Wednesday, August 25, 2010

About That Whole Global Economic Collapse Thingy - Part V

I note with a little interest that the Hindenburg Omen has appeared again, last Friday.  However, the authors of this Yahoo Finance article say forget that - the market fundamentals are scary enough as it is.  That's essentially my position in a nutshell.  The Omen itself predicts:
  • A 77% probability of 5% move to the downside;
  • A 41% probability of a panic sellout, down 10-15%;
  • A 24% probability of a stock market crash, down greater than 15%.

I ran across an interesting tidbit on the Economic Collapse Blog, a web site I visit now and then.  Famous "Motivational Speaker" Tony Robbins, who spent most of the 80s and 90s running late night infomercials to help us "unleash the power within" and take charge of our lives, is predicting an economic collapse. Worthwhile videos and column.

He has an interesting way of putting it.  Think of this collapse as the onset of winter.  Winter is inevitable, and just as winter can have some beautiful days (especially around here) it's typically thought of as a tough season which passes.  There's no reason you can't profit from it, if you're in decent shape now.  What does that mean?  The usual: get out of debt; have a store of value, be it food and supplies or some commodity that will be valued.  One of the reasons for the depth of this recession/depression is that people are paying off their debts at the highest rate ever.  That's actually a good thing.

They say the people who did well in the Great Depression had cash when other people were desperate to sell.  I expect the same thing this time around.  At some point, say December of 2012 (hat tip to the 2012 EOTW loonies), it will seem like things just can't go on.  Tax Riots, civil unrest in bankrupt cities that can't afford police, roving bands of looters, blood in the streets - you get the picture.  At that point, when everyone thinks it's the end of the world, that's the time to have cash and go buying. 

Let me give a testable prediction.  Here's a plot of the DJIA since New Years of 2009.  (thanks to Wealth Daily).  That pattern forming on the right is a "head and shoulders" pattern, and we are just now going over the peak of the right shoulder.  That means a fall to the downside typically equal to the difference between the top of the head at 11051 and the lows shown by the bottom green line.  This predicts that the DJIA will drop to 8000 or 8200, probably (this is the guess-y part) in 2-3 months.  Since most of the really bad market crashes have come in September or October, this could accelerate things a little and pull it to 1-2 months out.  I expect the DJIA to be in the 8000 range at Thanksgiving, for example. 

If you're listening around, you probably hear people saying the DJIA will go down to 5000.  Maybe lower.   5000 is lower than the lowest dip in this 20 month chart, which tells me it isn't very likely.  I'm not going to bet my life it won't happen, though. 

By the way, the other day I joked, "Time to get out of the market and into cash?  Why would you take financial advice from some nobody on the 'net? "  I owe it to the 3 of you to be a little serious here.  Yes, I am almost completely out of equities and have almost totally cut off my exposure to the DJIA.  I am putting my money where my mouth is. 

Be careful out there, y'all.

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