Thursday, June 4, 2009

Next Leg Down Dow Below 6000?

I found a very interesting article by Bob Chapman whose blog can be found in my bloglist on this page. I agree with his assesment of market direction but not so much his inflationary predictions. A very interesting article none-the-less. Here are some excerpts.

Bob Chapman
Tuesday, 19 May 2009 09:13
16 May, 2009 International Forecaster

On the near term the Dow will return to 6600. Looking for another rally there will be buyers, but the rally will not appear again and we’ll fall into the 5,000 to 6,000 level. Higher real interest rates will win out as will hyperinflation; at least for a time. Consumer confidence may be somewhat ebullient now, but once further signs of higher inflation manifest itself that confidence will fall again. The same will happen with capital investment.

Once real estate bottoms in 2011 and 2012, we will probably be half way to the overall bottom. We have 2/3’s of the way to go before credit card debt is purged. We are just beginning to see failure of commercial and industrial loans and that could last another 3 to 4 years. Presently we are about 40% to the bottom. Then the question arises how long do we bump along the bottom – probably 5 years or longer – dependent on how bad the structural damage is, whether we still have a Federal Reserve; how many banks are left; whether we have WWIII or whether we have revolution. America and the world are in for a difficult time.

S&P says companies cut $77 billion in dividends in the first quarter and that is worse than during the Great Depression. That is part of the reason we declared a depression in February.

Prior to the beginning of the recent fall and that of 1929 both events occurred after a long period of optimism. Most observers do not believe that this depression will be accompanied by global protectionism, nor do they see ultimately a deflationary depression and price deflation. How can they be so near sighted? The Fed and the Treasury cannot inflate indefinitely. The events we’ve witnessed and continue to witness, and those that we project, can only lead to hyperinflation and then deflation. Since 2000 these forecasts have been easy and we’ve been right, but few else have. They are all bound up in what is financial and political correctness. We are going to 3,800 to 4,200 and we’ll be lucky if it stops there.

Incidentally, Stephen Friedman recently cashiered from the NY Fed has returned to his roost at Goldman Sachs. He was caught in a conflict of interest after having purchased 52,600 shares of Goldman on inside information. It is now very obvious Goldman Sachs controls our country. The only mission of the Fed is to rescue banks, brokerage firms and insurance companies.

John Taylor: "the whole house of cards collapses. He says the risk is systemic."