Links to other sites on the Web
"The Road to Retirement City"
A 1998-99 Stock Market Analogy, by T.Whitman
The Road to Retirement City, 1999 Style
(Chapter 3)
Abby C. and Joey B. come out of the 'November' curve, and the rain stops. The
radio blasts a Christmas tune, and they toast to the clear outlook.
"Looksh like the rain iszh gone," Abby observes.
"Here'shh ta smooth sailin' ahead," Joey blurts, as he holds out his bottle of
High P/E Whiskey.
Joey passes a bottle to Abby, and they both throw down a shot of High P/E
whiskey.
"Man that stuff's parrrful!" Joey gasps. "Let's ketch' up ta those Internut
cars that jes' went by."
Abby presses the accelerator to increase her speed.
Meanwhile, back up the road under the 'cash overpass', our frightened
pedestrians are beginning to stir as the wind starts to die down.
"Looks like 'Hurricane Impeachment' was a real wimp. What was that, a Category
zero-point- five storm?" DC says dryly. "It looks clear as a bell. I may just
jump on the next S& P bus that comes by."
"A Hurricane has an eye, DC" MK states. "This may just be the eye before it
hits again."
" I don't know how much it will strengthen ," TW answers, "But those Dow
Transport clouds still look kinda low. Only car I would hitch a ride with would
be a 'precious metals' one."
"I caught a ride on a 'silver' one a few months back," JK pipes in. "It went
the wrong way. Had to get out- I don't know if it ever got turned around or
not."
"It's probably ahead of us too by now," DC mutters.
Bull Market Highway traffic was flowing heavily again now. Vehicles of all
types were whizzing by. Some were traveling at breakneck paces, some creeping,
and a few were even going the wrong direction. A 'Nasdaq 100' bus barrels past
the pedestrians. On the destination placard it read 'P/E 100 or Bust'.
From one of the rear windows, a passenger tosses a booklet out onto the
shoulder.
"You drunk a**holes have no class!" DC shakes his fist at the speeding bus.
JK runs up to look at the discarded papers. "Check it out, guys, It's a
forecast for some kind of alternate universe called the U.S." JK begins to
read:
--------------------------------------------------------------------------------
1999, The U.S. Year in Review
and the Theory of the Superconsumer
Most wimpy journalists do a year-in-review after the events are history. Of
course, I'm no journalist, so I'm getting a head start on those guys. The
amazing inventions of word processors and the internet allow me to change the
incorrect parts later- as things get crazy.
After the bizarre events of 1998, we should be reminded that predictions are
worth about as much as shares of a penny stock. They could be worth a fortune,
but more likely will end up forgotten. Nobody can predict everything correctly,
but it's sure fun to try. That said, please do not rely on my predictions for
monetary or other gain. I make no guarantees. Offer not valid south of West
Virginia on days ending in 'y', etc.
When the Clinton scandal heated up this summer, my wife, a friend, and I had a
bet on how long Clinton would last. None of us thought he'd see the new year
still in office. The 'slick one' not only managed to hold onto power, but
actually strengthened his popularity. I believe his popularity has peaked - and
it will soon be reversing. "You can fool all of the people some of the time,
some of the people all of the time, but not all of the people all of time." His
misdeeds and corruption will become more visible to the public as time passes.
What amazes me about Clinton, is his public support. My guess is that good
economic times are blinding to people's moral vision. It has been said that
President Warren G. Harding ran one of the most corrupt executive branches in
U.S. History. Mr. Harding though, was in office during the "Roaring Twenties",
an era of easy money. His popularity hardly waned, even after several instances
of corruption in his office were exposed. The scandals evidently had an effect
on him though, as he suddenly died in the third year of his term. Calvin
Coolidge was his Vice President, and he also escaped responsibility for the
administration's misdeeds, as the economy was still humming along. He was
easily elected for the next term.
Coolidge mysteriously did not seek a second term. Coolidge's replacement, his
former Secretary of Commere, Herbert Hoover, was also elected in a landslide.
Hoover, however inherited the after effects of an easy money economy- the Great
Depression of the 1930's. He was driven from office after one, very difficult
term.
For some direction on the course of the present administration, you should
probably look at Hoover's administration. After his election, he was pressed to
aid the farmers, who were suffering from low commodity prices (sound familiar).
The laws passed had a negligible effect. Almost immediately after the farm
support laws came the Hawley-Smoot tariffs.
Corporate income had started to decline, and big business pressed for
protection from European industries. The tariffs taxed foreign goods to protect
American ones. (Is this starting to sound familiar too?) The next two major
events under Coolidge were the Stock Market crash of 1929, and the Great
Depression. Need I say more.
The executive branch's popularity is mainly derived from the people's economic
happiness. So if you want to see what the popularity of the president will be-
keep an eye on the stock market. His popularity will rise or fall with the Dow
Jones Industrials and the S&P 500. This means his 'approval rating' will
probably tank along with the end of the bull market.
The stock market, more than any other single factor- is producing a false sense
of well being in people. What's keeping this market up at these lofty levels?
Many factors are involved, but above all else is the availability of easy
money. The U.S. money supply has been increasing at unprecedented rates over
the last four years. The money has been finding it's way into the financial
markets and real estate. The result has been inflation in equities and real
estate.
Commodities, on the other hand have become quite unpopular. Pork recently hit a
low not seen since the 1930's. When adjusted for inflation, pork prices are now
actually only a fraction of their price during the depths of the great
depression. Oil is in similar trouble, and even gold is as cheap as it's been
in decades. If you believe in buying when the blood is in the streets, note
that these areas appear to be bleeding heavily.
Was there a bear market in stocks in 1998? Not by some standards - Well, friend
if you own the average stock, you are still in a bear market here in the early
part of 1999. The average stock was down 10% on the year. The large cap
technology and financial stocks managed to make big gains for the year. How did
they do this- by large increases in earnings? Unfortunately, no.
These stocks made large gains by increasing their valuations. The Nasdaq 100
(largest 100 Nasdaq stocks) are now valued at more than 80 times trailing
earnings. They are priced in anticipation of a huge boom in the economy coming.
I'm afraid there is going to be some major disappointment ahead for the owners
of these richly valued companies. The economic boom has peaked. Half of the
world is in recession or depression. The other half is living on borrowed
money. Eventually the loans have to be repaid. The day of reckoning draws
ever nearer.
Clinton, Greenspan, Rubin, and the Central Bankers will likely continue to
supply easy money to the masses. Greed is still rampant as the year begins.
Your family dog can probably qualify for his own credit card though, so there
will still be credit available to you for a while longer. There currently seems
to be no limit to the amount of debt that people will acquire.
The whole house of cards is being held together by the American superconsumer.
The superconsumer is an entity that consumes more than it produces. The
superconsumer is able to do this through debt accumulation. This works as long
as the debt is available, and the consumer is able to burden the increasing
loads of interest and principle.
The United States is the consumer of last resort. Most of the rest of the world
has already begun to experience the negative effects of super-consumption. The
continuation of super-consumption in the U.S. must continue unabated to keep
the good times rolling. I'm certain that the government knows this, so I
predict that they will continue to facilitate easy credit. The real question
is: How long can the superconsumer continue to service his debt?
To see the long term effects of super-consumption, one needs only to look west
across the Pacific, to Japan. The Japanese 'economic miracle' of the eighties
was actually a house of cards held up by super-consumption (particularly in
stocks and real estate), facilitated through debt accumulation. They have been
paying the price for their speculation for the last ten years- and the Japanese
economy continues to look grim for the future. I don't think that Japan will
recover significantly in 1999.
The forces of deflation and inflation are currently waging battle throughout
the world. In many areas inflation is the norm- while others are experiencing
deflation. Here in the U.S. 'Supertanker' economy, we are seeing both.
Inflation is apparent in certain equity and property assets and taxes, while
deflation is occurring in most goods and materials. Eventually, one will win
out, inflation or deflation. Neither is good for the future of equities.
When to return to equities is another matter. After a real bear market, many
will be reluctant to buy stocks for an extended period. The losses in incomes
that occur due to recession or depression will also keep many people out of
stocks. Economic difficulties may also cause reduced liquidity. The stock
market is likely to whipsaw wildly, similar to the last half of 1998. The long
term "buy and hold" philosophy will not work nearly as well in the future.
If one looks at the present Japanese Stock market, you can clearly see that
"buy and hold" does not always work. Though the current U.S. economic bubble
may not be as big yet as the Japanese bubble of the 80's, it is already much
larger than the U.S. bubble of the 'roaring 1920's'. Note that it was 25 years
after the Dow Jones Industrials peaked in 1929, before they again surpassed
that peak.
The timing of the bottoming process in equities will depend on the psychology
of the market and the final size of the bubble. If mass fear strikes soon, the
bottoming process may be over in 2-3 years, as in the 1930's. If the bubble
becomes larger, and/or the decline is slower and less recognized, it may take
much longer to bottom out, as Japan has in the 1990's.
Needless to say, there will be huge opportunities in equities once the bottom
has been found. Unfortunately, the fluctuations from that point will be huge in
magnitude. Buy and hold will work only if the timing is right on the buys.
Equities however, are likely to underperform for as long as 16 years, similar
probably to the period between 1966 and 1982 in the U.S.
Now for the non-economic events of 1999:
1) Republicans will bring forth sordid details in a long senate impeachment
trial. Clinton and his supporters will continue to push for 'censure', and his
lawyers will stall as long as they are legally allowed. Clinton must either
be tried, or he must admit criminal wrongdoing and work a plea bargain. His
defiant stance thus far indicates his unwillingness to confess.
Some have suggested that Clinton will stall until January 20, to provide Gore
two full terms, and then resign with granted immunity from prosecution. This
does seem logically possible, so don't count it out. If not, then look for a
long, bitter trial in the Senate. The outcome would be too close to call.
2) A cure for a previously incurable disease will be found. (Not really a big
stretch.)
3) In Professional Baseball, the highest paid team in baseball will once again
win the World Series. The owners will get greedy, and juice the ball up even
more. A yet to be determined hitter or hitters will once again challenge the
home run season record. The public will eat it up.
4) In Professional Basketball, if they can manage to work a season in- it will
be the shortest, ugliest season in memory. Virtually no one will care.
5) In Professional Football, The Minnesota Vikings will take the Super Bowl.
6) In Olympic Sports, they will introduce two new events, the Urinalysis
Decathalon and the Bribery-10K (dollars).
7) In Hollywood they throw a party and mindless sheep are the only attendees.
They don't drink too heavily, but they leave wool everywhere. The producers
decide to call it an "awards ceremony", and sell it to television.
8) Larry Flynt runs for public office as a democrat on the 'Year 2K/1st
amendment' platform, and narrowly loses. (NOTE: This only happens if Clinton
keeps his popularity high)
9) Arizona and Montana begin to talk about seceding from the Union. Militias
continue to grow in popularity, though under new names.
10) The winter of 1999 proves to be much worse than 1998 in the U.S. (Another
lay-up, it's already been worse).
11) Many other strange and unforseen events will occur in all our lives- so
"good luck" is all I can really say.
Written by T.W.
--------------------------------------------------------------------------------
"T.W., I didn't know you wrote fiction," JK says.
"Well, I don't normally, but this has a lot of parallels to real life in it,"
TW answers. "I handed some of these out back at the ball to help educate some
of the drunks- It must not have gone over too well with that one."
"Funny stuff, man. That U.S. place is even more bizarre than the Bull Market
Highway," MK chuckles. "So what are we gonna do, wait out the storm here under
the overpass?"
"I'm catching the next 'Gold based' vehicle that comes along, TW answers. "You
guys can come if you want, but if you don't want to- you ought to at least stay
under the cash overpass until the back end of 'Hurricane Impeachment' is past."
A 'gold mining' truck approaches, and TW flags it down. "I'll meet up with you
guys down at the 'big decision' truck stop, if you're not too long in coming."
He jumps in the front seat.
The 'gold mining' truck immediately turns around and starts going in the wrong
direction.
"Look, it's going the wrong way!" DC blurts out. "I knew he was crazy."
After a few minutes, the 'gold mining' truck stops and turns around again. It
accelerates as it approaches the cash underpass.
Will the three remaining pedestrians flag down the 'gold' truck? Will they stay
under the cash underpass before proceeding on foot? Will DC flag down the next
S&P 500 bus? Stay tuned to your favorite financial news source for clues.
To be continued.....
On to Chapter 4:
The Road To Retirement City: Chapter 4
©1999 M.T. Whitman
Links to other sites on the Web
Fiend's Superbear Page
Silicon Investor
Decision Point
Robotman
Yahoo Finance
IQC charts
email: twhitman@oocities.com
Get your own Free Home Page