This is unedited, exactly as it appeared when sent from the Listbot mailing system

Subject: Year 2000 Economics: Updated Thesis/ Forecast
This is the consolidated and updated 
version of the site mentioned in last message: 

Februray 4, 2000 

Titled: Massive bear market imminent. 

****************** 

The final market top we have all been waiting for has arrived. The great 
millennial bear market, which remained elusive in scope and timing, is 
about to ravage investors with gut-wrenching violence. Is this a 
certainty? Not a 100% guarantee, no. While nobody can discern this with 
exact certainty, in terms of precise date or magnitude, it is the strong 
belief of the author the ultimate top was already reached on January 15, 
2000 at Dow 11,722, and if not, then a brief rally to a new high sometime 
in February. 


A letter received recently: 



"With all due respect, why should anyone believe you now, based on your 
history of being wrong [He's referring to Y2K ]? What makes you think you 
are right this time?" 





I do have a decent track record of successes in predicting the economy. 
Obviously there is no way for you to verify any thing more than a year and 
a half or two ago, so you will have to take my word for it (then again you 
don't) ... but yes. In the late 1980's I predicted the long drawn-out 
recession we experienced in the early 1990's (but I was slightly off in 
its intensity) . I then predicted in early 1995 that the economy would 
boom with a climbing stock market. Late 1997 is when I changed my tune and 
became extremely bearish about the long-term future. If you are a 
long-time reader you will have noticed that I successfully predicted the 
September/October crash we had late 1998 and successfully predicted Dow 
10,000. I correctly called the correction of last September/October 1999 
(but off in intensity--expected a crash) 

So why was I "wrong" on y2k? See: Post Y2K Mea-culpa : 
http://www.angelfire.com/or/truthfinder/beyondy2k.html 
My prognosis on December 6, 1999 was: 



"It appears that the market will remain adrift until early January 2000... 
when it is guaranteed to begin the long road into the abyss. Bear markets 
rarely start in this time frame (January) but when they do happen they're 
of very large consequence, as was the case in 1974." 



The beginning starts with a top. 

The pre-y2k crash expectations made herein were averted and foiled in part 
by market tamperings by the central banks (read: Greenspan) by flooding 
the system with fiat money, which then flowed into the 
markets--particularly the technology sector, and thus have been laid the 
foundations of the imminent market collapse. 

Michael Belkin, a Fed expert who writes the Belkin Report said on December 
8,1999: 



"This all adds up to the biggest Fed credit expansion ever. This monetary 
boost is wildly stimulative for the U.S. equity market in the short term," 
Belkin says, "but will leave equities painfully vulnerable to a crash once 
the Y2K-related credit expansion is withdrawn in the new year." 



While Greenspan has been reappointed, which Clinton did for public 
applause, and elevated to guru, celebrity status of late, this shall 
change and come back to haunt the chairman when he is blamed for creating 
this bubble after it pops, and pop it must. Indeed, he will be scapegoated 
and remembered for orchestrating the coming financial disaster of his own 
making by irresponsible policy actions of over-abundant money growth and 
stimulative credit issuance. It is thus which contains the ultimate seeds 
of the up-coming economic catastrophe. As such; the longer and stronger 
the recent and current boom and bubble continues, the greater the final 
reckoning. 

This is the data for M3 Money Stock, in billions: 

% change % change 
from last from last 
period AR year 
1999 04 6104.45 09.235% 09.278% 
1999 05 6133.50 05.862% 08.984% 
1999 06 6166.42 06.634% 08.744% 
1999 07 6192.45 05.185% 08.810% 
1999 08 6216.45 04.751% 08.173% 
1999 09 6247.35 06.131% 07.526% 
1999 10 6296.26 09.810% 07.224% 
1999 11 6384.57 18.192% 07.541% 
1999 12 6484.66 20.522% 08.156% 

Now compare that, for example, with 1994: 

1994 01 4284.22 01.232% 01.876% 
1994 02 4266.91 -04.742% 01.520% 
1994 03 4273.35 01.826% 01.668% 
1994 04 4283.48 02.882% 01.731% 
1994 05 4289.28 01.637% 01.197% 
1994 06 4288.75 -00.148% 01.174% 
1994 07 4309.45 05.948% 01.694% 
1994 08 4309.82 00.103% 01.662% 
1994 09 4318.06 02.319% 01.621% 
1994 10 4327.43 02.635% 01.684% 
1994 11 4341.36 03.932% 01.645% 
1994 12 4353.92 03.528% 01.731% 

% change % change 
from last from last 
period AR year 




Based on the Fed?s own valuation model the market is presently (as of Feb. 
2000) 60% overvalued! Very recently it approached 70%! If the Dow is this 
much overvalued at the current 11,000, this means a crash of 60%, or 6600 
points, would place it at Dow 4400. This would simply be normal valuation. 
To the public, investors and the economy this would be a total calamity. 
Earnings will not grow forever. The Nasdaq is the worst: valuations are 
completely indefensible by all measures. 

No sane investor would dare look at present valuations and conclude that 
this is a healthy market to buy into...unless they are a speculator or 
into shorts and options.. Market capitalization historically averages 50% 
of GDP. Shortly before the crash of 1929, an era of extreme speculation, 
it was a whopping 87%. What should make any investor paranoid is the fact 
that it is now 125% of GDP in the U.S.! To bring it down to a sane level 
by this measure means (approx.) Dow 3,300. But in a crash/depression 
situation it would temporarily drop to (say) 25% of GDP which would mean a 
Dow of 1,500. If a depression occurs where GDP drops 20-30% then the Dow, 
correcting for these numbers, would approach 1,000 or less. 

Price to earnings levels are at a range never before seen. P/E ratios in a 
normal market typically range from 8-15-to-one. When it hits 21 or 
22-to-one, one of two things usually happen: The price of the market must 
decline or the earnings must be raised. The insanity of the current mania 
is the fact that it reached a never-before-seen 35-to-one! (in the S&P) 
This is only the broad average ,of course, and many individual stocks are 
in the triple digit range. Many, having no earnings, are at infinity. 

It's only a short matter of time before the bubble bursts, and a 
tremendous amount of wealth will be lost. 

General outlook for the year: 

There should be major declines over the next two months, in March and 
April, possibly delayed to May, when a panic crash will most likely occur. 
It should definitely close below Dow 10,000 and in a worst-case to a 7,500 
level before rebounding back to 10,000-ish, Summer should be side-ways 
and/or rising, but not to new highs. As was the case last year, and the 
year before... AND the year before; declining in August and September then 
posibly crashing before or during the elections, probably in October. Bush 
(or Mc Cain) elected president, and like his father, and political party, 
becomes scapegoat for major global recession occurring most of his term. 
Economy should remain strong for most of this year. Though some caution 
should be used, and this chart indicates the real portion of the coming 
collapse should well into 2001 and into 2002, possibly 2003. This 
short-term bear market of this spring shall come to pass if the Fed 
decides to dish out the medicine of higher interest rates in the first 
half of the year to avoid doing so during the elections. Bear market 
bottoms tend to occur in the first, and more often the second year after a 
presidential inaguration. 

When the market declines significantly, expect consumer sentiment, 
confidence and spending to shift, taking an alarming nose-dive. The 
economy has been too dependent on massive consumer borrowing and spending 
also fueled by the "wealth effect" of sky-high market valuations. We are 
soon to pay the price for it too. As said by legendary Federal Reserve 
Chairman Paul Volker: 



"The fate of the world economy is now totally dependent on the growth of 
the U.S. economy, which is dependent on the stock market, whose growth is 
dependent on about 50 stocks, half of which have never reported any 
earnings." 



In order to bring this mania back from insanity, it can be expected for 
the Dow to eventually plummet to at least 2400, and that may be 
optimistic; it may very well dip below 1,000. The Nasdaq will be hit the 
hardest and will lose 60% at least and ultimately 90% (peak to trough) in 
the coming years. 

Following this mania will be a constant, agonizing decline throughout the 
times ahead, until roughly late 2004. The U.S. will join the rest of the 
world in recession/deflation in due time--no bubble lasts forever, nor do 
they slowly deflate, as we saw in 1929. Watch for higher interest rates. 
Make no mistake about it; the bull is nearly dead and the overall trend 
will be down. 

There is a mistaken sentiment that double digit gains will always be made. 
Historical data show that over the VERY long term (generations) stocks do 
in fact earn better returns than other instruments However, they tend to 
go through 16-20 year periods when it's either bullish OR stagnant, as in 
the case of 1929 to 1950. For instance, from 1966-1982, the Dow barely 
moved. In real inflation adjusted purchasing power, long term "buy and 
hold" stock investors LOST money. In fact, long term, dividend 
re-invested, inflation and tax adjusted S&P 500 annual returns are NO MORE 
THAN 4% !! Since 1871 it averages only 1.46% ! 

How long will this one last, in order to purge and recoup? Oh, 16-20 
years. 

The coming bust will in part be determined by policy actions or inactions 
of the Fed and government officials, as well what degree consumers 
retrench and panic. It will certainly be a recession, and it will 
certainly be global, severe and prolonged, and may very well be identified 
as a genuine depression. 

There should be a massive pull-out of US markets which is currently viewed 
as a haven of foreign investors, thereby inducing a dramatic drop in the 
dollar. This, combined with the astronomical money growth of recent years, 
may very well produce an inflationary depression, or stagflation with a 
drop in standard of living. 

On the other hand, there are strong underlying deflationary forces at 
work, such as the technological, productivity revolution and intense 
competitive forces. The sharp reduction in demand on the part of 
consumers--consisting of two-third of all domestic spending, who have been 
spending far beyond their means, would further exasterbate this 
deflationary spiral. A reversal from borrow-and-spend to retrenchment and 
the resulting reduction in demand, bringing the currently non-existent 
savings rate back to historical levels will also be deflationary. 

Investor and public sentiment took a dangerous turn to complacency and 
over-confidence in the immediate post-y2k time frame. Since then, anyone 
with bearish thought has been scoffed at; ridiculed and met with sour 
hostility, even from many former bears now converted into perma-bulls. 

The only fear investors seem to have at present is of missing out on 
triple digit gains in the Nasdaq. Ed Yardeni has gone back his bullish New 
Economy/Dow 15,000 by 2005 mantra, and 99% of the public is content with a 
booming economy and tight labor market. It's wine and roses 
forever--forever and ever, or so they think. The US economy grew at a 5.8% 
annual rate the last quarter of 1999! The federal budget deficits rebuked; 
never-ending surpluses until 2010, or so says Clinton. ( the actual debt 
is still over $5 trillion) Minimal inflation! Unemployment rate 4.1%! 

This, of course, is about to change. Enjoy it while you can, but don't let 
all this good news fool you. There's a beginning and end to everything. We 
are quickly approaching the last hurrah of our current bubble economy; and 
the tail end of the record 9 year-old business cycle and now awaiting the 
soon-to-arrive U.S. and global recession-come-depression. 

Indeed, it is almost amusing to watch this mass delusion of extreme froth 
of over-confidence, and how it is extrapolated into the future. 1999 and 
early 2000 will be remembered as one of hubristic euphoria; the ultimate 
calm before the storm, or, the eye of the storm. Sit back and take a 
wide-angled picture of this current environment and save it for future 
reference, as it shall contrast wildly with what is in store for the near 
and long-term future. 

Recognizing this "sheeple" phenomenon of mass delusion and sentiment, and 
the cyclical swing to and from pessimism or optimism is a fascinating 
pursuit. Throughout history the mood of any given population repeatedly 
shifts in unison, often with abrupt turning points. It is the reward of 
social historians and futurists to first capture and identify this 
sentiment after objective observation, then through worldly events and 
other forces, cycles or evidence, determine when the next shift in mood 
will occur. 

The general resurgence and boom/bull market that America has witnessed for 
nearly two decades will soon be consolidated into a period of crisis and 
upheaval where the nation's current mindset of superficial well-being led 
by greed and blazing economy is swept away and imbalances and structural 
weaknesses are exposed. 



The limitations of such long-term projections is determining, with any 
degree of accuracy, the precise year, month or day such a turning point 
really begins. Fortunately there are shorter cycles that can be found 
within the larger saeculum. 

Using recent history as an example, we observed a brief period from 1983 
to 1985 where the national mood of America shifted from one of deep 
pessimism (Remember down-beat 1980 when the consensus forecasters expected 
oil to run out and inflation to skyrocket? Disinflation and cheap petrol 
became the reality.) to that of a pseudo re-birth coinciding with 
President Reagan's "Morning in America." The prevailing mood for the 
remainder of the eighties was that of a hollow optimism with an underlying 
sense of a foreboding future as the nation's fundamentals worsened 
(fiscal, trade deficits, relative social/economic decline...the 
unraveling) 

The last hurrah of this epoch (in a sense it is not over yet, merely 
interrupted) was the 1991 gulf war and the burst of patriotism it 
produced. The following prolonged economic decline and recession plunged 
the national mood into another period of general despair that lasted until 
roughly 1994/1995. Economists and forecasters at the time were making all 
sorts of dire predictions, such as $500+ billion budget deficits and 
government bankruptcy by 1996 etc. It turned out, of course, that these 
extrapolations--based on the status quo consensus of the time--were once 
again dead wrong. Remember how Japan was supposed to take over the world? 
It is now near collapse and is running government deficits equal to 10% of 
GDP! 

1994 marked another short-term turning point in public sentiment--though 
few recognized it at the time. Since then the domestic US economy has 
grown at a brisk pace, the stock market tripled and deficits became 
surpluses. The previous consensus forecasts were wrong. These conditions 
have accelerated to that of hubris, which we are now in. There have been 
short-lived times within this period when bursts of pessimism reigned. The 
Asian crisis began in the fall of 1997 whence the Dow crashed 500 points 
and confidence (temporarily) receded. While the crisis continued to worsen 
overseas, the US economy continued to advance when yet another short-lived 
grim mood took hold in the fall of 1998 and stocks dropped 19%. The 
concerns of 1998 have been all but forgotten--but will eventually resume; 
the bubble wasn't ready to burst yet; there was still more momentum to 
carry through 1999 when it rebounded sharply to its recent January 11,722 
high. Mark this number down, it may be referred to historians as the final 
top. 

As in previous eras, the mainstream is foolishly extrapolating present 
conditions and trends into the future which, as time will tell to prove 
not only wrong, but recklessly way off base. 

These projections and the status quo consensus; such nonsense as "Dow 
36,000" even Dow 100,000 and multi-trillion dollar federal budget 
surpluses will surely prove wrong, and assume the current boom and 
business cycle (already a record-breaking 9 years) will continue with 
absolutely no set-backs such as a recession! This much touted, so-called 
New Economy of rapid technological and productivity revolution is, to be 
sure, a very real phenomenon, yet co-existing and super-imposed with the 
most extremely overblown bubble the world has seen. The Old Economy, with 
its familiar and time-tested fundamentals of booms and busts governing a 
capitalist system is very much alive and well. The situation is eerie and 
frighteningly reminiscent of 1929. History does in fact repeat. In fact, 
almost a carbon copy as this oft-quoted professor declared just days 
before The Crash: 

"Stock prices have reached what looks like a permanent high plateau... I 
expect to see the stock market a good deal higher than it is today within 
a few months" Irving Fisher, Professor of Economics, Yale University, Oct 
15, 1929 

"The markets generally are now in a healthy condition... values have a 
sound basis in the general prosperity of our country" Charles E. Mitchell, 
president of the National City Bank, October 15, 1929 

About 40 years after a key technology begins to permeate society, an 
historic depression takes place. 

1920's: Technological revolution and mania in newly-emerged telephone and 
radio; automobiles. RCA and 500 auto manufactures, then consolidated into 
a tiny handful by the end of the 1930's. Automobile technology, which 
evolved in the 1890's, hit 40 and the mid-technology depression of the 
29-33 resulted. 

1990's: Technological revolution and mania in newly-emerged internet and 
tech-heavy Nasdaq sector. Microsoft, Yahoo! And the thousands of upstart 
technology and internet business, to be consolidated into handful by 
decades' end. The computer revolution that essentially began in the 
mid-1960's points to the early 2000's. 

1920's: Newly emerged fad investment vehicles called Trusts. 
1990's: Newly emerged fad investment vehicles called mutual funds, among a 
myriad of others. 

1920's: President Calvin Coolidge prosperity; declares "The chief business 
of the American people is business." Hoover becomes scapegoat for 
following depression. 
1990's: President Clinton prosperity; declarations of prosperity in final 
state of the union address. Bush (or Mc Cain) and Greenspan made scapegoat 
for coming depression. 

1920's: Moralistic crusade against vices. Lost generation; prohibition; 
gangsters; rum-runners; flappers. 
1990's: Moralistic crusade against vices. Generation X; war on 
drugs/cigarettes; gangsters/rappers; drug dealers; grunge. 

1920's: Sky-rocketing personal debt; over-leverage in financial markets. 
1990's: Sky-rocketing personal debt; over-leverage in financial markets; 
savings rate effectively zero; record bankruptcies despite boom. 

1920's: Breadth on the NYSE began to deteriorate in May 1928, long before 
the Great Crash. 
1990's: Since mid-1998 until present market breadth has made its greatest 
divergence in stock market history. 

1920's: Dollar trading volume shortly before the 1929 crash in stocks 
approached 130% of GDP, which normally, historically averaged 25% in 
normal times. 
1990's: Dollar trading sky-rocketed and has now reached 200%! 

1920's: The saying of the late 1920's: "When the average Joe Public starts 
entering the market en mass, then a crash is imminent.." 
1990's: Baby boomers and the public plow their savings into the market for 
retirement and internet traders take part in the boom. 

1920's: Historically, market valuations are about 50% of GDP. Before the 
1929 crash it was 87%. 
1990's: It is now over 125% of GDP! 

1920's: Historically extremely-priced stock bubble. 
1990's: Historically extremely-priced stock bubble. Aggregate index of S&P 
500 plus Nasdaq plus Dow almost identical in scope and run-up. In fact, 
exceeding it. 

1920's: Germany lost World War One, suffered massive hyper-inflation and 
depression throughout decade, resulting in dictator, ultimately leading to 
World War Two. 
1990's:Russia lost Cold War in dissolution of Soviet Union, followed by 
hyper-inflation and depression throughout decade. Will ultimately lead to 
dictator (Putin?) who will lead us to World War Three. 

We're facing a few rough years ahead, but it won't be the end of the 
world. There will always be nations and human civilizations to inhabit the 
Earth. Despite temporary hardships, we will once again climb out of the 
rubble and start over. Like a Phoenix rising from the ashes, soaring to 
ever greater heights. However, as history demonstrates, the price paid for 
social and economic progress are periods of severe wars, chaos and human 
suffering. This tends to repeatedly occur once every fourth generation. 

Since the last major era of crises and conflicts ended in 1945, we are now 
soon due for another. 

To the casual observer--particularly the average American who has never 
experienced the trauma of depression or global war--such dark visions are 
difficult to comprehend or emotionally accept. Even more so when taken in 
the context of our current era of prosperity and general optimism. 
Unfortunately, we are now passed the point of no return; the journey has 
begun. 

One can take consolance in the inevitable return of stability after the 
up-coming times of trauma consolidates into resolution beyond 2010 or 
2015... Such evolution from birth, maturity, decay , death then rebirth of 
humans, societies and nations is not only natural and (in a sense) 
desirable, but unavoidable. How we emerge from these crises ultimately 
depends on how we prepared for and reacted to its consequences within the 
larger framework of human destiny. 

--- 
Year 2000 Economics 
The Great Millennial 
Collapse about to begin: 
http://www.angelfire.com/or/truthfinder 

dfisher@angelfire.com