Here's a lovely bed time story for you Luc that I found over on bearforum--
<<Re: Too many "bears" will be bullish early
Posted By: tz
Date: Saturday, 3 February 2001, at 11:43 p.m.
In Response To: tz, something new WILL happen and it (dinosaur)
It happened in 1929-30, but it will be different this time, at least in speed. And the average
investor won't be "trapped" so much as it will be over before he can react. He is watching
now, seeing the gathering clouds of depression, layoffs, bankruptcy, yet still sings along with
the echoes of the promises of wealth on the NASDAQ when the dot-coms come back.
In 4/30, the Dow was back at 295, up 100 (about 50%) from the bottom in 12/29 and things
looked like it was over but that was the top. In fact people who thought the market was
overvalued and avoided the crash got caught in the grinder. Many who didn't got caught in the
bank failure or gold confiscation. They weren't prepared for what was coming either. Even
those who didn't buy on installment credit.
Or perhaps "Black Thursday" is/was a better example. The thursday before the crash, the
small investors were destroyed, but everyone thought it was over. It was a big intraday drop
that was reversed. Friday was up a bit. Saturday I think was slightly down. Then Monday and
Tuesday each had double-digit drops. Thursday convinced many bears that the crash already
happened and was over.
As I've posted before, 7000-7500 is only the first stop. A sharp spike down will create two
things. First, many hedge funds will go bust, but this won't be "news", and people will be
buying this "dip" because it will seem so severe. It got worse but can't get any more worse. It
will precipitate a rally, maybe to 8200 or even higher, but the liquidation (which will cause
illiquidity) will pull things back through this level.
Bears, and conservative investors who got out will jump on this final dip. It will be an ambush
more than a trap (if by trap you mean something that holds someone or something inside).
There will still be a huge hole in the balance sheets that will be bigger than this buying.
This may be over a few hours or a few days, which is what I think will confuse people. This
drop will merely be a RESET TO SEPETEMBER-OCTOBER 1998 when we were a bit
stronger economically but still at the precipice. And interest rate cuts won't work any more.
Anyone who wouldn't go long back then shouldn't do so if/when it reaches the same levels
(unless they trade intraday). But memories are short. 5200 was a reasonable target back
then but it isn't now - too much more wealth has been destroyed. This will be the big crash.
The PC industry had descriptions like "The orders stopped as if someone turned off a
switch". Back in December there weren't the announcements of layoffs. Look how fast it
happened (and how silly - junk bonds are back - maybe because they are thought safer than
stocks?). One of my alternate long term counts still has 1998 as the GSC peak, with this as a
huge B wave (at least in the dow). That would make this at least a cycle C wave, which will
go farther and faster than anyone thinks. 1987 was a C wave two degrees smaller.
You are also right that it will be international, but I noted the trigger might be anything. Or (as I
probably didn't make too clear in my post), we may already be in an unstable region where
the cascade will accellerate and there is nothing that can be done. Assuming things stay
peaceful, countries will blame each other for the mess. The other countries will be trying to
get back their underwater instruments in a devalued currency.
You will have the luxury of even cheaper material goods - the deflation will be incredible.
Consider how many people won't be able to make care payments. More relatively new repos
will be on sale than ever before, but no one will have money to buy, much less afford
insurance. This excess supply will cause prices to crash (in comparitive terms - long ago I
posted that deflation is not neutral, toys deflate more than tools, which deflate more than
(staple) food, ... more than gold). I suspect these cars will be 5-10 ounces of gold. I don't
know about dollars since I expect the USD to lose value rapidly along with this.
Some of this will take time. There is a lag between being bankrupt and declaring it legally.
No one will be smiling. No one smiled during the Civil war. No one smiled during the '30s and
WW2, and few during the '60s. No one plants or harvests during the winter when the ground
is frozen. The euphoria of the mania will be replaced with the disphoria. Prechter pointed out
that Dracula and Frankenstein were depression movies. "Blue Skies" was the #1 hit of 1929.
But there is one large difference. Some people will be secure through this winter. Others will
be dependant on them. >> |
