Historical SUPPORT For My Prediction of Dow Below 1,000
Richard Russell On Gold and Dow
by Jas Jain
July 5, 2005

Background

Richard Russell (07/01/05): �From here on, we're forced to guess at the future of the ratio {Dow to Gold Ratio]. Will the cycle continue as it has occurred before, and will the ratio decline to 1, 2 or 3? My guess is that it will. And if so, where will gold be, and where will the Dow be?

�I'm going to hazard a guess. I think we'll see the gold to Dow ratio decline to near 1. If the ratio is going back to 1, my guess is that we'll see both gold and the Dow at around 2000 to 2500. Fantastic, impossible, absurd? Never use any of those words about the markets -- where the markets are concerned, anything can happen!�

Jas Jain (07/04/05): �I think that the ratio will be well below 1, say, 0.1-0.2. Gold above $5,000 an ounce and Dow below 1,000. ...There is nothing like a prolonged depression to bring all the skeletons out of the closets. Thus far, only token skeletons have been shown to the public just to maintain public�s confidence.

�It is the Fraud, Stupid! (That will shoot up gold into stratosphere and shoot down Dow to the ground)�

Comments from a reader: �Hi Jas ...fascinating email but very shocking. First, if we agree that the markets are manipulated, it would be very difficult to believe that "they" would destroy the market down to a Dow 2000 and ruin all their friends who own big financial houses etc. That would literally destroy not only portfolios around the world, but collapse everything�.�

Reply: No, we don't �agree that markets are manipulated;� markets are intervened to a small degree but it is the public that is very easily fooled, or manipulated. Shame on the Wall Street manipulators, but also shame on the manipulated.

Relevant Historical Facts For Dow Below 1,000

I realize that many of my market predictions look �shocking� or beyond the imagination of most people. I have not made a single prediction that is not based on identifying the relevant historical period and then make the prediction based on that period. As Mark twain so famously said: History does not repeat but it rhymes. In the case of the economy and stock markets it rhymes beautifully.

First, I needed to identify the relevant historical period and that job was made real easy by the study of the economic Longwave and the behavior of the stock market during the various completed phases of the Longwave.

Here are the time equivalences for the stock market that I have come to conclude:

1. June 1920 & August 1982 (Transition from Inflationary Recession to Disinflationary Growth)

2. Sep 1929 & March 2000 (Transition from Disinflationary Growth to Deflationary Depression)

3. June 1932 & 2006-09 (the worst of Deflationary Depression); postponement does not mean avoidance.

The stock market low during the 1932 was very close to the low during 1920. Using equivalences 1 and 3 above I expect that the low during 2000s will be very close to the low during 1982. The necessary condition for this is that we have outright deflation in prices of most goods and services that lasts at least 12 months, but likely 2-3 years. It would be impossible to avoid outright depression, under the current household debt levels, if we do have outright deflation that lasts 12-36 months.

Also, the low during 1932 was at the same level as the level first achieved 49 years before that low! Hence, we can have a low in 2013, or before, at a level that was first attained in 1964.

I fully concede that Dow will not go below 1,000 unless we have very painful outright deflationary depression that lasts minimum of 12 months but most likely 24-36 months. I know that Consumption Debt is inflationary in the present and highly deflationary in the future. This is for the very simple reason that if you borrow and consume today you must forego consumption some time in the future. This inevitable meeting with the reality can only be postponed so long; most American households will be summoned for those meetings in exponentially increasing numbers over the next 5 years.

Greenspan has already listened to and implemented �His Masters� Voice� of bankrupting at least 50% of the American middle-class households. For every bankrupt American household, the Bankrupters of New York City have already made a profit and put it in the �bank,� the US Treasury Dept. What would be American Fraudulent System without the conflicts of interests and perverse incentives? If future bankruptcy for someone equals profits for someone else without any liability what do you think will take place? What a wonderful �free market� system have we got where a person can make billions without risking a single penny of his own money and risking hundreds of billions of OPM. All human institutions can be perverted and the American Financial System is more of American Fraudulent System than not.

Dow below 1,000 and many other scary economic outcomes lie ahead. �Play It Safe!� Thank you, David Rosenberg.

Jas

© 2005 Jas Jain
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Jas Jain

Tehachapi, CA USA
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