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Open Thread: Imminent Decline Dead Ahead

Posted on September 17, 2006
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Post your questions, comments and discussion here on the article Imminent Decline Dead Ahead, and the Update.


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116 Comments so far
  1. Agric September 17, 2006 4:12 pm

    Sometime soon this will be true, but I don’t see it happening this next week. Last week’s economic news was scarcely encouraging yet the markets were determined to move up.

    Perhaps there are greater forces than mundane reality at work which can keep the stock illusion afloat a little while longer? Can such forces keep things up for another nearly 7 weeks? I don’t know, it’s looking a close thing, perhaps only 50 / 50.

    Pragmatic logic suggests two things: sell stocks on the day of the mid term elections or if they begin to break down precipitously anytime before then. There is a 15% to 30% short term adjustment down in stocks coming very soon, but we could see new index highs before then - I would sell those highs as soon as touched.

    Watch oil, gold and US$ - significant moves in those could be very important, all are at quite critical junctures. If forced I would bet on oil and gold going up and US$ down over the next 3 months but I have a nasty suspicion that the opposite will be true for the next few weeks, spotting the turn could be most lucrative.

    If my perspective is right the most likely trigger is new highs or Q3 GDP whose preliminary estimate is due on 29th Oct. I expect final 2006 Q3 GDP to come in below 2% but I have no idea what (nonsense) they will print on 29th Oct, probably about 2.6%.

    The US will be in recession (even on the skewed official stats) in Q1 2007, where things go from there is hard to see but I think volatility will increase significantly, stocks and $ will decline, commodities will increase (vs. $).

  2. Gary September 17, 2006 4:13 pm

    Don’t you think the Bush admin will do what is necessary to keep the market stable through the elections?


  3. muleskinner September 17, 2006 4:16 pm

    Ford: The deadest dog there is. I had a 1984 Ford about fifteen years ago now. It had one cold-blooded 351 engine in the thing.

    The engine would never warm up in the winter. It was a comfortable car, it had all of the bells and whistles, but it was never a good car. I was glad to get rid of the worthless thing.

    It is tough to sell me another one now. Ford was down to five dollars and ninety-five cents per share about three years ago.

    Bill Ford owns over forty-two million shares of common stock of Ford. He also owns 125 thousand shares of Ebay. He isn’t hurting for cash and money. He also had no desire to run a good company. Ford killed the golden goose.

    When it comes to cars, you must have a decent product. Ford has been going down hill since the early seventies. My Dad had a 1965 Ford Galaxy, a beautiful automobile. It had a good engine that went forever. Ford just can’t make them like they could at one time.

    Computers are the new means of transportation. Cars are great, they can take you places, but they aren’t computers.

    ‘It ain’t the car, it’s the driver’

    I’m staying put with my long position. It manages to gain the most everytime.

  4. mark September 17, 2006 4:44 pm

    Hi Michael,

    I appreciate and agree with your analysis. Just want to mention something I read in Robert McHugh’s newsletter, the technicalindicator. He points out the rising bearish wedge pattern of the DJIA, and details the Elliot wave counts. His view if the market doesn’t begin a significant decline this week, he feels the PPT (plunge protection team) is manipulating the market to the elections. If so, the alternate wave count could occur, propelling this higher.

    It’s anyone’s call at this point. I have a moderate position in the PSQ. I appreciate your insights.

    Thanks. Regards,


  5. tom September 17, 2006 5:00 pm

    Sometime in the next 3 months, you will be right on.

  6. diana Moeliker September 17, 2006 5:07 pm

    Hi Michael - Where does this leave gold? Its not a commodity and all there is is manipulation. Can’t believe any stats. What a world we live in. Diana

  7. Administrator September 17, 2006 6:29 pm

    Hi Everyone, and thanks for the comments. It is about 10:30 pm EDT, and I’m ready for bed. At the moment, the dollar is trading up a little. It is inching its way up as well - probably another, slow, short squeeze. Gold is up about four bucks. This is the one I can’t figure out - it looks like it should break down, but it is stubbornly haning on.

    I appreciate the insight from McHugh’s commentary, Mark. I would have to say I agree with him. He also thinks that gold is going back up: http://www.safehaven.com/article-5901.htm

    I think the Administration will do everything it can to keep this market afloat. The question I have is will it be enough? We’ll see! Good night, folks.


  8. nestor September 17, 2006 6:30 pm

    It’s not a rising diagonal in Elliott wave terms. the waves do not overlap. There isn’t enought time for the market to fall apart.

  9. the stranger September 17, 2006 7:04 pm

    I agree it could go anytime and it scares the hell out of me. I also agree with the other posts that the PPT will pull out all the stops. I’ve been reading that the decline in oil signals the beginning or confirmation of the recession, but I think we’ve been in recession for a while; even at oil highs.

    Looking at the Relative Crude Oil chart 2002-2006 on the Zeal Crude Oil page (membership required) this correction looks typical compared to the last few. And having dipped below the 200 day moving average, it looks like it ready to move back up, right about now.

    Oil moving up would just exacerbate the situation. I have no clue what the dollar will do short term. And of course, will the steep drop take gold, silver and related equities with it, or ignite then? Looking at the charts at Crossroads Café, silver and gold appear to be in a similar position as oil; ready to reverse.

    I think Gary Lammert has a similar message (new post today); steep drop soon.
    Hope you’re right nestor, I’m pulling for a late fall.

  10. Shooter September 17, 2006 7:16 pm

    I agree completely with your assessment on what the market should do. The Fed is completely predictable, and will do nothing. The economy is clearly headed toward recession. Here’s the problem I see with your (and my) assessment of the markets:

    First, there are just too many folks (including myself) out there that are expecting the market to tank. I watch the put/call ratio. Lately, at any minor sign of weakness, there is a always an increase in the put volume to above 1. Shorts continually get taken to the cleaners, forcing the market higher.

    Second, if you have the ability to print unlimited amounts of currency, it seems that you would be able to manipulate any market higher or lower just about any time you want. We have gone without a 10% correction in the markets since 9/11 - why should that change now?

    Third, T/A is used by everyone and “everyone” includes big money players that like to “paint charts”. I’m not a T/A fan and find myself wondering how often it actually works. I guess the most important informtion gathered from T/A might be the oversold/overbought condition of a stock or a market. No technician I know saw the slaughter coming in the gold market.

    I hope you are right, I am positioned for a downturn, but it seems downturns last only one or two days anymore.

    We’ll see.

  11. Nolan Olhausen September 17, 2006 7:19 pm

    Check out IYR. If real estate is so bad, why is this index doing well? Further, check the finance indexes that commonly lead the market. There are other indications as well, but you can see that not all of the pieces of the puzzle are falling into place to support the bearish conclusion.

  12. khill September 17, 2006 7:31 pm

    I think shorts should prepare for more pain — just a feeling I have. Gold correction feels close to being done. The longs have had some nice pain. $550 support looks good. Gold stocks are certainly in the buy zone imo. HUI support 270 looks good. I think the S. African gold miners will be very strong in the next leg up. Oil is looking to be range bound for a long while unless the terrorists actually shoot straight. $55-70 for let’s say 18 months. Anybody else like the KIWI?


  13. Marc Authier September 17, 2006 8:04 pm

    Why is the IYR real estate index doing fine?

    The word is called MANIPULATION. Do you really believe that the FED or central banks of this world don’t intervene to manipulate some vital and important indexes ? Never mind these phony indexes.

    Look at what is happening in the real markets.Beware of taking too seriously the index action. Painting the tape is illegal but not if you are the FED, the US government.

    These index numbers are almost meaningless. The decline is imminent? It’s started a long time ago in real estate. It’s very real. Markets today as anything else are a total fiction. Don’t trust these “official” informations like IYR.

  14. Moneylender September 17, 2006 11:30 pm

    Illusion, yes the American people are living in an illusion as they are enslaved from cradle to the grave as the rest of the world.The Out Standing Market Credit Debt of that country in the last count stood at $48 Trillion dollars, the Government will never be able to service the loan let alone repay the capital. Every day this amount is reflected in the books it accrues exponential compound interest. It lives on a daily overdraft of millions from the People’s Bank of China, and others.

    Every thing and every body in the US is owned by private banks, and you pay interest on every thing on money created out of NOTHING

    But in the first world fed on rubbish both in mind and body, just to be healthy to be Cannon fodders to fight some one Else’s war. In the Third World Eight million children die every year this has gone on for decades the holocaust is alive and well.

    As long as Banks create money out of NOTHING as a compound interest bearing DEBT to finance wars where the profit margins are better than anything on offer you are in a vicious cycle of violence.

    The arms industry is the most subsidised industry in any country, especially in the US.

    ”If you want to be a slave and pay the cost of your own slavery, let the banks create the money”

    ”Let me control and issue a nations’ currency, I care not who writes its laws”

    You can ‘ELECT’ any party of any colour, it wold not matter an iota

    Peace is profitless.

    As the Late Lord Hailsm, the Lord Chief Justice of England and Wales pointed out, that we live in a tripartite totalitarian dictatorship; Press, Elected and Financial. Interest is NOT necessary or inevitable, this insidious and invidious imposition on humankind should be abolished and can be abolished immediately.

    We are told we are all free and live in a democracy. People can be fooled all the time.

  15. Peter September 18, 2006 1:22 am


    1. I also think the pattern in the S&P is too easy.
    2. I see a bullish pattern in the Dow.
    3. However, the average stupid investor in the Netherlands is bullish on the stockmarket, we folllow America.

    Taking all in consideration it’s a good time too short but 60% likely you will win in the short term, get faked out to a new top, take your loss and then the decline will probably begin : )

    Kind regards, Peter.

  16. Rich September 18, 2006 6:04 am

    Expect the unexpected.

    My short term predictions:

    1. Markets higher into elections.
    2. Gold flat to slightly higher during the same period.
    3. US dollar flat, 94 to 95.5 range.
    4. Oil at the pumps below $2.50 in most places before the election.
    5. More terrorist threats, which is the most powerful election tool the reps have.
    6. Pope admits he’s related to Arnold (and Kurt Waldheim is thier great uncle).
    7. The 13,000 war detainees remain detained for another several years with no charges and no sign of justice.
    8. Real Estate slides further, but nothing disasterous, the Fed warns they may reverse increases if it keeps up.
    9. Venezuela has a nasty virus breakout.
    10. Iran makes noises about helping support the US need to stop the insurgency in Iraq.

    Interesting times we live in for sure.

    Cheers Rich

  17. Shooter September 18, 2006 7:09 am

    Until this stops I don’t see how the market falls with any conviction.

    Gold is doing the same thing it has done for the last week, small gap, then crap.

    A hedge fund loses 35% investing in Natural Gas and the market is unfazed.

    This game can and will go on forever. They will not be able to save R.E. though, that animal is just too big.

  18. Michael Nystrom September 18, 2006 7:18 am

    To Nolan & Marc:

    I’m interested in that IYR. It looks like some kind of real estate ETF, but I can’t find any more information on it (I admit I didn’t look that hard) - does anyone know?

    It does look bullish. Very. But I don’t think this is necessarily manipulation - I don’t know why TPB would bother to manipulate some little real estate ETF while the market is crashing.

    My suspicion is that this is some kind of a rental REIT and it is rising on the theory that as the housing market crashes, rents will go up because everyone who was previously an “owner” will have to go out and rent. Out here in Cambridge, rents went up last year a LOT because as the housing market falls, a lot of people are waiting it out by renting. That puts upward pressure on rents and would cause such a REIT to rise.

    Also look at the dividend - IYR pays 3%! That is not bad these days - probably pretty stable, too, if it is all rent payouts.


  19. Marc Authier September 18, 2006 7:42 am

    Rents go up temporarly. The same can be noticed for other real estate indexes across the world. Your hypothesis about the rents is interesting and probably realistic. But it is not happening eveywhere. Not the case in Montréal Québec. The oversupply of new real estate is killing the rental market. I see this trend of higher rents in certain markets as only temporary and very short term. The glut of unsold real estate, will eventually have also a lethal impact on the rental market.

  20. Shankar September 18, 2006 7:52 am

    Thank you very much for sharing your thoughts with us. You are very clear in your thoughts and opinions.

    If you look at US you are right, every class of asset is way overvalued (May be treasury bonds are not).

    But unfortunately world wide markets are also way way over valued. For examaple stocks in India are crazy and going up like there is no tomorrow.

    Considering the world wide opportunities, US appers to be the cheapest.

    I am 100% cash from last six months and tired of the wait for good opportunities.



  21. Kirk September 18, 2006 8:31 am

    “The market…is designed to cause the most pain to the largest number of people.”

    Common misconception. Nobody designs a free market. That’s what the left never really seemed to grasp. Free markets are the natural order of things. You need law to prevent free markets from becomming unfree (monopolies, government or otherwise). We don’t have that yet in America therefore to use our market as an example of true free market capitalism is a mistake.

    You don’t need to be a Socialist to think the market is going to crash.

  22. muleskinner September 18, 2006 9:13 am

    ‘There’s a sucker born every minute’ - David Hannum


    Interesting that a banker would say such a thing and then become a victim of his own words.

    It is also very fitting.

    When the Dow was at 1000 in 1980, it was up some eight hundred points in a 60 years period. It has increased ten thousand points in just 26 years.

    On the thirteenth of November, 1929 the Dow was at 198.

    It goes up, it goes down. If it fell to 5000, the world won’t end because of it.

    I guess it is a hapless attempt on my part to try to make any kind of analysis about what is happening with the market; however, I can make a feeble attempt. I stand on the outside looking in.

    Remove the laundered drug money from the markets and it might lose a couple of thousand points too.

    It’s a total gamble, just like Vegas. Real estate is the most lucrative market. It pays the most, you can also lose your shorts.


  23. Jeff Kassel September 18, 2006 9:14 am

    Technical analysis is notoriously inaccurate. Prechter has been wrong more than he has been right. My view…anything can happen.

    Jeff Kassel

  24. muleskinner September 18, 2006 9:21 am
  25. Michael Nystrom September 18, 2006 10:06 am


    To say that technical analysis is “notoriously inaccurate” displays an ignorance of the purpose of the art. And to say that Prechter has been wrong more than he has been right is like saying that Ted Williams missed more balls than he hit. They may both be true.

    The point of T/A is to set up certain boundries by which to trade so you know where you are in the market and therefore how to limit your risk. This is what I try to do when I trade, and it is what I tried to convey in this article. Going short the general market in this way has extremely limited risk with a very good upside. As I said, if the market pops through the May high, it is likely going to run away to the upside - so you cover your shorts. If it doesn’t, it will likely peel down a long way. With this information you can make a decent sum of money by going short the Dow or SPX futures.

    Like good baseball players, a good trader can be “wrong” more than he is right, but still be an incredible success at what he does. By a good baseball player, I mean a .300 hitter. For a trader, if you’re right “only” 30% of the time, you can still come out way ahead if you know how to know when you’re wrong, and limit your risk accordingly.


  26. r.j.adami September 18, 2006 10:08 am

    I think it will happen it is very difficule finding stocks that offer value and we are way overdue for at least a 10% correction?

  27. muleskinner September 18, 2006 10:30 am

    Stocks that I follow, but don’t own, that may offer value:

    ZP - Zero Air Pollution, electric cars and battery manufacturer. Currently at 1.02 USD.

    FDEG - Friendly Oil Company, currently at 0.07 USD.

    DIAFF - Diamant Film Corporation, a enviromentally friendly plastic food wrap manufacturer. Currently at 0.002 USD.

    DROOY - A gold mining company. Currently at 1.35 USD, ADR shares.

  28. V September 18, 2006 12:42 pm

    Thanks for the post…good thoughts…and I agree with you. I started liquidating my portfolio two weeks ago, because of the same things that you were seeing. By the way your blog is one of the most thought-provoking I have found. A true free thinker’s site, without the spin. Good job - it requires a lot of effort on your part and I just want to offer a thank you.

    - V

  29. VP September 18, 2006 12:47 pm

    I think all markets are govt. manipulated and right
    now, the PPT is targeting the election. I think the
    Fed will hold rates steady this month and may LOWER
    rates in Oct. Markets won’t tank.

  30. Peter September 18, 2006 1:18 pm

    Exactly, TA is a chance of something happening, depending on the pattern a high chance or a small chance. There´s also not 1 sort of TA so you cannot say it is working or not. You can only judge somebody by their roi, last year I made 25,4%, this year I´m at 9,8%. So you know who says it, every advisor should state their roi.

    My TA is purely based on patterns, the same ones as in nature.

  31. Nolan September 18, 2006 2:36 pm

    Ok. Try these: ICF, RWR, VNQ. That’s just real estate.

    Have not focussed on finance or brokerage stocks or even some retail. But ask yourself how bad these things look. And ask yourself whether or not you would like to have been the buyer of some of these things one year ago.

    TA is garbage? How about those trends? In these cases, was the trend a friend?

    Happy trading.


  32. Rich September 18, 2006 5:16 pm

    Hey Peter.

    I want to use the technical analysis that got you a 25.4% ROI last year, and not the TA you are using this year to get 9.8%!

    Cheers Rich

  33. Investor September 18, 2006 9:20 pm

    The Fed and our beloved government have rigged the markets, their books and the financial stats so much that I am betting the Dow, Nasdaq and S&P will all go up until at least the election. You want proof? M3, COT reports, the absurd changes made to compute inflation numbers in the past 45 years and the outrageous manipulation of the silver and gold markets. And now I believe the US FED has ‘persuaded’ the Chinese to prop up the worthless US dollar or face catastrophic losses in their dollar holdings, thereby prolonging ‘irrational’ exuberance until the global economy goes into it’s death spiral. Just be long precious metals before
    November 7,2006.

  34. Cornhusker September 19, 2006 6:00 am

    Interest rates will resume their march upward after the election and this article is the reason why:


    This sharp drop in foreign buying of our gov’t debt will force the FED’s hand in raising rates for the forseeable future. This action will cause a severe recession. The only other way out will be to monetize the debt, which will cause the USD to crash and bring us close to a hyper-inflationary environment.

    As of late last week, I’m 100% cash with no debt other than my mortgage. My plan is to lock-in long-term (10-30 years) T-Bonds at 10%, 18-24 months from now. I could see short-term rates jumping from today’s level to 9-12% within 36 months.

    Trust me guys, this just-reported drop in foreign capital inflows bodes ill for our economy. Funny how the mainstream press didn’t mention a lick of this.

  35. Cornhusker September 19, 2006 6:11 am


    I just want to let you know that, although I’ve disagreed with you in the past on a few issues, I consider this site to be of great value to society as a whole. I’ve recommended your site to almost everyone I know. I certainly don’t want to give you any ideas:), but I’d even pay an annual fee for access.

    Thanks again.

  36. Shooter September 19, 2006 6:44 am

    Expect a rally to commence sometime today. The crowd is wrong again.


    Why would anyone want to hold U.S. Government treasuries or even cash for that matter?

  37. Cornhusker September 19, 2006 7:04 am


    “Why would anyone want to hold U.S. Government treasuries or even cash for that matter?”

    Exactly my point. Rates will increase sharply, after the November elections. The ONLY way to attract investors to gov’t debt at this point is to raise rates. I would not want to be holding ANYTHING long in the stock markets (worldwide) right now, nor would I wish to have revolving credit lines, nor an ARM home loan.

    Cash is King right now, and will be for quite some time. We are, right now, in the midst of a recession. The data 12 months from now will confirm this.

    To reiterate, I am not a financial advisor, but I DEFINITELY WOULD NOT BE HOLDING ANYTHING OTHER THAN short-term CD’s, Treasuries, or cash for at least the next year or so, then I’ll be locking in high, long-term Treasuries.


  38. muleskinner September 19, 2006 7:16 am

    The price of natural gas has declined two, maybe three fold since last October. My heating dollar has increased in value by some threefold also.



    All indications are that foreign investment has increased since 2002 or so; foreign investors seem to be in favor of investing in the US economy.

  39. Shooter September 19, 2006 8:40 am

    Apparently you are right, the USD is a flight to safety and Gold is just a “barbaric relic”.

    With the ability to print at will, I’m not sure I agree with the assessment that rates will rise. If indeed the rest of the world has an appetite for US investments, wouldn’t that mean that rates will fall? It seems that the only thing that would cause rates to rise would be a mass exodus out of US treasuries by the rest of the world. At which point we would have a currency crisis of epic proportions as we would be forced to print more dollars to buy our own treasuries.

    In any case, while I own gold and silver and have done very well since ‘03, I am beginning to wonder why I own it. These corrections are endless and gutwrenching, I see no “flight to safety” on a day when there should be, considering world events.

    Again if you can print unlimited quantities of cash, ANY market can be manipulated. Luck all.

  40. Cornhusker September 19, 2006 9:50 am


    Gold will have it’s day…just wait, be patient. After the recession/depression runs it’s course, we’ll likely experience this country’s first true bout with hyperinflation, in which case, some could see gold easily soaring to $1,000 - $10,000/ounce, depending on how bad things get.

  41. muleskinner September 19, 2006 10:30 am

    Who do you know that is willing to spend ten grand on an ounce of gold?

    A ten thousand dollar troy ounce of gold is high on my list of things I can do without.

    What farmer would trade 2500 bushels of wheat for an ounce of gold? I can guarnatee you that would be a very short line.

    Gold is not that valuable, nor will it ever be.

    I bought silver in 1981. I bought at eight dollars per ounce. It has been over twenty five years for silver to regain the price of eight dollars and above. Had I spent the money on Chrysler at three dollars, I would have gained more than thirty times on the investment.

    Oil is down another 1.66 per barrel today. People are tired of paying the high price of gasoline. They’re driving less. Gasoline supplies are high.

    Don’t stack that basket of eggs too high.

    It’s a tough row to hoe when you invest in markets of any kind.

    ‘The small investor is a chicken about to become a broiler’

    Don’t get singed.

  42. Cornhusker September 19, 2006 10:48 am


    Don’t be fooled. Gold isn’t a way to “get rich quick”…not even close. Gold is the only real money is existence, it’s a store of wealth. An ounce of gold will buy today the same basket of goods it could 100 years ago, not the same can be said for the USD.

    The typical investor should have no more than 10% of his/her net worth in gold at any given time…that way you can still buy your Chrysler shares:) and have a shield against hyperinflationary monetary policy. Simply put, gold is an insurance policy against the inevitable demise of our fiat currency.

  43. Administrator September 19, 2006 5:14 pm

    I’ve posted a Wednesday update to my Crash Watch here: http://www.bullnotbull.com/archive/stocks-2.html


  44. the stranger September 19, 2006 6:16 pm

    A little off topic – well, no it’s not… We’re talking about a mammoth decline, a crash and the timing thereof. This has been bothering me for days.

    Use of the Liberty Dollar has been declared a crime by the US Mint; it clearly is not. This is a huge; in effect and in timing. I can assemble links or whatever if needed, but I gots-to-know, from the Bullnotbull gang; is this disturbing anyone else but me?

  45. Administrator September 19, 2006 6:22 pm

    Hell yeah it’s disturbing! They’re just tightening the noose, little by little, and no one seems to care. What has happed to the US?

    In the Home of the Brave / Jefferson turnin’ over in his grave.

    For anyone who hasn’t read, see here:
    Crackdown on the Liberty Dollars

  46. muleskinner September 19, 2006 6:43 pm

    Only US minted gold and silver coin is legal tender. All US fiat dollars are illegal tender. Bogus, ersatz, fake, no good. Not worth a plugged nickel.

    It’s in the Constipation… um, er the Constitution.

  47. Jeff September 19, 2006 6:46 pm

    Does anyone know anything about the investment vehicle being peddled by Dr, Steve Sjuggerud?

    Is his secret investment information dealing with numismatic rare gold and silver coins? Curious.

    Excellent site. Thank You!

  48. larry September 19, 2006 7:11 pm

    money lender…you share my contempt for such a system that tries to image freedoms but whose entire structure is designed intentionally to enslave…i have gained awareness of this only in recent years, from my studies on the internet and sites such as this….oh, a note to michael nystrom…i love this site and what subjects you advance for discussion, thankyou!……..also, thank the supreme power for this internet…it rolled out in the nick of time, so to speak…the machine would have prefered it be kept for government/corporate fascism, i assume? EH

  49. the stranger September 19, 2006 8:12 pm

    Here’s another thought for you… What are the chances that the Strategic Petroleum Reserve has a leak? …our government feeding oil into the market, just to hold it together? Crude move; but that would have the dual affect of also slowing, somewhat, the increase in Russia’s gold and foreign exchange reserves. When Russia opens its Borsch the dollar will have an arrow through it.

  50. muleskinner September 19, 2006 8:26 pm

    The current price of a barrel of oil is designed to buy votes, nothing else.

    It won’t work. ‘Republicans’ are in for a big surprise.

    Never, ever will I ever vote for another ‘Republican.’

    fool me once, shame on me. fool me twice, shame on me.

    I’ve had it with ‘Republicans’ and their phony baloney ‘politics.’


  51. MJR September 19, 2006 8:36 pm

    Beijing’s hosting of 2008 Olympics is the Beginning of the End of the Dollar. We’re just watching the tremors now…. The Olympics will be a coming out party - a ROLL OUT - not just for China’s, but the entire SE Asian Basin’s (+ India’s) highly trained CONSUMER CLASS! Bob Costas will host it all, so tune in! Long story short, we ship billions to China daily now, your investments should follow. It’s all nice and good AT LEAST until Summer 2008. Then, it’s thanks for the greenbacks Uncle Sam, but we’ll start parking it elsewhere from now on Big Boy. Ok - there WONT be an announcement, but you get my idea. After 2008? Why, buy defense (war industry) stocks of course. My 2 cent hunch, anyway.

    Great posts guys, thanks everyone for taking time to write. - MJR

  52. Mike September 20, 2006 5:40 am

    You wrote, “Never, ever will I ever vote for another ‘Republican.’ fool me once, shame on me. fool me twice, shame on me. I’ve had it with ‘Republicans’ and their phony baloney ‘politics.’”

    My sentiments are similar except that before I had those feeling for ‘Republicians’ I had the same feelings about ‘Democrats.’ Unless I move to Ron Paul’s district or someone like him, I will never again vote for anyone from either branch of the tyranny party. Staying at home is more productive, I can spend the time building my bunker. :-)

    As for the Liberty Dollar, I see this as a good thing…no way NORFED could have paid for all the publicity they are getting now…sure the publicity looks bad now, but in the end the guvmint will have to back down…no way they can stop barter…then the Liberty Dollar will really shine. I still use them as always…the day after this came out I was going to offer a 20FRN and at the last moment pulled out a Liberty and said which do you want…damn, now I have to replace my silver.


  53. muleskinner September 20, 2006 6:15 am

    I do say the same about the Democrats. I don’t like being fooled.

    The ‘Republicans’ are particularly adept at it. It’s their stock in trade.

    They can no longer be trusted. The 2000 and 2004 elections have provided ample proof.

    The US economy is not down and out yet. In China, those new skyscrapers have been dubbed ’see through’ buildings because their occupancy rate is extremely low. Shoddy workmanship is to blame.

    Overseas investments are risky business. I’ve been burned. It only takes once.

  54. Shooter September 20, 2006 6:24 am

    Hey folks
    Glad to have the opportunity to post here. Unfortunately Mr. Nystrom I’m afraid that the market is going to continue on its’ upward path until Joe Sixpack decides to dedicate the last of his savings to the market-long. For now Joe6 agrees with you and is market skeptical.

    One thought here, I USED to be a rabid partisan when it came to politics. I really don’t see a difference between the two. Both serve the bankers. I believe we are given the appearance that we have a say and each side just throws their voters a bone to keep them calm when elected.
    Gotta agree with Mike on this one. Voting is a waste of time.

  55. Administrator September 20, 2006 6:28 am

    Okay, since the conversation has turned political, let me share this excellent joke that my friend John Spritzler sent me yesterday. I think it captures the sentiment herer quite nicely:

    “While clear-cutting timber in Crawford, George W. Bush suffers a fatal chain-saw accident. His soul arrives in heaven and is met by St. Peter at the Pearly Gates. “Welcome to Heaven,” says St. Peter. “Before you settle in, it seems there is a problem: We seldom see a rich Republican around these parts, so we’re not sure what to do with you.”

    “No problem, just let me in; I’m a believer” says Dubya.

    “I’d like to just let you in, but I have orders from the Man Himself: He says you have to spend one day in Hell and one day in Heaven. Then you must choose where you’ll live for eternity.”

    “But, I’ve already made up my mind; I want to be in Heaven.”

    “I’m sorry, but we have our rules.” And with that, St. Peter escorts him to an elevator and he goes down, down, down, all the way to Hell. The doors open and he finds himself in the middle of a lush golf course; the sun is shining in a cloudless sky, the temperature a perfect 72 degrees. In the distance is a beautiful clubhouse. Standing in front of it his dad and thousands of other Republicans who had helped him out over the years. Karl Rove, Dick Cheney, Jerry Falwell the whole of the “Right” was there, everyone laughing, happy, casually but expensively dressed. They run to greet him, hug him, and reminisce about the good times they had getting rich at expense of the “suckers and peasants”. They play a friendly game of golf and then dine on lobster and caviar.

    The Devil himself comes up to Bush with a frosty drink, “Have a Margarita and relax, Dubya!” “Uh, I can’t drink no more, I took a pledge,” says Junior, dejectedly. “This is Hell, son: you can drink and eat all you want and not worry and it just gets better from there!” Dubya takes the drink and finds himself liking the Devil: a Skull and Bones brother but with real horns. They are having such a great time that, before he realizes it, it’s time to go. Everyone gives him a big hug and waves as Bush steps on the elevator.

    When the elevator door reopens, he is in Heaven again and St. Peter is waiting for him. “Now it’s time to visit Heaven,” the old man says. So for 24 hours Bush is made to hang out with a bunch of honest, good-natured people who talk about things other than money. Not a prank or a snigger among them; no fancy country clubs and, while the food tastes great; it’s not caviar or lobster And these people are all poor, he doesn’t see anybody he knows, and he isn’t even treated like someone special! Worst of all, Jesus turns out to be some kind of Jewish hippie with his endless ‘peace’ and ‘do unto others’ jive. “Whoa,” he says uncomfortably, “Pat Robertson never prepared me for this!”

    The day done, St. Peter returns and says, “Well, then, you’ve spent a day in Hell and a day in Heaven. Now choose where you want to live for eternity.” Dubya reflects for a minute, then answers: “Well, I would never have thought I’d say this — I mean, Heaven has been delightful and all — but I really think I belong in Hell with my friends.”

    So Saint Peter escorts him to the elevator and he goes down, down, down. The doors of the elevator open and he is in the middle of a barren, sweltering vacant lot covered with garbage and toxic industrial waste - Houston minus the air conditioning. He is horrified to see all of his friends, dressed in rags and chained together, picking up the trash and putting it in black bags. They are groaning and moaning in pain, faces and hands black with grime.

    The Devil comes over to Dubya and puts an arm around his shoulder. “I don’t understand,” stammers a shocked Dubya, “Yesterday I was here and there was a golf course and a clubhouse and we ate lobster and caviar and drank booze. We screwed around and had a great time. Now there’s just a wasteland full of garbage and everybody looks miserable!”

    The Devil looks at him, smiles slyly, and purrs, “Yesterday we were campaigning; today you voted for us.”

  56. Shooter September 20, 2006 6:56 am

    Outstanding administrator!

    There was a time when I would’ve been offended by that joke against GWB, but no more. Thanks for this site.

    I once was blind but now I see. Amazing grace.

  57. Nolan September 20, 2006 8:44 am

    The Big Picture.

    Gary Dorsch has done a good job. Folks might want to take a look.


    This helps to explain why the market just might go a little higher and then higher again later on.

    Incidentally, I can recall from years ago that following the financials helps to see the big picture. Robert Farrell at Merill Lynch pointed this out. Seems to have been a good observation then and even today.

    Good trading,


  58. Gary W. September 20, 2006 11:17 am

    Dear M.A.N.,
    It mystefies me . . . that the stock markets have remained so high . . for the last 6 mos. Ditto every ‘other’ bubble ‘floating’ on the same murky-soapy sink-hole [i.e. ready to 'pop'].

    Now . . if everything repeats . . in ‘time’ but NOT QUITE EXACTLY . . then the most dangerous newcomer among financial generated ‘threats’ .. just HAS to be one that has never been dealt with ‘before’. We learned the lesson of positive ‘liquidity’ in 1923 [Weimar] We learned the lesson of negative ‘liquidity’ from 1929’s role in the later demise of 5,000 private banks [U.S.] . We learned the lesson of protective ‘tariffs/trade barriers’ from 1930. We learned the lesson of upside-down mortgage[s] and foreclosures from 1933 [Shrevport; Louisiana @50%]. We learned the lesson of ‘appeasement’ in 1936 [Rhineland]. We learned the lesson of proxy-wars later in 1938 [Spain]. We learned the inherant volatility over denying any nation’s oil needs . . at Pearl Harbour in 1941. So it begs the question: “WHAT LESSON NOT YET LEARNED IS WAITING IN THE WINGS?” This one: “The Kinetics of a Future Economic Collapse . . is inversely proportional to the Accelerated Retarded Speed of OVERLAP EXECUTION during AN ELECTRONICS DERIVATIVES ‘SELL OFF’.

  59. Mike September 20, 2006 11:44 am

    For those interested in the on going story about the ALD…This was taken from the home page of the Liberty Dollar site: “Liberty Dollar Says No to the US Mint Allegations”

    Here is the link or click the Ad in the right margin: http://www.libertydollar.org/ld/press-kit/usmint-allegations.htm

    Thank you US Mint for the free publicity.

  60. Administrator September 20, 2006 11:45 am

    More on the Liberty Dollar story - from NORFED the Liberty Dollar issuers themselves. This is excellent reading:

    Liberty Dollar Responds to US Mint


  61. the stranger September 20, 2006 5:23 pm

    Ah yes, the free publicity, the silver lining. It looks like Bernard von NotHaus brought Mike Johnson as the Executive Director at exactly the right moment. Liberty Dollar has grown immensely and he can use the help. I’ll have to buy some more LDs today. Feel better already. So, the bull-gang is an honest money crowd…

  62. the stranger September 20, 2006 6:57 pm

    The Kinetics of a Future Economic Collapse ..is inversely proportional to the Accelerated Retarded Speed of OVERLAP EXECUTION during AN ELECTRONICS DERIVATIVES ‘SELL OFF’ …that’s original (nice music too)

    “accelerated retarded speed” increased slowdown… accelerated drop in speed…?

  63. the stranger September 20, 2006 7:39 pm

    Regarding update three – exactly Michael, and look how close these numbers are; a tie. But the numbers are dollars and dollars are trash. How can we trust the wave? If the PPT is pumping frog skins into market at the speed of blight, the wave may be fraud? Wave theory is fractal propensities, is the unfurling of mass behavior, is sociology, …is that what we really have?

    Suppose it is wave B, not wave 2, but we shoot past the old top using super nominal green backs, only to have the wave disintegrate later at the real and unknowable point of exhaustion. I don’t know – I take my wave theory with a grain of salt.

  64. Nolan September 20, 2006 9:49 pm

    I appreciate your contributions as they stimulate my thinking. Here are a few thoughts. After many years, I still recall Jesse Livermore and how he sought to read the market. One of his favorite techniques involved putting stock out to sell or buying stock to see how the market would react. His ability to comprehend how the market responded led him to make huge gains in the markets, on both sides, over and over again. Unhappily, his pride and arrogance caused him to tune out the market’s behavior from time to time and this failure often reversed his fortunes and ultimately led to his demise.

    Of course, today’s markets are more complex, but the principle is the same. Watch and see how the market behaves. Your comments attempt to do just that.

    Here is another little technique. How do bull markets react to overbought conditions? They ignore those conditions. And conversely, minor oversold condtions lead to rallies. How well do negative divergences work in bull markets? Not well. It is as though the market completely ignores the overbought conditions and the negative divergences. So what is happening today?

    A lot has been written about the overbought conditions and yet the market just barely corrects. There are many negative divergences and yet the market falls only briefly; and when it falls, either it quickly recovers or the corrections are shallow. Again these are signs of the bull, not the bear.

    Now when markets are trending, the bullish activity (or bearish activity) persists. A trend does not mean just higher highs and higher lows (in the case of the bull). It means persistent patterns or behaviors that continue for a considerable period of time. Often we spend so much time trying to anticipate that we ignore what is going on. We ignore the trend and the continuing signs of the trend. That is why many traders do not concern themselves with turns in the market. They just stick with the trend or the bullish or bearish activity.

    The most successful Elliott traders that I have ever known are capable of holding several alternative wave counts in their minds all at the same time. They are successful, because they can distinguish market behavior that supports and/or invalidates the given opposing scenarios. And they quickly make the needed adjustments. Of course, doing so can be very stressful and exhausting. You can check Prechter on this question. When he won a trading chamionship years ago, it was a very trying ordeal for him. A celebrated trader, Frankie Joe, said to be one of the world’s best ever, died of a heart attack on the floor of an exchange years ago.

    That is just another reason to stay with the larger trend and wait for good validation of a change in the trend.

  65. DIMITRIOS September 20, 2006 10:53 pm


  66. Peter September 20, 2006 11:42 pm

    I know this extremely intelligent guy and he pointed to the Turkish market that went higher, higher and higher. Very simple, their currency inflated 100x. If you want to understand where the Dow is going look at the $. I admit it´s now climbing a bit but in general this could be the key, or at least very important, to understanding the Dow.

  67. Shankar September 21, 2006 3:20 am

    Good Morning,

    We all agree that there is a potential for sharp fall. At the same time you are saying there is a potential for substantial upward moment if it breaks the previous top.

    So my question is how can we benefit from this analysis???

  68. Administrator September 21, 2006 8:38 am

    A lot of great comments came in overnight - thank you. Also a good one over on the real estate open thread by “Atlanta.”

    First off - to the stranger - I’m not so concerned with the Elliott count as I am with this market being overbought and ready to crack. Elliott is just one tool in my toolbox that I use to try to figure out what is going on. But I see your point - and Peter’s too - that as the dollar falls anything measured in dollars will rise in value. In essense that is inflation.

    Also - Nolan - yes, very insightful comment. Livermore also talked about how he made the big money in the market - “Be right and sit tight.” The money comes not by trading around, trying to get every little swing, but by being on the right side of the market, and riding that trend for all that it is worth. This is where I have done the best as well.

    But as another trader put it, “The trend is your friend, until the end, when it bends.” Admittedly, I’m trying to catch this turn, which can be a fool’s game if you have no risk management strategies. But I want to get in early, because once it tops, I think there is a long way to go down - and I plan to just “sit tight.”

    And so Shankar - as to how to profit - I finally found my vehicle, but it is dangerous, risky, not for the faint of heart nor the inexperienced, and that is futures trading. I used to try to time the market with mutual funds, but that was terrible. There is a one day lag and the transactions costs are so high. With stocks it is much easier to go long than short.

    There are several advantages to futures:

    1) Amplification. This is a blessing and a curse. With a mini Dow Futures contract, which is what I primarily trade now, each point on the Dow is a five dollar swing. So if the Dow goes up or down 100 points, you can make or lose $500 for each contract you have.

    2) Leverage. The margin requirement for one Dow mini contract is low - about $2500, half of that if you only day trade.

    3) It is just as easy to go long or short. This is why I am paying such close attention to this market at this juncture. Whichever way the market decides to go, it is just as easy to capitalize on the trend. There is no “up-tick rule” on shorting futures like there is in shorting stocks, and there is never the possibility of having your stock called away - as there is when you’re short a stock.

    So - there is the short answer. I tend not to write about this because it is very dangerous. You can lose your money very quickly if you don’t know what you are doing, and most people don’t. It takes a long time to figure things out - I would liken it to becoming an NFL quarterback. Ever notice how great college quarterbacks usually suck for the first few years they come into the league? Because the game is so complex it takes years to figure out. Trading futures is the same. I can recommend a ton of great books, but once your own money is at risk your brain goes batty. I don’t know why this is, but it is.

    If there is more interest, people can email me directly, and maybe I’ll write some kind of overview. But I don’t want there to be any illusions that this is “easy.”

    - - -

    12:30 pm EDT and the market has sold off a little. Couldn’t hold those May highs, at least not yet. The bad news out today is 1) leading indicators down and 2) Philly Fed MFG index was negative for the first time since April 2003.

    The Philly Fed Index came in at -0.4 in September after a reading of 18.5 in August. The steep decline “lit another fuse under the bulls in the bond market, driving the 10-year yield under 4.70% to fresh half-year lows

    Hmmm…interesting. Interest rates coming down, mortgage rates coming down (see article link on the home page) oil and gas prices coming down. Smells like an economic slowdown to me. All we need to confirm it is the stock market to come down.

    This crash might play out after all…

    Good luck to all. Cherish the free things in life.

    Michael Nystrom

  69. Rabach September 21, 2006 10:07 am

    If I had the money ($250+K) I would pack my family up and move to another country. I have seen what they are up to and it is not pretty.


  70. ronandreas September 21, 2006 11:03 am

    I aggree with Shooter, my biggest doubt about stocks turning around is that sentiment isn’t bullish enough. Market participants must be seeing the ppt as risk protection through November.

  71. Alan McCaig September 21, 2006 11:42 am

    Yup!! This is it..!! Having picked this next 3 - 6 month period 5 years back I must stick with my ‘call’ and have most of my friends & family either reverse my statue as a ‘gloom and doom’ guru, or worship my wisdom that was unseen by them. The ‘uppy’ folk who thought living on credit could go on forever are in for a shock.
    My problem is seeing and understanding what comes next? Big recessions are a problem. World recessions even bigger and that will be the result if the faith in the US Dollar evaporates. The race to the bank’s with ligitamate and/or ‘mattress money’ could hit hard. Not to mention US Treasuries. Who will want to be burnt again?
    The good news? If it is a big ‘run’ and a significant decline in value, US industry could make a comeback on the world stage and real jobs re-appear.
    I believe beer; liquer; and entertainment companies did quite well in the last biggy……. Gold is finally going to have it’s big day too. October is the traditional month when the chickens come home to roost. The 3rd Quarter results. But there has been a lot of corporate lying going on and maybe more to come?

  72. Robert K September 21, 2006 12:11 pm

    Bravo, Michael -

    Looks like you were just a day early. Was today the kickoff of the decline?


  73. Al September 21, 2006 1:13 pm


    Problem is Bayes. You are predicting very rare events. You’ll see if you do the numbers that when the events are very rare, even the most reliable indicators don’t increase accuracy of the prediction much. This is your problem. You’re trying to predict the sort of crash that happens once every generation. Very very hard to get right.

  74. turk September 21, 2006 1:22 pm

    It is doubtful the markets will come down enough before the elections to be classified as a crash but the down ward pressure is certainly obvious for the economy and the markets. One thing that has happened to buoy equities for the past year, during these hi profit times has been the use of these profits to buy back stock on a gargantuan scale. Now recently, I have read two different stories saying that these stock buy backs have been followed up by accelerating insider selling. If true, wouldn’t this be an obvious cover my own ass by top management, pre cursor to a crash?

  75. tz September 21, 2006 1:22 pm

    Watching lunar cycles (based on Chris Carolan’s work - calendarresearch.com), there are some possibilities, and I am paying attention to them. I’m using profunds ETFS (QID, MZZ), and am very short at the moment, but I don’t expect the tide to go out just yet.

    1. There are two good times for a top. First is either side of this weekend as it is the full moon and equinox. The second is a spiral calendar point on 10/3 which will tend to pull up the market until that day passes.

    2. The bottoming days start on 10/7 and 10/17 which are other spiral calendar points, but this time to the downside (the combination between the 10/3 and these latter were given in his book as (one of) the cause of crashes and panics in the fall). The other point (in his dow award article on the website) is lunar day 7-28 which if I calculated right is 10/19 - the anniversary of the 1987 crash.

    If there will be a crash, it would likely occur the 3rd week of October. If it is going to happen, it will be preceeded by a series 1-2% down days (with at most 1 up day, but it can be a big up day) between.

    And there are usually big up days - just before the 1929 crash, the C of 2 wave produced a 12:1 A/D reading.

    I’m not against gold and silver per se, but realize that hedge funds are long and short, looking for narrowing and widening spreads, on everything. When the electrical grid went down a few years ago the cause was mostly surges - too much electricty flowing, not too little. Anything that is not an equivalent for a US Dollar (e.g. short term treasuries or a money market fund that doesn’t do corporate repos) is likely to be liquidated in a margin call cascade.

  76. Administrator September 21, 2006 6:15 pm

    Robert - thanks, but I think it is a little early for kudos - the market is a tricky beast! We’ll see what we get on Friday.

    Al - what is Bayes?

    Turk - I think everyone thinks the PPT will hold the market up until the election - there is a certain complacency there that might be exploited by the bears. But who knows?

    tz - excellent information - thank you. The sharpest rallies come during bear markets - beware and don’t get too overleveraged.

    I’ll have a closing report this weekend. Thanks to all.


  77. stu mann September 21, 2006 7:33 pm

    as for the US$ crashing - Bob Hoye points out that historically the senior currency only grows stronger in value as fringe markets tank. Mr. Hoye’s calls the last two years have been pretty good .

    as for commodities - Marc Faber sees a major pullback (or at least he did a few weeks ago) yet within a 20 year bull. He made a good call on Japanese stocks. I believe commodities will go up in value - but more thru manipulation & monopolization than because of market forces.

    I’m a Kiwi. Our housing market is frail - been so for about a year. We peaked about 1or2 years before the US - but our prices are still holding up, although without a centralized listing service, it’s hard to judge. There’s a built in bias for prices to go up regardless of reality.

    our used car market has absolutely tanked - which wouldn’t be such a big deal in America, but down here at the other end of the world, even a used car is much bigger % of one’s total wealth. that smells like fringe market trouble me.

    the Kiwi continues to be overvalued. Hot money continues to use minor currencies like ours and Oz’s to sell exotic devices to institutional investors - the same bozos who loaded up on South American bonds back in the 70s, whose losses were later made good by your now-declining American living standards.

    Richard Duncan pointed out that the Bank of Japan has provided liquidity for the entire world these past few years. This seems to be winding down and might well prove to be the critical event everyone is waiting for. I know I’m blue in face from holding my breath.

    if there is a global downturn, US markets should hold up the best - making the US dollar much stronger, as per Mr. Hoye’s historical view. but ‘best’ is a relative term.

    I believe stocks are ultimately doomed. as Greg Palast points out in his new book (Armed Madhouse, i think), the US is in the middle of a major class war. Stocks continue to tread water (since 1999) and will do so until the last drop of blood can be squeezed from the once dominant middle class. once the American middle class is reduced to tenant status (ie, all the equity in their homes is tapped out/ values drop steadily like in Japan/ new bankruptcy laws tie the debtor more closely to the debt/ “owner” reduced to chattel), the stock market front is no longer needed.

    the best indicator is to keep an eye on the ‘equality clock’ - the hands seem to read about three minutes to midnight (iron maiden rules!) this might explain why so many companies are busy buying back stocks - busy squeezing the last bit out before this area of the battlefield is abandoned.

    the class warfare perspective best supports Pretcher’s call of Dow 900 (somewhere way down low). once the middle class is Walmarted & Enron-ed away, there is no need for stocks (at least not publishing all those stock figures in the newspaper will be good for the environment).
    bonds will once once again be king.

    I guess I’m just repeating what everybody else is repeating - “when the US consumer is tapped out, stocks will go down” but for fundamentally different reasons. the stockmarket is an instrument to absorb ‘excess’ wealth. if there is no excess wealth…

  78. Al September 21, 2006 11:09 pm


    is a simple explanation. There is also a wikipedia article on Bayes. The trap is to think that some test, like an indicator of crashes, automatically gives you a guide to how likely a crash is, without any further information. Its incorrect. The likelihood of a crash is not just a function of whether your test is a good predictor and the market has met it. It is also how common crashes are in the observed universe. Medical people often fall into the trap.

    Famous sad story: early days of Aids, straight guy gets nervous, takes test. Tests positive. Asks how reliable the test is, and is told 99%. Can’t face wife, goes home and shoots himself. Actually, given that the condition affected a fraction of one percent of the population, he only had a one in 50 or so chance of having it. Not 99%.

  79. Al September 21, 2006 11:14 pm

    By the way, same problem faces police hunting terrorists. This is why there are so many false positives, as recently and disastrously at Forest Gate in the UK. Even if their indicators are pretty good, there are so few terrorists they do not help as much as you would think. Its a general problem about rare events. George over at Urban Survival falls into it all the time.

  80. Cornhusker September 22, 2006 8:04 am

    Another way to short the market WITHOUT trading futures contracts or shorting individual stocks is with Proshares Inverse ETF’s. You can trade these in your IRA or regular trading account.

    Ticker symbols:


    ULTRA-SHORT (these are highly leveraged, I steer clear of these…greater potential upside & downside than the four mentioned above):


    I don’t see a major sell-off until Feb. or March, ‘07. The charts simply don’t indicate a broad sell-off in the near-term. I see the DOW floating between 11300 & 11700 for at least the next 5 or 6 months…good trading range, sure; but a crash ain’t happenin’ for a while…just my analysis…do your own due diligence before committing money to ANY trade. Good luck.

  81. Cornhusker September 22, 2006 8:17 am

    Expanding on your analogy Michael, I would liken trading ETF’s (long or inverse) to playing QB in the Canadian Football League…like the NFL, still alot of fun, but less chance of getting hammered by a 325 lb. defensive tackle, who runs a 4.5 second 40 yard dash:)

  82. Cornhusker September 22, 2006 9:23 am

    As of today, I’ve increased my U.S. stock holdings to 83% of my portfolio…it’s a mix of 50/50, long ETF’s & individual stocks. The remaining 17% is in a high-yield CD.

    Guys, there’s plenty of upside to this puppy…I agree with the critisims of fiscal irresponsility, trade defecits, monetization of the debt, etc.; however, the big boys (Hedgies, Fund, Corp’s, the Fed, Administration, etc.) are going to keep this game going for as long as possible. I could actually see rates being INCREASED two or three meetings in a row after the November election.

  83. Cornhusker September 22, 2006 9:30 am

    By the way, in case any of you have forgotten; I’m an executive recruiter in the Banking industry. Our clients (Banks) are expanding at a rate that we have NEVER seen before, not even last year. MONSTER sign-on bonuses for Commercial Loan Officers, Regional Presidents, & Compliance Officers.

    Think about it…if the Banking industry even had a whiff of an impending “recession”…why would hiring be 75% higher than it was last year (and last year was a record year for us.)

    One of the guys I work with is literally pacing $1,200,000 in fees this year (50% commission). I’ll do half that this year. My point is, from an employment perspective, the Banking industry is more bullish now than I HAVE EVER SEEN IT; and I’ve been a recruiter for eleven years.

    I’m long & strong on U.S. equities until the trend tells me otherwise. Trying to predict the eventual drop without data to back you up is foolish.

  84. Cornhusker September 22, 2006 9:33 am

    I said, “why would hiring be 75% higher than it was last year (and last year was a record year for us.)”

    What I should have said was, “why would 75% of our clients be telling us they will be increasing staff size over the next twelve months (and last year was a record for us.)”

    Sorry for the mistake. Still bullish though:)

  85. Rich September 22, 2006 11:24 am

    Hey Cornhusker, that is a remarkable story - the one about bank recruiting! Who would’ve guessed that one!!? Seems so counter intuitive, you’d think the banks would be hunkering down and getting ready for a recession, and in reality they are recruiting for boom times! Any additional flavor you can add to this story, like what level execs, what functions they are going in to, etc. would be great.

    I was merrily reading stu mann, sagely nodding my head, agreeing with so much of what he was saying, and then WHAM! I read your post and completely flipped my mental state from “its the end of the world as we know it” to “yay, 4 more years.”

    And that my friends is the dilemma here. Inflate or deflate, bull not bull, crash or boom, gold or paper?

    Feast or famine, which is it!!??

    Cheers Rich

  86. Cornhusker September 22, 2006 11:37 am


    Roughly 85% of the positions we fill are on the commercial lending side, whether it be executive management, or commercial lenders. This is the area where banks generate the most revenue, so they are willing to pay our fees to fill the positions (average fee this year is $28,000 per placement).

    I’m not buying into this doom ‘n gloom stuff at all. My business is booming right now because BANKS ARE BULLISH right now. They have access to data we don’t and they are ramping up staffing.

    Something else too, our average fee rate has historically been around 27% of the first year’s gross income of the candidate’s we place…our standard fee is 33%, but we often have to be flexible to get the business. Anyway, this year our average fee rate is slightly above 30% (30.31% as of August 31) so far. This means banks are willing to PAY MORE to find employees…this smells somewhat bullish to me.

    Don’t believe everything you read, guys. Mainstream news is talking recession right now, which leads me to believe the opposite is true.

    Here are a few of my predictions:

    Housing WILL begin to rebound in Q1, ‘07.
    The DOW WILL take off like a rocket in Q1, ‘07.
    Rates WILL be increased after the election.

    Too much liquidity sloshing around out there for a recession to take place…also the reason rates will continue their climb after November.

    Have a great weekend.

  87. Cornhusker September 22, 2006 11:47 am

    Another tidbit…80% of banking jobs are NOT found in the Help Wanted section of your local newspaper. Almost every bank uses headhunters to fill their spots…they don’t want their competition to know what areas they’re trying to grow, or where they may have employment deficiencies.

  88. Kirk September 22, 2006 12:41 pm

    Cornhusker, ever heard of Stagflation? Liquidity doesn’t guarantee prosperity. Banks are bullish because homeowners are about to get reamed by adjustable mortgages. That’s bad for consumption.

    If accelerating deflation due to technological progress is real (see productivity growth) then deflation could be the consequence of the next downturn.

  89. ronandreas September 22, 2006 1:39 pm

    As you enjoy the spectacle of yet another Diebold election, wait to fill your heating oil tank until early November; fill up the old Chevy and take a scenic drive through the corporate industrial E. coli farms, feedlots, clearcuts and mined-off mountaintops of rural America; cuz, by Rove, we won’t be seeing gas prices this low or stocks this high for, uh, let me guess, two years.

  90. Rich September 22, 2006 3:06 pm

    Thanks Cornhusker, very interesting perspective.

    Can you expand on how such a housing rebound could occur? I mean, wouldn’t rates have to come down significantly at this point for housing to start rising again?

    I believe the stock market could take off, although there is not a lot of good news out there in earnings land to boost the markets easily.

    Finally, stu mann, you made a comment about companies buying back their stock, does anyone have any info on just how big buy-backs are right now, and how much insider selling is going on?? And what are the rules around a board buying back a companies stock and then trading their own holdings? If this is happening across the board then what is the potential outcome?

    Cheers Rich

  91. ronandreas September 22, 2006 4:46 pm

    It must be the affordability of prices that he thinks will fuel the rebound, after all what with wages going through the roof. This must be the same logic used by the parties refered to below:

    “I am quite new to real estate investing. It would seem that I know less than the “experts.”

    Sometimes, however, I think that the “experts” should just spend one week in my office observing the financial profiles of our refinance applicants. I believe their outlook would be much different.

    Most people simply cannot believe the profiles that we see. I am the sales manager of a branch office of a top-10 national lender. My office of 7 loan officers takes +/- 100 loan applications per week, 90% of that coming from cold calls.

    Of the last 100, I have taken some simple statistics and have found the following:

    68/100 had LTV’s over 80% at time of application
    16/100 had LTV’s over 100% at time of application
    78/100 had back end DTI’s over 55%
    31/100 had back end DTI’s over 70%
    23/100 had FICO’s under 500
    81/100 had credit card debt above $10,000
    54/100 had credit card debt above $20,000
    18/100 had credit card debt above $50,000
    66/100 had Pay-option ARMs
    27/100 had Pay-option ARMs and mortgage lates
    22/100 were either in forbearance or had been in forbearance within the past 12 months
    We took 14 applications today and we cannot qualify a single borrower for any type of loan. We are sub-prime, in fact, sometimes I say we are sub-sub-prime. We can qualify almost anyone for a loan. Not today.

    Let me tell you about just one borrower from today:

    Husband and wife
    Husband on fixed income military retirement $1800/mo
    Wife makes $9500/mo as a registered nurse
    5 properties with $3,400,000 in mortgages
    All mortgages currently have prepays
    8 interest-only mortgages
    1 option ARM deferring $3500/mo
    3 in Chula Vista and 2 in Escondido
    No more than $75,000 equity in any of the homes (verified by comp checks with 3 appraisers)
    All properties with front end LTV over 90%
    $65,000 credit card debt $672 Mercedes payment
    One property had 3 mortgages, one of them hard money
    621 mid FICO
    2×30 in the past 12 months
    Not a dime in the bank
    They have been making mortgage payments with their credit cards and refinancing to pay off the credit cards. They are at the end of their rope, but refuse to throw in the towel.

    This is not even an “extreme” example. I could show you dozens of these every single week. I just wish the experts would see what I see. I think the statistics released would be different. Granted, I only see applications from San Diego and Imperial Counties, but this is just getting out of hand.”

  92. larry September 22, 2006 6:31 pm

    ronandreas….i really appreciate that bit of anecdotal study on the real world housing loan markets….this is what friends of mine are telling me as well…these intellectuals who come up with crazy studies and hard reports that contradict everyday realities baffle me…however,these characters are educated at the same universities that pump out number crunching spin doctors on increasing orders of magnitude until eventually : a BEN BERNANKE is hatched….then, for a while, all is well in the land of phoney, lying,monetarists …that surreal abstract synthetic creation of tormented uncreative almost ‘beautiful minds’…and unfortunately,unlike the movie,at the end they fail to discover love and it’s ability to transcend…how bad for all of us mere humans..EH

  93. bp September 23, 2006 5:50 am

    hm, I think the split between cornhusker’s narrative and ronandreas’s are exemplary of what is occuring in this country….very interesting guys. What to make of it is the problem. Almost seems like a precipitation going on - things are falling out of solution. It seems that ones perceptions are heavily influenced by ones perspective, but to me this does not bode well. Surely the effects of this situation are not the same “across the board”, so the big question, as many have implied, is “what is the end result of this equation”. My guess is that as the transfer of wealth continues toward the top layer of the pyramid the structure of society will become unstable and collapse. Picking the day and time this will happen, as many have stated, is difficult. And yet the odds of it happening increase daily. My guess is that bankers are thinking linearly based on the past, for which I can’t fault them. They do the best they can with what they have. But my gut feeling tells me that the road ahead is not so rosy. I think the prudent path would be to balance the anecdotal evidence of both cornhusker and ronandreas. To me, we are in the autumn of this market, I would watch for “frost warnings”, but “make hay” while one can.

  94. Jeff September 23, 2006 7:28 am

    Wow, I absolutely agree with bp…the transfer of wealth (which fiat/debt driven currency is designed to do) is moving forward like gangbusters. I’m not like most of you folks in that I don’t work in any type of finance. I’m comfortable but not making a ton of money. Most of that is by design. I work in TV (Boo!!!) as a freelance cameraman. I chose this lifestyle because I love my free time…I work as much as I need to.

    However, this does not mean I’m stupid. All this free time has allowed me to really study what’s going on in the world…and it’s some scary stuff. Just look at what ronandreas has described. The average “Joe” has been trying to live the “American Dream” (that would be greed) by pretending to be a Rockerfeller, Buffett or Gates. And why not? After all, the media is constantly telling Joe what he doesn’t have and what he should have. So Joe lives well beyond his means. And Cornhusker, there are many, many, many average Joe’s. And from the many stories I’ve read, most are at the end of their rope.

    Cornhusker, how in the world is real estate going to rebound that soon? Again, the average person can’t even afford to buy at these prices. Those that have tried, have had to sell their souls to the banking devils who only to happily draw up terms which amount to financial enslavement. These average Joe’s are to blaim because they’re so ignorant and some, greedy…but the financial industry is, again, only to happy to continue that transfer of wealth.

    The real world where I live, is full of people who have run out of room. I am astounded at the stories I read, of the financial situations people have put themselves in. There is only so much debt people can bury themselves in. I have a friend who is a massage therapist. She has no business…none! She is just one of many. People no longer have the dough to spend anymore. And with health care costs, gas/oil/electric costs, taxes rising, real estate stagnating and dropping….where is the extra money coming from?

    Cornhusker, I’m not singling you out but have you really checked out supermarket prices? Probably means little to you but to the average person it’s becoming a bit much. And all of this is because of bad management by the people in power. Print, print, print. Well, that’s inflation and it devalues The $ that Joe needs to buy stuff! But that’s OK because the transfer of wealth continues. The brick wall will be hit eventually….a depression is impending….but by that time the transfer will be complete.

  95. Grendel September 23, 2006 8:57 am

    Ronandreas cited a half retired couple earning 11k/mo and sitting on 3 million in debt. I guess my question is how many bank employee annual salaries do they alone provide? This American orgy of personal crap acquisition (endorsed by Jesus himself, now - see TIME this week) will implode. The banks are competing for their fair share of the whale before its shredded carcass sinks.

    BP alludes to the transfer of wealth to the top. Who’s carrying the sacks up the ladder? Yeah, banks are hiring. Will soceity become unstable? Consider the sole difference between East St. Louis, IL , and Fallujah. Simply put, a hundred billion dollar welfare system funnels just enough >bling bling

  96. ronandreas September 23, 2006 9:09 am

    An investment advisor sees bank hiring as a contrarian sign for stocks:

    “As a contrarian indicator, it was leaked that Citigroup was looking to hire 400 people with commodity and energy experience in their Houston and London offices.”

  97. the stranger September 23, 2006 11:43 am

    Corn, I agree completely, perfect, very clear…
    Husker, what did you say? Can’t understand a word of it…

    The trend is the trend until it ain’t…
    yep, true enough. But just as the train ain’t here till it’s here, the time to step off the tracks is before hand. As I read daily the loss of manufacturing jobs continuing in America, I’m reminded the trend is the trend until it’s not.

    And where do I put this new info, “the bankers are hiring?” …in the good news column? I have friends that would feel better reading it. But I guess it doesn’t matter because they will be trapped in their 401Ks anyway while the big boys are cycled out electronically.

    (9/19), “As of late last week, I’m 100% cash with no debt other than my mortgage. My plan is to lock-in long-term (10-30 years) T-Bonds at 10%, 18-24 months from now. I could see short-term rates jumping from today’s level to 9-12% within 36 months.”

    (9/22), “As of today, I’ve increased my U.S. stock holdings to 83% of my portfolio…it’s a mix of 50/50, long ETF’s & individual stocks. The remaining 17% is in a high-yield CD.”

    (9/22), “The typical investor should have no more than 10% of his/her net worth in gold at any given time…that way you can still buy your Chrysler shares:) and have a shield against hyperinflationary monetary policy.”

    (9/22), “I’m not buying into this doom ‘n gloom stuff at all. My business is booming right now because BANKS ARE BULLISH right now. They have access to data we don’t and they are ramping up staffing.” “…the Banking industry is more bullish now than I HAVE EVER SEEN IT”

    Sure they’re bullish, preparing for the swan song. Cornhusker, are you for real?

  98. Administrator September 23, 2006 12:35 pm

    Cornhusker - thanks for the input - your story is so interesting that I decided to open a whole new thread devoted to the question - why are banks so bullish?


    My first thought is that of course everyone is the most bullish right at the top. Look at the way WAMU expanded into the housing bubble, and now is now scrambling to close branches and lay people off. The stock (WM) is holding up well, however.


  99. Jason M September 23, 2006 12:50 pm


    The fact that banks are ramping up like never before does not mean that we will avoid a recession.

    The U.S. consumers, on a whole, are blindfolded and ready to be fleeced. The savings rate is negative. Their has never been more debt per capita in the history of the country. And, with new bankruptcy laws in place, it will be much harder for people to declare bankruptcy if things get ugly. So where will they have to turn? To banks, naturally. I mean, for goodness sake, why do you think they’ve been loaning out so much money at 0 percent rates for the last 5 years. Because they think rates are going down?!

    Put it another way — if the insurance companies believed that a giant earthquake was about to hit the entire united states, you’d better believe they’d be ramping up their sales staff like mad. Because that’s the best time to sell insurance at HIGH margins.

    What do the banks believe?


  100. Jason M September 23, 2006 12:52 pm

    Clarification on the last post –

    The best time to sell earthquake insurance is AFTER the earthquake hits.

  101. larry September 23, 2006 1:00 pm

    jeff…how may i contact you?…my new career is documentary film making….i am interviewing the struggles,heroic in some cases,of innovative,early,alternative energy companies…an example would be gsct….they have an amazing co2 bioreactor…it removes the co2 gases from coal burning power plants…are you ready…the co2, then is fed to algea(they eat co2)…the algea blooms and are harvested…on a 3 cycles/day basis…algea is 8% biodiesel and 92% starch…the starch is then the feedstock to ferment into ethanol!…as close to a perpetual energy dynamic as possible,at least until we no longer burn coal….also concrete production emits enormous levels of co2…i am looking for motivated filming crews!…i will contact you if you are amenable!

  102. Nolan September 24, 2006 7:54 am

    Dear Michael et al,

    Once again, I have found the discussion very thought provoking. On the one hand, reading comments about how the banking industry is rapidly gearing up for all kinds of new business raises lots of red flags for me in terms of my past experience. In the past, banking leadership was typically found to be quite worrisome. I can recall one analyst mockingly singing a song he called “The Bay Holder’s Blues” as he touched on the track record of bankers during one of his routine presentations on a nationwide tour. In those days, if the bankers went one way, the wise contrarian went the other.

    Wall Street itself has always been a great contrarian weathervane. Hiring would very commonly be at its highest peak at the very peak of the stock market and vice versa on the lows. This was certainly true in 1999. Perhaps this is why Robert Farrell, a pre-eminant analyst on Wall Street for 20 some years, advised investors to watch the financials for significant clues about market direction.

    This morning I returned to my weekly interest rates charts. I invite readers to do the same. Not much is needed. Simply draw lines across significant highs and lows on 30 year rates for the last 4 years. I think that you’ll see a rather obvious pattern. When rates are falling and then break above the long term trendline (drawn across the highs), the SPX will commonly correct or at least move sideways, and when rates are rising and then break below the long term trendline (drawn across the lows), the SPX commonly rallies .

    So what is the situation today? Long term rates have clearly broken below the trendline. And, indeed, the market appears to be in a rally phase.

    So what about the bankers? Do they know something that we do not know? I doubt it. Whether or not they look at charts, they certainly must know that rates are falling because in each and every office in the country someone is broadcasting what is going one with regard to interest rates all day long, each and every working day of the month.

    If rates are falling, there is money to be made. I can just see people rubbing their palms together. Subsequently, the banking stocks are rising and making new highs. The financial stocks are rising. The brokerage stocks are flaming back to their old highs. And the REITs are continually breaking out to new highs. The only rate sensitive stocks falling are the utilities. But that is an energy issue. Didn’t I hear just recently that Buffet now likes the utility stocks? No surprise there.

    Go back to 1900 and then move forward over time and look to see how the stock did in general when interest rates rose and fell. Look at 1929, 1973, 1987 and 2000 for starters. Of course, interest rates do lead timewise. Sometimes by a full year. But sometimes the lead time is just a few months.

    Can the market correct in a favorable interest rate environment? Can dogs and cats get fleas? I’m just talking in generalities here.

    Why and how interest rates rise and fall is very complicated. In fact, it is said that the bond traders are the most sophisticated traders in the world. I try to keep up with this as best I can. Doug Noland helps, but there is nothing simple about any of this. Especially today. After all who could have ever imagined that Japan would print some 35 trillion yen and then dump virtually all of it into the US markets?

    People focus on the PPT. Why? To be sure there is such a thing. The Fed has never denied it. After all one of the Fed’s functions is to maintain orderly markets. The public expects this. But the real manipulation is global in nature. All of the central banks seemingly work in concert nowadays. We have to watch what is going on all over the world on a continuous basis. This is not easy. But watching the charts will give you some important clues.

    When I was a stock broker, I always talked in terms of fundamentals. But I always got my clues from the charts. More often than not, I did not know what was going on until well after the fact. I did not know about that 35 trillion yen. I knew that foreigners were buying the treasuries big time. I knew that the Fed was pumping money supply big time in 2003 and 2004 and I knew that short term rates were below 1%. I also knew about the Fed’s “conundrum”.

    But what I could see very easily was that rates were falling hard in 2002-2003 and again in 2004-2005. I invite people to go back and check to see what the financial stocks did during this time. And then check the bonuses that were being paid in the banking industry and on Wall Street. Wow!

    Did you read about those two guys that each made history in 2005? For the first time in history someone - two people actually - made more than one billion dollars for the year. Pity poor Michael Jordan. And where did they work? You got it. Finance. Money managers. Question is, did they “do it the old fashioned way”. Did they “earn it”?

    I don’t know, but I do know that “the trend is your friend”.


  103. the stranger September 24, 2006 8:41 am

    Nolan, incredibly well said; thanks for the tips…

  104. Administrator September 24, 2006 8:53 am

    Nolan - thank you. Excellent.


  105. muleskinner September 24, 2006 12:28 pm

    Nolan gets the million dollar Nobel Prize for ‘telling it like it is.’

    Lots of horse-trading going on in the banking business.

  106. bp September 25, 2006 5:13 am

    nolan, I would agree with the others - well said - it is obvious you speak wisely from experience.

    The part of your post that is disturbing to me is: “But the real manipulation is global in nature. All of the central banks seemingly work in concert nowadays. We have to watch what is going on all over the world on a continuous basis.” It brings home the point that our national economy can no longer be “managed” based on the old methods and procedures of classic economics. It gets really irritating to me to listen to some of the economists in this country go on as if nothing has changed in the world. Thanks again for the post.

  107. Administrator September 25, 2006 6:50 am

    bp - you have made an excellent point: “It brings home the point that our national economy can no longer be “managed” based on the old methods and procedures of classic economics. ”

    For years the doom and gloom books have telling us that we are selling our future down the river by going into debt. At the same time, our politicians have been — and continue to tell us that “deficits don’t matter” and that “deficits are a sign of America’s strenghth.” What absolute hogwash!

    We have lost control of our economy, thanks to the irresponsible policies of our government over the past half century.

  108. Cornhusker September 25, 2006 8:43 am

    I believe we’re one to decades away from seeing the beginning stages of the implementation of a one-world gov’t & one-world currency. Sure, we’ll still have the facade of national sovereignty, but it won’t be genuine. The beginning of the end will come with a worldwide ban on physical gold ownership, other than jewelry & collectibles. I don’t look forward to that day.

    Stranger, yes, I am for real. I’m just contributing to these conversations, based on my perspective. Between Sept. 20-22, I went from 100% cash equivelents to 83% stocks, 17% cash equivelents. I decided to put my fear in my back pocket, act based on my perspective, and share my story with you all. If anything, I’m honest to a fault.

  109. Rick September 25, 2006 9:52 am

    It was the same during 1997-1998 when banks beefed up their presence in Asia in the face of the asian financial crisis - they never saw it coming, or maybe they did but didn’t really understand the magnitude of the downturn. A friend of mine joined ABN Amro in Singapore as a VP only to be axed half a year later together with 30-40% of the workforce. What great forecasters!!

  110. Cornhusker September 25, 2006 10:13 am

    Check out this new ETF…risky, yet strangely alluring to me. I shall be tracking and perhaps even “investing” in it:


  111. anon September 25, 2006 12:50 pm

    Michael, surely the weeks end point shows you were wrong? I don’t know what the hell is happening, but it surely isn’t crashing and shows no sign of it.

  112. HC September 26, 2006 2:25 am

    I worked for 5 of the major US brokerage firms as an executive for 20 years until 2 years ago. I can tell you all first hand that the banks hire at the top and fire at the bottom. It is one of the most reliable stock market indicators of all. Cornhusker should make hay while the sun shines because the clock is ticking.

  113. Niclas September 26, 2006 2:49 am

    Home sales “only” down 0.5 per cent in August. Was there a Katrina hurricane effect postponing sales scheduled for the last week in August 2005 until September? If so, we could expect a much steeper decline in September compared to last year.

  114. Ken September 27, 2006 1:00 pm

    The banking sector going up is to be expected.

    When interest rates go up banks make a killing always have always will. I think that part is pretty straight forward and it is no wonder they are expanding. If I own shares in a bank heck I want the interest rates to rise some (where we are or even a little higher). Increases cash flow into their deep pockets.

    That doesn’t mean the banks are forward thinking at all so don’t let that sway you. Stay on target do not get confused by the spin…..

  115. Jeff September 29, 2006 4:04 am

    Administrator,please go to thread 101, how would I go about getting in touch with Larry without sending everyone my info?

  116. Administrator October 1, 2006 7:04 am

    Thank you all for participating - I’m going to have to button up this thread to keep the spamming vandalizers at bay. Please check the Blog Home Page to see the current threads.

    Thank you!
    Michael Nystrom

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