Where is the Dow heading?

[richard5za]

On my charts the Dow is in the process of completing a "text book classic" 5 wave fall and I am anticipating a rally quite soon. But don't be misled, the Dow is in a longer term down trend. My charts were predicting a fall to 6000 a few months ago and have now moved more negative, to a longer term count of 3000.
Technical analysis simply assists with interpretation of what is happening short to medium term; it would be dangerous to use it alone, and views and predictions can change significantly in quite short periods of time.
My charts are also suggesting a weaker US dollar and a rally in metals, they are very over sold. They are also forecasting a rally in oil to $ 82 which may well be wrong. But a resources rally will depend upon the strength of the US dollar and the deflation trend. I know that John is a strong proponent of deflation, and currently economic data is supporting this view. I am still reserving judgement upon deflation versus inflation.

[The Grey Badger]

"And why are we in this handbasket?"

I've been reading predictions on 4T that when all the dust settles and prosperity returns, we'll see the Dow at 30,000. I've read "The Long Wave" and sincerely doubt it. Fischer points out - and proves to my satisfaction - that long waves of inflation have the same effect on the saeculi that financial crises have on the saeculum. That is, after each long wave, people pull in their horns and there is a century-long (saeculum-long?) Equilibrium. The last one was in the 19th Century after all the dust settled from the MegaCrisis Era of the 18th. Inflation didn't pick up again until around the turn of the 20th.

Does anyone have any opinions on that? John?

And if so, at what level will things settle down to? Long Wave states they settle down at the new, higher level the last inflation wave brought them to. So presumably, a DOW in the thousands.

[John]

Dear Richard,

> My charts are also suggesting a weaker US dollar and a rally in
> metals, they are very over sold.

I assume that by your "charts," you're talking about a computer
algorithm that takes certain data streams as input and produces a
(short-term) forecast as output.

The first thing that I would point out to you is what I've pointed
out dozens of times on my web site -- that standard macroeconomics
models have failed to explain or predict anything that's happened for
the last 15 years. Are your models any better?

Second, your models can't be any good if they don't take the most
important data into account. Do your models have any components that
reflect the massive deleveraging that's going on around the world
right now?

> predictions can change significantly in quite short periods of
> time.

Third, how can you bet money on predictions that can change so
rapidly? My guess is that your models are right about half the time.
How close is that guess to the truth?

Sincerely,

John

[John]

Dear Pat,

> I've been reading predictions on 4T that when all the dust settles
> and prosperity returns, we'll see the Dow at 30,000. I've read
> "The Long Wave" and sincerely doubt it. Fischer points out - and
> proves to my satisfaction - that long waves of inflation have the
> same effect on the saeculi that financial crises have on the
> saeculum. That is, after each long wave, people pull in their
> horns and there is a century-long (saeculum-long?) Equilibrium.
> The last one was in the 19th Century after all the dust settled
> from the MegaCrisis Era of the 18th. Inflation didn't pick up
> again until around the turn of the 20th.

> Does anyone have any opinions on that? John?

> And if so, at what level will things settle down to? Long Wave
> states they settle down at the new, higher level the last
> inflation wave brought them to. So presumably, a DOW in the
> thousands.

This sounds like one of Mike Alexander's theories, and he's been
pretty consistently wrong. Or maybe it's from Harry Dent, and he's
been disastrously wrong.

What time frame are you talking about with "when all the dust
settles"? The financial crisis and the world war will probably be
over by 2020, so if that's what you mean by "when the dust settles,"
then I can tell you that the trend value of the Dow at that time will
be around 9300. That's no surprise when you realize that it wasn't
until 1953 that the Dow returned to its 1929 high. So the chance of
the Dow being at 30,000 in 2020 is pretty close to zero.

Sincerely,

John

[mark]

I expect one of these days the DJIA will hit a "circuit breaker" around 2 PM EST on the day it happens:

Link: http://www.nyse.com/press/circuit_breakers.html

Lets say the DJIA is at 8,000 when it happens, and drops 1,100 points.

Trading is halted for one hour at DJIA 6,900

Word spreads quickly that the market has hit a NYSE circuit breaker, and as soon as the market re-opens, the DJIA drops another 1,100 points to 5,800, and the market closes for the day.

[richard5za]

Dear John,

The proof of the pudding is in the eating. Do you remember that before this weblog came into being I wrote to you and told you that gold will rally to US $ 1150 per oz. Well, I stick with this prediction and in fact have preserved the email I sent to you because on the day that gold hits US $ 1150 I will send it to you again.

My charts aren't infallible but they are very good. Having said this, the problem with making stock market and commodity price predictions is that this can make fools of us all.

Thank you for a great website; thank you for all the work that ypu put into it; we may have a minor difference of opinion, but I do so much appreciate everything you do.

God bless you John, and keep you safe.
Richard

[isaac]

I'm sitting on a bunch of cash (real green dollars in a safe) and stuff I hope is kina of like cash in my 401K and that has worked out well so far. Is there a better position that I could be in? Is it getting close to the time that commodities keep up with or outpace inflation. How will we know when that time is? I've read that the US may be forced to issue yen demominated bonds sometime next year. Would that signal the end of deflation? At some point accumulating debt must offset the deflationary effect of devalued deriviatives, or are these things truely on different orders of magnitude so that deflation can continue despite the governments best effort to devalue the dollar?

[richard5za]

Dear Isaac,

You ask a very, very intelligent question. I sold out into cash in 2007, half in February and half in October.

Since then I have invested 5% of my money in metals and related shares, but am essentially in cash, which relates to your question.

Right now my judgement is in reserve. I don't have an answer for you. My advice is sit on cash for the present.

Richard

[Higgenbotham]

This sounds like one of Mike Alexander's theories, and he's been
pretty consistently wrong. Or maybe it's from Harry Dent, and he's
been disastrously wrong.

John

Here is Mike Alexander's latest forecast.

http://www.safehaven.com/article-11887.htm


As far as Richard's post about where the Dow is heading, I don't have any strong short term convictions at this time. Last I posted about that on November 4, I had sold all my stocks a few minutes before the close on that day expecting a second crash. I'm not sure whether that has exhausted itself or not. If I have any strong convictions in the future, I'll let everyone know.

I agree with Richard that the precious metals shares may be a long term sleeper (go up for at least 6 months, probably longer). I'm not really making a timely statement in that regard as the gold mining share indices (HUI and XAU) were up 27% on Friday. But with input costs to the gold mining sector falling much faster than the price of gold, the profit margins of the gold mining industry will see much improvement, and as long as the ratio of input costs to gold keep falling at the same rate, gold mining shares should rise regardless of whether gold itself rises (within reason--I mean, if oil goes to $1 and gold goes to $40 then share prices will still fall).

[The Grey Badger]

Dear Pat,

> I've been reading predictions on 4T that when all the dust settles
> and prosperity returns, we'll see the Dow at 30,000. I've read
> "The Long Wave" and sincerely doubt it. Fischer points out - and
> proves to my satisfaction - that long waves of inflation have the
> same effect on the saeculi that financial crises have on the
> saeculum. That is, after each long wave, people pull in their
> horns and there is a century-long (saeculum-long?) Equilibrium.
> The last one was in the 19th Century after all the dust settled
> from the MegaCrisis Era of the 18th. Inflation didn't pick up
> again until around the turn of the 20th.

> Does anyone have any opinions on that? John?

> And if so, at what level will things settle down to? Long Wave
> states they settle down at the new, higher level the last
> inflation wave brought them to. So presumably, a DOW in the
> thousands.

This sounds like one of Mike Alexander's theories, and he's been
pretty consistently wrong. Or maybe it's from Harry Dent, and he's
been disastrously wrong.

What time frame are you talking about with "when all the dust
settles"? The financial crisis and the world war will probably be
over by 2020, so if that's what you mean by "when the dust settles,"
then I can tell you that the trend value of the Dow at that time will
be around 9300. That's no surprise when you realize that it wasn't
until 1953 that the Dow returned to its 1929 high. So the chance of
the Dow being at 30,000 in 2020 is pretty close to zero.

Sincerely,

John

Thanks, John. Yeah - I was imprecise. "When the dust settles" means when the Crisis Era is well and truly over and the High is under way. Barring things such as the British bringing another war to our soil in 1812, which postponed the start of the Victorian Equilibrium a bit (still in the High, but a nasty little interruption to it.) $9,300 sounds like the sort of precision you get by averaging things; I'll accept the range as being just about right. Perhaps a tad on the low side. $30,000 would probably come sometime in the 2100s, possibly just as another long wave was swelling.

One thing Long Wave said that has made me quite unsurprised by the ups and downs of the Dow is that at the end of an inflatin wave, the system goes into oscillation. Badly.