th.
    Meanwhile, the VIX fell to 20.23.
    I interpret Todd Harrison to be saying that he expects a market rally into the November election, followed by a resumption of a bear market after the election, as the world's credit excesses unwind.


2008-8-5:  Oil closed today at $119.37 a barrel after falling as low as $118 a barrel during the day, and the stock market took off. The Nasdaq Composite rose 64.27 points to 2,349.83, the Dow catapulted 331.62 points to 11,615.77, and the S&P 500 treaded upward 35.87 points to close at 1,284.88. These advances leave the Nasdaq and the S&P at new highs since this rally began on July 16th. 
    By contrast, the VIX fell 2 points to 21.14.
    This morning Michael Ashbaugh, writing at noon today, published his latest open-to-the-public technical analysis: "Markets run in place- Ashbaugh". 
    What happens next probably depends upon what happens to the price of oil. If it continues to fall, then we may see further improvements in the market indices. 
   
Update:  At 10 p. m., crude oil is currently $118.42 a barrel.
    Airline stocks should also show sizable gains. Of course, , the unwinding of the credit crunch will still be hanging over u. Mark Hulbert has just published this: Mark Hulbert: Tuesday's rally wasn't as strong as it looked, and Todd Harrison has this to say about the current rally: Todd Harrison: Catching the rally before reality sets in.


2008-8-4:  Stocks fell again today, with the Nasdaq dropping 25.4 points to 2,285.56, the S&P 500 giving up 11.3 points to close at 1,249, and the Dow falling 42.17 points to 11,284.15. The big news of the day was that oil hit a new low, dipping at one point below $120 a barrel. At the moment, it's running a little above $120 a barrel (see Irwin Kellner: The law catches up to oil.). The VIX gained 0.92 points to close at about 23.5... a respectable amount of respect for today's problems. 
    Inflation posted its highest monthly gain since 1981.
    Mark Hulbert has just published this article: Lower rate of interest worries contrarians.


2008-8-1:  Stocks closed modestly lower today after dismal results from the Big Three automakers, an increase in the price of oil because of heightened tensions with Iran, and a four-year unemployment rate of 5.7%. (We're almost certainly in a recession.) The Nasdaq dropped 14.59 points to 2.311. The Dow lost 51.7 points to close at 11,326.32. The S&P 500 shed 7 points to 1,260.31. The VIX ended the day at 22.57.
    The credit crisis celebrated its first anniversary today, and is allegedly far from over: On anniversary of credit crisis, more pain expected


2008-7-31:  The Nasdaq fared well today, dropping only 4.17 points to 2,325.55. The Dow plunged 205.67 points to 11,378.02, erasing yesterday's gains. The S&P 500 index fell 16.88 points to 1,267.38 points after yesterday's 21-point run-up. The VIX climbed 1.73 points to close at a more-healthy 23 (22.94). Meanwhile, oil fell back to $124 a barrel. What torpedoed the markets is, evidently, that the revised GDP for last year's fourth quarter was negative, consistent with a recession, while the second quarter's initial GDP was lower than expected, at 1.9%. The revised growth for the first quarter of 2008 was 0.9%. Despite the seemingly good 1.9% growth rate in the second quarter, gross domestic purchases fell 0.5% and imports dropped 6.6%. Also, the 1.9% growth rate for the second quarter included the effects of the government stimulus package, which won't be as effective in the third and fourth quarters.
Late-Breaking News:  Mark Hulbert has just published: Russell turns bearish again. Richard Russell is the author of the Dow Theory Forecasts, and has a 60-year history in the stock market, as well as a good long-term track record. One reader's comments concerning this article are reproduced below:
    "Let's see, as I recall, Mr. Hulbert and Mr. Brimelow heralded Russell's statement last Sept./Oct. 2007 that the Dow Theory had just confirmed a major BULL MARKET. That was just before the market began a significant BEAR MARKET trend. Now he is declaring that the market will decline from here.
    "I also seem to remember that Mr. Russell had been saying that the market was in a downturn since the last bottom in 2003 before he declared a bull market last October. His subscribers missed out on one of the best Bull markets in our lifetime during the mid-2000s, and he finally called for a bull market right at the top. I use his predictions as an excellent contrarian indicator. We must be close to a bottom."


2008-7-30:  This is getting a little interesting. The Nasdaq Composite jumped another 10 points today to 2,329.72, closing above its previous July 22nd high 2,325.88. The Dow soared another 186 points to 11,583.69, below its July 22nd high of 11,632.68. The S&P swelled by 21 points to 1,284.26, which, like the Nasdaq, was above its July 22nd high. The cited cause for this mirth and merriment was the fact that the private-sector job count rose slightly instead of falling.
    The VIX dropped 0.82 points to 21.21, while oil rose to $126.77 a barrel.


2008-7-29:  The stock market's upsurge today more than undid yesterday's decline. The Nasdaq climbed 55.4 points (2.54%) to close at 2,319.32, after dropping 46.31 points yesterday. The Dow upticked 266.48 points (2.39%) to end the day at 11,397.5, after losing 240 points yesterday. The S&P added 28.83 points (2.34%) after falling 23½ points yesterday. And the VIX fell back 2.2 points to finish at 22. The proximate cause for this largesse was a dramatic $2.54 drop in crude oil prices to $122.19.
    If the cost of oil and other commodities continues to ease, then inflationary pressures could begin to subside, as predicted months ago by the Federal Reserve. Meanwhile, Michael Ashbaugh sees greater upside potential (85-10%) than downside risk (2%): Risk favors bullish view, Ashbaugh writes. On the other side of the table, Todd Harrison has this to say today: The sooner it begins, the sooner it will end.
    For now, I'm keeping the majority of my investments in cash..


2008-7-28:  Today, the Nasdaq Composite dropped 46.31 points (%) to close at 2,264, the S&P fell about  23½ points ( %) to end the day at 1,234½, and the Dow shed about 240 points ( %) to 11,131. The VIX jumped 1.32 points to close at 24.23. The immediate causes for these declines in the indices are renewed problems with financial institutions, a rising oil price (because of geopolitical tensions associated with Nigeria and Iran), and unpleasant earnings surprises. 
    Michael Ashbaugh's July 28th column, written this morning before the markets took today's dip, is entitled "S&P 500 teetering around the March low" (unavailable to the public), while Peter Brimelow has written, "Peter Brimelow: Martin Pring outlines technical support for optimism". Martin Pring observes that a 30-year-record 27% of all equity money is sitting in money market funds on the sidelines waiting for the next bull market. Meanwhile, another technical advisory newsletter I receive, also written before today's action, cites pessimism at a very high level, and predicts a bull market running through the end of the year.


2008-7-25:  I have moved the S&P 500 index chart down to just above the VIX chart, and have added a 10-year VIX chart just below the 10-year S&P 500 chart. The one-year S&P chart is similar to an  upside-down, one-year VIX chart. But notice the 10-year S&P 500 charts and the 10-year VIX charts: when the bull market began in March, 2003, the VIX dropped steeply from values above 30 to around 22.5 by mid-April, 2003, and then worked its way down below 10 by December 18, 2006, only gradually climbing into the mid-teens by the time the S&P peaked on July 17, 2007. The message: the VIX can remain low (with occasional spikes) for years on end while the stock market is recovering from a major bottom. This agrees with Mark Hulbert's admonition that the VIX is a poor predictor of stock market action.
    One of the financial newsletters to which I subscribe has observed that, so far, the stocks that have have fueled this mini- rally are in those areas that have been beaten down the worst. In other words, we're seeing  reflexive bounces in groups like the financials that have been oversold. It remains to be seen how far this rally will go. (It might be worth noting that when the indices hit bottom on July 15th, we didn't have the climactic selling that signals the capitulation of the bulls.)


2008-7-24:  The indices took a tumble. The S&P 500 fell 29.65 points (2.31%) to 1,252.54, or about 52 points above its July 15th intra-day low. The NASDAQ shed almost 46 points to close at about 2,326. The Dow deflated 283 points (2.43%) to close at 11,349.28. The VIX obligingly rose 2.13 points to close at 23.44. The proximate causes for this loss of faith seems to have been dismal earnings reports, including, particularly, the Ford Motor Company, which is converting three manufacturing plants from trucks to small cars, and which announced a $9 billion loss for the quarter. Jobless claims crossed the recessionary "400,000-Rubicon" to 406,000. Sales of existing homes in June fell to their lowest level in a decade. Thirty-year, fixed-rate mortgage rates surged from last week's  6.26% to 6.63%. 
    Taken all in all, it was not a salubrious day. (In the meantime, one of my best investment advisories feels that the bottom has been seen, but isn't ready to bet money on it yet.)


2008-7-23:  The indices eked out a gain again today, with the S&P up 5.19 to 1,282.2, the NASDAQ ratcheting up 21.92, or 0.95%, to 2,325.8, and the Dow rising 29.88, or 0.26%, to 11,632. The VIX, after spiking above 22, closed at 21.31. Meanwhile, McMinville's Todd Harrison is dubbing this rally a bull-market trap in an ongoing bear market: "Harrison says it ain't over 'til it's over".
    Crude oil slid to $124 a barrel today, down $23 a barrel from its peak. With Hurricane Dolly ashore, demand falling, and an attack on Iran in abeyance, there is, at least for the moment, just cause for a breather in crude oil prices. 


2008-7-22:  The indices climbed heftily today. The S&P soared 17 points (1.35%) to 1,277, up 62 points from its close at 1,215 on July 15th. The Dow climbed 135 points (1.18%) to close at 11,602.50, up 646 points from its close at 10,956 on July 15th. The Nasdaq jumped 24.4 points to close at 2,304, up 88 points from its low of 2,216 on July 15th. Ominously, the VIX dropped 1.87 points to close out the day at 21.18.
    One of the reasons for the sunny market may have been the fact that oil fell $3.40 to close the day at $128.42 a barrel.
    Michael Ashbaugh observes that the S&P 500 is facing its first test: Ashbaugh says markets rise to test at its March low of 1,267 and its January low of 1,270. Since it closed at 1,277, it would seem to have passed these tests.


2008-7-21:  The indices treaded water again today. The S&P closed at 1,260 even, the Nasdaq ended at 2,289.53, down three points, and the Dow fell 29 points to end the day at 11,457.34. The VIX fell a point to 23. (Note, though, that Mark Hulbert has just published a study entitled, "Don't use VIXas a crystal ball".) He has also published another article tonight entitled, "Market timing model based on Value Line data has turned bullish".


2008-7-18:  Oil dropped below $130 a barrel today, closing at $128.88 a barrel. In spite of this, perhaps because Microsoft and Google's earnings disappointed investor's, the market indices changed very little for the day. The S&P 500 rose 0.03%, the Nasdaq Composite fell 1.28% (presumably because of the tech stocks' earnings disappointments), and the Dow rose 0.44%. Meanwhile, our friend, the VIX, dropped from 25 to 24.


2008-7-17:  Today saw further market gains as the S&P rose 15 points to close at 1,260, the Nasdaq Composite added 27.45 points to reach 2,312.30, and the Dow climbed 207.38 points to close at 11,446.66. Trader Extraordinaire Todd Harrison expects this to be a significant rally: "Future is now, writes Todd Harrison". The VIX closed the day at 25. The charts look a bit like the January and March rallies. Of course, the best outcomes occur when the majority least expects it. (The March rally ended in May when the VIX fell to 16.) 


2008-7-16:  The market indices rose about 2½ % today on falling oil prices. (Oil dropped as low as $132 a barrel before closing at $134.60 a barrel on a report that the U. S. petroleum inventory has risen, suggesting that a marginal degree of demand-destruction has occurred.) The S&P 500 rose 30.45 points to 1,245.35, the Nasdaq Composite climbed 69.14 points to close at 2,284.85, and the Dow vaulted 276.74 points to 11,239.28 points. The VIX fell from 28.5 to 25.1.
    As suggested yesterday and the day before, the markets have been ripe for a short- to intermediate-term advance, but long-term... ?


2008-7-15:  Savvy market analysts are beginning to call for an intermediate term rally (Todd Harrison: "The future is now" and Michael Ashbaugh: "Ashbaugh says intermediate low is near"). The S&P dropped another 14 points (slightly more than 1%) to 1,215. The Nasdaq remained essentially unchanged at 2,216, but approaching its March low.. The Dow fell 92 points to 10,962. Meanwhile, the VIX hit 30.8 before endng the day at 28.5.


2008-7-14:  The dismal decline is continuing, with the S&P down 11 points, the Nasdaq Composite dipping 26 points, and the Dow slipping 45 points.  The VIX, after peaking above 29, closed at 28.5. It still may not be high enough for even a short-term bounce in the market averages. Further damage may be required. .


2008-7-11:  This was a wild day in the marketplace. At one point, the S&P 500 fell almost 28 points. Then it rapidly spiked more than 32 points, to fall back just as quickly, closing down about 14 points at 1,239.49. The Dow was equally rambunctious, opening at 11,229, dipping below 11,000, rebounding to where it started, and then falling again 128 points to close at about 11,100. Among the news items that spooked the markets was a rumor that Israeli jets have been practicing in Iraqi airspace (which would have to have occurred with U. S. approval), and the danger of a collapse of Freddie Mae and Freddie Mac, with 5 trillion dollars in loans on their books.
    The VIX reached 29.44 today but closed at 27.49. (The VIX at 29.44 is beginning to get into respectably high territory... not enough to mark real panic, but--possibly--setting the stage for a panic peak.)


2008-7-10:  Today, the markets rose enough to put them back where they were day before yesterday. The S&P 500 ended at 1,253.39, The Nasdaq Composite moved up to 2,257.85, and the Dow finished the day at 11,229. The VIX moved up a bit to 26.6. Meanwhile, the Aden sisters, who as of May 11th were upbeat over the intermediate term, have now become decidedly bearish, as described in Peter Brimelow's "Adens see the bear necessities", The Aden sisters are currently 30% invested in non-precious metals. They are suggesting a low at the Dow = 10,000 level, but don't rule out a Dow = 7,500 level. (Ouch!) Bottom line: now is a good time to be in cash.
    In the interests of balanced reporting, Mark Hulbert published on Tuesday the positive report that Mark Hulbert: Corporate insiders didn't sell into market's decline in June. Also, tonight, Mr. Hulbert observes that Mark Hulbert: Democratic presidencies aren't always bad for stocks.
    (It might be worth noting that the indices look as though they might be forming an intermediate bottom.)


2008-7-9:  "Tune in tomorrow for the next exciting episode." Ah, and what an exciting episode it has been! The S&P 500, which closed up 21 points yesterday, ended down 29 points today, putting it off 20% and  firmly in bear-market territory at 1,244.69. The Dow skidded 237 points, putting it at 11,147.44, and off 21% from its October high. The Nasdaq Composite plummeted to 2,235... still 80 points above its March 17th low, but 21% below its October high. So it's now a clean sweep, with all three of the major indices in bear country. Michael Ashbaugh has just published a very gloomy forecast for the markets in which he notes that, "market sentiment remains stubbornly complacent, suggesting further downside is likely in order". Iran's missile launch demonstrations helped boost the price of crude oil a bit, while financial companies planned for additional, previously unannounced losses.  And the VIX? It's at 25. Hey! What's to worry about, just because we've got a major bear market going? 


2008-7-8:  The S&P 500 gained 21 points (1.7%) to 1,273.70 today as oil fell $10 a barrel from its Friday close at $145 a barrel to today's close of $135 a barrel. The Dow climbed 152 points to 11,384, while the Nasdaq rose 21.39 points to 2,294.44. If oil continues to deflate, stocks may inflate.
    The VIX fell to about 25. 
    Tune in tomorrow for the next exciting episode.


2008-7-7:  The S&P 500 followed the Dow into bear country today, closing at 1,252, five points below its March intraday low. The charts tell the story. The Nasdaq Composite is approaching its March low. Oil fell a few dollars a barrel today, but regained part of its loss. The VIX struggled up to 26¾ but closed at 25¾, up a full point from Friday's close..


2008-7-3:  The market averages treaded water again today, while the VIX fell from about 26 to 24.8. In the meantime, the forecasts are getting grimmer and grimmer. Here's Mark Hulbert's latest article, "Mark Hulbert: What Dow Theory says about recent market action", and here's Peter Brimelow's most recent, "Peter Brimelow- Bulls pulling in their horns".


2008-7-2:  Today, the Dow fell to a level not seen since September, 2006 (11,215.50), while the S&P closed within 4½ points of its March 17th intra-day low of 1,257. Not to be outdone, the Nasdaq Composite posted a relatively greater decline of 52.5 points, leaving it only 96 points above its March 17th bottom. In the meantime, the VIX made it all the way up to roughly 26 as oil futures prices hit a new record of $143.87. Perhaps the real question is: how much farther do the major market indices have to fall before the VIX reaches turning-point levels? A look at its chart shows that on August 9th, 2007, when the VIX hit 26, it spiked at 37.5 just five trading days later (on August 16th) When it closed at 26.5 on November 9th, 2007, it peaked at 31 just three trading days later, on November 12th. On January 9, 2008, after hitting a high of about 26, the VIX closed at about 24. For the next five trading sessions, it hovered in the lower 20's. Then on January 17, it closed at 28.5, and two days later, when the market indices hit their January bottoms, the VIX once again hit 37.5 intra-day before closing that day (January 19th) at 31. On the last day of February, the VIX closed at 27.5. From there, it hit a peak of almost 30 on March 10th, dropping back to close at 27.2 on March 12, followed by a rapid rise to 35.6 three trading days later.
    The gist of this is that it looks somewhat likely to me that there will be at least an intermediate market bottom within the next week or two.


2008-7-1:  Today, Michael Ashbaugh released a column entitled, "Sentiment says it's too early to call a bottom", while Mark Hulbert wrote, "Was Friday the stock market's bottom?". Today, the Dow dropped 165 points, or about 1½% before closing up 32 points. The S&P 500 fell 19 points or about 1½% before closing up almost 5 points, and the Nasdaq Composite exhibited the same pattern. So Friday wasn't a market bottom but today might have been.
    The VIX spiked up to 25.5, but closed at 23 2/3rds.