The Contrarian's View s published 11 times per year on a mostly-irregular schedule, and the views expressed are those of the author and editor, Nick Chase. Because nobody can predict the future, results of past suggestions or recommendations are no guarantee of future results. My own material in this publication may be freely quoted provided proper attribution is given to its source; quotes from other people are subject to fair-use copyright restrictions. Subscription rate: Selections are free on the Internet. Using your favorite Web-browsing program, open URL http://onashi.org. Mailed paper subscriptions are currently not being accepted (current paid subscribers will continue to receive their paper issues). Unsolicited material sent to us by UPS or by courier other than the postal service is refused and returned to sender! ISSN 1536-4429 Phone: (508) 757-2881
HPH is said to have predicted a life-changing event in the second week of September 2001.... that is, 9/11, so that should be enough to get anybody's attention. But HPH's "results" are pretty obtusely worded, and are in the most general of terms, such that a variety of interpretations are possible; and the ultimately-predicted event, if one is found to match, is commonly much less dire than the HPH would seem to indicate.
Lately HPH readouts have been used to "predict" earthquakes and, after the fact, there generally will be an earthquake or earthquake-related event that seems to fit the HPH language. But earthquakes are occurring all the time, though only a few are major, so it is not difficult to find a fit.
This reminds me of the joke about the farmer who had a string of colorful bullseyes painted on the side of his barn, with each bullseye sporting a piercing arrow in its dead center.
A tourist driving by said to the farmer, "I'm just amazed at how perfect those bullseyes are. Whoever shot the arrows is a real marksman."
"Ayup" said the farmer, "they sure look pretty, don't they? It took me almost two hours to paint each bullseye around its arrow."
Whether or not HPH has value might, I think, depend on the nature of the event being "predicted". While there is some evidence that animals can sense impending earthquakes, it's not clear any humans have that ability, so one would not expect any Internet "chatter" in advance of an earthquake. The subsequent "fits" are probably contrived.
For a human-engineered catastrophe such as 9/11, that's a different matter. Such a major attack requires much careful planning and communication, so it's very reasonable that the plans, or parts of them, would leak out into the Internet ether where HPH would detect them.
Anyway, I mention all of this because some HPH results are currently being interpreted as indicating there will be "rebellion/revolution" in early September, and that (subsequent to this evidently catastrophic event) the Dow will be trading at about one-tenth its current value in December 2006 - that is, around 1100.
If such a market crash were to happen, it most certainly would be part of a major failure of the U.S. financial system. So it got me to thinking, What sort of catastrophe could possibly occur to literally decimate the Dow?
I think we can rule out a scenario such as a major West Coast earthquake causing most of the California coast to slide into the Pacific Ocean. For the HPH to detect a linguistic shift, the catastrophe would most likely be human-engineered (with its accompanying Internet chatter) rather than "natural". Certainly "rebellion/revolution" meets this requirement.
Then, I think, the question becomes: Would the stock crash be triggered by a financial-only event, or would it be part of a larger catastrophe?
If the trigger were primarily financial, then we're talking about "instant Depression" which could be brought on only by some sort of economic blowup. Most likely would be a snowballing derivatives failure which overwhelms the ability of governments and central banks to subdue it. It would be like an old-fashioned panic, a "run on the bank" with a mad scramble for cash; everybody dumps assets and gets liquid at the same time. This would be a deflationary event (thus, Dow 1100).
Another possibility is that there might be a sudden panic to get out of dollars and into something else. But this would be inflationary (the dollar buys less) and stocks, representing assets with intrinsic value, would likely rise (as they did, in nominal terms, in Germany during the Weimar inflation) as people struggle to preserve their wealth. So this scenario is unlikely to produce Dow 1100.
A third possibility is that the collapsing housing bubble crosses some trigger point which brings on a panic rush to liquid assets; that is, the decimation of stocks would be merely a corollary to the decimation of house prices and to the extreme stress which this real-estate plunge would place on the banks.
For a non-financial catastrophe triggering a financial meltdown, there are plenty of candidates. One might be a successful al-Qaeda nuclear attack on one of our major cities, such as D.C. (which would decapitate the federal government) or New York City, a popular target for the terrorists.
If it were in conjunction with "rebellion/revolution", a most likely candidate to affect us, it seems to me, is Mexico, where the as-yet-unsettled Presidential election might degenerate into a leftist uprising and, eventually, a military takeover or dictatorship. Imagine the effect that the closing of our border with Mexico and the turning back of hundreds of thousands of refugees clamoring to get into the U.S. would have on our economy.... certainly enough to tip our debt-laden colossus into a recession.
But "rebellion/revolution" could, in fact, occur almost anywhere, particularly in the unstable Middle East, and affect our economy. Perhaps the overthrow of the Saudi monarchy and its replacement by Islamofascists who cut off shipment of oil to the West. Or perhaps the escalating war between Israel and Hezbollah (in effect, a proxy war with Iran) widens and sucks in Syria, and the Iranians seal off the Straits of Hormuz. The price of oil doubles to $160/bbl.... can you say, "instant depression"?
Will any of this happen? Well, the Middle East is a toxic brew, but otherwise..... probably not. I mention HPH primarily as a curiosity. And if it should prove to be "right", from an investment point of view it shouldn't make a lot of difference to you, because you've already prepared for the bear market which has returned, right? You presumably have liquid investments.... cash and near-cash of the highest quality, such as T-bills and notes, with maybe some precious-metals holdings as insurance.
After all, Dow 1100 is well below "fair value",
which is currently around Dow 4000. It would take
quite a shift.... OK, a catastrophic shift.... in investor
psychology, and a rapid onset of extreme pessimism, to drive the Dow to such a depressed level by
December. Not impossible, but highly unlikely.
The Keynesian economics practiced by governments and central bankers depends on deception. As more money and credit is introduced into the economy - as "stimulus" - it is mistaken for real wealth. Consumers think they have more money to spend; businessmen think they have more customers; investors think they see more profits. Deceived, they happily expand the economy. As time goes on, however, prices catch up to the funny money and the consumer wakes up to the fact that he or she is no better off than before. The businessman finds that though he has more customers, he must also pay his workers more. And his supplies cost more, too. The investor sees that he did not really make any money; profits disappeared as costs rose and the gain on his stock barely equaled the general loss of purchasing power of the dollar. So, gradually, the old trick stops working. Money and credit may pour in, but no one is fooled. Instead, prices rise, while the economy goes limp. - Bill Bonner
1. People are angry because they majority of them are worse off than they were 4 years ago. 2. People are angry because gasoline prices are rising faster than wages. 3. People are angry because they are going deeper in debt and house prices have stopped rising. 4. People are angry because they know deep down that they are being lied to by this administration about the CPI, about unemployment numbers, and about "the good times just around the corner" that somehow never seem to get much further than the top 15-20% of the population. Would it be any different if Democrats were in charge? Probably not.... As it stands, we may as well not even have a Congress. All that matters to most of them is getting re-elected. To get re-elected they need contributions. This makes the bulk of Congress beholden to lobbyists and campaign contributions. The number of paid lobbyists is soaring and the amount they are being paid is soaring as well.... no one is looking out for the little guy. As it stands we may as well eliminate the middle man (Congress) and just elect lobbyists. They write the bills anyway. - Mike Shedlock
People just have no margin. I have a friend who is a mortgage broker. He tells me that clients will figure out their monthly budgets to within $5. That's how much they have left over after their foreseeable expenses. - Dennis Gartman
The exact course going forward will depend to a large extent on how rapidly interest rates rise, but the basic plot is easy to see. With housing construction still far outpacing the growth in households, there will be a further build-up of inventories. In addition, many people who had been holding homes in anticipation of price rises will rush to sell, now that the market is headed downward. The supply of housing will be increased further by duress sales by people who cannot afford the jump in monthly payments on their adjustable rate mortgages. In addition, the rapidly rising foreclosure rate means that many financial institutions will be auctioning off repossessed homes. The increase in mortgage delinquencies and defaults is likely to put considerable pressure on financial institutions that are heavily involved in home mortgages. Given the poor quality of many recent loans, some collapses of major financial institutions are virtually inevitable. The decline in housing prices will sharply limit the extent to which people can borrow against their home to support their consumption.... Together these effects virtually guarantee a recession, and probably a rather severe recession. Even worse, there is no easy route to recovery from a recession that results from a collapse of a housing bubble, just as there was no easy route to recover from the stock crash induced recession of 2001.... the recovery may be a long slow process. It took Japan almost 15 years to recover from the crash of its stock and housing bubbles. The crash and post-crash world will not be pretty. Millions of people will lose their jobs and their homes. Unfortunately, the economists who led us down this path are not likely to be among the ones who suffer severe consequences. - Dean Baker
Homeowners with little of their own money in their homes may think they will do what strapped homeowners in the '90s did: turn over the keys to their lender if things get really bad and walk away. But... financial experts warn that things may be different this time because so many people have refinanced. The difference is the recourse loan. In California, refinanced loans, second trust deeds and home equity lines of credit are generally considered recourse loans. In these cases, a lender can file suit and go after almost any of the borrower's assets once they obtain a court judgment. They can literally go after everything you have. - Raymond Nize
I began to wonder myself "Gee, what will happen when 10-million boomers need to sell shares to 1-million newcomers to the investment world - which is about all of the present generation that will have high enough disposable incomes to toss money into paper assets?" You know, there are record numbers of young people returning to "the nest" with moms and dads because they can't make ends meet on their own. And that's in spite of what's been touted as the best education system on the planet.... at some point, outflows become problematic. There simply aren't enough "greater fools with ready cash" to fund the baby boomer retirement at present stock prices - but that's my opinion. - George Ure
It is difficult to overstate the damage done to the world by television news. Even when not driven by political
bias - an exceedingly rare occurrence globally - television news presents a thoroughly distorted picture of the
world. Because it is almost entirely dependent upon pictures, TV news is only capable of showing human
suffering in, or caused by, free countries. So even if the BBC or CNN were interested in showing the suffering
of millions of Sudanese blacks or North Koreans - and they are not interested in so doing - they cannot do it
because reporters cannot visit Sudan or North Korea and video freely.... It takes courage to report the evil of
evil regimes; it takes no courage to report on the flaws of decent societies. - Dennis Prager
Stocks could crash in October or November, though
this is by no means guaranteed (no odds on this
yet.... check back later), and a countertrend rally in
bonds is probable. In the meantime, in my opinion
the risk of systemic failure is about 40%. I'll revisit
this number in the fall as we approach the crash
window.
A. "Inheritance" - real (normalized) "dividend distribution" portfolio:
SUMMARY - "Inheritance":
Original cost: $100,000.00 (normalized)
Present value: $111,207.21 (see below)
Increase: $11,207.21 [+11.21%]
COMMENT on "Inheritance": Quiet at last.... except for the name change from Valor to Windstream, there are no changes to the portfolio for this issue.
The portfolio cost (normalized) is $107,463.74 with $78,742.23 currently in cash or near-cash.
B. "Professors' Investment Group (PIG)" - investment club portfolio.
SUMMARY - "PIG":
Original cost: $10,699.00
Present value: $21,577.39
Increase: $10,878.39 [+101.68%]
COMMENT on "PIG": I continue to "roll over" 3-month T-bills, one per month.
C. Roth IRAs - real portfolio:
SUMMARY - Roth IRAs:
Original cost: $28,776.19
Present value: $35,310.39
Increase: $ 6,534.20 [+22.71%]
COMMENT on Roth IRAs: In the interest of saving a tree or two, I've decided not to show the rolling-over of the individual 6-month T-bills. As they are effectively cash, I now show them as a "composite" (aggregated) entry. Should I buy anything in this portfolio besides cash or near-cash I will, of course, list it individually.
D. TIAA/CREF 403(b) and (non-Roth) IRA retirement plans: My TIAA-CREF and Fidelity retirement investments, both the part from which I am making monthly withdrawals and the parts that are "resting", are invested as follows: TIAA traditional, 57.94%; money-markets, 21.74%; CREF inflation-indexed bonds, 13.35%; TIAA real estate, 4.68%; six-month T-bills, 2.79%
TIAA-CREF values, 31July2006: stock, 215.55; equity-index, 85.02; MM, 23.24; bond, 76.77; inflation-indexed bond, 46.24; real estate, 262.46; TIAA current yield in SRA, about 4.92%. Current money-market yield for CREF is 5.04%.,and for Fidelity is 4.87%. COMMENT on NYSE "Timer's Trend": We are currently on a BUY signal of July 25, 2006. Whipsawing....
COMMENT on NASDAQ "Timer's Trend": We're on a SELL signal given May 10, 2006.
NEXT ISSUE - will appear in September 2006.