The last time that the Dow went up by more than 3% in one day was 8 days before the 87 correction. How far down will it go - I don't know, but it should be a good wave to catch for at least the next 2 months or so. These kinds of whipsaws only happen at major tops and at major bottoms. With PE's near record highs, yields at record lows, a major currency crisis, sanctions against Japanese shipping ($100,000 per visit starting tomorrow), the big players warning (Soros, Greenspan, Templeton, Lynch, Microsoft CFO), record bankruptcies world wide and preparations for war in Korea, I have a hard time believing that we are at a major low. The list of serious underlying problems is much bigger but I think you get the point.
What happens after the next two months is not clear - it depends on the FRB - do they create lots of 'non-interest bearing notes' (Greenspan this past weekend) or do they let the correction take its natural course by letting the bad debt clear itself from the system. If they let the debt clear itself from the system I will stay short. If they create lots of money I plan on moving to more stable currencies. So far it looks like the FRB is going to print - M3 grew at a 9.1% annualized rate this past quarter - the highest rate since the 70's. The Swiss franc and gold were good to me in the 70's - I have not looked at them seriously in the past 17 years (the bull market in stocks and bonds was enough to keep me busy) but I am starting to investigate some of my old friends. It is also a good excuse for a trip. |
