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Published Monday through Friday about 8 AM Central Time Except Holidays

 

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Party Till Black Monday?

Say, not to be a bummer here, but the action on Friday, although down (sure, sure), was nowhere near enough of a downer for us to be looking to it as a 'bottom' although the TV financial/pimp channels had no shortage of "bottom pickers" on proclaiming this and that.  Strange contortions as some of 'em did that, too.

 

For one thing, my friend Robin Landry reminded me of a little 'common sense' which although it should be reported by the 'bottom pickers' isn't, generally.  A real bottom in most major bear markets ends with a huge blow-off volume day.  In addition, if there's going to be any meaningful gains appearing anytime soon, the advance/decline line has to turn around and get positive. 

 

"George, any time you've got a rally and the advance decline line is seriously negative it's just not the bottom in most cases," said Landry.

 

Being 'old school' I always liked Joe Granville's on-balance volume approach, to..  So when the up volume is 224.5 million shares and the down volume is 1.4-billion I figure "Nope, keep your money in cash, bonds, or treasuries..."

 

So, I take the gut-level "feel" of the market, throw in Landry's advance/decline line, my own guestimate of Granvillian (is that a word?) On-Balance-Volume and a side of MACD and presto!  I get two sleepless nights waiting for Monday's action.  Couldn't have anything to do with all the coffee I drink, could it?

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Why Monday?  Last Mondays in October are not a particularly good time for stocks.  I'll be whipping out the 79-candles on the sausage, eggs, and hash browns Monday morning to mark the anniversary of the previous  all-time decline in the Dow - Black Monday of 1929.  Elaine will be standing by with a fire extinguisher.

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I hope you appreciate how close we are to that kind of performance this year?  If we get down to 7800 on the Dow we will (by my calcs) have actually be into a worse patch than '29 and the Great Depression that followed.

 

All of which should have you expecting the same kind of dynamics as last time around:  Huge foreclosures (like you ain't seen nothing yet, kind) and on top of that layoffs of nearly half the workforce at some time over the coming 4-5 years and Oh!  Did I mention?  Social unrest in a country which is much better armed than it was generall at the end of the Roaring Twenties?

 

Good as Gold?

More than a few readers have asked me my opinion on gold.  Let me be absolutely clear on something here...I try to have as few opinions as possible, preferring instead to have some calculations with which to compare matters.

 

But if you insist, let's go on a data quest.

 

Let's see how gold and the Dow looked at the all-time high of the Dow on October 9, 2007 when the Dow was at 14,165 and gold was at $736.  The Gold to Dow ratio was  19.2459 ounces of gold to make up One Dow.

 

Then, let's look at the all time high of gold on March 17, 2008 when it touched $1012 and the Dow was at 11,972.  Here, the gold to Dow ratio was 11.8300; in other words only 11.83 ounces of gold were needed to 'buy the Dow.

 

So, how did yesterday fair?  On a closing Dow of 8,379 and gold back at $735 to pick a place between the bid and ask, the gold ratio was 11.4

 

Bottom Line:  Gold is down, sure.  But, not as much as the Dow and it's gradually taking less gold to "buy the Dow."    If you're a babe-in-the-woods in long wave economics, this is what we call a 'trend.'

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OK, being amped on 2-strong cups of coffee, and not wanting to go outside and work on a fence project here at the ranch because a) it's dark and b) its only 44 degrees outside, let's indulge my sense of curiosity for one more look at something historical.

 

How low could this Dow to Gold ratio go?  The answer lies back in 1980 which was the previous time that gold scaled the ultimate heights of ratio to the Dow.  In fact on January 21st, 1980, gold closed at $850 an ounce.  Yahoo shows that the Dow closed at 872.78 on that day. The ratio means that it only took an amazing 1.026 ounces of gold to buy the Dow!

 

Holy smokes!  Could things go that extreme again?

 

Well, duh,  of course!  Try Dow 770.

 

As I explained in a recent issue of my subscriber newsletter "Peoplenomics" (the marketer in me makes me say "Just $40 a year, click here..") even with the recent declines in the Dow, the Price/Earnings ratio of the Dow is still well into double digits.  And that means the Dow has a long ways down to go because the 'hot money' is finding returns over on the fixed income side of things (bonds and what have you's) in the 20-25% yield range.  Which means that the Dow P/E ratio needs to fall to about 5 in order to compete with those 20% yields from the bond boys.

 

Yes, the Dow is down, but so's the earnings outlook...which is why the technical level of 770 is (yah ain't gonna like this here word:) viable in the foreseeable future. 

 

I know what you're thinking:  "But wait!  That would imply that the Dow could fall to less than half it's current value and still only be fairly priced...is that what you're saying?"

 

Good morning, Sunshine.  Welcome to my mat.

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Of course when we get there, the whole known world will have changed and our definitions of money and what's important in life will have gone through a tremendous change.  But that's why I've been workin g on a report for Peoplenomics readers this weekend on "The World Without Money" - what Cliff calls a paradigm collapse.  Ain't we cheerful?

 

Now to put it in sailing terms, 'cause I loving sailing....Think of it as civilization drags anchor in a terrible financial storm and gets heaped up on the rocks of adversity of the foot of the mountains of history.  Damn, that sounds literate. Worse: It's accurate.

 

A little melodramatic?  Hah!  You ain't got a time machine.  Not that you need one with stories like this one...read on....

Oh-Oh Department: China's Pissed...

Watch the dollar Monday.  "U.S. has plundered world wealth with dollar: China paper."  Inscrutably stated, the obvious.

 

If a dollar collapses in an economic lockdown, does anyone hear?

 

Which means what in the Tao of Finance?  We're screwed, maybe?  We won't be able to pawn off much in the way of debt-backed paper to the waking hordes....  Can you say "Ooops!"

 

Got Insurance?

If you think China's pissed, wait till you start talking to taxpayers of America about buying out AIG wild-eyed gambling addiction.  Latest: They may need even more dough than Treasury has ,handed out.

 

And for what?  Save an over-leveraged insurance company from blowing up at the expense of higher taxes for non AIG customers like me?  Give me a friggin break.  Or free car insurance...something of value besides the spa bill, please!

 

What Huckster Hank and Bennie the Printer aren't getting is that they are IMHO squandering money that should be saved to rebuild America's infrastructure and feed people in soup lines along the way. So we can get back in the game with American jobs!

 

What's not clear about history?  Think the Grim Reaper of Finance is going to pass over America because we're such 'nice' people?  Hello?  Anyone there?  I mean "Anyone there who's not on a banker's teat somewhere in the back room?"

 

Look...if you want more headlines, drop back Monday...there's just too damn much to do around the ranch and to write what will hopefully be a good article for subscribers on living in a land without "money" as we know it as things slide along...

 

But, before I get out and fight fencing, here's a letter for a fellow dirt-scratcher in our...

 

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Coping: Smart Like a Farmer...

Perfect letter than sums it up better than I ever could.  Me?  Ask me what time it is and I will build you a watch.  Tell you that in the last Depression, there was a migration from farms to the big city because that's where folks thought the jobs were.  In this Depression, the migration will likely go the other way because why?  The countryside is where the food is. 

 

Nope, my farmer-reader is much more plain speaking than that...

"Good evening, George. This is letter 2 from our relatively well-prepared farm in the beautiful PNW, awaiting the big bang (or would that more appropriately be called the Dull Thud? The Whiney Whimper? Best not get me started......). I must say this dumb farmer has been getting quite the education on your website, about all sorts of big city issues like credit default swaps, circuit breaker collar trigger levels, and fifth wave troughs. Around here, if a pig defaults on credit, no problem. Our freezer has room for those kinds of events. The circuit breaker has a nice big old grounding rod to absorb excess juice, and I clean the trough out once a week whether there's a fifth wave in there or not. But I guess the education has been important, seeing as how we were warned to pay off the little debt we still had, buy in a month of feed in advance, and tell our high-falutin' city friends that if they show up at our doorstep wanting a meal, to bring their work gloves. So thank you for helping us dumb dirt farmers understand this new bottom line. Recent events sorta bring a nice new meaning to that term, don't they?

I got a macabre chuckle out of the news tonight, that everyone on Wall Street was so relieved this afternoon when trading didn't "get bad enough" to trigger a halt. These are the same folks who keep thinking things will get better? Yep, live it up this weekend, go play some golf, and then back to the salt mines with the lot of you come Monday. I'll just keep building fence. I doubt that, when next Friday afternoon rolls around, traders will look back with anything close to relief. I, on the other hand, will have accomplished something useful.

I do have a question. I was trying to explain to our dairy cows about the possibility of online purchases being suspended soon. Being the hi-tech outfit that we are, most of those cows have PayPal accounts, online banking access, and/or various credit or debit cards. I guess I'm paying them too much, because the ladies are quite active in between milking sessions, bidding on various eBay collectibles, el cheapo electronic gadgetry and Lord only knows what else. You should see some of the crap that UPS delivers to that barn. Ol' Bessie, though, apparently only has a debit card, conservative soul that she is. She asked if she'd be prevented from getting her bag balm online through some cut-rate pharmacy. She's one of those cows that didn't follow the herd and kept her lines of credit nice and clean. Living well within her retirement income and all. I wasn't sure what to tell her so I said I'd ask. Will Ol' Bessie still be able to use her debit card for that online bag balm retailer, when the other cows' PayPal accounts have been frozen? Or will we have to start rubbing her parts with beeswax? Either way, a little more detail about how ACH transactions work, and why that might change, would be nice. Inquiring cows want to know.

In all seriousness, all of us here do appreciate the time it must take for you to shovel the poo, after you've already done all the ranch work. That's a lot of effort, especially considering the amount of poo involved. We hope that a lot of folks read your column and take it to heart. Enough, anyway, to somehow reduce the deer-in-the-headlights reaction when the train wreck actually finally comes to a rest. After all, we can't feed the whole country when the time comes. We're generous folk but even we have our limits. On the other hand, maybe then we'd finally get through our to-do list and be able to take a day off. Now there's a notion. But please let the Time Monks know that, seeing as how we're neighbors and all, if push came to shove, they can go right to the head of the line at our door. We'll even have pie ready. Or would that be pi?   (*Actually, they're more phi/sql/viseca piscis fellows - G)

Thanks in advance for your future words of wisdom. Don't forget to get some sleep. If it's just going to be us dumb farmers left when the dust settles, we'll have a whole new to-do list rebuilding everything. Sleep now while you can. From the looks of things we'll soon be in the empire building business.

PS - We'll sign up for your Peoplenomics subscription just as soon as we can. Do you take piglets as payment? Think about it. After all, why should the pork stay within the Beltway?

We'll pass on the piglets...say, need a goat?  Other than PayPal or a check in the mail, an equivalent amount of silver (4 ounces now, which is great from where I sit) is fine.

 

But seriously, we've had the same question raised by the goats here: Will their PayPal accounts still work and will our prize Boer buck, who's a damn busy polygamist with 10-wives so to speak, be still be able to rent porn videos using his debit card.  Like your operation, we try to keep our herd up to snuff, too.  So that's the topic of Peoplenomics this weekend - What's the next Money?  PayPal, Script or Piglets....?

 

By the way, since the Feds are so busy hyping the National Animal Information System (NAIS) little Goatalina Doelene, one of the youngest females (with pouty lips, I might add), suggested that we farmers should band together and let our animals self-register online.  I think it's a grand idea, but I'm worried that our goats will will use this as an excuse to get another wireless access point put in down on the far aside of the property where there are some dead spots.  (They couldn't get the Belkin Wireless Range Extender to work with the auto-config option, so they sent it back to Amazon.)  Wonder if you have the same kind of problems with your herd?

 

P.S. How much a month do you give your pigs for their Skype allowance? I've giving our goats $10 a month of Skype credit each, but they're pressing for more claiming calls to long-lost relatives in South Africa are pricey...do you use Skype or an unlimited LD plan for your pig's calls back to Iowa?  Thanks. 

 

PPS: Remember when farming and ranching was simple?  Shovel, shotgun, seeds and barbed wire?  Now its Kubota/New Holland, assault riffles, CCW permits, land surveys, electric wire, controllers, rented terminator seeds, GPS planters, access points, satellite dishes and a sauna for the animals...Did I mention the designer red-dyed diesel by permit only?   Fer cryin' out load...who'da thought?

 

PPPS: Sounds like the Tet Offensive outside down at our place this morning - with hunting season only a week or two off, everyone is out at first light sighting in their canons.  I've had to take to wearing a Kevlar jacket with a level 3 chest plate (and helmet, too) while working fences.

 

PPPPS: Hey, do you milk your sows?  And can you make cheese from 'em?  Anything for a new niche market these days, huh?  Maybe I could build a milking machine for 'em out in my shop...we could split the IP royalties 50-50...Do a ramp up and sell it off to John Deere, Purina, or Tractor Supply?

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3 Futures: "Normal", Micro-Factory, and Anarchy

This week's report started off to build the case for the rapid reindustrialization of America, but by the time the week was over, some research on declining West Coast containerized shipping traffic, reading the latest web bot run, and the generally abysmal performance of the stock market forced a mid-stream reexamination of the concept I was setting out to proposed, namely the 'reinventing of America'.  Oh sure, it's still there, but it's the lower probability outcome when compared to either the new 'normal' (however you want to describe the creeping blend of socialism and fascism that's taking over the world) or the growing possibility that we'll reach what I refer to as a Tainter Tipping Point and from there descending directly into anarchy.  While I desperately wanted to find a use case for the Micro-Factory/reinventing of America, an honest read of the tea leaves puts the odds at damn slim.  Here's why...

 

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Review of this week's report:

"Dear George, Inspired by today's bulletin, I looked at the business section of the NY Times, and read on page 6 Why the Bear Is Alive and Well. The writer, Paul J. Lim, talked about P/E ratios, and I felt very smug, having been made hip to them by your writing. The reporter seems to confirm what you've been saying, which shouldn't come in as a surprise. It's just interesting to see something about what I just read from you."