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Patience is a virtue.

In the past I have tried to anticipate the market top and have been too impatient and now I am adjusting my trading strategy to take a position after the stock market is declining and trading with a tight stop-loss. I am now 50% short via SDS with a less than 1% stop loss order in place. The stock market has continued to move lower since placing that order this morning.

With the Irish debt issue spiraling out of control and other nations close behind and the aproaching weekend it seems a good time to take a short position. Other indicators are extreme bullish sentiment readings and a market that was clearly overbought, as well as the expectation of a slowing economy based on the Consumer Metrics Data.

I like Money Talk because I learn things I didn't know and because it is the only money/investing radio show I know of where I live. But I have always had a problem with Bob Brinker and his inability to think critically. For example, prior to the meltdown in 2008 Bob Brinker insisted such a thing could not happen in this day and age. Now I read this from Investor's Intelligence:

[Bullish Theme] Based on the excellent corporate earnings progress we are seeing and our estimate of real GDP growth in the 2.0% to 2.5% range next year, we are increasing our S&P 500 operating earnings estimates to $78 in 2010 and $87 in 2011. Applying the historic stock market price/earnings ratio range of 15 to 15.5 times earnings, this increases our 2011 S&P 500 target range to the 1,300 to 1,350 zone. Additional gains beyond our target range will remain a function of the sustainability of the economic recovery and the success of Federal Reserve monetary policy. (3-Nov-10) Bob Brinker's Marketimer, 10789 Bradford Rd, Suite 2010, Littleton, CO 80127 www.bobbrinker.com

We are 3 years into a secular bear market and the majority of "analysts" are still using operating earnings to compare to historical earnings that are based on reported earnings. Having heard Bob Brinker over the years I believe he is basically incompetent at thinking critically and for himself, he simply seems to parrot what other, supposedly smarter people say so that he can keep his juicy radio gig. I have no problem with Bob Brinker or anyone else being bullish but using such a basic measurement as the Price/Earning ratio improperly is inexcusable.

I am and have been out of the market and trying very hard to improve my trading skills. I have been utilizing Quantifiable Edges along with Investor's Intelligence and other technical and sentiment indicators so that I am able to be more objective about which way the market is headed. Seems that we are building to a top, of course, but the market now has room to play up to the 11,782 high from September of 2008. All signs seem to point to early or mid December for the next low point but let's keep in mind how resiliant this market has been. I will keep in mind how wrong I have been about the expected top.

Now that we've broken through the April highs the next level to watch is 11,782 on the DJIA, which is the high from August of 2008. In a sense we are back to late April of 2010 and the market has continued higher instead of breaking to the downside. Sentiment should be sky-high if this market continues higher for a few days and at that time I will consider re-entering with a short position.

Compare this period to that of spring 2008 when we had the stimulus checks going out to most Americans. The different then is that the stimulus actually increased velocity. The economy is in much worse shape than in early 2008 and there is no reason to think things are getting better and many reasons to believe it will get worse or simply stagnate. The key now is to be a good trader and not get caught on the wrong side of the various bubbles being blown.

AAII Investor's Sentiment was at +30 last week and Investor's Intellegence is reporting a sharp increase in "Buying Climaxes" - a large spike often signals a market top. This is a great place to take a short position with a preset stop-loss. I had set my stop-loss at 26.7 for SDS and that was not triggered so my 50% position holds...for now.

Today marks a major turning point for me. My recent losses stem from very typical trading errors, including trading on fear and not protecting capital. While I have lost money over the past month and a half I also know that I have the opportunity to learn much and so I have really taken a good hard look at how I trade and I believe I have come to some clear conclusions: First, I am too impatient. Early in the year I exhibited great patience by waiting for everything to come together before I took a short position at 11,000 - 11,200. I recall waiting and waiting and waiting and letting the trade come to me. I then made a mistake by trading out too early but I did not magnify that mistake by jumping back in, fearful that I was missing something. Instead I waited patiently for the next obvious trading opportunity, which came at the 10,700 level in early August. As the DJIA approached the 10,000 level I once again made a good, reasoned decision to exit my short position but I then doubted myself and foolishly traded back in out of fear I was about to miss something.

I remember thinking, and probably writing, that I needed to get back in and take my lumps and if it was the wrong decision I would learn from my mistake. Now I need to learn or cease to trade. I believe that by analyzing those trades and how I felt and why I acted I can become a much better trader and so I am in the process of doing so. I am also seeking out real traders who have learned these lessons and are willing to share their experiences, My goal is to learn to trade sucessfully, not to be right about the economy. I believe that it is that attitude that make make all the difference in the world for me.

I have thought seriously about whether or not I should continue to post my trades here and their outcome. I have decided that for the time being I will continue to do so because I feel that it can lead to a level of self-honesty and objectivity that I aspire to.

On Friday I exited half of my position in SDS and will exit the rest on Monday unless the stock market declines in a meaningful way. I will then use many of the same indicators I have been using to tell me when to trade but I will no longer double-down or hold a losing position but will instead institute specific stop-losses on every trade.

My goal above all is patience. I will wait for a trade to come to me and will exit that trade quickly if it does not work out right away.

Close to a perfect setup: GDP report is due tomorrow; AAII Investor sentiment is now at +30; ISE Sentiment Index moved up quite a bit today despite a sluggish day at best; we're right at the top of the trading range.

Tomorrow is showdown day and if the GDP report doesn't break this market I'm pulling out and waiting for a better opportunity.

I have been patiently waiting, day after day and even week after week, knowing that the fundamentals did not support a rising stock market (not to mention commodities) and in fact, suggested that the stock market should be falling rapidly as the macro economic situation continues to deteriorate. Now we have the missing piece of the puzzle: the foreclosure mess.

As with most other such issues the typical Wall Street geniuses claims that it will all be taken care of by either a non-existent rising tide or the Fed. Yeah, good luck with both of those.

I knew the turn was getting close as I traded out a good portion of my short position about a week ago. That always seems to be a good indicator...but in truth, it allowed me to relax and stop thinking about the stock market so much and it was worth it. I retain a 30% short position and will stay with that until I see both a ramping up of the fear and a big up day on which to enter. Other wise I'll be happy with my existing position and will hold it until the DJIA drops below that 9,600 level.

At this point I am looking for a rise in volatility and the beginning of a down-trend in the market. If we do experience a flash-crash type of decline I am in a good position to just hold on and wait for the subsequent rebound to get fully short. And this could get very ugly very fast as the first Q3 GDP report will be issued on Friday, October 29th, just as the fear is ramping up from the foreclosure mess.

Read Retail Sales Look Robust as Inflation Level Holds Low and then read US Business Inventories Rise Sharply, but Sales Barely Budge to see how a trader must think critically and be on the lookout for those who are reporting a rosy scenario versus those who are reporting facts. In good times with positive demographics, low debt levels and positive social mood it pays to ignore little tidbits of bad news but in times like these it is vital to put the big picture together to have an understanding of what's really going on. There will be many bottoms on the way down and none of them will look like this.

In one set of "facts" we hear that sales are up significantly but in another we hear that they are up only slightly. We also hear that the economy is strong in the NY area and yet the Fed is still likely to go ahead with QE2...huh? The big picture shows a clear view of an economy that is decelerating once again and the biggest supporter of that view is that fact trotted out as a positive: Quantatative Easing. But now it's priced in; sentiment runs highly bullish; the economy is slowing ever more; unemployment is not getter better and even appears to be getting worse; the stock market is priced for perfection; insiders are selling.

One last note: I've noticed that in every instance except the July low that the market has been off in its usual timing; considering our current setup and the leadingmost data from Consumer Metrics Institute it's starting to look like a late-year decline that will likely get everyone anticipating a "Santa Claus Rally" and then fail to deliver.

If you keep calling for a market top you will eventually be right. While that's not a sound trading strategy it is when every market indicator points to a big decline ahead and the market is only bouyed up by funny money promises from the Fed.

AAII Investor sentiment was pretty much unchanged from last weak and it is still at levels that almost always indicate a market top: 47% bullish; 26% Neutral; 27% bearish; for a gap of 20.

IMO, the thing to watch now is for an object of fear to begin to move to center-stage. The foreclosure mess looks like the most likely event to build into a reason for traders to exit the stock market.

Also notice that everything is over bought right now: gold, copper, the euro; the stock market; bonds...this is a sure sign of a sentiment move that will soon bust, rather than a normal cycle in which bonds rally, then stocks, and finally commodities. When everything moves at once the move will be much harsher than normal.

Consumer Metrics Institute data suggests an upcoming drop in GDP of as much as 6%. Their data also shows a much more lengthy decline than we saw in 2008-2009. IMO, it suggests a steep month-long drop in the stock market with a 1-2 month rally, followed by...so far it looks like another drop to lower lows, as their indicators once again move downward after a nearly two month rebound. Keep in mind that the high of the rebound was indicative of a 2% contraction in GDP. So far their indicator has been dead on and very leading. I tend to believe that if it were less leading more people would be paying attention to it but having information 3-6 months in advance is just too much to handle for most; humans are emotional creatures and tend to forget what they know and act on what they feel. I know this from experience and fight it on a daily basis, especially when it comes to trading the stock market.

My profit/loss ratio stands at -8. That is an 8% drop since May 3, 2010. The DJIA is at 11,032. The S&P 500 is at 1167. The Dow Transports are at 4680. The NASDAQ is at 2422. VIX is at 20.99.

The Put-To-Call Ratio is off its lows, possibly indicating that the top is behind us.

ECRI's WLI, Gr. is at -7, up from -7.8 and the low of -11 in July. Keep in mind that this number is likely very strongly influenced by the stock market itself.

“I invest in anything that Bernanke can’t destroy, including gold, canned beans, bottled water and flashlight batteries," David Stockman tells Jennifer DePaul of the Fiscal Times.

...

We are not in a conventional business cycle recovery, so stimulus is futile and just adds needlessly to the $9 trillion of Treasury paper already floating dangerously around world financial markets. Instead, after 40 years of profligate accumulation of public and private debt, and reckless money-printing by the Fed, we had an economic crash landing, which left us with an enduring structural breakdown, not just a cyclical downturn.

In effect, we undertook a national leveraged buyout, raising total credit market debt to $52 trillion which represented a 3.6X leverage ratio against national income or GDP. By contrast, during the 110 years prior to 1980, our aggregate leverage hugged closely to a far more modest ratio at 1.5 times national income.

The only solution is a long period of debt deflation, downsizing and economic rehabilitation, including a sustained downshift in consumption and corresponding rise in national savings.

Read the entire article at thefiscaltimes.com.

I would add that it is not Ben Bernanke that is the problem but all the people who got us into this mess over the past several decades, including me and likely, you. The problem is that I understand what went wrong and Ben Bernanke, Hank Paulson, Timothy Geithner, et al., do not, or are consumed by the lure of the vast fortune at their fingertips.

I await patiently while the stock market makes its top. If you view the market, as I do, as a combination of forces similar to rubber bands, some with long-term pressures that wait their turn patiently, others exerting highly charged short term pressures such as human emotion, and still others in between, then you can only watch in fascination as these pressures build to a climax that will force this market to its knees in very rapid fashion. No, not a full-on crash, just another rapid correction that will swing the emotion back to fear for the short term. Let's wait and see....

Click here to see the true P/E 10 ratio or do the math yourself (1134 / 67 = 16.9) to get a current P/E ratio of 17 for reported earnings for the past year. These are numbers that have historical relevance and can be used to place a realistic valuation on the stock market. From there you need to determine for yourself if we are at the top of a rising trend in earnings or if the trend will continue; whether the macro economy is strong or weak; and if the stock market is realistically priced for our current economic environment.

This is the type of data that is simple and basic and that any investor or trader should know. It is not the type of data that one should play games with, and yet, read what Goldman Sachs analyst Abby Joseph Cohen has to say in this article:

The S&P's current price-to-earnings ratio of about 13 is below the historical standard of 17 or 18, suggesting that stocks are undervalued, she said.

"Since the end of the last recession at the end of 2002 we see that share prices are up about 30 percent but S&P profits are up about 75 percent," she said.

The first statement is easy to discredit as being false. Why would a spokesperson for Goldman Sachs make such a statement? Surely Abby Joseph Cohen doesn't believe what she said, does she? I know that Goldman Sachs has a history of making terrible calls like this. In 2008 they came out as very bullish on oil as it approached $150 a barrel and yet an idiot could see that oil at that price would self-regulate, driving consumers to drive less, reducing demand, and with it, price.

The other statement is harder to discredit because it is not false but it is a clear distortion of the facts and ignores our current economic situation, including earnings that are largly from investory rebuilding and government largess, as well as a stock market rebound that would have happened regardless of what the government did. It is a perfect storm that has given earnings their last gasp in the bubble era. But this is based on fundemental analysis, which is what is completely lacking from Abby Joseph Cohen; which may be why Goldman Sachs users her and people like her at times like this. Anyone who trusts what Goldman Sachs says publicly is a fool, IMO.

I LOVE Richard Russell, he's full of wisdom and so I decided to renew my subscription to his newletter once again.

Here is a quote from the esteemed old many of Dow Theory fame:

Forgetting every fundamental and news event, what has the stock market actually done? ...both the D-J Industrials and the D-J Transports closed decisively above their highs. I accepted this action as a Dow Theory bullish signal. As of now, I have no reason to believe that it was a false or deceptive bullish signal. But that's not for me to decide, the forthcoming market action will tell the story. If the twin breakouts were legitimate, the stock market should work erratically higher.

What I left out was that was written about on July 28th, 2010, just prior to the last market top. ;-) ...two days left in the month....

I pay attention when Bill Gross says something, and he says a lot worth paying attention to in this PIMCO Investment Outlook for October 2010, titled, "Stan Druckenmiller is Leaving."

Watch the Transports (DJTA) and the 10 year Treasuries today. Either the broad market will pull them up or the market will break to the downside. The transports and bond market usually win.

David Tepper recently predicted that this market is a big bullish buy and that he is the lead animal out in front who will either get ran over or will get the best grass. No disrespect but I have taken a good look at where we are and David Tepper is simply wrong. The DJIA will not surpass its April highs and it will drop below the 9,600 level before the end of this year. It will then not see 10,800 again for as much as twenty years. Many of my predictions are more for fun but this is a done deal or I am wrong about us being in a secular bear market and I will accordingly adjust my thinking.

This morning the 10-Yr T-Note appears to be heading for new lows and that has been a leading indicator for the stock market of late. There are people who may not be as good at trading as David Tepper but they are much wiser in their long term strategy and their understanding of our economy, and that is likely where Mr. Tepper makes his mistake. After all, David Tepper is exactly the type of person who a secular bear market seeks to target; a person who wildly speculates with the belief that the market may be down now but will soon be up, up and away; because that's how it's always been.

Good luck to Mr. Tepper, he is an amazing trader, but in this call he is wrong, and I believe, untimely. And a last point: Mr. Tepper may have made a telling slip when he suggested he will get the best grass; there are carnivores out there that eat those that fatten up on grass. Here is a good argument complete with facts why quantitative easing will not work. My favorite quote from that article:

A month ago everyone was focused on a "Hindenburg Omen". Now everyone is focused on a "sure thing" by the Fed. That is how quickly sentiment can change, and sentiment can just as easily turn again.

It will.

The Chicago Fed Midwest Manufacturing Index Declines in August by 1.4% after rising by 1.9% in July.

In this image I have overlayed the DJIA 1 year chart on top of the Consumer Metrics Institute Weekly Weighted Composite Index 1 year chart. The offset is a bit less than 3 months, which makes sense in that the offset to GDP is usally about 4 months and the stock market is supposed to be a leading indicator for the economy in general, which the GDP measures.

Of course it is dangerous to try to directly correlate one piece of data with another in such a simple manner but if you think of them as both measuring the same thing, with one, the DJIA, measuring it via the investing public and one measuring it (the economy) via the American consumer, then you can see the value of such a correlation. IMO, one must put such a comparison into perspective and understand that there are pressures on the stock market that don't exist for the consumer and vice versa. This can be just one more tool in an arsenal of data that should be considered.

The main thing I got out of this comparison was that I may have been incorrect in my previous statements when I said that I thought the stock market would bottom very late in November or early December. According to this it looks like we should expect a sudden, violent drop from this point in time, or very soon, for about a month. The obvious level would be around 9,000. Let's see how this works out. No matter what, I am looking at the 9,200 level on the DJIA as a good time to exit my short position and go neutral, waiting for a larger gap to open to the downside or for the gap to the 9,600 level to be closed.

The stock market has created an almost perfect trading opportunity...or is it one humongous bear trap? What I know is that you must trade without fear, greed or ego involved in order to have a chance, and right now I feel fear free and confident that I am basing my decisions on data and not ego or emotion.

Please read this blog from "'Mish" Shedlock, it is stunning in its cutting, biting, visceral indictment of our power structure, and it is dead on, except for one thing....

Something is happening that few are aware of, but I see it - the people of this country, and in fact, the world, are rising up in anger at those in power. Expect greater anger and violence to come.

But what I see is not that, it is our own role in all of this: We allowed these people to placate us with trinkets like video games and big screen TVs; We loosened moral standards to levels that made it okay for us to allow our own girlfriends, wives and daughters to basically become protitutes so that we might have the chance to partake of the pleasures of someone elses girlfriend, wife or daughter; We sunk into a pit of despression as we allowed oursleves to blame someone else for anything we didn't like about ourselves, instead of changing for the better; We accepted handouts that weren't needed - welfare - instead of doing for ourselves and now we really don't know how to do for ourselves.

And so the corrupt culture that WE have allowed to spring up around us will be torn to the ground because a great society can not exist with such corruption. It will be ugly and nasty and most of all, self-satisfying, as we exact our revenge for what they did to us.

We do need to tear down the culture of corruption but we need to start by looking in the mirror and accepting our part in this. That is what some will do, but most will not, and so I predict very bad times directly ahead as xenophobia takes hold all over the globe. I expect a market meltdown much as we saw in 2008, but this time it will go on and on and on...for years, filling the gaps as it goes and then dropping to ever lower lows. Yes, that can apply to either the social mood or the stock market. Buckle up!

With the stock market up 2% I should be upset or worried but I see this as a perfect defining point in the stock market. All the bears are getting flushed out of the woods and the bulls have to be absolutely giddy and yet the stock market remains well below the April highs and at a perfect level to hit a top. This is what separates losers from winners in the stock market; courage based on knowledge. At the very least we are achieving clarity, and that is a good thing.

Just look at this chart and take it in and then think...after blowing the stock market bubble up wildly from 1995 to 2000 and then again from 2003 to 2007, then adding the housing bubble on top of that...look again and only allow what you KNOW to influence your thoughts...

Is there any way the worst is over? That just makes no sense; no sense at all. Look again....

BTW, if this isn't the very picture of deflation, I don't know what is.

As we head into the close the stock market is weakening considerably. It looked shaky all morning as the transports were well below the S&P 500 and most indicators showed a consistent weakness. Bonds have also been strengthening, bullish sentiment had risen and many other indicators suggested a market top. Last but not least, there is nowhere for the market to go on the upside as it formed a double-top similar to the topping process we saw in September of 2008, except with greater volatility.

There are times when a market top appears to be imminent and almost every indicator suggests a top and yet the rise was so unwieldy and unexpected that it is hard to pull the trigger or it is tempting to abandon a short position for fear of a thrust higher; this is one of those times. This market should be viewed with concern by everyone; it is weak and shaky at best. Macro economic data suggests that housing and consumer spending is on the decline from already low levels and unemployment has not improved much since the peak over a year ago. Betting on hope here, which many are doing, will likely pay off in catastrophe. Anyone buying the dips at this point is going to be sorry.

To add fuel to the economic fire I quote the folks at Consumer Metrics Institute:

We are monitoring the behavior of internet shopping consumers on a daily basis. Those "up-stream" consumer activities will flow "down-stream" to factories and the GDP over the course of weeks or quarters. It's really not unlike being far up a great river and watching a water-level gauge predict that communities further down the river will be flooding catastrophically in a few days or weeks. Although our flood-gage may have just peaked, unfortunately the damage further downstream remains inevitable -- it simply hasn't arrived yet.

One should be aware that the Consumer Metrics data has already predicted this downturn that started in April of this year and that it predicts much worse dead ahead.

9-23-10 POSITION: 100% Short

My profit/loss ratio stands at 0 - That is a 0% change since May 3, 2010. The DJIA is at 10,657. The S&P 500 is at 1124. The Dow Transports are at 4375. The NASDAQ is at 2325. VIX is at 24.04 and the AAII Investors sentiment is at 45% bullish, 30% neutral and 25% bearish. The Consumer Metrics Institute data suggests a strong downward trend ahead. The Put-To-Call Ratio is indicative of a market top.

Recently I made a commitment to getting away from attacking other people and focusing on the data and being a better trader and in that vein I want to issue an appology for my attack on Doug Kass, in particular, and to all of those whom I have previously berated here. In particular, Doug Kass seems like a very knowledgable and reasoned trader who I would do well to listen to, and so I will.

Today I put the last of my resources to work in SDS and am now as committed as I can be to the downside via SDS. I am taking the opportunity to add to my other, real investing account since this one is basically locked from further capital infusions.

POSITION: 100% Short

My profit/loss ratio stands at .98 - That is a 2% loss since May 3, 2010. The DJIA is at 10,739. The S&P 500 is at 1134. The Dow Transports are at 4466. The NASDAQ is at 2331. VIX is at 22.83 and the AAII Investors sentiment is at 50% bullish, 25% neutral and 24.3% bearish with an update due today or tomorrow.

I am always trying to get a bead on what the long term outlook of the stock market is and I think this is best determined by comparing historic data trends with current data. In every way I can value the stock market it appears to have not even come close to a market bottom. Here is another piece of data that is more startling the more I look at it, Mutual Fund Cash Levels.

This suggests that a long term trend back towards more cash has not even begun, despite the economic shocks we have endured over the past 10 year period. This provides additional evidence for my long term outlook of a major decline over a period of perhaps 5 years and then a decade or more or undervaluation in the stock market.

It amazes me how easy it is to predict where the market will go but how difficult it is to trade. Normally this is due to issues such as greed and fear interfering with the decision making process but every now and then I come across a trading vehicle that causes problems. Back in 2008 when oil was approaching $150 I knew a simple fact: oil would self correct because people didn't have to drive nearly as much as they did. I was right and hopped on the DUG and rode it to some very nice profits. I traded out succesfully and continued to watch the DUG and even attempted to trade it on spikes up in the price of oil but discovered that it was a terrible trading vehicle. I assume such rapidly deteriorating ETFs are mainly used by day traders.

Recently I decided to gain a bit of leverage by using the VXX, which I had researched, but apparently had not looked closely enough. Now I imagine the VXX could work out well for the short term to either hedge another trade or simply when you wish to take advantage or a short period of expected fear in the stock market; I will now just stay away from VXX until such a situation comes up. My main concern is seeing the VIX up 2% on teh day but the VXX down slightly; that does not make me confident in VXX as anything more than a day-trading vehicle.

This morning I traded out of the VXX and luckily the VIX itself hadn't changed much despite a rising market. It also feels nice to have a bit of ammo in the holster given the recent market strength. As far as my overall trading position I will stay in SDS as I would most definitely jump in here if I were not already all in.

My goal going forward is to work on making each trading decision a good one that provides opportunity to profit based on my knowledge of gaps and then to protect profits while awaiting the next trading opportunity. Considering the next major gap to fill to the downside is below 9,600, and is expected by early December at the latest, I will simply stay my current position. Considering that I have yet to be wrong about the gaps since the start of this secular bear market and I have been most correct in my long term views I only have to overcome the fear caused by short term moves that will soon enough reverse.

It was all the way back in early May of 2009 when I predicted that the DJIA would close the gap left open by the July 2008 lows. I posted that many times on the Seeking Alpha website but I failed to control my ego and emotions and continued to look to the short trade hoping to catch market tops; that was foolish in the extreme and my goal is to learn from those losses. What really bugs me is that I knew the same things I know know, for the most part, but I failed to act sensibly. I also failed to protect my capital and ended up losing everything I'd made in the bear market. Here are some of the lessons I hope to learn:

Some of the comments I made on Seeking Alpha and here are foolish. So now one of my goals is to no longer criticize other people for their beliefs but to simply point out any bad data I see, which will be beneficial to all and will keep my ego out of it.

I made another prediction on April 9 of this year and then reiterated it on into April and early May. That was the prediction that the market was topping based on fundamental weakness and mostly, the closing of the gap from the July 2008 lows. That gap has been a major indicator for me and it has been amazing how the stock market, and in fact the economy itself has seemed to be directed by that gap. One could not expect to pick dates on when the market would bottom, or from there, when it would fill the gap at 11,000, but with a large degree of patience one could have made an excellent trade. It pains me to think of the loss I have perpetrated upon myself because of my inability to listen to all that I knew instead of my ego.

Then on September 4th of this year I made some very specific predictions and I think that I made the same mistake as usual in those; I put a timeline on levels that made sense. I seem to be very good at taking all of the data and figuring out where the market will go and then showing impatience and trading poorly. Only when the stock market is moving quickly to the downside am I in my element; during those times I seem to do well. I do believe that I made a lot of progress recently when I waiting patiently at the 11,000 level and only traded in fully at 11,200, right at the top, and then did the same thing on the rebound up to 10,700 in early August.

In early May, I believe on the 6th, the day of the "Flash Crash", I once again showed impatience and traded out too early because of impatience. I missed the Flash Crash but did show patience afterwards, letting the market and my emotions settle. I ended up making an excellent trade at the rebound in Early August and then a good call to lighten the trade at 10,000 but impatience got the best of me and I traded back in as I feared missing the next leg down...FOOLISH!

My fundamental belief is that we are in a secular bear market and this is backed up by almost every piece of data that I can find. I believe the bottom will be in about 5 years and that it will close the gap left open from 1982 at around 1,100. I am open to the idea that the stock market may not go nearly that low and that the path to that level may not be how I currently expect it to be. I do believe that by applying the correct data to the issue and not trading on ego and emotion I can show patience and make the right trades in almost all cases. By not justifying bad trades to support my ego I can reduce losses. Every day I need to apply the data available and determine if I should be long, short or out of the market.

Currently I am "all in" on the short side of the stock market, with the understanding that we could have another week or two of gains.

My profit/loss ratio stands at .99 - That is a 1% loss since May 3, 2010. The DJIA is at 10,607. The S&P 500 is at 1125. The Dow Transports are at 4433. The NASDAQ is at 2315. VIX is at 22.01.

Manufacturing in the Philadelphia Region Shrinks Again according to Bloomberg...

The Philadelphia Fed bank’s shipments gauge fell to minus 7.1 from minus 4.5 in August. The new orders measure decreased to minus 8.1, the third straight contraction and the lowest level since June 2009. The employment index climbed to 1.8 from minus 2.7.

It's important to pay attention to details. What we hear all over are stories of "improvement" in the economy but that improvement is really just the fact that the numbers are not too bad and usually those numbers are employment numbers, which are bad and are also lagging indicators. Leading indicators rolled over long ago and led to the downturn that started in April and are just making their way through the system of official data. GDP has yet to turn negative but it most certainly will by Q4 of this year, if not Q3, on the final revision.

Any bear who gets ran in will soon regret it. Don't compound one mistake - staying bearish when it was clear that a rebound was due at the 10,000 level - with another. The stock market has limited upside from here and will soon begin to descend with the next major stop below 9,600.

My gut tells me the market will correct a bit in coming days, into early next week and then build bullish sentiment a bit more into late September, without making new highs. More and more it's looking like a steep decline later in the year than usual, possible into the middle of December. Patience is advised here as the market tries to run in all the bears and lure in the bulls. All the factors needed are coming together almost perfectly and that makes it tough to stick to one's position; that is the intention....

My profit/loss ratio stands at 1.01 - That is a 1% gain since May 3, 2010. The DJIA is at 10,579. The S&P 500 is at 1122. That Dow Transports are at 4421. The NASDAQ is at 2297. VIX is at 22.29.

Gold has run through its early first phase. This is the phase where sophisticated value-oriented investors buy an item because they believe the item is drastically underpriced and totally neglected by most investors.

Now I want to apply that to the stock market: are stocks neglected and undervalued or are they still an item of speculation that people expect to go to incredible new highs any time now? An hour or two on CNBC or Bloomberg TV will give you the answer to that question.

I can remember back when I was a kid in the 60's and 70's when bankers and financial people were seen as conservative and stodgy. The stock market was the casino of the financial world but it was nothing like it is today; even after all the shock and awe of the past three years. No, the change is far from complete, IMO. I fully expect this stock market to fall to levels that almost nobody thought possible before it's all over and then we can expect a wild ride as the few speculators left jump on the undervalued market once it has broken out of its declining pattern, only to be thrown to the ground and broken, once and for all. Only those who are willing to divorce their egos and emotions from their trading and rely on historic and current economic data will prosper; I plan on being one of those.

The stock market looks to be topping and this was the point I figured to be the highest it would go; about 10,550 on the Dow. But at this point the setup to the downside is amazing and mouth-watering and there is simply no way I change positions here, even if the bull tries to shake me off. Yes, every move upwards makes me regret my lack of discipline in recent weeks but now I will live with that and in truth, I have lost nothing but what I might have gained.

At each hint of data being not quite as bad as expected we get a flurry of optimism. The problem with that is that one can always cherry-pick data to justify ones beliefs but that is a foolish way to gauge the economy.

Today, according to this article at CNBC:

...wholesale inventories surged by the largest amount in two years in July, a government report said on Friday, in a sign firms were anticipating enough demand to boost stock this summer.

Combine that with what is a clear downward trend in consumer purchasing, according to real-time data from The Consumer Metrics Institute and we have a very precarious situation that portends bad things for the stock market going forward.

Many Wall Street analysts are actually trying to spin this data as a positive but in fact it is exactly what we would expect given what we know about consumer demand.

Having a short position it is easy to worry as the stock market inches its way upward and my gains eveporate but it is important to make decisions based on data and not the news of the day. It is important to trade with specific levels in mind and that means staying with the current trade regardless of what happens now or in the next week or two. All data points to a hard fall in coming months and the worst thing I could do is chicken out just before the market begins its main move downward. I have always know that the bottom would likely not be until November and possibly even December and the data has continued to reinforce that belief.

My "gap" expectations are holding. I would be surprised if the stock market rises above the August highs of around 10,700 but it would not alter a thing in the long term. What is important is that the DJIA does not better the April high of 11,200 and that it drops below the July 3rd low of 9,600. Once that happens the continuation of the secular bear market that started in 2007 will have been verified by Dow Theory. This is VITAL. Understand that this would not predict a new bear market, IMO, but would establish that the great secular bear market that I have preiously predicted (which could last for as long as 9 years), is intact.

My profit/loss ratio stands at 1.04 - That is a 4% gain since May 3, 2010. The DJIA is at 10,434. The S&P 500 is at 1106. That Dow Transports are at 4394. The NASDAQ is at 2231. VIX is at 22.35.

The U.S. Federal Reserve observed "widespread signs" that economic growth had eased in the six weeks through the end of August, it said on Wednesday in a report suggesting the recovery was faltering along the East Coast and the Midwest.

Read more at CNBC...

For months now I have watched as The Consumer Metrics Institute data has shown in real-time what it takes our experts in government months to figure out. The economy is slowing considerably and this time it appears to be worse than in 2008. It is already a longer contraction and just as deep, with no end in sight just yet.

Just yesterday I heard someone who seemed to be quite bright suggesting that GDP would be 1.3% in Q3 and then back up to 2.4% in Q4; no data to back that up, of course, just tthe suggestion that the Fed had taken care of things in the past week...???...whaaaat?. It seems that now the only people left in the stock market are the speculators who have gotten by on hope and a rising tide that made them think they were geniuses. That lasted for decades but now those days are over and we can expect the secular bear market to do what secular bear markets do: destroy the wealth of anyone who gets in its way. For anyone who doubts me I suggest you read, "The Great Depression: A Diary" by Benjamin Roth, and start looking at actual data and history instead of listening to the very people who got us into this mess.

OOOPS...looks like I made a mistake with Doug Kass, perhaps he's one of those guys who just made a lucky call. Here is a recent quote:

Bull markets are born out of distress — witness March 2009. Bear Markets are born out of prosperity — witness 2008-early 2009.

Liquidating/de-risking out of equities and acquiring/re-risking into fixed income has been the mantra of most individual and institutional investors over the course of the last three years. Since early 2008, retail investors have sold over $200 billion of domestic equity funds, while purchasing nearly $600 billion in fixed-income products. That gap of over $800 billion is unprecedented as is last decade’s spread in performance of bonds vs. stocks the largest in history. But history tells us that the S&P 500 performs famously in the following decade and ultimately moves contra to a peak in flows.

-Doug Kass

No, Doug, bull markets are made out of great valuations in the stock market and positive economic trends going forward; we have neither today. In 2000 we had a stock market that was, by historical standards, more overvalued than at anytime in history, including 1929. The S&P 500 didn't even correct 50% to the downside. Fast forward to 2007 and we see a Dow that is 30% higher than just 7 years ago and now we have a housing bubble to boot.

It is clear to any cogent, thinking person that this economy is still in serious trouble because we have yet to wring out the excesses. We are full of debt and still being led by incompetent and corrupt politicians.

Just waiting quietly...patiently....

Doug Kass seems like a smart guy with a good timing sense and, according to CNBC, made this statement:

...the market had made its lows for the year...

No, Doug, no it hasn't. Another even smarter guy, Carter Worth, went on Fast Money in late 2008 and said that he was all in and that he was protected by a stop 7-8% to the downside. The stock market then proceeded to go up...about one or two percent before dropping over ten percent, which would have stopped him out. The market then proceeded to do the same thing and eventually went on to its eventual lows in early March, over two months later. Carter Worth is a smart man but none of these people are using all the tools they need to be using; everyone seems to lack at least one basic ingredient, usually more, to succesfully predict where the stock market will go.

So far, since the start of this Secular Bear Market in late 2007 I believe that I have been on it as well as anyone I know of. I also know that I have made drastic improvements to my methodology in the past year, and now...well, let's just wait and see...

I subscribe to Gene Inger's Investing Letter and while I feel he tends to cover his hide all too often I do find his comments valuable because he looks at things from an insider's POV and also tends to look beyond just the stock market to a bigger picture of the economy and our nation. Today Mr. Inger made this statement, which I very much liked:

That there is NO economic recovery worth the term is the primary operative point we should make, irrespective of any day-to-day anomalies potentially related to a storm.

Repairing the problems of a 30-year ‘credit bubble’ is the essence of why things tend to take so long, and in fairness to Obama, they would even if he were a conservative responsible fiscal advocate (is this also where I say humorous pun intended?). Here we have the sad reality that there is (as I forewarned 3 years ago in my ‘epic debacle’ call) plenty of blame to go around; including huge profligate spending by both parties; and the perpetuating of bizarre destructive trade policies by multiple administrations.

While it appears to me that the Obama administration is at best incompetent and at worst globalist with an anti-American bias, the issues we are facing were not caused by Barack Obama and will not be solved by Barack Obama, but rather, were created by human nature and will be solved by human nature...in time.

Trade Made

I am also subject to human nature and impatience is perhaps the worst aspect of my nature when it comes to investing. I am committed to recognizing and admitting when I have been wrong and I was wrong to trade out of my short position on August 26th. Once out of that position I found myself constantly questioning the move. I never questioned the original position of being short and waiting for the move below 9,600 to 9,000 and so I am back in my original position of 90% short via SDS. I retain 10% cash and will likely apply it to VXX within the next week, if the stock market provides the opportunity. I'm not just looking for a level but will have to apply a time factor as well.

My profit/loss ratio stands at 1.10 - That is a 10% gain since May 3, 2010. The DJIA is at 10,080. The S&P 500 is at 1056. That Dow Transports are at 4142. The NASDAQ is at 2134. VIX is at 25.65.

Jim Cramer has recently been on a rant about how it doesn't matter that GDP is slowing because now he's accepted it and it's a known quantity. Such thinking is exactly what I try to avoid. Simply justifying my beliefs with faulty logic is a sure way to lose money in the stock market.

As we get this little bounce in the stock market we have entered the period where people start saying, "it can't get any worse". This is the value of a man like Jim Cramer; he's always a day late and a dollar short in a secular bear market but he parrots what a lot of people feel and he will always justify his bad calls with faulty logic. Those people, BTW, are the last remaining bulls and become more and more important because once they are gone we can start looking for the bottom of this bear market.

People have accepted that GDP is shrinking and some even are admitting that it may be negative in the 3rd quarter or 2010, but most are still in denial about the 4th quarter and beyond. Beyond the 4th quarter is impossible to predict with any accuracy yet but there is excellent data that shows us that 3rd and 4th quarter GDP will be horrendous. See Consumer Metrics and The BEA's Personal Consumption Expenditures for more info on that.

The bottom line is that this market will find lower levels for months to come and all we have to do is determine where the turning points are. Likely the Dow will rise for a few days or even a week to 10,300 or 10,400 and then continue its descent.

I retain my 30% position in SDS and the rest in cash.

My profit/loss ratio stands at 1.10 - That is a 10% gain since May 3, 2010. The DJIA is at 10,247. The S&P 500 is at 1077. That Dow Transports are at 4259. The NASDAQ is at 2169. VIX is at 24.56.

Yesterday I made the statement that there is no way I would let go of my short position and that began to bother me....

Today I made a decision that may cause me a little anxiety if it doesn't work out but that may be the best possible outcome, and here's why: Since the top of this market in April I have been almost perfect in every call and I'm actually a little concerned about that. I feel that we learn best by our mistakes - at least I do - and so I wanted to break my rhythm a bit and do so not in the old way, with a wild move that could jeopardize everything I have gained but by doing what I have previously suggested, staying in cash when in doubt.

So today I moved to a 30% position in SDS from a 90% position.

Part of the reason for making this move is that I feel that a bounce is due but mainly I just looked at the success so far and realized that I need to keep some perspective. We have had a very steady 700 point decline on the Dow and it simply makes sense to take some profits and then sit back and get a bit of perspective. One thing I won't do is chase the market down if I turn out to be wrong about the bounce. If the market does continue lower from here that just makes a rebound more likely in the next week or two and the likely high point of the rebound is 10,000 on the DJIA. 10,000 is a very strong point of attraction for the Dow so in reaching it there may now be a need for a consolidation as other indices and commodity prices find their proper levels.

No prediction on the next move; I'll just wait and see.

My profit/loss ratio stands at 1.14 - That is a 14% gain since May 3, 2010. The DJIA is at 10,049. The S&P 500 is at 1055. That Dow Transports are at 4131. The NASDAQ is at 2138. VIX is at 26.48.

I'm picking up the scent of a rally as the stock market is finally showing a bit of strength. This could setup a great opportunity to buy into the VXX if the market can actually rally for a few hundred points before resuming the decline. There's no way I'll let go of my short position but I will be ready to bet further on the downside as we move into the fall.

This looks totally like a well needed technical rally that should be fairly weak and should last for only a few days...patience.

"Unexpectedly" of course. Yes, that is sarcasm.

Once again clueless Wall Street analysts where wrong en masse as the economy rolls over in preparation for the big sell-off coming up this fall. The Commerce Department reported sales had dropped 12.4 percent to a 276,000 unit annual rate, which is the lowest since the series started in 1963. The June number was revised down to 315,000 units.

This is just one more nail in the coffin; not just because it's a bad piece of economic news but because it confirms all the other predictive data I have accumulated that suggests we are moving into the meat of the depression; a period like that from 1930 to 1932 where the economy just kept getting worse and worse.

My profit/loss ratio stands at 1.17 - That is a 17% gain since May 3, 2010. The DJIA is at 10,013. The S&P 500 is at 1048. That Dow Transports are at 4062. The NASDAQ is at 2120. VIX is at 27.56.

Mike "Mish" Shedlock is one of the clearest thinking people around these days and if you don't read his blog, you should. He's also a damn good photographer, but that's another matter entirely and talented photographers are a-dime-a-dozen - Clear thinking economic analysts are as rare as honest politicians.

The idea of this being a "Contained Despression" isn't nearly as attractive to me as it appears to to Mish because I think I have a clearer idea of how uncontained things are going to be over the next several years, and I remember how nasty things got in round one, back in 2008; Nastier, IMO, than things were during the crash of 1929, which, we should remember, was only a hint at what was to come. By 1932 even the most optimistic people of the day had to admit that there was a despression going on.

The reason I like this particular article is because of the clear articulation on matters such as what a "Liquidity Trap" is, why falling prices are a good thing or esoteric matters such as Excess Reserves and Reserve Lending. These are matters that normally make you want to fall asleep or stab yourself in the eye with a sharp object.

BTW, I agree with Mish that treasury yields are going to stay low for a long time and are likely to go quite a bit lower. Only when the final domino is about to fall, that being how America deals with its debt problem, will we see a change. As Japan's last two decades have show us, such change can be put off for a long time as all the other falling dominoes make the last one look stable because it is farther away. That it will fall is all but certain.

Another matter that I agree with and that can't be stressed enough is this:

The conditions in the 1940s and 1950s have absolutely nothing in common with the conditions now. Think of the baby boomer dynamics, population growth, etc.

We now have a massive wave of boomers headed for retirement with a need to draw down savings. Unfortunately, those savings are nonexistent for a huge chunk of retirees and hugely insufficient for nearly all the rest.

Read this foolish case for buying stocks if you want to see another example of someone who simply can't accept that the stock market doesn't just go up like it did during past decades. Ignoring real economic data and history is a sure-fire recipe for disaster.

This situation will only get worse and worse just as our public debt is getting worse and worse from all the bailouts and entitlement programs. BTW, the answer to much of this is simple: military spending will be scaled back and those entitlement programs will also be scaled back or retired and the boomers with too little savings will simply make pragmatic decisions to move in with their children, grandchildren or other family members or friends. There will be a wholesale change in social structure where people become more dependent on one another. That, IMO, will be a good thing.

Many of us saw it coming years ago but a depression is not made overnight. We are now seeing many respected names admitting that this is not just another recession; it is a depression. The Great Unwind continues....

It's amazing how what can't go any lower actually does goes lower. Today it was reported that existing home sales have hit a 15 year low. I expect the housing market to remain weak for an extending period of time because of the new generation's rejection of Baby Boomer values and the aging of the Boomers, who simply aren't going to keep trading up...and can't afford to even if they wanted to. Demographics alone suggest that the housing market is dead in the water for as much as twenty years. Of course there will be hot markets and mini booms and busts but I do not expect anything like what we have gone through for the past 60-70 years.

My profit/loss ratio stands at 1.15 - That is a 15% gain since May 3, 2010. The DJIA is at 10,072. The S&P 500 is at 1055. That Dow Transports are at 4101. The NASDAQ is at 2132. VIX is at 26.8.

I have been looking at all of my data and I feel that it's clear enough to generate a fairly specific scenario; not so much to predict the future but to see if it's possible to predict the future of the stock market with the data at hand.

From this level - 10,225 - on the DJIA I expect to see the stock market drop slowly and steadily to the 9,000 level by mid to late September. Of course this will not be a straight-down move but should not be unusually volatile.

From the 9,000 level on the Dow I expect the market to rally back to the 9,650 level over a period of 3 weeks. This takes us into early to mid October. A rally at this time will set up the bulls especially well for a hard fall.

That will likely come in mid October with an expected bottom in late November or even early December. This should be a relentless drop interrupted by one good rally about 3-4 weeks into the decline. Look for a point of emotional capitulation where fear is the dominant emotion driving traders. I expect this level to be around 8,200 but I wouldn't be surprised if we see intraday lows around 7,800.

A sharp, volatile rally can be expected at that point. This should bring us back to the 9,000 level with much bluster over a period of several weeks.

Just as Jim Cramer and the rest are saying all is clear, you can expect the second half of the decline to take hold and this, I expect, will be an extremely harsh move as official data makes it clear that we are back in a severe economic contraction and memories of late 2008 are resurrected. It's hard for me to predict where the low will be for this decline. I think it will be wise to go more by time and see where the stock market leads us at that time. I expect the bottom to be late in November. A great setup would be for the Dow to reach down to the 6,550 level and even break through on an intraday low. The 8,200 and 6,500 levels are the two major levels of support and the expected decline could be one of the strongest for the entire bear market because of the hope that remains among Wall Street analysts and politicians. I expect the bear to show its claws in this period so I want to remain cautious when taking a long position. Better to be patient and simply be out of the market and let some nice wide gaps open to trade into.

For now, I remain short, almost 90% invested via SDS with about 10% available for an unexpected drop in the VIX. BTW, the VIX, via VXX, should be a great short term play during October and November.

My profit/loss ratio stands at 1.12 - That is a 12% gain since May 3, 2010. The DJIA is at 10,222. The S&P 500 is at 1072

NOTE: The information here should not be taken as investing advice. It is meant as a trading diary and all of the trading in this account is done as a hedge against my business, savings and other assests. I highly recommend nobody invest or trade what they are not willing to lose.

I find this article on shrinking Quant Funds very interesting and plan on exploring it from a "Big Picture" perspective in the near term future.

There is no change in my portfolio and it looks like further weakness in the stock market into next week. I am now leaning towards taking a small leveraged long position (SSO) if the DJIA can reach the 9,000 level by the first few days in September. This is based on what I see as a likely point of support that will then allow the market to blow off a little steam and lure in the bulls for some more carnage.

My profit/loss ratio stands at 1.13 - That is a 13% gain since May 3, 2010. The DJIA is at 10,186. The S&P 500 is at 1068.

Today's economic numbers show jobless claims rising again and the Philadelphia Fed's report of declining Manufacturing activity, as reported by Business Week. Here's a quote:

"The Philly Fed said its index of current activity dropped to a negative number, marking a period of declining monthly activity for the first time since July 2009. The index fell to -7.7 from a reading of 5.1 in July. "

Strangely, this news was nowehere to be found on either the CNBC or Yahoo Finance websites.

I've been thinking a lot about how to navigate the expected bear market and I believe the default position should be to establish a position after seeing a clear opportunity, such as my recent entry into SDS, and then simply waiting for clarification after exiting the position at the predefined level. For instance, my sell level from here is at 9,000 because that is likely the least amount the DJIA will drop from the 10,700 level at which I entered. This is based on the previous low from July of 9,600; I believe the DJIA has to make a substantial new low beyond that and 9,000 is minimum, with 8,200 being the next area of substantial support below that.

So once 9,000 is reached my default position is to sell the SDS and wait for the stock market to provide another clear opportunity. This will happen when the market either rebounds back to 9,600 or declines to the 8,200 level. Either one of those levels provides a sure-fire trading opportunity, assuming the economic data backs it up. That will be determined at that time. That in-between level at 9,000 seems to me to be an area where time and money are likely to be chewed up. This trading strategy makes the most sense as it is almost fail safe and reduces the chance of loss and time in the market, which may cause deterioration in the value of the SDS ETF.

My goal is not simply to determine where the stock market is headed next and profit from that but to be out of the market anytime I am uncertain.

As the stock market comes to a close this day my profit/loss ratio stands at 1.11 - That is an 11% gain since May 3, 2010. The DJIA is at 10,263.

Yesterday the Dow Transports suggested a strong day, along with most of the other indicators while today they suggest less strength. That does not mean this market can't continue to rally so I will stay neutral and have sold my GLD to be ready to buy some VXX, if the VIX drops to 20 or less.

Sometime no move is the best move and other times getting out and waiting is the best move. In this case I know a significant decline is coming and I don't want to chase it. Rather, I want to be in a position to profit whether the market turns down from here or goes higher and then turns down. The longer I can wait the more usful the VXX becomes because it is not something I want to hold for a long period of time but it can generate a large profit in a short period of time. Be warned that holding SDS for the long term is ill advised and, IMO, should only be used with specific strike prices in mind.

Right now there are many forces weighing on the stock market but social mood has yet to turn clearly negative and this is what causes people to focus on issues that just yesterday were not a big deal. That is much more likely in September and October. I also want a clear gap to trade into and I have that as long as the secondary move remains down, which it will unless the DJIA moves above 10,700. A move under 9,600 will be a crystal clear sign that the secular bear market has resumed along with the Transportation Average dropping under 3.906. These two things are a clear Dow Theory signal of a reversal of the bull market move out of the March 2009 lows. Currently, according to my interpretation of Dow Theory, the stock market has not clearly broken the upward trend. But given the suggestion of a change in Dow Theory, the closing of the gap from the March 2009 lows, the rolling over of just about every piece of economic data and the approach of the most dangerous seasonal period for the stock market, I see an amazing opportunity that very few are currently bold enough to embrace. Once the decline begins in earnest many will initially try to catch the falling knife (watch as Jim Cramer picks bottom after bottom and later declares himself succesful because he did pick the bottom), others will sit safely on the sideline, and still others will get burned as they panic and try to sell short, all too often after a steep decline and just prior to a steep rebound.

Much wealth will be lost in coming months for those who have not made the correct decisions, therefore I will always attempt to remain one step (and no more) ahead of the majority of traders, who trade all too often on the emotions of fear and greed. I will do so not by trading on emotion but by analyzing all the data and putting each piece into its proper perspective as best I can. I will also use the ultimate tool of the succesful trader: patience.

I am setup for a coming decline but what about a strong rally?

The worst case scenario for me from here is that the stock market rallies to over 10,700 and does so into September. In that case I will likely hold my position and add to it with the VXX knowing that even in this worst case scenario I will profit handsomely in the long run; into October and November. I am using Tim Wood's excellent stock market timing indicators and in such a case, might exit my current position if the timing suggests a wait for the next decline. Currently that is not the case but I am always on the lookout.

My profit/loss ratio stands at 1.08 - That is an 8% gain since May 3, 2010. The DJIA is at 10,463.

Nice rally to start the day. This is coming about a week after the big 265 point gain of last week and so is not unexpected but is rather late. At midday the rally appears to be losing steam but that doesn't mean we won't get a few days more and a likely top of 10,550 on the Dow. Regardless, that doesn't change a thing and is completely expected. Only a rise above the 10,700 level would be unexpected and even that would not change the medium term outlook of a severe drop in September/October/November.

The VIX has fallen all the way back to the 23 range, where it was at the beginning of the drop from 10,700. This may seem like a good thing to the bulls but in fact, it suggest complacency and is a bad omen for the market as the bulls will need to rush for cover when the decline begins anew. If it drops to under 20 I may have to sell my minor holding in GLD to take a position in VXX...we'll see.

My profit/loss ratio stands at 1.08 - That is an 8% gain since May 3, 2010. The DJIA is at 10,459.

Quotes from CNBC:

"The National Association of Home Builders/Wells Fargo Housing Market Index slipped one point to 13, defying market expectations for a rise to 15. A reading above 50 indicates that more builders view sales conditions as good than poor, and the index has not been above that level since April 2006."

...

"Investor sentiment was also soured by news that Japan's economic growth slowed to a crawl in the second quarter, with gross domestic product growth of 0.1 percent that translates to annualized expansion of 0.4 percent.

This was well below the median market forecast of 2.3 percent and the United States' 2.4 percent annualized growth in the same quarter."

...the Empire State index remained well below its recent high near 32 reached in April. The survey showed the new orders index fell below zero for the first time since June 2009.

The index of business conditions six months ahead fell to 35.71, the lowest since July 2009, from 41.27 in July.

This is reality, coming home to roost. I say this is all perfectly predictable. Simply get rid if the hope and emotion and look at the real economic data and apply it to historical precedence. I made the mistake in early 2009 of ignoring economic data and being too bearish. I corrected that in late summer of the same year and since then have been back on track. I won't make that mistake again. The stock market peaked at 11,200 in April 2010 and it has now resumed the secular bear market. I will let the data tell me when it is time to get bullish again.

My profit/loss ratio stands at 1.11 - That is an 11% gain since May 3, 2010.

On a regular basis Laszlo Birinyi echoes Jim Cramer and tells us why 2008, 2009, 2010 (take your pick) is just like 1982. Never have a I seen such incompentence outside of the media or government. If you love reading stupid quotes from incompetent financial advisers, read this article on Laszlo Birinyi's stock market outlook for the rest of 2010. You can also watch and listen to Larry Kudlow and Laszlo Birinyi shill the market here. This video is from March 23, 2010 and in it, Laszlo Birinyi assures us that it's all profits from here.

This man and his company provide earnings data to Bloomberg and Bloomberg then computes the S&P 500 Price/Earnings ratio...based on operating earnings. Yes, they use a non-standard method or computing P/E ratios and then the great Laszlo Birinyi says this:

Another negative argument is that the market is expensive. Well, when I turn on my Bloomberg, it tells me the P/E [price/earnings multiple] is 14 times, but the negative argument says if you take the 10-year average of earnings and do this and that, it is expensive. When you start manipulating data, it always makes me very suspect. If you are not going to use the conventional measurement, you've got to really make your case for why the conventional is not right.

Get that? I don't. He knows that the data is not GAAP, As-Reported earnings data and is therefore not relevant to historical P/E ratios and yet he actually states, "When you start manipulating data, it always makes me very suspect.". Is Laszlo Birinyi incompetent or is he intentionally misleading us? The only answer that makes sense is that he's incompetent because he really has nothing to gain and much to lose by misleading us. In fact, if he follows his own advice, Laszlo Birinyi will have a considerable amount of his wealth destroyed in just the next few months alone.

Understand that despite the spin put on his calls, Laszlo Birinyi has been bullish all through the secular bear market so far, with a few defensive calls. What he has done is pick out certain quotes that suggest "pulling back" on investments that he now suggests were clear calls for the declines in 2008 and early 2009. In fact, Laszlo Birinyi was openly and clearly bullish in late 2008, so that means that at 9,000/9,600 you would have taken a trip to 6,500 before ending up a year and a half later at 10,300, a gain of 7%...and a drop from the market top in 2007 of nearly 30%. Explain that Mr. Birinyi. He can't, but he doesn't have to because the "Fools of Wall Street" like Jim Cramer and Larry Kudlow will gloss over his terrible record of the past 3 years and help him shill the stock market. BTW, I shilled the stock market for almost two decades starting in the early 1980's

You can also view this video of Laszlo Birinyi in August of 2008 in which he states that you should be in the market so as not to miss the big rally. From the date of this interview the stock market is down 10%. The stocks he held at that time? CSX is down about 20%; FCX is down 15%; GS is down 15%; ITT is down 30%; MA is down over 5%; RIG is down nearly 60%; AB is down 50%; COG is down 25%; DO is down 48%; MCD is up 10%. Of course Mr. Birinyi was mostly invested in McDonalds, the only winner in the group. Understand that this is after the stock market had already plunged 20% from its 2007 highs.

At best, Laszlo Birinyi is a semi-competent stock market shill who hems and hahs when he is caught with his pants down. The problem is that he is in a position of power and influences how people invest. But I might add, we are all responsible for our decisions and right now, I personally have never been more sure about my trading position: short. Unlike paid whores like Jim Cramer and Laszlo Birinyi I will stand by my calls and correct my thinking if I had something wrong. That is what we should all do if we hope to prosper in the stock market.

This is useful investing data, according to CNBC:

The blended earnings growth rate (estimated & reported) for the S&P 500 for Q2 2010 is 38.1% versus an estimated earnings growth rate of 24.8% for Q3 2010. As of July 1st, the earnings growth rate was at 27.4%. Of the 461 (92%) S&P 500 companies who have reported Q2 results, 75% beat estimates, 9% were in-line, and 16% were below estimates. (Data provided by Thomson Reuters)

Such nonsense shows that the people in charge at our financial media companies (others are bad but not this bad) are either incompetent or are intentionally misleading us with nonsense. Bloomberg uses data from a company that also provides investing advice and therefore has a clear conflict of interest, especially since that company, Birinyi Associates, is almost always bullish. Of course that has worked during the secular bull market that started in 1974 (1982?) and so it will always work.

It's my opinion that the people get what they want and so I believe that companies like CNBC exist and prosper because they feed us bullshit and shill the markets. Most "investors" are incompetent and only know how to trade a bull market and so any data that shows we are in a deflationary depression and therefore a secular bear market, is unwelcome and is met with disdain. This is slowly changing, however, and ten years from now such clowns as Larry Kudlow and Jim Cramer will likely be long retired.

I remain fully short the market via SDS and expect to hold that position until the DJIA drops to at least the 9,000 level. The key remains how quickly it drops. If it were to reach that level within the next few weeks I would likely get out and consider a double-long position with the expectation of the market rising to 9,600-9,700 prior to resuming its fall. I base that timing on Tim Wood's work, which suggests a half-trading-cycle low between now and early September. The 9,600-9,700 level is the prior low and so is the "gap to close" whether from the 9,000 level or any other level.

I want to add, however, that it would be smartest to simply wait out the market after exiting at 9,000 since it's a limited opportunity trading position and it would setup a beautiful trade either short, if the stock market rises, or long, if the market drops further, as it would then have a gap to fill to the upside and I know it will fill it. A rise to 9,600 would then close the upside gap and set a clear target on the downside, below 9,000, likely even beyond 8,200, and then with a consolidating move in that area, a level of strong support.

Those are just some thoughts, let's wait and see what happens. I know it won't be good because of all the bad economic data that is just starting to be revealed in the official data. And remember, the next thing to go will be earnings and that will really exacerbate the situation.

A last point: the Consumer Metrics Data continues at levels that are as bad as in 2008 but that are more sustained. This continues to play out pretty much as I expected; a shorter period of shock and awe followed by a recovery and then a long period of decline, more steady than the initial jolt but still with enough ups and downs to continually lure in the bulls and bears and destroy their wealth. The key, IMO, is to remain detached emotionally from this market and trade the gaps, using the best economic data available to help with timing.

At http://www.cnbc.com/id/38679880 you can read the thoughts of Jim Cramer in an article titled, "Unemployment? A Double Dip? Who Cares?". Jim Cramer is known to me as "Cramer the Clown", for his ability to say and do anything to get attention. If you've never seen it, watch this video of Jon Stewart exposing Jim Cramer and CNBC for the liars and Wall Street shills that they are. Having said that, I want to make it clear that there are good people at CNBC and that it is important not to paint with too wide of a brush. Jim Cramer, however, is a prime example of a "Fool of Wall Street" who is incapable of doing much more than shilling the stock market, even if that means ignoring all the evidence and data in front of him. The man is a criminal, IMO, who serves a useful purpose for me in that I can use him as a gauge of when we have finally popped the bubble. When Jim Cramer is finally let go or turns perma-bear I will know that the bottom is near, or likely past.

Here's a quote from the article referenced above:

So, “Don't lose your head over them,” Cramer said. “And remember, other than in extraordinary circumstances, that we do not have right now, stocks actually discount a lot of the problems. They get baked in as the market goes lower, something that's only shocking to those who don't understand the game.”

Here Jim Cramer exposes the typical thinking of most investing geniuses who have been successful in the stock market since the early 1980's: the market will always go higher.

The problem is that this simply isn't true. There are many ways to value the stock market and I use all that I can come up with. Using a long term trend average that has the economy and stock market growing at a consistent rate of around 4.5% anually, we see that the stock market is still overpriced (perhaps fairly priced), even at the low of March 2009. But because of the fact that the stock market has been overpriced for 2-3 decades, beyond anything we have seen in history, we can expect that bubble to implode and give us prices well under the trend average and for a longer time than normal.

Another way to value the market is simply to look at the current data. Whether overpriced or underpriced the stock market is likely to go up when the outlook is positive and down when the outlook is negative. The most leading of economic indicators is Consumer Metrics Institute and they show a clear decline in consumer purchasing. This should be followed, a few months later, by traditional Leading Economic Indicators declining, which is exactly what we are starting to see as GDP is slowing and being revised down on an almost daily basis. Manufacturing is slowing and inventories are building; these two in combination are not good.

One of the other main ways to value the stock market is to apply earnings to price. That can be hard to do in a meaningful way these days because so much of the earnings data provided is not relevant on a historical basis. To compare current P/E ratios to historic data you need to work with trailing 12-month reported (GAAP) earnings and most of what is published these days are operating earnings and/or forward earnings (estimates). But if we use current earnings from a critical source we get a P/E ratio of 17. This is after several trillion dollars of stimulus and tremendous cost-cutting by companies. I believe, based on historical precedence, that the over reaction to the economic shocks in 2008 caused companies to cut costs dramatically and then those same companies were the recipients of excess profits from an unusual amount of inventory rebuilding. Financial companies have been provided with new lax rules to allow them to show tremendous profits where none exist and also have been recipients of easy profits from the Zero Interest Rate Policy of the Fed. All of this, however, will balance out over time and we now have an almost perfect storm of overpriced stock market that has finally closed the gap from the July 2008 lows, and an economy on the decline. With a drop in earnings back to a more reasonable level of $40 we could easily see the S&P 500 priced at close to 200, one fourth of where it is now. With even lower earnings....

By every metric I can come up with the stock market is poised for a decline. The downward pressure is not as great as it was in 2007-2008 so I do not expect a true crash, rather I expect the stock market to stair-step down, luring the bulls and bears in at the wrong moments. Along the way we can expect the fall of the global economic dominos to continue. The only real question I have, and that I am greatly concerned about, is how will the United States deal with its massive debt. Don't expect a stock market bottom until that domino falls.

PS - The key to take from this article is to stay focused on the critical data. Don't make the mistake of becoming overly bearish or bullish, as I did in early 2009. One key indicator of a secular bear market is volatility and that provides opportunity for anyone who can keep his head about him and not trade on emotion.

We are in a time where we can no longer trust those in power in the slightest. They stroke us with one hand while slipping our wallet out with the other. We have allowed such nonsense for so long, in the belief that if we treated everyone with kindness they would reciprocate, that it now seems normal. It is not and changes are coming.

The simple reason our economy keeps getting worse despite all the stimulus and support is that we have overcapacity on a global scale. This has been made even worse with each bubble as our noble leaders seek to prop up the money machine that stuffs bribes into their greedy little hands. If you believe that you deserve to live in a mansion and drive a fancy car and you do not own your own business then you are part of the problem and you'd better get straight with it soon. Sorry to be so blunt but you'd better get used to that, as well.

We are in a deflationary bubble that can't be stopped and will likely lead to things even more serious over the course of this "Fourth Turning"; things such as war, possibly nuclear war. But back to happier things, such as the stock market and its decline to levels that most Wall Street analysts can't even imagine just yet.

The stock market is not some perfect discounting mechanism that sees all. Hardly. If that were true then its movement would be very smooth and the only time it would move radically would be when something truly huge and unexpected happened, something like the attack on the World Trade Center. But what actually happens is that the stock market more accurately reflects social mood, and is a wonderful tool in shaping and focusing social mood in this modern age.

In summary, the stock market is way, way overpriced and will drop for the next several years to a much more reasonable level; I believe that level is around 1,100 on the Dow. Not because Robert Prechter said so but because it would be a credible over adjustment considering the bubble we've been in for the past two decades and because the DJIA always has closed its gaps in the past. That, "It can't happen" or "Companies would take themselves private" are not arguments against it happening, one is a worthless statement of desperate hope and the other is a likely consequence of such low prices and a part of the shift back to a truly private sector.

For now, I am all in on the short side and waiting for the DJIA to drop below the 9,600 level. If that happens within the next few weeks and it drops to at least 9,000 I will likely exit my position and wait. If the stock market then continues its drop I will take a long position and ride the gap-closing back up to 9,600. If it moves straight back up to 9,600 I will then go short once again with the next expected stop at around the 8,200 level.

My profit/loss ratio stands at 1.085.

I'm all in. I now have 100% of my short funds allocated to SDS. My profit/loss ratio stands at 1.037.

From all the recent press releases and leaks out of the Fed and other "respected sources" it appears that our goose is now officially cooked. As I've stated previously, any fool can see, who looks at the real data, that we are in for hard times ahead. Given that unemployment is already at 9.5% officially and over 15% unofficially, hard times are already here for Main Street America. Fortunately our noble leaders have shot their wad already and shot it on their close friends and family, as well as their best campaign contributors, all at the expense of the American taxpayer; this leaves nothing for those who need it in coming years of hardship and no way to help bouy the economy.

We will survivie but this will likely be "The Greater Depression" as it will be longer and deeper than what we faced in the 1930's. I believe (or perhaps it is hope) that the typical American will not suffer so greatly as those who lived through the 1930's. I say this mainly because we are a much more wealthy nation and while we may believe we are suffering great loss when we are evicted from our McMansions, living in an apartment is not quite the same as living in a cardboard lean-to.

I wait patiently. No change in portfolio. My profit/loss ratio stands at 1.043. That is a 4.3% gain since May 3, 2010.

I snatched the following from John J. Xenakis' excellent Generational Dynamics blog:

From John Kenneth Galbraith's 1954 book, The Great Crash - 1929

"A common feature of all these earlier troubles [previous panics] was that having happened they were over. The worst was reasonably recognizable as such. The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to insure that as few as possible escaped the common misfortune."

Consumer Metrics has just updated their monthly index and it is has now fallen to a similar depth as the 2008 contraction. This suggests a drop in GDP of around 5%.

I believe that the difference this time will be that the contraction will be ongoing as we finally get to work on unwinding all the debt in the world. You may have noticed how deflation is now being spoken of more these days and by people in positions of power. Slowly they will come to admit what any objective and informed person could see: deflation is upon us. How we can have a 30% or 40% drop in real estate values and not experience deflation has always been beyond me.

I expect that the Obama administration will try one more stimulus push while they still have a comfy majority in congress but after that the American people, at least those who pay the taxes, will simply no longer put up with the fraud and corruption perpetrated upon us by those in power; both in government and business. Back in 2008 Hank Paulson started the criminal activity by shoveling money over to his buddies in the world of high finance (while President Bush looked on with that deer in the headlights look) and then Nancy Pelosi, Barney Frank and Christopher Dood jumped on the bandwagon while President Obama stood by and hoped they knew what they were doing.

Folks, we have a huge spill on aisle 11 and we'd better get to work cleaning it up.

The Moving Average Calculator Has Been Upgraded. It now updates the datafeed from Yahoo every day and has a form to control the variables.

I am always looking for simple investment ideas and I like to back them up with data. This form will show you how effective using a simple moving average can be over the long term. But unlike the typical shyster broker or Wall Street analyst you need to look deeper and combine it with other solid forms of data analysis. One thing that is clear to me is how much you can save by simply applying a 50 day moving average during a true secular bear market, unfortunately most Wall Street types are unable to see anything but a stampede of bulls in front of them.

Every now and then you get lucky. I know this market is heading lower into the fall but it actually looks like I caught the tip-top in both of my buys of SDS, but time will tell.

My profit/loss ratio stands at 1.052. That is a 5.2% gain since May 3, 2010.

Going forward I want to spell out a few scenarios that I want to be prepared for. At this time I am 2/3 invested and will simply hold this position should the market continue a steady decline. If we have a big down day today and/or Monday then we will likely have a rebound into the middle of September. But regardless of when a rebound comes, if it does come I will use it to add to my short position, likely with VXX, which I am hesitant to use because of my limited experience with it. I'll need to see a real good setup or I will add to my position in SDS instead. But to reiterate, I will hold onto that last 1/3 in cash unless I get a real sweet setup a week or so down the road.

I do expect the DJIA to eventually drop below the 9,600 low of July 3rd and on down as low as 8,000. There is a lot of resistance at the 8,200 level and so that level is key for me. Let me spell out some possible scenarios so that I will be ready.

If the stock market declines quickly to the 9,000 level I expect to hold my position as I do not expect the market to bottom until at least early October. However I may consider exiting my short position temporarily on a quick dip to around the 8,500 level. If that were to happen in September I would expect a nice pop back up to around the 9,000 level and then a drop down towards 8,200. The market is likely to overshoot 8,200 if fear is building so I will be trying to time my exit from SDS to coincide with the level of maximum panic. At that time I will not hesitate to take a long position in SSO as an eventual rise towards 9,600 will be baked in.

Unless and until the DJIA gets to that 8,200 level I will be hesitant to take a long position, unless, as I satted prior, the market gets ahead of itself. Simply staying with that short position until October will be the default position as a dramatic decline in the stock market is as close to a sure thing as I have ever seen in the investing world.

Once again: patience.

I just want to provide a basic summary on top of what I have already posted about why I think the stock market and our economy is in for a severe decline:

First of all demographics is not only slowing, but is reversing all the trends of the past half century. The Baby Boomers will not only NOT be conspicuously consuming but they will actually be downsizing as they age and as the economy slows. This is a self perpetuating cycle that will feed on itself for years to come. These same Boomers will help to stabilize our great depression but they will also lengthen it out. The average age in the United States is significantly higher (about 10 years, I believe) than it was during the 1930's. That despression came in quick and went out slow, ours is coming in slow but will actually be deeper and probably longer. On the plus side, we have more to lose and we owe rather than are owed so we will just default, one way or the other, on much of our debt.

Next up is Social Mood and Generational Dynamics. I lump these together because I see how interconnected they are. We blew this massive bubble because the people who knew better were all dying off or moving out of positions of power towards the last half of the twentieth century. Those are the people who remebered the Great Depression and World War Two and all that can go wrong with the world. Jim Cramer and the like not only didn't live through that stuff they don't know history and are arrogant enough to believe it can't happen again - it can; it will; is is; we are just at the beginning. If you haven't noticed the change in social mood then you're just not paying attention.

Everything else fits into these two points. The stock market is tremendously overvalued and has been for a long, long time. That may seem like a separate piece of data but it is just part of the two points I just made. The whole bubble is so large that it is like we are fish living in the ocean and we don't know we are wet. Debt is our water and we are soaked. First go the banks (bailout), then go the weak European countries (bailout), then goes America (default) and then goes Asia (boom). We will survive but the world will change...a lot. War is also on the way. Be prepared.

On the plus side is that computers will pretty much take over control of the world within the next few decades and will either makes things much better or much worse. Yes, I'm serious, now go back to watching that show on The Nature Channel with the monkey jumping around like a...oh, sorry, that's CNBC. ;-)

Anyone who is operating on hope at this time is in serious danger of being wiped out! Please take this seriously.

While the downturn up until now has been shallow and meandering the current numbers out of The Consumer Metrics Institute are worsening on a daily basis and now suggest a downturn of the same magnitude, and possibly greater, than what we saw in 2008.

At the very least you need to conserve capital at this time. There is a reason that Treasuries are rallying and yields are dropping like a rock; this economy is in trouble!

I have added to my SDS and will retain 1/3 of my position for cash or for VXX if the VIX falls below 20. There's no real change in my profit/loss ratio as the stock market seems to be in a slow topping process.

Unemployment also seems to be on the rise again and the only thing holding this market up are earnings, which are basically a mirage of easy money by the Fed, layoffs, and a now-dead bounce from the crash of 2008. That is over, the gap has been filled, and it is now time to take cover.

After the 200 point rise in the DJIA the other day I took a 1/3 position in SDS and expect to hold that come hell or high water and to add to it throughout August, but only after big up days in the stock market.

My profit/loss ratio is at 1.036. 1 means I am even and 2 would mean I have doubled my money while .5 means I have half of what I started with. All costs are included in this ratio, including transaction costs.

Patience remains the keyword here, though it is hard to stay patient when such an amazing opportunity is right in front of me. Still, my goal is not just to look for profit but to protect capital. I won't be surprised to see the stock market make further gains in August but I do feel we are far enough along in the ascent that there simply is not a whole lot more upside potential. Consider that the DJIA has already risen some 1,000 points from its low in one month.

I expect my next move to be a similar purchase of SDS, probably with the stock market at a slightly higher level. I would prefer that my last purchase is VXX at 20 or under but I only plan on buying VXX if the market continues on the ascent for several more weeks or if we get another 200 point up day from these levels.

BTW, one of the setups I see along with the dismal consumer economy and job numbers are that the dollar seems to be about at the end of its decline against the Euro and is due to comence with its long term upward trend. The dollar may be unsound but it is the safe haven of next to last resort, right behind Gold and a cabin in the country with a loaded shotgun. Let me say, however, that I don't buy into the end-of-the-world theory. We survived The Great Depression and WWII and many other terrible periods in history. The key is not to buy into anybody's hysteria and to act rationally and soundly to protect you and your loved ones. If you have the wherewithal and courage I believe that such times are when bold, aggressive, informed people can profit greatly as the vast majority of people run with the herd.

This morning at the open of the stock market I sold all my short positions at a nice profit. I had invested in SDS and also the VXX, both were profitable trades, especially given the short time frame and my profit ratio is now 1.036.

While the GDP data confirms all the other data that tells me the economy has already faltered the GDP number was not as weak as I expected and so I have stuck with my plan to exit my short positions and stay out of the stock market for the time being.

Looking into the report shows clearly, if you believe the Consumer Metrics data, that hard times are ahead and we now have a much more clear setup for a typical seasonal decline. I expect the stock market to hold up and probably rally through much of August and then turn down strongly. I do not consider the market tradable right now so I will remain neutral, waiting for a better setup. I want to use the leveraged ETF's, whether short or long, and those are best traded on a short-term basis because of the "deterioration" they tend to experience.

Once again, patience....

I have added to my SDS and am now 2/3 commited. I plan on going all in by the end of the day unless the stock market stages a significant rally, in which case I will be buying VXX.

These charts are courtesy of DecisionPoint and were brought to my attention by Gene Inger, as I am a subscriber to his "Daily Briefing" letter.

...sometimes a picture truly is worth a thousand words.

Richard Russell is one of my idols for a lot of reasons: he's an outsider to Wall Street who speaks his mind and yet he is highly respected and listened to by investors; he is perhaps the foremost expert on Dow Theory and Dow Theory is one of the few proven technical indicators with a winning record.

But Richard Russell is wrong on his recent claim that Dow Theory is now bullish. I would like to cut the old guy some slack but this isn't dominoes we're playing. The simple fact is that the recent runup of the DJIA and Transports to better their June highs means little until either the April high is bettered or the July lows are taken out. But let's cut the old man some slack, he's still worth listening to because of his vast experience.

Currently I am taking a position that Friday's GDP report will be the impetus the stock market needs to start the decline that is all but certain. The action today after the weak report on Durable Goods (-1%) indicates that we may well be in roll-over mode but even with a weak number in that preliminary GDP report the seasonal tendency may cause the stock market to rebound into August. Even so, it should be a weak rebound and all data points to a big sell-off as we move in the Fall. Even so it is wise to play this cautiously as there is always the upside gap to fill after the drop below the July 3rd low of 9,700.

Time is also a factor here; it has been less than a month since the low in July 3rd and ideally I would like to see another week or two of runup, which would set the stock market up perfectly, with everyting in place, including increased hope, for a decline to a lower low, which would be a clear sign that the bear market has resumed. Right now Dow Theory is in an unconfirmed state because of the secondary low in July being below the previous low in February. BTW, notice that we had unusually early seasonal lows on February 8th and July 3rd. The pattern suggests that we should see the stock market hold that pattern along with the normal pattern of one month up for every two to three months down. We are now in a clear topping pattern with a likely strong move downward coming up this fall.

I did not add to my position in SDS (or maybe some VXX) today, deciding to save that for tomorrow. As I stated earlier, I will exit my short position right away if the stock market reacts positively or in a nuetral manner to the GDP report on Friday. It is clear now that we will see negative GDP in coming quarters and I want to make sure I have some ammo when the time comes. I will add to my position in SDS tomorrow and will then wait and see what happens with the GDP number on Friday. I feel safe as I can see no way the number is a surprise to the upside.

Patience....

At this point I have decided to build my position in SDS over a 3 day period so that I am fully positioned by the market close on Thursday. I have purchased 1/3 of my total allocation in SDS today and plan on doing so tomorrow and then again on Thursday. At this point I will use a ratio based on my original investment to keep track of the total account value that is dedicated to this strategy. Today the value is 1.

I want to talk a bit more about how one might utilize a strategy if you agree with my scenario of a secular bear market that will always close the gaps:

At this point we do not have a clear gap on the top side but we do expect the next major decline, which should begin now or in the next several weeks, to drop below the 9700 level. I assume this because in every stair-step down we can assume lower lows and lower highs. The previous low was in early July at around 9,700 so the DJIA should drop significantly below this level and then close the gap back up to the 9,700 level.

A safe play would be to simply stay in cash and wait for this scenario to play out. If and when the DJIA drops below 9,200, leaving a 5% gap to be filled to the upside, you would have a pretty safe play by going long. I would suggest, however, that a drop to the 9,000 level is a minimum and I would wait for that level before going long. With the play-it-safe strategy I would leave plenty of cash to buy in if the market goes lower, say to the 8,200 level - a level of very strong support - and would then sell that position once the market bounces back to the 9,500 level and wait for the next upside gap. This strategy keeps you on the long side of things, which historically is where you want to be.

Because I am watching the macro economy very closely and feel confident that I have enough data to see where the economy (GDP) is headed, I am willing to play the short side as well, at least while the stock market is so overpriced from a historical standpoint.

Good luck! I believe the opportunity of a lifetime is here, for those brave enough to grab it. I am now distancing myself a bit from "buy gold and guns and bullets" view as I believe that such a time as we are in calls for boldness. I believe we are about to make history, once again, but be patient, for Mister Market has all the time in the world to ground down our wealth and that is his greatest weapon.

The market is acting perfectly in setting up a top just before Friday's release of the priliminary GDP number. Tim Wood has called this just right and was the one who convinced me that we had seen the secondary low (Dow Theory) in early July at 9,686. The DJIA is now headed to better the June high but not the bear market rally high in April of 2010. This is all conjecture for now and will remain so until the GDP number comes out on Friday.

This is not investing advice! I plan on taking a large short position in SDS on thursday towards the close (this is subject to change, of course) with the expectation that the number will be significantly worse that analysts (I use that term loosely) expect. Consumer Metrics' data suggests that it should be flat and given the downward trend from 6% in the 4th quarter of 2009 to 2.5% in the 1st quarter of 2010 I would be surprised if the preliminary number released on Friday is not fairly close to 0%, though 1% or 1.5% is more likely. Any number under 2% should create speculation that it will be revised down later and others' will come to believe in the Consumer Metrics data, causing many to become ever more bearish on the market going into the fall.

It's just hard to see any other scenario so I think it's worth a big stake, especially considering that this all fits in with my long term bear market scenario spelled out in previous posts. I am hoping that the run-up continues into Thursday and provides a fail-safe environment where anything but a great GDP number will cause the market to correct (on a good number, such as 2% or 2.5%) or plunge dramatically on any number under 2%.

BTW, I am already asking myself what happens if the preliminary GDP number is strong; in that case I would almost certainly sell the SDS and look for the next setup, which would likely be an even greater opportunity since we already know that the Consumer Metrics data will eventually make its way into GDP, being 70% of the economy.

Mish is perhaps the most honest, astute, and perhaps the most important economic analyst in the country these days. In his current blog Mish makes this observation: "Bernanke was pretty certain there would not be a recession, that housing was not in a bubble, that the unemployment rate would peak at 8.5%, that paying interest on reserves would enable the Fed to hold short-term rates above 2%."

What's really scary is that Ben Bernanke is perhaps the most competent person in Washington right now. Think about it: Barack Obama; Barney Frank; Christopher Dodd; Charlie Rangel; Nancy Pelosi...these people are either underqualified and inexperienced (President Obama), are corrupt lifetime politicians who could care less about the people of the United States or are simply out-of-touch with the real world and actually believe that things will get better as the Federal Government spends more of our money and has greater control over our lives. BTW, this applies to most of the Republicans as well.

I support the Tea Party movement as long as it stays true to the ideals of smaller government and a return to the rule of law as spelled out in the constitution.

Sign up for Mish's blog if you are not already a subscriber; he is the Bill O'Reilly of economics except that he is more of a non-partisan than O'Reilly. Mish for President, anyone?

I've just been looking in-depth at the Consumer Metrics data and have decided to try and use it in a way that I have not up until now; I am going to call a move up from here into a higher secondary low (according to Dow Theory), probably about 10,700 - 11,000 on the Dow. But I will not trade this move, rather I will wait to see what happens and trade that.

An ideal setup would be that the stock market does climb back up to about 11,000 and then we have what I can only consider a sure thing, given the fact that the Consumer Metrics Index has dropped precipitously to 92 and has been solidly under 100 (with a few exceptions) for about 6 months and trending down for about 10 months. Given the typical lead time of this index this should bring us to a seasonal stock market low in October or November. ECRI's LEI is also trending down but is not nearly as leading as the Consumer Metrics Index.

My guess at this time is a drop to, and probably a bit beyond the 8,200 level. The 8,200 level is a very strong point of support and would give us a 25%-30% drop in the Dow from the 11,000 level.

If that works we will be setup to trade the gaps going forward as our overhead resistance would be the July low at 9,700, a move back up of about 20%. At that time I will determine my next move (assuming we get to that point) based on the current data.

PS - In a previous post on July 3rd I had suggested I would go short if the DJIA went back up to 10,000. I changed my mind and was a bit more patient and ended up taking a short position for several days that did pretty well. However I am really trying to be more disciplined and am out of the market, waiting for a clear opportunity based on my open gap theory.

DISCLAIMER: The above is NOT investing advice, it is my plan going forward and is presented here as a personal journal and to share my investing/speculating thoughts with others.

Click the link above for a look at this chart. I believe this is just one more piece of data that confirms the fact that the stock market is historically overvalued. Look at the period leading up to and during The Great Depression; it's clear that the DJIA could easily fall to the 1,000 level during a period of deflation just as the DJIA fell nearly 90% from 1929 to 1932.

Considering we have the largest debt bubble in the history of the world and have yet to deal with it, the Dow falling to 1,000 to close the gap left open since the early 1980's is all but a done deal. Please read my previous post on how I intend to speculate during this period, but please note that nobody should speculate with funds they can't afford to lose.

I believe that we are in a period similar to the decline from 1929 to 1932 except that the decline will take about 3 times longer and will also be deeper, with the decline being as much as 95%, giving us a low of 700 on the DJIA. My high projection is 1,200. Of course all of this is subject to revision as the data available to me changes. Right now I am as certain as I can be that the economy is in for a long, steady decline based on its long, steady ascent, mostly based on debt.

Please understand that this is not investing advice, it is my current strategy that I am putting in writing to remind myself and reinforce my views so that I will be more likely to follow them.

Patience and disclipline are the key words here. As the stock market drops it will not do so all at once; it never has. The history of the stock market tells me that the DJIA will stair-step down towards its goal, urging speculators to buy the dips as key resistance levels are met. The recovery from the March 2009 lows and even the bear market of 2000-2003 as well as the crash of 1987 are all misdirections that will cause many to believe that a 90% drop in the stock market can never happen these days, not to the Dow Jones Industrials, at least.

But it will; it is baked in, IMO, and according to all of the data I have researched.

The key is to define the next level of ascent or descent and have a specific strategy, all the while keeping an eye on the Consumer Metrics Institute data. Understanding how the DJIA closes gaps in secular bear markets is vital; study the periods from late 2007 to the present and the only other real secular bear market period in the history of the DJIA, 1929 to July of 1932.

Currently, because we are coming off the top (presumably) it is hard to say where the first low point will be. I would say that 7,800 is the lowest expected low, a 30% drop, while the 9,600 level, a point reached (9,686) in early July, is the highest low point expected, at about 15%.

I called the high for the bear market rally out of the March 2009 lows at 11,000, because it would close the gap from the July 2008 lows; this worked to perfection and I now am kicking myself for letting my bearish macro sentiment overrule a clear and obvious case where a gap had to be filled. I lost a lot of money hedging myself at a time when I should have either been out of the market until that gap was closed or I should have been long the market. Admitting ones mistakes is cruscial to improving. The rules from here on are clear:

1. Watch the Consumer Metrics Data, the ECRI and the GDP to determine the overall trend of the economy and stock market.
2. Wait for clear instances where a gap must be filled to take a position.
3. Do not chase the market or make rash decisions. Keep cash available to take advantage when opportunity arises.
4. Long positions are preferable to short positions because it is more likely that the stock market will eventually fill a gap to the upside.

At this time I am in a neutral investing position, holding mainly cash and waiting for a gap to be filled. I am even since the start of the bear market in 2007 but I chould have done better, and I will.

I'll leave it at that and summarize by stating this as my investing advice to myself: Stay in cash and only take a position when there is a clear gap to be filled.

Earnings have driven the stock market higher over the past year and rightly so. Companies cut expenses and the economy recovered from the dark days of late 2008.

But that is old news and now that the bear market has resumed earnings will be a lagging indicator. The real indicator to watch will be GDP and the various sovereign debt flare ups across the globe. All the data on jobs, industrial production, wages, hours worked, savings rate and so on will all be distractions from the real indicator that we should be watching, and that is GDP.

Amazingly we live in a time when someone accepting reality rather than hope can see months in advance where GDP is headed, just check out The Consumer Metrics Institute for that data. Luckily most investors happily ignore such important data and anyone who doesn't can actually have a window into our economic future and the future of the stock market. This is a dream come true and many people who know about it simply ignore it because "everyone else" is not using it yet...oh my....

So where is GDP headed? According to their data we will see a slightly positive initial GDP report for the 2nd quarter of 2010 with a revision that could actually be a negative number. By the 3rd quarter GDP should be clearly negative and from the looks of things, that trend will continue downward but it's too early to tell at this time. The index recently recovered to the 100 level around the Independence Day holiday but has since dropped back to the 95 level. 95 indicates a decline of approximately 5% in GDP. Please see the Consumer Metrics website for more info on how to apply their data.

To back that data up, the ECRI Leading Economic Indicators have also been dropping steadily for some time, the Baltic Dry Index has recently broken through the 2,000 level on its way down, and China's Shanghai stock market has been steadily declining for many months.

The stock market could very well rise from here for a few weeks but the path beyond that seems clear if it does: the stock market is going lower; much lower, IMO.

Jim Cramer is the ultimate Fool of Wall Street, shilling the market for all he's worth. He is also a great indicator of what not to do so that makes him valuable.

In this article on CNBC Mr. Cramer says that the stock market has hit its low for the year and that you should buy the dips...WOW! Apparently Jim Cramer doesn't actually use real, actual, economic data or he would know from the Consumer Metrics Institute and many other indicators that the economy is in a steady decline, being propped up only by the last of the various federal stimulus programs. We will see a flat GDP reading in the 3rd quarter and negative in the 4th.

Curently I am out of the market. I tried a short position after that big 300+ point gain day about a week ago but it now appears that Tim Wood has the call on this one and that we can expect a rally of several weeks from here. The key now, I believe, is timing. I'll stay out of the market but tuned in and probably about the time that Cramer the clown starts gloating about what a genius he is I will be going short.

Inquiring minds will want to read this fantastic article about the sovereign Greek debt crisis and what it means in the broader scope.

A fine article but it seems to me that the big question not asked here is where it all ends. That is not even implied and yet it seem obvious that it ends with America's debt being defaulted on and not just with a few small European countries defaulting.

My current investing position is neutral and I am out of the market except for my long term holdings in GLD and a bit of PURE.

I am waiting for the market to either drop to a level of 8,500 or to move back up to the 10,000 level. Patience is the thing here as I let the market tell me how to proceed. I want very specific, predefined opportunities to arise before I make my move...NO CHASING THE MARKET!

If Dow moves directly to 8,500 go long and hold until at least 9,500.

If DJIA moves from here up to the 10,000 level, buy SDS and hold until Dow at 8500.

"My PTI was down 6 at 6078. The moving average at 6085, so my PTI is bearish by 7."

This is just another indicator breaking down. The most leading indicator I have is present data compared to historic data, that tells me the stock market WILL go to well under the trend average of around 6,000 and likely close the gap to 1,000 during this secular bear market. It's likely because of the massive bubble of debt that we continue to inflate. I also use Generational Dynamics and Socionomics in the "big picture" mix.

The next best indicator is Consumer Metrics, which seems to be able to predict GDP and the stock market months in advance...shhhh, don't tell anyone.

After that comes ECRI's LEI and the rest of the resources shown at the top of this page as well as Dow Theory, "Signal The Trend", Russell's PTI and a host of others.

Currently almost nobody thinks we will break the 6,500 level of March 2009. That will change soon enough. It is quite strange to watch the world change so intensly and so quickly and to know the change is coming.

This article by Ambrose Evans-Pritchard suggests that Ben Bernanke can cure our debt problems and uses the quote, "Sufficient injections of money will ultimately always reverse a deflation..." to make the point. I agree, if only we had money to inject but we do not, we are creating additional debt and therefore the deflationary spiral will only get bigger and more damaging. Injections of money or even debt may be worthwhile in limited amounts if they are well-timed but the wholesale creation of "money" (debt) to bail out those who created our problems will not help but will ultimately hurt.

Austerity and time are the answers; all else will only add to the problem.

The article ends with, "If he cannot, we are in grave trouble.", it should read, "If he can, we are in grave trouble." or simply, "We are in grave trouble." for the damage was done long ago and the piper must be paid.

I have exited my short position in SDS and will wait for at least a day or two (perhaps even longer) before considering a long position to take advantage of what I believe will be about a 10% rebound over the coming weeks.

I believe Tim Wood has the correct scenario for the final topping of the stock market here. He says that a bounce here and a failure over the coming weeks to better the April high of 11,205 on the Dow will create the ideal DNA marker, as he calls it, to mark the final top of the market and the descent, likely to lows beyond those of March 2009. I am predicting WAY below (1200 or even lower), but in a stair-step fashion over a period of about 5 years. I will make very specific calls here if this continues to play out as I expect it to.

Tim will update his outlook tonight and we should have a clearer view of things by the end of the day today. The setup is perfect for a nice multi-week bounce as we head into the July 4th weekend.

Let me once again reiterate some reasons why I believe we are headed for a such an extreme decline in stock prices:

Similarity to 1929-1932 Decline but Slightly Deeper and 3x Longer

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BEA Revises 1st Quarter GDP Down to Consumer Metrics Institute's November Projection
Posted June 28, 2010 @ 8:04am

More and more I am convinced that Consumer Metrics is the most accurate and most leading of the so-called Leading Economic Indicators out there. Visit them on the web at http://www.consumerindexes.com.

Their data clearly shows that the economy has already re-entered the secular decline that began back in 2007. The bounce after the lows of March 2009 were cleary predicted by their data and the subsequent downturn late in 2009 clearly predicted the reemergence of the secular bear market that we are in. This is a depression, folks, and my prediction is that we are in for another 6 years (or more) of "the slope of hope" (credit to Robert Prechter) as we revisit the levels last seen in the stock market in the early 1980's.

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America the Beautiful?
Posted June 25, 2010 @ 9:42am

This from "Casey's Daily Dispatch":

"Naturally, we want to think of America as America the beautiful. Taking off the rose-tinted glasses, however, presents a different image altogether… that of a bankrupt, highly militarized, and hair-triggered socialist empire that is daily finding new ways to tax its struggling citizenry and tramp all over the Constitution.

Not to be overly dramatic, but the real face of America is increasingly like that of an early-middle-aged woman I saw the other day. She was wheelchair bound, with only one leg, her overweight body covered in poorly rendered tattoos. With a cigarette hanging from the corner of her mouth, she rolled out of a liquor store, a telling brown paper bag in her lap. In other words, the very picture of a life dominated by bad decisions.

While America hasn’t yet been laid so low, it would be a mistake to think it can’t – and won’t – happen. If its leaders and a majority of the population persist in their ignorance of the causes and effects of economic failure, it is all but certain.

And it’s not just economics. Over the weekend I re-read both the Declaration of Independence and the Bill of Rights, and it struck me that if the Founding Fathers were alive today, they would be considered terrorists and rounded up. Furthermore, because the Bill of Rights has been all but voided at this point, they might be dropped into the equivalent of a dark hole with no right to a speedy trial, or any trial at all, for that matter.

Trading our freedoms for security is a bad decision because, in the end, the nation will be neither free nor secure. Much in the same way that, to paraphrase one sage, a government that habitually saves all fools from their bad decisions, ultimately creates a nation of fools."

I agree completely. I also believe that we can and will return to being a great country in the future, but I believe, based on research, that that day is about two decades off. Until then, take care of the people you love and prepare for the worst while hoping for the best.

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Bite of The Bear Market
Posted June 8, 2010 @ 11:35pm

I quote the following statement from an article on the CNBC website at http://www.cnbc.com/id/37573413, "Other analysts believe that even if the market does come back to bear status, investors can capitalize by finding bargains, perhaps in technology and elsewhere as valuations come down."

Such thinking is exactly what is needed to sustain a bear market like that of 1929-1932; the continual rebuilding of hope and enthusiasm in the belief that it can't happen again, that a depression can't happen now because things are different this time. This will continue until all hope is lost and men like Jim Cramer no longer have an audience to shill to. To read a first hand account of how this works I recommend the book, "The Great Depression: A Diary" by Benjamin Roth. This is an actual day-to-day record of one man's experience of The Great Depression. Nobody thought it could happen then, either, except for those few who were paying attention and had studied history and knew that a Price/Earnings ratio of 15 is normal to high and that as earnings drop and dividends are cut the price of stocks can come down to 1/10 or less of what they were at the height of the bull market.

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Remember the "Flash Crash"
Posted June 7, 2010 @ 9:44pm

Please view this video of Mark Fisher on CNBC's Fast Money.

The so-called Flash Crash has been quickly forgotten but it should not be. It was a sign of things to come and those who ignore the stock market "going away" for a few minutes on May 6, 2010, will regret it.

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Abby Joseph Cohen Says Worst is Priced In
Posted June 7, 2010 @ 11:57am

In this article from CNBC Abby Joseph Cohen says that all the bad news is priced in. It is amazing how wrong Goldman Sachs analysts are on a regular basis. I still can't forget the call for $200 and higher oil at the height of the oil boom in 2008. GS is mainly a trend follower and also tries to influence economic trends by infiltrating the government but in a Generational Crisis era things are not working out exactly how they expect them to.

In this article Cohen encourages investors to "look at the big picture", which is exactly what I always try to do and what I see is a depression coming as governments around the world take on trillions of dollars in additional debt each year and expect to grow their way out of trouble.

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EU Debt Crisis: Markets About to Turn Nasty, According to Anthony Fry
Posted June 7, 2010 @ 11:49am

Anthony Fry, senior managing director at Evercore Partners had this to say to CNBC, Monday, June 7, 2010:

Fry believes many European banks have yet to fess up on losses and says governments across the world are between a rock and a hard place. Fry was quoted as saying, “Governments need to cut spending and raise money and if they do not do so credibly will be killed by the bond market demanding higher rates,”

See the full article here.

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U.S. Retail Sales Down 6% Year-Over-Year!
Posted June 4, 2010 @ 3:33pm

This post was removed due to inaccuracies.

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BP Oil Spill vs. The Dustbowl of The Great Depression
Posted June 4, 2010 @ 11:11am

A thought flittered through my brain the other day about how similar things are to the opening rounds of The Great Depression. Even the BP Oil Spill seems to be on a par with the Dustbowl of that era...but no, it couldn't be that obvious....

Until we look into why both came to be: Generational Dynamics explains this; people in charge were not forward-thinking enough and were not on top of their game and so did not do what was needed to stop these catastrophes.. BOTH COULD HAVE BEEN AVOIDED.

I'll leave it at that for now but I want to explore this and revist at a later date.

Dow under 10,000 as we head for the close on a Friday with angst building once again. I believe we likely have seen a very feeble 'pop' and will now head towards the 8,000 level over the next month or so with only minor bounces along the way.

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Insight Into the Great Secular Bear Market
Posted May 25, 2010 @ 9:29am

As we roll forward the past becomes more clear, at least for those who choose to look carefully at it. For awhile now I have based much of my belief in what will happen going forward on the premise that we are repeating a generational pattern that was last played out starting in 1929 with the great stock market crash. But of course history never perfectly repeats but rather it repeats patterns (waves) with each wave being completely unique, based on all that has come before it.

As I looked at a long term stock market chart this morning a new and most obvious piece of evidence made itself aware to me; this piece of evidence is just one more that solidifies my belief that we are in the beginning phases of a long term secular bear market of a very similar nature to that of 1929 to 1932. What I saw was a secular bull market that went parabolic in 1995 from the level of 4,000 on the DJIA. History clearly shows that such moves upward always over correct to the downside. The stock market dropping to 42 on the Dow in July of 1932 is a prime example.

Using that bit of evidence along with historic valuations based on P/E ratios, dividends and book values, trend averages, reversion to the mean, Generational Dynamics and demographics, convinces me to an even greater extent than at any time in the past that the stock market is headed to at least a 2,500 level on the DJIA. On top of all that is the fact that the DJIA has always closed its gaps and there is a large and unfilled gap left open from the start of the great secular bull market that started in 1982. BTW, you may insist that the bull market started in 1974 but in fact that gap has been filled; it is the lift-off from the 1982 levels that have been left unfilled and the stock market never forgets.

I believe that the DJIA will drop slowly and steadily in a stair-step fashion over the next several years, perhaps as long as a decade, until it closes the gap left open since the start of the great bull market. Just for fun I will predict Dow 1200. Though perhaps that won't be so much fun....

Shorter term I believe we are about due for a rally lasting a week or so and after that I believe the Dow is headed to the 8,200 level. From there I expect to see the market bounce back to 10,000 before once again continuing on its longer term decline.

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Cramer Calls for a Monster Move to the Upside
Posted May 14, 2010 @ 8:39am

Jim Cramer tells us why the banks/markets are due for a "monster move" in this article on CNBC.

SELL, SELL, SELL!!!

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Time To Prepare
Posted May 8, 2010 @ 9:56pm

I just recieved my Elliot Wave Theorist for May and they are suggesting that we are in for a decline that may last for 6 years. My simple "big picture" view basically agrees with that; it is based on a 1929-1932 type decline but over an extended period of time. I knew that I'd have to wait until the bear market rally topped out, which I believe it has, in order to determine the length of the final decline. Prior to reading the Elliot Wave Theorist today I had come up with a 6-7 year decline to a level of 1,500 and possibly all the way to 1,000, closing the gap with the top of the last consolidation period, the bear market of the 1970's. BTW, Robert Prechter's most likely scenerio would see the DJIA drop under the 1,000 level and possibly all the way to double-digits. And you thought I was gloomy.

IMO, Elliot Wave Theory, at least that practiced by Robert Prechter, is often wrong because patterns are so complex and can build on themselves and nobody has enough information to be correct all the time. But when it's right it's right and I think that it's right this time. It really appears that everything is coming together right now and one of those things is the almost universal belief of financial analysts that this is just a correction and the dips should be bought. My expectation is that we will continue to hear that again and again and again until hope is truly lost. Trading in the stock market will be slowed and bailouts will continue to be the solution of choice; nothing will work but that won't stop the powers-that-be from trying the same things over and over.

I do not believe the market will simply drop all at once; I believe that a long, slow slide into ever lower lows will destroy far more wealth and create the changes needed to direct us towards the First Turning, but time alone will tell the tale.

IMO, there are two things to consider above all else:

1. Historical valuations - expect values to be even greater than ever in the past and expect the gap from the 1966-1982 period to be closed
2. Generational Dynamics - The First Turning is not due until around 2030.

This will be a period of deflation. I have considered the arguments of those who believe hyper-inflation is just around the corner and I have now rejected them completely. I base this on what I actually see hapening at this time, the fact that trillions of dollars in wealth are being destroyed with each panic, and on the say so of people much more knowledgable than on the subject than I.

I believe that it will be possible to time the market down to a certain extent but predicting the bottom will be impossible. Only once social mood has changed along with the generational "turn" will it be safe to once again be back in the stock market. Speculators will be pummeled again and again as they try to time the market. I suggest staying out of the market for the most part and only shorting on a very limited basis when a period of hope has built up; look at the charts from April 1930 to July 1932 for an example of what to expect. Making money in such a market is only easy in hindsight.

Cash on hand is best along with gold and make sure you keep plenty of food and water on hand in case things get really bad. No, I'm not kidding. Expect a full-on depression in China just like we had during "The Great Depression". Despite all the doom and gloom I believe that we may be spared much of the pain because of the dollar's status as the world's reserve currency and because of the fact that the debt that will disappear is mostly owed BY US rather than TO US. Watch what is happening in Europe now; the last safe place in the world is the United States and that will become more and more true as nation after nation and region after region fall to this contagion of financial panic and social unrest.

Be smart; be brave; be patient. Take care of you and yours first and realize that while you may be able to watch history and even predict it to an extent, you can't change the course of it.

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The World as We Know it Ends - The Stock Market Crash of May 6, 2010
Posted May 6, 2010 @ 12:30pm

I'm actually shaking right now. Yes it's cold in my office as it often is this time of the morning so I've turned on the portable heater but that's not the only reason I'm shaking. You see I just saw a historic moment happen right before my eyes and I don't yet know exactly what happened. It's sort of like watching the second plane fly into the Twin Towers on 9-11; what? what was that? Uh oh, we're at war! Two is not an accident.

As I was keeping an eye on the stock market on the CNN website I noticed the market dropping faster and faster and then POOF! it was gone. No more quotes and no Schwab.com either. The next headline I read just seconds later says the stock market dropped 1,000 points and recovered 600...WHAT! WTF!!! The government is in control now. No, that doesn't mean they will come storming into your bedroom in the next few minutes or that you will even notice a change but I KNOW THIS. How I know it I'm not sure but it's like when I knew we were at war on 9-11...i just knew it....

The Charles Schwab website is STILL down almost an hour later...you tell me what's going on. And since when does the stock market crash in May. THINK ABOUT THAT.

Things will be different from now on, today at 2:45 pm, EST, the stock market went to zero and later Barack Obama will come out and tell us that everything is okay and that the government will take care of us and we will continue to believe it. Barack Obama is not the problem, we are. We'd better stop expecting something for nothing and giving over our lives to government. Stay tuned, the world is not ending, just the world as we know it.

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More on the July 2008 Gap
Posted May 6, 2010 @ 9:25am

This is to clarify my previous remarks about the gap left open from the July 2008 low. If you take a look at a chart of the DJIA you will see that the stock market has behaved similarly to only one period in history, that being the period from 1929 to 1932...at least so far.

I believe that we are in a similar bear market to that period based on the movement of the stock market, best seen by charting the DJIA. During the crash from the fall of 1929 to the summer of 1932 the stock market had an initial crash followed by a fairly long "dead cat bounce" followed by a long period of ever lower lows. The stock market did not simply drop to its low of 42, it fell and then rose and fell and then rose and fell and then rose, again and again. Now I believe that the bubble the world has blown this time is even bigger than in the 1920's but I doubt that the world will see quite the suffering we did during the Great Depression, or at least I hope we do not. Regardless, history tells me that even as the world sinks into a financial depression stocks don't simply drop to their lows all at once. And in this case, assuming that we are in a similar scenario, we seem to be on a slower path to the bottom. Our "stock market crash" took longer from the peak to develop and lasted longer, starting in late September of 2008 and not hitting bottom until March of 2009.

Yet the chart looks eerily similar to the chart from "the crash of 1929" - different but similar. After the stock market crash of 1929 the Dow bounced off the bottom for five months and the glorious leaders of the day claimed the crash of 1929 a mere blip on the chart of the stock market that went in only one direction; upwards. Our bounce off the bottom is similar but longer...again. About three times longer, if in fact I am correct about this. Instead of five months it took fourteen months this time.

If all of this pans out then the "dead cat bounce" had a technical need to close the gap left open by the low prior to the crash of 2008 and that would be in July of 2008 at about the 11,000 level on the DJIA. What's next? A long, steep decline into the abyss. Sorry but I don't just base that on a chart from the past but on my knowledge of Generational Dynamics and the current state of the world's finances.

The western world is neck-deep in debt while the eastern world is at our mercy because they are the ones owed that debt. Greece is now failing and next will be Portugal or Spain or...well, the dominoes have begun to fall and the only thing I don't know for sure is how fast they will fall. My guess is that our noble leaders will continue to ignore reality and will prop up a failing system, piling debt upon the American people until it becomes crystal clear that the world financial system has failed. By then China will likely be in a full-on depression much like ours in the 1930's, only expect full-on revolt to go along with it. War will break out around the world; I see no other choice as resources become scarce as governments try to fix things, only to crowd out those who would fix things. Crazy as it sounds Barack Obama may be our savior much as Stalin was looked upon as the Russian savior, even by those who he had imprisoned in work camps. Desperate people look to anyone to help; desperate people are willing to kill to feed themselves and their families.

For those of you, who like me have had a wonderful life filled mostly with peace and prosperity I recommend you not take it for granted and I recommend you prepare for a much different world.

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My Once-in-a-Lifetime Market Call
Posted May 3, 2010 @ 9:13pm

All the signs are adding up and we've solidly closed the gap left open after the crash of 2008 - from the July 2008 low of 11,000 - so I am going short the market via SDS and while I believe it's possible we'll see slightly higher highs I doubt we'll see 11,000 on the Dow again for a very long time, perhaps a decade or more. Please do not take this as investment advice.

BTW, I was right about the highs in 2007 and I was late in accepting the rebound off the lows of March 2009 but by summer I saw what was happening and I believe that we now see the continuation of the secular bull market and I don't believe it ends until the "big daddy" of nations sees its fiat currency exposed for what it is, worthless! We'll be last after Europe, Japan and all the other debtor nations go under, one by one. BTW, expect a severe depression in China along the way and in the end...well, go to Generational Dynamics for the rest of the story.

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Threats by the SEIU
Posted April 21, 2010 @ 9:43am

The SEIU is despicable. This is a Video posted to YouTube showing an SEIU officer threatening the California legislature. Sure they have a right to wield their power but we should not let them because they only care about lining their own pockets.

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Ivy Zelman on the State of the Housing Market
Posted April 20, 2010 @ 12:46pm

Real reporting from CNBC? Sure, there are people there who try to bring us the truth and in this case it's Diana Olick who writes about former Credit Suise analyst, Ivy Zelman and her views on the state of our housing market. It's not good but anyone following the real numbers knows that. Mrs. Zelman talks about "shadow inventory" and other matters that make it likely that we face a canoe shaped economic recovery rather than the V or U most analysts are predicting. Read more.

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Here Comes The Bear!
Posted April 18, 2010 @ 12:41pm

As I have said here in prior postings I believe that the market will top out around 11,000 on the Dow. On Friday we got a severe shock to the markets and it wasn't the 125 point drop, it was the fact that the SEC is actually going to make these "too big to fail" financial companies pay for their crimes. That has stunned investors and frightened them, that, along with other evidence such as the gap from the lows of July 2008 being closed, the put-to-call-ratio moving to extreme bullish territory, and the Consumer Metrics Institute reading showing a drop in GDP of 1.5% for the second quarter of 2010, all suggest that the jig is up. But there's more...

This chart showing the relationship between the stock market and Mutual Fund cash levels suggests that we are due for a correction in the stock market. Before the secular bear market ends we should expect a secular change in thinking, which has simply not happened yet, in fact we're not even close, IMO.

Last but not least the easy money that the government has tossed around has bulged corporate profits about all it ever will and the reality of historically high price to earning ratios will drive stock prices down for years to come in order to balance out the past 2-3 decades. We've had extraordinary earnings on the high side for an extraordinary amount of time and now comes the payback. I believe that the stock market has done a masterful job of setting up the idiots like Jim Cramer and the other talking heads and mini-masters-of-the-universe who have yet to get the fact that they have been losing money for years now and still have much more to lose.

At this point I am willing to say that my theory will have fallen apart if the DJIA moves above 11,500. Yes, there is still the possibility that it will move higher this month but if it is to break to the downside the time is drawing near. If it does break to the downside we can then see if the secular bear market has resumed by watching the next move upward after a serious decline. I would expect a decline of around 15% or so and after that a move up that fails to establish a new secondary high. That is, if the Dow declines at least 15% in the next few months to under 9,500 and then fails to rise back above 11,145 within a month or so I will consider that a confirmation of the continuation of the secular bear market started in 2007. If that's the case then the 1929-1932 scenerio is verified and we can expect a low of under 3,000 on the Dow - I expect a low of 1,500 - sometime in the next ten years with a slow, grinding economic collapse that will lead to sovergn debt defaults culminating with America's default. I expect this to take 6-9 years to play out in full and one should expect global tensions to rise considerably during this time.

Please do not take this as investing advice. This is my prediction and is likely wrong. I simply base it on my limited knowledge of history and my understanding of patterns, waves and Generational Dynamics.

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Dylan Ratigan Exposes the "Great Con Game"
Posted April 13, 2010 @ 11:40am

I've always liked Dylan Ratigan since I used to watch "Fast Money" on CNBC. He seems like one of the few people in the financial media capable of telling the truth. Here, Ratigan explains the "Great Con Game" that is being ran by our government and Wall Street. The sucker is the American People, have no doubt about that. The very people we have elected are in on it and seem incapable of choosing their duty to country over their greed. Please watch this video.

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Market Prediction
Posted April 9, 2010 @ 11:09am

I have said since mid-2009 that I expect the DJIA to rise back to the 11,000 level to close the gap of the July 2008 lows. We are now there and it's do-or-die time for my theory. My best guess is that the market does its traditional "sell in May and go away" fade which will lull the fools of Wall Street into buying the dips. Look at the fade after April of 1930 to see what I expect. The difference is that this time will likely be more drawn out but just as destructive to the wealth of anyone buying the dips.

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Hank Paulson Gets 1/1000th of What He Deserves
Posted April 9, 2010 @ 11:02am

This is an old one but it is so nice to watch as Rep Marcy Kaptur exposes Hank Paulson as the crook he is and herself as one of the few, knowledgable and honest respresentatives of the American people.

Hank Paulson is exposed for the dishonest criminal he is. He and people like him have ruined our financial system and when the people get fed up enough I will will do my part to make sure nobody forgets who got us into this and then who got bailed out.

People like Hank Paulson make me hope there is a Hell so he has a place to rot for eternity.

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Financial Wisdom from Thomas M. Hoenig of the Federal Reserve Bank of Kansas City
Posted March 24, 2010 @ 3:54pm

Please read this article. It is spot on and full of financial common sense and wisdom, things we see too little of these days.

"History tells us that for a country to succeed and endure economically it must adhere to a simple set of principles. No matter the market’s complexity, these principles anchor both its financial system and overall economy. And the most fundamental of these principles..." Read more...

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A Move Into the Seasonal Low...
Posted February 5, 2010 @ 9:00am

It appears that the seasonal correction often seen this time of year has begun in earnest and I expect the market to continue to fall into March, at least.

As I've stated before I expected the Dow to close the gap left open from July of 2008 and it has done that, to within about 3%. I do believe it is possible for the stock market to come roaring back after the seasonal low and head back up to and above 11,000 on the DJIA, but at this point it is looking less and less likely. The market is heading to new bear market lows (under 6500 on the Dow), IMO. It will be interesting to see how it will accomplish this as it attempts to correct past injustices. In other words, all those people who came to believe they were geniuses (Jim Cramer and Laszlo Birinyi Jr. come to mind, along with a few other people I know that you would not) because they made money in a decades-long secular bull market and now must give back what they gained, and then some.

The trend downward has the feeling of newness and is still being established. Given that the seasonal low is not expected until March or perhaps even April I would not be surprised to see a low of around 8,200 on the Dow before we see a pop back up of about 15% to perhaps 9,300 and taking perhaps two months. But that's all conjecture; let's let the market show us what's really in store.

At this time I am closely following the technical readings of Tim Wood as I feel that his brand of technical analysis will be most effective going forward.

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Our Clueless Leaders...
Posted January 31, 2010 @ 12:58pm

From Watchdog: Bailouts created more risk in system by the Associated Press comes the following quote, "Officials from the Obama administration counter that massive federal intervention has helped the housing market stabilize and prevented more dire consequences.". Read the full article for greater context, but the key quotes are,

"The government's response to the financial meltdown has made it more likely the United States will face a deeper crisis in the future, an independent watchdog at the Treasury Department warned.

The problems that led to the last crisis have not yet been addressed, and in some cases have grown worse, says Neil Barofsky, the special inspector general for the trouble asset relief program, or TARP. "

"Barofsky renewed a call for Treasury to enact clearer walls so that such apparent conflicts are less likely. Treasury said it welcomed Barofsky's oversight but resisted the call to erect new barriers against conflicts of interest. The new rules "would be detrimental to the program," Treasury spokeswoman Meg Reilly said in a statement."

This is typical of what we hear from our leaders these days. They don't have a clue about history or the facts. They only care about "saving us", which is shorthand for buying votes and controlling our lives. IMO, our future looks very bleak until we fire all of these incompetents and start anew. It's also important to understand what is really going on here that is so dangerous and won't end until a real disaster happens and wakes up the American people: the very people who got us into this mess are asking for more and more power in order to save us. Does this make sense to you?

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Disgusting Greed
Posted January 22, 2010 @ 9:50pm

At this time President Obama has finally gotten religion on financial reform and is talking tough about cleaning up our banking system. It's about time. I felt that had John McCain taken a hard line stance on this issue it is the one thing that would have made him president.

But what is the response from Wall Street? It should come as no surprise that almost every comment on the subject at CNBC yesterday seemed to suggest that Barack Obama was a communist or was being unfair to banks. I got the distinct impression that these people really believe that the world will not exist without them. They are wrong, the world will be a better place without the greed-heads and speculators, at least most of them.

If President Obama is to save his presidency he must take on issues that are important to citizens such as banking reform, true healthcare reform, and corruption in government and throughout our society. So far this president has fallen in line with the corrupt old guard and is completely out-of-touch with the people. The question is: can he change?

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A Sucker's Decline?
Posted January 21, 2010 @ 7:07pm

While I have stated that I believe the stock market is close enough to closing the gap left open from July of 2008 I tend to believe that the current correction we are seeing is more of a consolidation that will serve the purpose of luring more people into the market once the rally resumes. I base this on the fact that many technical indicators from Lowry's and other sources suggest that the stock market rally is not yet out of steam. This appears to be a classic case of the market remaining irrational longer than we can stay solvent.

Yes, I'm as sure as can be that we will see great valuations in the not too distant future and I doubt we will get there all at once, but I wise man lets the stock market tell him what's going on and doesn't try to insist on what is going to happen.

Today I sold out of a short position (SDS and SRS) about mid-day. I had been building this over the past 2 weeks and it paid off well. I left a bit of the SDS as I want to take advantage of a further decline or I can use it to start building a new position as I still expect that 11,000 level to be the turning point in this bear market rally.

I'll keep an eye on the price of gold as I expect it to decline further and I will likely add to my position as it nears $1,000 an ounce.

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Poor Valuations in the Stock Market
Posted December 15, 2009 @ 9:31am

According to this chart the P/E ratio of the DJIA is now at around 30 and that is after dropping many of the failing and bankrupt companies like GM, Citibank and AIG. The S&P 500's P/E ratio stands at around 80, according to Standard & Poor's data at http://www2.standardandpoors.com/spf/xls/index/SP500EPSEST.XLS and the NASDAQ 100 P/E ratio is at 90 according to data found at http://www.bullandbearwise.com/NASDAQ100RealPE.asp.

As I looked at the NASDAQ 100 companies I could not find a single company that looked to be attractively valued, and we are supposed to be in a bear market. This tells me that we have much more to learn and much farther to fall. As Richard Russell likes to say, the time to buy is when great value abounds, P/E ratios should be well under 10, on average, and dividend yields may be high than P/E's.

Taking this data into account, the fact that a real economic recovery would force up interest rates and the likelhood we are at the tail end of a classic dead-cat-bounce, I predict that once the stock market averages close the gaps back to the levels prior to the crash of 2008/2009 we will see the continuation of the bear market decline.

One indicator that suggests to me we are not yet poised for a resumption of the bear market is the put-to-call ratio. Also, Lowry's suggests that this bull movement has legs and is likely to continue.

Yes, we might be close enough but there is much stimulus in the economy and the markets work at their own pace, so remember, patience is a virtue.

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Banks Continue to Screw Those Who Bailed Them Out
Posted December 15, 2009 @ 8:39am

In this article by Mike Shedlock, otherwise known as "Mish", titled, Underwater, Securitized, and Screwed by the "Pass the Trash" Strategy we read how once again the power of greed is leading us to an end result that won't be pretty. The politicians, bankers and greedy people from all walks of life have yet to really get it but history has a way of dealing with such a situation. Stay tuned to the history channel, otherwise known as "real life".

In this article Mish points out how banks are unwilling to work with homeowners and also provides excellent data to show that the problems we are facing in the housing market are not simply sub-prime but were caused by lax lending standards in general.

I highly recommend "MISH'S Global Economic Trend Analysis ". I subscribe and really look forward to the daily email.

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Quotes from Laszlo Birinyi Jr.
Posted December 12, 2009 @ 10:34am

Laszlo Birinyi Jr. is one of the people I call a "Fool of Wall Street" because he takes what he has experienced during his life and refuses to believe that there are generational dynamics (20 year "turnings" with an approx. 80 year full cycle) that must be studied and taken into consideration. I see Laszlo Birinyi Jr. as one of the prime examples, along with Jim Cramer, of people who are playing into "the principle of maximum ruin". These types of people are unable to see the big picture and constantly shill the stock market. Here are some quotes and links to back up my assertion:

From Forbes...

01.17.08, 6:00 PM ET
"Want a good new idea for this year? Try American Express (nyse: AXP - news - people ) (43, AXP ), which like all financials has been beaten down by the subprime issue, even though the firm has zilch to do with housing. The card company took a further pasting in early January when it announced a hike in reserves for loan losses. Still, American Express has a high-end clientele that likely will keep spending no matter what happens to the economy."

American Express went no higher after this prediction and indeed was hurt as everyone was hurt by the economic downturn, which Mr. Birinyi did not see coming. AXP dropped from 43 at the time of the article to 10 in March of 2009.

03.27.08, 6:00 PM ET
"I think volatility is here to stay, a permanent change in the system. I've written in the past about how the advent of rapid-fire electronic trading has ratcheted up volatility ( see my Nov. 26, 2007 column). The computers that pick stocks are not being unplugged, and the hedge funds that use them are not going away."

This quote shows the inability of Mr. Birinyi to see that things happen in large cycles. He is clearly unable to see that once enough damage has been done to the economy, as in the 1930's, a period of conservative investing will once again take hold for many decades.

In the same article Mr. Birinyi is quoted as saying, "The basic economy is doing better than most reports, and pockets of the stock market are sensing that. We keep hearing that the consumer is under pressure. Meanwhile, stock in Wal-Mart (nyse: WMT - news - people ), where America shops, continues to hold firm in the $50 area. If we truly are mired in a recession, then why are Caterpillar (nyse: CAT - news - people ) (up 5% this year) and IBM (up 10%) doing so well?"

No need to comment on that, his own words clearly express his cluelessness. This man is the only one to wait longer than Jim Cramer in admitting there was a problem with the economy.

02.25.09, 06:00 PM EST

"Like many other advisers I was blindsided by the events of September..."

Actually, Laszlo, many of us saw this coming long before September of 2008. Many were pointing out the housing bubble years prior, it's just that some people chose to ignore them.

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Why Bank of America Fired Me by Jackie Ramos
Posted December 9, 2009 @ 10:14am

Jackie Ramos is a former employee of Bank of America. Her story exposes what is wrong with our society at this point in time: greedy people in massive bureaucracies justifying taking advantage of the young, the old and the ignorant to gain profit. Understand that Bank of America went after these people and knew that many of them should not have the credit they were given.

Watch the video of Jackie Ramos titled, "Why Bank Of America Fired Me"

Jackie Ramos herself is an example of what is right with out society: individuals who are unwilling to hurt other people even if it means losing a job.

Jackie Ramos, you are a good person; you are my hero.

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Jim Cramer Says A New Bull Market Has Emerged
Posted December 8, 2009 @ 11:53am

The is a likely sign that we are at the top. In an article on CNBC, Jim Cramer is quoted as saying, "A New Bull Market Has Emerged".

Time to go short? You make the call.

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Laszlo Biryini is Bullish on Equities
Posted December 1, 2009 @ 11:05am

In an interview on CNBC Laszlo Biryini made it clear that he is bullish on equities. I just wanted to get this on the record as Mr. Biryini also came out as very bullish in December of 2008 just before the stock market plunged to new bear market lows. What I want to know is this: does Laszlo Biryini ever call for corrections? My research indicates that he was bullish all the way down from the 2007 highs and IMO is just another Fool of Wall Street who makes money by shilling the market no matter what. But that's just my opinion.

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John Deere Earnings
Posted November 30, 2009 @ 12:13pm

I think this article titled, "Deere Reports Quarterly Net Loss, Revenue Falls", sums up where the economy is heading very well. I believe that after the shocks of 2008 we will continue to see the dmaage that was done exposed. It is typical that after a shock to the system like what we went through in 2008 that people feel relief as they see that the world has not come to an end, but as I said often in 2008, the world will not end but the world as we knew it has ended.

Notice this comment, "...anticipating a huge jump in pension costs next year", this, "...because of higher provision for credit losses..." and this, "...Deere warned first-quarter sales could be down 10 percent from 2009 levels." Down from 1st quarter 2009? That's just amazing considering that that period marked the low point of the economic collapse.

All one has to do is take a realistic looks at where profits are coming from these days to see that they are not sustainable. Firing employees and taking free money from the Federal Government isn't a road to long-term economic recovery. We are faced with the burden of a populace that expects to be supported by the government, aging baby boomers and consumers that are buried under more debt than they can possibly hope to deal with. The government "saved us" by taking on tons more debt and so now the future is certain: we either inflate our way out or default becaus ethere is no way we can hope to pay off the debt we have taken on.

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Dow 10,000
Posted October 15, 2009 @ 8:05am

Exciting times for the bulls...and for me. I see this as the perfect setup to lure even more into the trap while convincing the Cramers of the world that the secular bear market is over.

I was wrong intially about the rise out of the March 2009 low but in hindsight it all makes sense. Every crash is followed by a tremendous bounce and the bigger the crash the higher the bounce. Richard Russell points out that a 50% or larger bounce is to be expected and Richard Russell knows because he was around for the crash of '29, though just a wee boy at the time.

The question now is will we begin a decline into the expected November low or does the stock market close that gap now? I suggest that doing so later fits the MO of this market (like 1929-1932 but more spread out) and allows even more suckers to become true believers. The stock market is in a desctructive phase and it has just one tool at its disposal: GREED.

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The Call
Posted September 30, 2009 @ 9:37am

This is a very specific call. I am predicting that we see the stock market dip to a low in early to mid-November then begin to rise through most of December. The two questions are: 1) Will the DJIA close the gap by rising to at least 10,300 before dipping down to that November low or have we seen the top? 2) If the DJIA has not bettered 10,300 will it do so after rising out of the November low?

If 10,300 on the Dow is bettered within the next few weeks I believe that we will see the November low - probably just a 10% slide - and then after rising a bit, but unable to break out to new highs, the DJIA will begin a slow but consistent series of moves that will eventually take us to new lows within this bear market. Along the way it will give the bulls plenty of reason to buy the dips and only after breaking below 6,500 will they finally get the message.

I do not believe we have seen the lows of this bear market. I believe that we are following a course similar to 1929-1932 on the DJIA, only slower and possibly even deeper. I strongly believe that our future has been determined by our past actions of false wealth creation amid a positive demgraphic outlook and that now we have a negative demographic outlook and significant deleveraging to deal with.

Dow 1,200 within the next 3-5 years.

PS - I'll probably be wrong so please do not take my prediction as investing advice.

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The Setup
Posted September 4, 2009 @ 9:36am

At this point I think we are perfectly setup to continue on with the stock market correction. Enough suckers have been enticed back into this market, though another couple of months to the upside would really bring in a lot more wealth to be destroyed.

I try to balance the two major means of predicting the market and those two have now come together in a way that is undeniable. On pure data it is easy to make a case for this market dropping to 25% of where it is now. Just a slight drop in earnings from the predicted $30-$40 (S&P) earnings would allow for a bottom of 100 on the S&P 500, given the historic pattern of P/E ratios bottoming around 6.

$10 x .6 = $60 on the S&P 500.
$20 x .6 = 120
$30 x .6 = 180
$40 x .6 = 240

On the other side of the coin is the psychology of investors and Americans in general. The psychology of the general public has obviously shifted from that of the last 3 decades towards frugality and caution while day traders and a small segment of the population still believe they can outwit the markets - there are no underlying reasons for stocks to be valued above historic norms but a small handful of greedy people have convinced themselves there are and have also convinced themselves that even though they lost over 50% in 2008 they are smart enough to keep that from happening again.

My guess is that the stock market will not crash and burn but will slowly turn south and continue to entice the greed-heads in with rallies of 20% and declines of 30%, slowly eating away at their wealth while playing on their egos.

All the elements are now in place. Everyone has been wrong at some point, including those who saw this calamity coming and so everyone has doubts. The VIX is low, though higher than historic norms; gold is up, just enough to make us wonder...; stocks are up 40-50%, though still 35% below the highs of 2007; the economy is recovering, though still very sluggish; Alt-A and Options ARMS are poised to wreak havoc on banks and homeowners; unemployment is still rising; the dollar is slowly losing its status as the world's reserve currency; the geniuses in the federal government believe they actually made things better and so will be unable to think outside that box; the demographic problem is slowly putting more pressure on the American economy; Americans will no longer allow their government to shovel money to their cronies in the private sector, thus putting the kibosh on any further bailouts; we have a HUGE public deficit that overshadows our future for decades to come; we have no policy to renew our industrial base and so drive the economy forward.

I could go on but my point is that this is where too many finally decide to stop fighting the trend and go with it...and get burned. Yes, the market might go to 11,000 and IMO, should, in order to close that gap left from a year ago, but the majority of the data and trends suggest this bear market is far from over.

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A Trend of Corruption from Top to Bottom
Posted September 4, 2009 @ 12:59pm

There's an interesting story of a little guy fighting back against the system with the help of the judicial system at CNBC.

Recently the town of Medford, Oregon, where I live, purchased new, very expensive police cars that the police love to speed around in. I know because several times a day I see a police car speeding by my house; never in pursuit, just speeding...somewhere....

Now I'm a great believer in supporting law enforcement so I don't believe the cops are corrupt, at least no more so than the rest of us, but I have noticed a trend towards many more vagrants and drug abusers roaming the streets and taking over sections of my local park. Drug deals are carried out without a concern for anyone seeing, perhaps because the police are moving too fast to notice?

I'm a big picture guy and I see the big picture very clearly: we inflated our economy and all came to believe we were geniuses and deserved to have a bigger car, home, paycheck and along the way we created a monster, we created a society of people who are so enamored with our stuff that we no longer care that our kids are not safe and that we have lost all sense of perspective. We not only allow the ex-Goldman executives to outright steal from the treasury and give to their cronies but we also allow our kids to do whatever they wish, as long as we can drive a nice car and pretend we're a king inside of our huge McMansion.

We're now paying the piper and there is a big redistribution going on. Over time things will come back into balance and power will once again be distributed more evenly in this country. But I believe that will take decades and a lot of pain and suffering for those fools (most of us) who believe that people like Jim Cramer and Hank Paulson and Geroge W. Bush and Barack H. Obama give a rat's ass about any of us. Actually, we don't believe it, we want to believe it because we went along for the ride and if it's not true that means we might have to start working and saving and living within our means. The sooner we as individuals come to recognize reality the sooner we will once again gain power over our lives.

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Stock Market Prediction
Posted September 2, 2009 @ 8:18am

I'm a great believer in not telling the stock market what to do or when to do it. It is smarter to listen to the stock market and study its history and then come to a reasonable conclusion, based on facts, of where the stock market should be at any given time. It is also wise to always remember that the stock market is made up of people, people who are greedy and fearful and all too often do things that make little sense in the long term.

Given that, I believe that the stock market is doing what makes sense, it is having a big relief rally after the people that make it up have been made to believe that the worst of our financial problems have been solved. In truth that may be true. Our noble leaders have borrowed from the till (us) to keep the "too big to fail" financial companies in business and so things are allowed to go on pretty much as they used to. ...think about that for a second, though.

But there's a bit more to it than that, if one studies the movement of the stock market one finds that the market hates to leave gaps open, especially in secular bear markets. A study of the our current decline from the highs of 2007 or the decline from 1929 to 1932 clearly shows that the low of one leg down will match up with the high of the next. After the crash of 1929, for instance, the stock market climbed 50% to close that gap. Many stock analysts like to talk about 50 percent retracements and so on but what is really going on is that the stock market, for whatever reason, needs to decline in an orderly fashion and as history reports, it has plenty of time to do so, setting us up for maximum destruction of wealth along the way.

At this point almost everyone is expecting the stock market to take a breather. Bears are calling for the end of the bull rally while bulls are saying that we could see a 5, 10, or even 15 percent correction prior to the resumption of the ascent to ever higher levels in the stock market.

My prediction is that the stock market has had its breather and will push dramatically higher over the coming weeks, probably right through September and along the way the bulls will become absolutely giddy with joy as they rush in, as will anyone not too sure. Even many bears will finally acquiesce, fearful of missing the big rally and looking like fools. Another 10 percent move brings us to around 10,300 on the DJIA, a level which I believe will effectively close that gap I was talking about; at that point, given what I know about our economic future, valuation of stocks and my belief that we are in a secular bear market that has much farther to go based on historic patterns, I believe that we will see an incredible opportunity to sell the market short using ETF's such as SDS.

An alternate view is that the rally moves ahead much slower, with a seasonal decline but not to new lows, and then comes back to close the gap later this year or in the middle of 2010.

That's my view but keep in mind that the only times I have been succesful in predicting short term market moves was during the panic selling of 2008. Times like these are much harder to predict because the forces are less concentrated and the market is much more patient than most of us give it credit for.

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Our Leaders Belong in Prison and Maybe We Do Too
Posted August 22, 2009 @ 11:28am

I have seen very clearly for the past two years what was coming and what the cause was. As well, I have some very simple ideas that could have been implemented to help alleviate the financial crisis.

First of all the financial crisis is not anyone's fault it is our fault because most of us profited by it. We allowed oursleves to be bought off. Some allowed it because they liked the big screeen television they could afford on credit and some allowed it because they profited by being employed at a higher wage than normal and others allowed it because they were too busy playing video games or downloaded Internet pornography. Many came to believe they were investing geniuses who could beat the markets because they were so brilliant. BTW, if you were one of the many who didn't see the downturn coming in 2007 (or before) then you were just another follower of the trend and you deserve everything you got. Right now you are probably once again thinking you are a genius as the stock market rises once again but pay attention to how much you have lost since mid-2007 and be warned that there is much worse to come.

But I want to point out the difference between you and I and our noble leaders: when the extent of the problem became known in 2007 and 2008 and the decision was made to take action it was George W Bush, Barack Obama, Hank Paulson, Tim Geithner, Ben Bernanke, Chris Dodd and Barney Frank, among others, who made the decisions. The decision they made was to grab their shovels and start scooping money to their friends and supporters at the banks and other companies such as AIG and GM. What they should have done was to send our money to us and let us decide how to put it into the economy. After all, the only way it wouldn't have gotten back to a bank was if we stuffed it in our matresses.

Instead our noble leaders found all sorts of ways to pass our money on to failed institutions and we received no benefit. In fact, these same institutions often then went out of their way to cut our lines of credit or raise the fees they charge us after being bailed out with our money.

I could go on but this is what I and a small percentage of Americans have been saying for two years now so if you don't know the story you never will. The liars and shills and criminals have succeeded in propping up the system with more credit and have convinced many that things are now better and we will soon be growing our way out of this mess. I know better. Hopefully you do too and you are paying down debt and saving money and maybe even burying a bit of gold in your backyard because we have lived on excess for decades now and we will now pay the price, possibly for decades.

This is not over.

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Unnatural Disaster by Thomas E. Woods Jr.
Posted July 25, 2009 @ 9:28am

A fantastic article that gets to the heart of what went wrong and who is to blame.

"Neither can the state seem to resist the temptation to extend emergency credit to failing businesses. If their positions were sound, credit would be forthcoming from the private sector. If not, then they should go out of business, freeing up resources to be used by more capable stewards. Diverting resources from those who have successfully met consumer demands to those who have not serves only to weaken the economy and make recovery that much more difficult."

Woods looks into the cause of our current financial crisis and finds some obvious answers. Combine this with a study of history and an understanding of Generational Dynamics and you will have a pretty clear roadmap of how we got here and what the future holds.

I would add, however, that while the future holds a period of "penance" for our sins how we pay for them and how long it will take to pay for them is still up in the air. I would argue that the "The Greatest Generation" came about because of the hardships they faced, not in spite of them. The very story of the American Dream is of average people coming to America with nothing and creating empires along with jobs and wealth for many other people.

It is the will and desire to rise out of poverty that drives progress. By not allowing failure our government reduces the chances of success and wealth creation in the future. One only need look to Japan since 1990 to see what lies in our future.

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Federal Reserve Admits They Have "Misplaced" 9 Trillion Dollars
Posted May 26, 2009 @ 9:27am

This disturbing video of Rep. Alan Grayson grilling Federal Reserve Inspector General Elizabeth Coleman on where trillions of dollars went shows just how corrupt our nation has become. The real corruption, however, is that the vast majority of Americans don't have a clue about any of this and don't care, as long as they believe they will be taken care of by the government, either by being directly supported via assistance programs or by the government propping up the stock market.

I hate to say it but either things are going to get a lot worse and we will finally be forced to wake up or we are seeing the final days (decades) of our once great nation.

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Birinyi Associates Shills the Market
Posted May 22, 2009 @ 3:16pm

Birinyi Associates has a clear conflict of interest, they are a money management firm and yet they provide earnings data to the Wall Street Journal and ?

Back in January Birinyi Associates made it clear that they were bullish on the stock market and no doubt lost their backsides on that one. I looked into all of this because sometime in early 2009 I noticed that Bloomberg TV and The Wall Street Journal were reporting P/E ratios that were not accurate. To this day, despite the P/E of the Standard & Poors 500 being over 100, the Wall Street Journal is reporting it as 14...yes, 14! Guess who provides data to the Wall Street Journal? You guessed it, Birinyi Associates.

In this article, John J. Xenakis of Generational Dynamics exposes Birinyi Associates for the fraud they are. Laszlo Birinyi actually states, "There are technical measures you can use, but the problem is that people use technical measures for predicting things, instead of understanding things." What? Read that again...I supposed Mr. Birinyi sees EARNINGS as techinal measures that might be misused to predict something...perhaps something like falling stock prices?

It is clear to me that Birinyi Associates has a clear conflict of interest and should not be providing data to ANYONE. They are entitled to their opinion but why would anyone purchase data from a company that has a clear conflict of interest. The problem isn't so much that Birinyi Associates is corrupt, as I believe they are, it's that the Wall Street Journal and anyone using their bad data is corrupt or incompetent and their job is to provide information to the public.

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Quantitative Easing: FAIL
Posted May 20, 2009 @ 2:56pm

Don't know what Quantitative Easing is? Karl Denninger explains it in simple terms and you won't like what you hear.

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Meredith Whitney, One of the Few Intelligent, Honest Wall Street Analysts, Speaks Out on the Banks, Retail and More.
Posted May 12, 2009 7:59am

In this May 11, 2009 CNBC video interview with Maria Bartiromo, Meredith Whitney gives her opinions on the banks, consumer spending and how the government's actions are making it difficult if not impossible to know what the rules are.

Once again Meredith Whitney shows that she is a step ahead of most other Wall Street analysts as she prefers to speak the truth as she sees it rather than feeding us more of the same drivel spewed by the majority of stock market analysts. This woman is smart, honest and is one of the few Wall Street analysts I trust.

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Timing the Depression by Matt Stiles
Posted April 25, 2009 4:36pm

A must read article that I agree with almost 100%. In essence, we have weak leaders unwilling to admit our problems but perfectly willing to sacrifice our nation's future. The longer they throw money (debt) at the problem the longer the problem will last and the more likely we will never fully recover.

And did I mention that China's going to be really pissed when they find out they're only going to get pennies on the dollar on the money they've invested in us?

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Matt McCall, Another Fool of Wall Street Makes Bad Call After Bad Call
Posted April 6, 2009 8:32pm

My problem is not so much with incompetent "Fools of Wall Street" like Matt McCall but that Fox News (where I discovered his incompetence) puts such people on when they have a track record of being wrong time after time. There are plenty of stock pickers who actually get things right about half the time; couldn't they use some of them now and again?

In my opinion, anyone who uses any of the major financial media without documenting the data they see is themselves a fool as I come across innaccurate financial information on all of these networks on a daily basis.

Quotes by Matt McCall:

Time To Wade Into Commodities - Oct 17, 2008
Just about everything Matt McCall says here is wrong but then why should this article be any different than the other ones? Matt is probably a nice guy who was taught to always think positively which is EXACTLY what you don't want in a financial advisor. The price of oil would drop by more than 50% in the coming months and would still be well below the level on Oct 17, 2008 when this article was written.

After stating that he owns both Oil ETF's and oil stocks he then makes this comment, "Obviously the global economic slowdown has weighed heavily on hard asset markets. We've seen a huge pullback, but I believe that has been fully priced in to commodities. We're in a bottoming process right now. But volatility remains, at least for the coming weeks if not coming months. So we're waiting for confirmation of a bottom. We've got to see some consolidation to confirm that the market can hold these lows and not fall further. It's hard to pick a bottom, though. For the individual investor, I think it's a good time now to start wading back into the market"

I'm really not sure what to make of what he said but I do know that oil continued its fall and fell by over 50% in the next few months. Why in the world would he tell people to wade into a market he himself doesn't seem to have a clue about?

Bullish on Stocks and Oil - May 17, 2008
"We are soaring to the end of the year. Keep throwing the bad news at me because all that that does is create the wall of worry that bull markets climb. People thought we were going to hit the bottom in the first quarter. They are going to doubt this rally all the way to new all-time highs. Nothing is going to stop this market right now!"

Matt McCall's Pick: Orbital Sciences (ORB)
Price at time of pick (May 16, 2008) was 26
Price on July 3, 2008 was 24
Price on Aug 15 2008 was 27.89 (highest stock price after Matt McCall's pick)
Price on Sept 17, 2008 was 22.85
Price on Oct 27, 2008 was 17.42
Price on Nov 20, 2008 was 15.36
Price on Dec 10, 2008 was 15.44
Price on April 6, 2008 (date of this article) is 12.90

Apparently Matt McCall is a Wall Street Rock Star, too bad he doesn't know how to say anything but "buy". Hey, isn't Jim Cramer a Wall Street Rock Star too?

This article was written by Matt McCall on October 9, 2007, just as the second worst bear market (so far) in modern history was getting rolling, yet Matt McCall doesn't appear to have a clue as he states, "...the handful of deals taking place should suggest the bottom of the credit crunch has been seen". I was out of the market, Matt, as were many people who were paying attention; what's your excuse?

KEYWORDS: fools of wall street, matt mccall, bullish, stocks, bad stock picks, bad investment advice, fool, fools,

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Kenneth Fisher, Just Another Fool of Wall Street - The P/E Myth
Posted March 27, 2009 9:04am

Certain things just get me going and this is one of them. Read this line from the esteemed Kenneth L. Fisher, "There is no linkage of market P/Es to subsequent returns--no matter how you measure the ratio and no matter over how long (up to five years) you measure returns." WHAT!?! Read it again; you probably didn't even notice the "up to five years" line at first, did you. Read on and you'll see that he ignores many other possible uses for P/E ratios. As with any data source a wise investor will use it in context.

KEYWORDS: ken fisher, Kenneth L. Fisher, Kenneth L Fisher, pe ratio, p/e ratio, pe, price earnings ratio, fools of wall street

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Dow Theory - Why Opinions Differ by Tim Wood
Posted March 26, 2009 9:04pm

Tim Wood explains why he believes that in 2007 we finally exited a bull market that started in 1974. Here's an index of articles by Tim Woods.

KEYWORDS: tim wood, dow theory, bull market, 1974, 1982, 2007, 1929, 1932, the great depression, bear market

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Solving the Housing Crisis - By John Mauldin
Posted March 23, 2009 3:32pm

I am so grateful that for once I get to expose a great idea instead of a stupid one or a bad piece of data. In the above article John Mauldin comments on an idea suggested by Gary Shilling and Richard LeFrak in an op-ed in the Wall Street Journal. The idea is to give a green card to foreigners who will come to the US and buy a home. Read on for more details of a simple plan that would actually - GASP! - be effective.

KEYWORDS: housing, immigration, green card, buy a house get a green card, Wall Street Journal, Gary Shilling and Richard LeFrak, Gary Shilling, Richard LeFrak, John Mauldin, 2009, home buyers

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The Real AIG Scandal
Posted March 20, 2009 1:28pm

An article from Slate about the real AIG scandal. The bonuses seem to just be the tip of the iceberg. Did Hank Paulson and Timothy Geithner rip us off?

Slate asks why counterparties such as Goldman Sachs were paid back in full with taxpayer bailout money.

KEYWORDS: aig, criminal conduct, hank paulson, scandal, 2008, scandals, wall street, goldman sachs, Timothy Geithner,

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Is Hyperinflation Impossible?
Posted March 18, 2009 10:41am

Matt Stiles makes a cinvincing argument why deflation is here to stay, at least for the time being, and hyperinflation is impossible.

KEYWORDS: Matt Stiles, inflation, hyperinflation, economy, economics, deflation, derivitaves, china, fiat currency, money supply, great depression, recession, 2009, gold, bankers

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Vinny Catalano Proves Himself a Fool of Wall Street
Posted March 17, 2009 10:13pm

I feel kind of bad, picking on this guy, Vinny Catalano. He's someone who I'd never heard of before today and only found by searching for info on how to use a 50 day moving average. But....

Vinny proves himself just another fool of Wall Street who can't see the forest for the trees. I will soon prove to Vinny Catalano and anyone else who cares to listen why simple is better. I will be creating a program that allows you to enter any start and end day and figure your investing returns using a simple moving average. What Vinny and other deep thinkers on Wall Street don't get is how important it is to avoid calamities such as the crash of '29, '73, '87 or '08. Using a simple 50 day moving average for timing would not only have had you out prior to the crash of 1929 but would also have had you back in at 46 after the bottom in 1932 at 42 - and that's just amazing! At today's dirt-cheap brokerage fees this may be the perfect trading strategy for most investors.

Stay tuned as I add this feature and many more.

KEYWORDS: 50 day moving average, moving average, investing, fools, fools of wall street, investing ideas, s&p 500, djia, dow, dow industrials, Vinny Catalano

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S&P 500 Earnings are Crashing!
Posted March 15, 2009 12:08am

This is about a month old but I wanted to preserve it for posterity as it provides some excellent data that I have been trying to spread to those who will listen. What is sad is that most people would prefer not to listen, instead preferring to exist in a safe little bubble where the only thing between them and complete financial ruin are the lies of forward earnings estimates and operating earnings, a non-GAAP method for fabricating earnings.

KEYWORDS: s&p 500, s&p 500, earnings, gaap, reported earnings, operating earnings, 2009, p/e ratio, pe, pe ratio, Carl Swenlin

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Martin Armstrong - Is It Time to Turn Out the Lights?
Posted March 14, 2009 10:43pm

An essay by Martin Armstrong that reaches back into the financial history of America and the World to make the argument that America may be on the decline as China takes over as the world's superpower.

This is very thought-provoking stuff and well worth the read. One of the things I noticed is how such a strong argument is made for our total economic collapse without even a mention of the coming problem of our aging baby-boomer generation. Demographics alone will likely keep America from generating any type of sustained growth for the next 20 years. I find it hard to believe America will not find a way to reinvent ourselves but I do not find it hard to believe that the next two decades will be a difficult time for this country in so many ways.

KEYWORDS: martin armstrong, china, america, united states, economocs, global economics, history, superpower, superpowers, currency, currencies, demographics, demography, baby boomers

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David I. Templeton Offers Valuable Data
Posted March 13, 2009 2:08pm

Excellent economic data that will help you determine if we are at a stock market bottom yet.

KEYWORDS: S&P 500, David I. Templeton, David Templeton, prediction, stock market, bottom, economic data, economy, investing

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Jon Stewart Exposes CNBC Financial Network as Fools - DUH!
Posted March 9, 2009 10:38am

Sure, I watch CNBC, but like any sane person, I use it as a barometer for what the herd is thinking and doing. Jon Stewart makes fun of people who have mislead us and stolen from us; you hav eto watch this!

If you went along with it you are just as bad as they are for it was all pretty obvious to me that these people are polyanish idiots. The only questions is: who's the biggest idiot?

KEYWORDS: cnbc, jim cramer, jon stewart, lies, merrill lynch, bear sterns, dow, djia, stock market, the stock market, humor, jon stewart and cnbc, the daily show, funny, larry kudlow

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World Bank Says Global Economy to Shrink in 2009
Posted March 8, 2009 8:21pm

As reported by the Associated Press the World Bank is predicting the global economy will shrink in 2009 for the first time since WWII.

KEYWORDS: world bank, recession, depression, 2009, the world bank, prediction, predictions, economy, global recession

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That Sickening Feeling
Posted March 6, 2009 8:16am

I once again am getting that sickening feeling in the pit of my stomach. I get it when I see my country in a sickening death spiral as it drifts around and around, slowly making its way towards the drain, and there is nothing anyone can do.

The article referenced above is the type of thing that brings on such a feeling. Cold, hard facts are what always does it.

I just keep thinking that we made it through The Great Depression and this can't be any worse, right?

KEYWORDS: fdic, the great depression, depression, spiral, downward spiral

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Earnings are Collapsing! - Reported Earnings vs Operating Earnings
Posted February 25, 2009 10:56pm

I love articles like this that shake up the self-dilusional world of Wall Street analysts. Larry Kudlow would hate this type of article because it is anti-american and anti-Wall Street; in other words, it exposes the truth about the lies we tell ourselves and each other.

What it is is the truth. It is honest and based on hard data and it offers critical thought, something all too rare on Wall Street these days.

The argument is that analysts are fooling themselves by comparing apples with oranges by using operating earnings instead of as reported earnings. As reported earnings are what you get if you research earnings from days gone by. Of course Wall Street analysts weren't happy with just playing games by excluding items from earnings but the even bigger lie that came to be accepted in the past several decades are forward earnings. Forward earnings are still in use by a few of the remaining scam artists who haven't yet been shamed into obscurity but they are quickly going the way of the horse and buggy.

KEYWORDS: wall street, investing, earnings, lies, operating earnings, as reported earnings, as reported, corporate earnings, s&p, s&p 500, s&p 500 earnings, comstock, 2008 earnings, 2009 earnings, 2008, 2009

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AIG to Post $60 Billion Loss
Posted February 23, 2009 1:05pm

"AIG, once the world's largest insurer, is expected to post a loss of nearly $60 billion on Monday, when it reports its results, CNBC reported citing unnamed sources close to the company. The talks with the government include the possibility of additional funds for the insurer and trading debt for equity, a source familiar with the matter told Reuters."

If anyone still doesn't get what is going on and thinks that everything is hunky-dorry and the market will turn up in a few months this bit of information should give them food for thought.

Sixty Billion Dollars!!!

In a single quarter.

We're paying to keep this company alive when we should be hacking it up and selling it off as quickly as possible. Truth is, we probably are but nobody wants to buy.

KEYWORDS: aig, AIG, insurance, insurance company, aig insurance, bailout, government, government bailout, incompetence, incompetent, 60 billion, $60 billion

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I find this interview interesting because this type of attitude is becoming more common...or is it that those with a more realistic view are finally being heard?

IMO, we are about a third of the way to where we need to be. There are still too many bulls-in-waiting out there calling market bottoms and then the market will have to pound, pound, pound those perma-bulls until they start writing books with titles like, "The Coming Stock Market Crash" or "How to Prosper in the Coming Depression". At that point I will know it's time to start building a heavy long position. Ahhh...some things are just so predictable. :-)

As I've said before: Dow 5,000 in 2009 and look for a bottom somewhere around 3,000 or even lower if the government can't get out of the banking business. Just keep in mind that predictions are subject to change along with conditions but never have I been so sure about a prediction.

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Brace yourself: The recession is projected to worsen this year
Posted February 23, 2009 10:37am

Oh no! The economy is getting worse, according to NABE or National Association for Business Economics. According to NABE unemployment could reach 9% in 2009.

Anyone looking at the data and listening to objective analysts who know what they are talking about have known this for awhile.

KEYWORDS: nabe, National Association for Business Economics, economy, economy getting worse, unemployment, economists, 2009

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The Housing Recovery and Why We're Not There Yet
Posted February 22, 2009 5:01am

Some more good, basic data on why the housing market is a far way from recovery.

KEYWORDS: housing, housing market, isi group, isi, investing, 2009, recovery, the housing recovery

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Doug Kass Predicts Start of Next Bull Market
Posted February 20, 2009 8:13am

Doug Kass is predicting the end of the bear market in stocks and the beginning of a new bull market beginning early in 2010. Hmmm....

My problem with Mr. Kass's theisis is its basis: He states, "My sense is that we don't have to wait (too much longer) for a resumption of a new bull market as policy is going to be aggressive and immediate.".

While Doug Klass has reportedly been a bear on the stock market for some time now it seems from his comments here that he doesn't understand the basis of the bear market. Government stimulus can't fix the problem because all government can do is shove the problem from the present to the future and from tax dodgers to taxpayers. This depression, or bear market, after all, came about because of the irresponsibility of a generation of people who didn't understand that debt eventually has to be paid back. It tooks decades to build to a crescendo and there is simply no way to avoid the hangover of our debt burden. Stimulus is simply more debt and will not solve the economic problems we have. You don't cure debt with more debt.

KEYWORDS: doug klass, debt, stimulus, bear market, bull market, prediction, predictions, economy, depression, 2009, 2010, bull market in 2010

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The Fourth Turning
Posted February 18, 2009 9:33am

The Fourth Turning refers to a generational change that ushers in a "crisis era" and is the turning, one of four, that breaks the cycle and ends one epoch and begins another. This is powerful stuff backed up by a great deal of research. It can make a dramatic difference in your investing.

If you wonder whether reading this article will worth your time just note that the crash of 1929 ushered in a fourth turning. Read it!

KEYWORDS: buy and hold, buy and hold investing, investing, investments, s&p, s&p 500, long term investing, investing strategies, investment advisors, nouriel roubini, peter schiff, incompetence, incompetent

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A Case for Buy and Hold Investing
Posted February 16, 2009 8:26am

This article is just another bit of polyanish advice we see too often in the investing world. Such advice is pprovided by people who are either incompetent, as is proven by their inability to predict the downturn starting in 2007, or are dishonest; take your pick.

Now buy and hold investing is the way to go for most investors since the typical investor would get clobbered by trading the stock market, or any other market except the supermarket, actively. But this article, authored by Yolaiki Gonzalez, Giovanny Moreano and Ariel Nelson is written by people who consider themselves expert investment advisors or analysts; that is why they are posting their opinion publicly.

What these incompetent boobs are suggesting is that you should simply buy stocks and hold them...period. That is because these same people don't have the conpetence to see a Mack truck when it's headed towards them. In the fall of 2007 it was obvious to most astute investors that trouble was breweing and some high profile people like Nouriel Roubini and Peter Schiiff, among others, were providing plenty of hard data as to what the problems was and how bad it would be. In this day of the Internet there is no excuse for a professional financial advisor to have kept their clients in stocks in 2008. NONE!

By doing a bit of buying into panic and shorting the market using the SDS ETF and oil using the DUG ETF (be careful of this one!), I was able to turn a 40% gain on my retirement portfolio by the end of 2008, starting in the fall of 2007. Now let's look at how that plays out compared to someone who bought and held during that time.

Assuming we started with $10,000 and you simply held a typical portfolio of stocks you would have lost some 40% from the fall of 2007 to the end of 2008. That $10,000 would now be worth $6,000.

My portfolio would be worth $14,000, over twice the buy and hold portfolio, and just staying out of the market and in cash would leave you at $10,000.

Even a simple mind can see that by simply investing that $10,000 back into the market at this point would forever leave you with 67% more than if you had bought and held. At this point I predict we will see at least another 50% drop in the stock market before it bottoms sometime in 2010 or later but no matter, that 67% would be locked in compared to the buy and hold investor.

Now compare my 40% gain using simple methods that anyone who stays on top of the market could have achieved. That puts me 233% above the buy-and-hold investor. That means I could miss out on the near 100% gain off the bottom in 1932 and still be way ahead of the buy-and-hold investor. Of course, it's likely we haven't yet seen the bottom since no market has reacted the way this one has and taken off strongly to the upside, at least not with earnings falling and an already high P/E ratio of over 20.

The bottom line is that the vast majority of investment advisers fail their clients because they are both dishonest and incompetent, in my opinion. It is their job to identify obvious weakness in the economy and help their clients avoid the pitfalls and yet probably only a tiny fraction of them did so this time around. The dishonesty comes in when they fail to even care about such corrections because it is not in their interest to care. You can't make much money when a client's cash is sitting idle. Simply by avoiding the occasional decline in the stock market most investor's portfolios would swell dramatically over their lifetimes yet the vast majority of investment advisors don't get this basic principle. I am not a trained, educated financial amalysts yet I get it and got it. That, IMO, makes them incompetent.

KEYWORDS: buy and hold, buy and hold investing, investing, investments, s&p, s&p 500, long term investing, investing strategies, investment advisors, nouriel roubini, peter schiff, incompetence, incompetent

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S&P heads to first quarter ever of negative earnings
Posted February 15, 2009 7:48pm

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S&P Earnings Collapse in Q4 of 2008
Posted February 15, 2009 7:45pm

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Peter Schiff on Geithner's False Assumption
Posted February 15, 2009 6:55pm

Peter Schiff is one of the few who saw the financial calamity coming and now he explains why we're turning it into an all-out economic calamity with a full blown "economic collapse" on the horizon.

I hate to say it but it seems that we are indeed headed in that direction. Instead of allowing people and businesses to do what is needed by saving and paying off debt the federal government insists on keeping the money train moving with stimulus packages, TARP and anything else they can think of to save us. IMO what they need to do is keep the system from crashing but to allow it to mend itself, which means not trying to keep anyone and everyone from feeling the pain. Keep the big banks from going under in a panic but once they need our money we need to then allow them to be dismantled and sold in bankruptcy proceedings. There is no reason we can't make that an orderly process. Companies like General Motors need to go through bankruptcy as well, once they come begging to the taxpayer.

It is possible that we are not just going to create "zombie banks and companies" like Japan did but that we are going for zombie citizens also, as we insist on bailing out every last person who lost anything in the past few years, except for those who actually did things right or have made the needed adjustments to pay off their debt and balance their budget. To me this resembles full-out communism or perhaps worse, "Atlas Shrugged" come to life.

In this article, Peter Schiff makes a strong case against rebuilding the securitization market. Here is a quote:

"In the worldview of Geithner and like-minded economists, credit, rather than savings, is the central figure in the economic equation. Therefore, he sees anything that eases the process of lending to be an effective economic policy. With such a view in mind, the centerpiece of Geithner's plan is the commitment of up to $1 trillion to revive the collapsed market for securitized debt. In the lead up to the Crash of 2008, securitization more than anything else permitted Americans to borrow more than they had ever borrowed before."

In you, like me, believe we are in "The Great Unwind" then you will pretty much agree with most of what Peter Schiff says. Though he has missed the mark on some of his ideas on how to profit from the situation that does not diminish his accuracy on the underlying financial problems we face.

Read this article, it's worth your time.

KEYWORDS: peter schiff, the great unwind, geithner, tim geithner, timothy geithner, economic collapse, economy, american economy, economists, credit, debt, market collapse, securitization, securitization market

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Fools of Wall Street
Posted February 13, 2009 11:07am

I'l let this article speak for itself as things unfold. I'm very busy and don't have time to comment on this "Fools of Wall Street" article right now but I wanted to mark this article as it helps expose a few, additional "Fools of Wall Street".

KEYWORDS: fools of wall street, recession, predictions, wall street, economy, 2008, 2009, depression

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CNBC Incompetence: Interview with Nouriel Roubini and Nassim Taleb
Posted February 11, 2009 1:37am

This CNBC video is the single best example of incompetence in the financial media as two of the best financial minds, men who predicted our current economic crisis, are disrespected by the market shills of CNBC. As Roubini and Taleb try to explain what is at the heart of our economic catastrophe these complete idiots are trying to turn them into "rock stars", hitting them up for tips to predict the stock market bottom. One idiot just keeps asking, "how is this actionable?". Everyone in the investing world knows, and these talking heads know, but refuse to aknowledge, these two men do not give investment advice, they deal with the macro economy and how we got into this problem and how we get out.

I've got news for you, CNBC talking heads, the bottom will be marked by people like you being fired and doing a job for which you are qualified: carnie.

KEYWORDS: cnbc, nouriel roubini, Nassim Taleb, incompetence, stock market, dr doom, fools of wall street, market shills, interview with Nouriel Roubini and Nassim Taleb

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S&P Earnings Down 40 Percent
Posted February 9, 2009 8:06am

From data provided by Thomson Reuters, CNBC reports, "The blended earnings growth rate for the S&P 500 for Q4 2008, combining actual numbers for companies that have reported, and estimates for companies yet to report, fell to -40.6% from -35.2%...".

KEYWORDS: S&P 500, earnings, cnbc, Thomson Reuters, 2008 earnings, 2008, earnings estimates, stock market, wall street

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The Housing Market is Bottoming...Really?
Posted February 5, 2009 7:32am

According to a report from Moody's Economy.com, "More than three years since the market began correcting, inventories are flattening, prices are coming back down to earth, and sales are approaching stability,"

BALDERDASH!

While inventories are flattening and prices are coming back down to earth prices are actually accelerating downward. New home sales continue to get worse and the foreclosure problem is not even close to working itself out; what these incompetent boobs are doing is cherry-picking data to reach a conclusion they wish to reach. After all, Moody's is one of the companies that got us into this entire mess in the first place so we know they are both incompetent (I would actually love to go to court to prove this, so please sue me Moody's) and that they are willing to shill the market in order to make money.

Anyone who listens to a word Moody's has to say deserves what they get.

My favorite voice on this subject is Meredith Whitney who has been right much more often than not, unlike Moody's.

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Fools of Wall Street - Jeffrey Saut
Posted February 3, 2009 11:58pm

Jeffrey Saut was on Fast Money today and is once again bullish on the stock market. To see article after article of failed predictions by Jeffrey Saut go to Seeking Alpha list of recent articles.

On June 17, 2008 Jeffrey Saut wrote, "...rendering a near-term price target into the 1320 – 1330 support zone. If that occurs, we would consider initiating ‘long’ trading positions like we did at the January/March trading ‘lows.’ It should also be noted that our proprietary oversold oscillator is close to rendering its first oversold ‘buy signal’ in years.”"

On December 4, 2007 Mr. Saut actually wrote these words, "First, it can be argued that the housing situation is fairly localized (Florida, California, Las Vegas, etc.) rather than a national problem. Second, as can be seen in the attendant chart, the housing sector only accounts for 4.5% of our $13 trillion economy and consequently won’t pull the economy into a recession ." WOW! I assume Jeffrey Saut is in the "nobody saw it coming" camp.

Another quote that will come back to bite Mr. Saut is this one from December 31, 2007, "Another favored name would be Motorola (MOT), which appears to be just too cheap selling at one times revenues and one times enterprise value to sales." At that time Motorola was at 16; in a few weeks it would drop to 10 and bottomed out at 3.15, never having come close to 16 to date. But anyone can be wrong about one stock....

According to Jeff Saut, "select technology names should remain a primary focus. One such name is Strong Buy-rated Avnet (AVT), which is being valued as if there is going to be a 35% reduction in earnings that we don’t think will happen." Earnings go down?...never gonna happen! Next thing you know you'll be telling me the world's coming to an end. In fact, AVT went straight from 33 to 30 and then actually got up to 37...before plunging to 12 by November. Wouldn't we have been better off in the broad market?

On March 4, 2008, Jeffrey Saut wrote these words, "That’s why we are betting that this government-sponsored economic stimulus package will be like all the others since 1948 and be successful and allow the U.S. to skirt a recession."

Once again Mr. Saut is insisting that reality reshape itself and play like it has in the past when he writes this, on December 23, 2008, "If the DJIA (8579.11) can likewise break out above its 50-DMA at 8702, the Dow’s November 4th reaction “high” becomes the next upside target. Bettering that high, with a like move from the D-J Transports, would register a Dow Theory “buy signal;” the first such signal that would come from “cheap” valuation levels in more than a decade."

Folks, this is where I lose all respect for the man. The historic average P/E for the S&P 500 is 14 and it has been right around 20 for the past year. That is not cheap. Book value should be 1 and it is significantly higher, all while earnings and the value of assets are dropping, yet we keep hearing that valuations are cheap.

In summary what I find amazing is that people pay fools like these to lose their money...not for long, I imagine.

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The economic and fiscal consequences of financial crises
Posted February 2, 2009 10:54am

An interesting article authored by Carmen M. Reinhart looking at the fiscal consequences of financial crises. This can be used to provide additional insight into what we are currently experiencing and what we may expect going forward. Note that this is not someone spouting their opinion but is based on historic evidence and facts. Here is an article of interest that led me to it.

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CNBC Earning from Thomson Reuters
Posted February 2, 2009 8:47am

As of January 30, 2009. -35.2% from -28.1% the week before. The S&P 500 P/E ratio stands at 20. With such a dire outlook going forward (housing is not expected to rebound for perhaps 2-3 years) is 300-400 on the S&P 500 out of the question? 300 on the Standard & Poors 500 would leave a P/E of 7.5, given current earnings, yet earnings are declining rapidly. You do the math but I see serious stress building for another big fall in the stock market.

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Time Article - "Why Your Bank Is Broke"
Posted February 2, 2009 8:43am

"Since October, the government has deposited $165 billion into the accounts of the nation's eight largest banks. Yet those same financial firms are now worth $418 billion less than they were four months ago..." read more...

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Fools of Wall Street - Fred Voetsch of Acclaim Investing
Posted February 2, 2009 8:04am

Yes, I am guilty of being polyanish. On Friday I pulled out my long positions as it appears that there simply is no impetus for a bear market rally. I am holding onto my GLD as I feel that is a must in this economic environment. I am back in SDS and my strategy will be to buy in further on each 5% upward move in the S&P 500. This means not over-investing on each buy and only selling on a big move downward.

Keywords: polyana, fred voetsch, wall street, analyst, fools of wall street, predictions, sds, gold, gld, s&p 500

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Fools of Wall Street - Robert Brusca of Fact and Opinion Economics
Posted January 28, 2009 8:24am

This quote by Robert Brusca of Fact and Opinion Economics caught my eye on CNBC's website today: "stocks often make their biggest gains when earnings reports are at their worst, the base has been laid for recovery, and when recovery comes, it will be very clear.". Now it is good that Mr. Brusca is upfront with his opinion but as history shows, Robert Brusca is just another polyana shilling for Wall Street and a little reasearch shows that Mr. Brusca has been wrong again and again. As is often the case, this man came to think of himself as a genius because he was able to ride on the coattails of the biggest bull market in history an dnow that it has ended he doesn't even has the good sense to change with the times.

On February 25 of 2008 Robert Brusca, as documented by Market Watch, had this opinion on housing: ...when it comes to the housing slump, Robert Brusca is wondering what all the hubbub is about. The chief economist at Fact and Opinion Economics says housing is not collapsing. And he tells John Wordock the 4.6% decline in home prices in the last year is not that bad given the rise in prices during the boom. Brusca also predicts we could see a recovery in the third quarter.

Yes, Robert Brusca is like so many Wall Street analysts who go along in their own little worlds, never paying a bit of attention to those little things called facts. Anyone with a brain and willing to use it knew that the housing slump was just getting going in early 2008 and that we were in for a long term change in the cycle based on years and years of rising prices brought about in large part by subprime and other bad lending practices, coupled with demographics that will keep the housing market and the economy as a whole stuck in a rut for the next two decades.

I suggest searching Google for "robert brusca 2008" to read some of the amazingly foolish things this man has said. That anyone would listen to someone who has been so wrong on a topic on which he is supposed to be expert is beyond me.

Keywords: polyana, robert brusca, wall street, analyst, fools of wall street, housing

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Gold
Posted January 26, 2009 9:09am

Gold is performing and the upside potential here is far greater than the downside because of the uncertainty about the effects of all the stimulus on the economy. I am back in GLD to the tune of about 8% of my portfolio. I am late to the game on this as I kept telling myself that gold is a needed hedge in this environment and I have been out of gold for nearly a year. However the upside potential is great and the downside is limited so it is certainly not too late to get in. If gold breaks solidly through 1,000 an ounce, watch out!

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Leading Economic Indicators Up - The Conference Board
Posted January 26, 2009 8:29am

This doesn't yet change my long-term view of the economy or the stock market but Wall Street has been looking for direction and this, along with the unexpected increase in home sales, could provide all the impetus needed to send the market significantly higher. I certainly hope this is the first sign of a long-term bottom in the economy but I continue to believe that is not yet the case.

I sold my SDS (Ultrashort S&P 500) and held my QQQQ, which I had increased to 15% of my portfolio as the market dropped over the past few weeks. I now see the downside right here as limited with the possibilty of that long-awaited 40% rally a more likely possibility. One should always be aware of short-term pressures in the market that could cause a sudden move in either direction and I think a lot of things could be coming together to cause a rather significant rally over the next month or two. This had begun to look unlikely because of falling earnings but Leading Economic Indicators trump earnings every time.

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Carter Worth - Chartology: Beware Safe Haven Stocks - CNBC
Posted January 22, 2009 10:23am

Carter Worth is an analyst I respect but I think he's about to be proven wrong. The reason, I believe, is that he just doesn't get the major change we are experiencing.

In the video provided Carter Worth makes a point that I have believed for some time; that even the "safe" market leaders would eventually break down. Carter is quoted as saying, "History shows that when you get to the last gasp phase of a bad period, holdouts tend to give up the ghost,..." That may be true but it's not the whole story, IMO.

The bigger picture is that the entire stock market is being revalued and the process will take years and it will leave no stone, or stock, unturned in the process. For around a decade we have become used to P/E ratios of over 20 as the norm and that is not the norm going back over the history of the stock market. Historically the average P/E ratio is 14. History also tells us that every 17-20 years or so the market tends to shift into a new era that is different from the last; a bit similar to 35-40 years ago; but much more like 70-80 years ago. Go to Generational Dynamics for more info on this subject.

The current valuation of the Standard & Poors 500 is at 16, according to Bloomberg, as of last weekend. Considering that earnings are tumbling at an ever accelerating rate it is reasonable to conclude that the stock market will continue to tumble along with them. My expectation is for a period of a decade or more during which stocks will once again achieve a more realistic valuation. Perhaps a better way to value stocks is using earnings as a percent of book value. See the Valueline chart from 1920 to 2006 for a longe range perspective of how valuations tend to flucuate over time. I think it is important to not get too locked into any one metric and to look at our current situation in deciding what are the most and least telling of indicators. In periods of deflation P/E ratios may not be very indicative of true value while book value may be more helpful.

Note that book value per share has gone below a 1:1 ratio both during the 1930's and the 1970's. After secular bear markets the book value per share tends to hang close to that 1:1 ratio but slowly grows and grows, only to come crashing back to earth during economic slumps, such as the one we are experiencing currently. So what is the current book value per share for the Standard & Poors 500? That's hard data to come up with but last I came across it it was a little higher than 2.5. I'll try to get more current data in that soon.

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Nouriel Roubini Comments on the End of the Sucker's Rally - RGE Monitor
Posted January 14, 2009 10:23am

Nouriel Roubini is the man to listen to if you want to know what's coming during this financial crisis. If anything he is a bit optimistic but he offers outstanding insight into what is really happening in our economy at this time. In this article on the end-of-the-year/beginning-of-the-year sucker's rally in the stock market Nouriel Roubini says, "Our research at RGE Monitor suggests that the US and global recession will continue at least all the way until Q4 of 2009..." This by no means suggests that Roubini thinks everything will turn hunky dorry soon after. He predicts at best a slow recovery and I personally think, given his past history, that he will likely turn more bearish as new data presents itself. Regardless, Nouriel Roubini is one of the few financial experts out there who we can count on to tell us the truth as best he can, without wrapping it in his preconceived notions.

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KB Home Reports Loss, Says Market Could Worsen - CNBC
Posted January 13, 2009 11:16am

KB Home reports a loss nearly double that of analyst's predictions, showing once again that stock market analysts have little grasp on reality. For over a year now the vast majority of pundits, analysts and so-called investing experts have underestimated the economic problems we face. The stock market has been overvalued for well over a decade and investors have come to accept that; debt and shady schemes to create wealth have become commonplace in our society and all levels of society have shared in this self-dellusional behaivor. We are now paying the price much as we did in the 1930's with massive deflation that will not end until things are back in balance. This could takes years or even decades; my best guess is years but the government may create a situation that holds back business by decades by interfering with the free market.

I reiterate my call to short the market or steer clear. I expect the Dow to sink to well below 5,000, likely this year, and I expect the market to eventually reach below the 3,000 level. My strategy is to use short ETF's such as Proshares SDS to short the market, keeping in mind that bear market rallies can be quite intense. It is best to be conservative with an eye on preserving capital. If unsure, do not gamble. Along the way I am slowly building a long position with an eye on being well positioned for the eventual market rebound.

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Beazer quarterly home closings down 53.2 percent - CNBC
Posted January 13, 2009 10:23am