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The other scenarios I laid out in the booklet were more pessimistic but, I felt, more realistic. Surprise! The Republicans captured the majority positions in both houses of Congress in the 1994 elections, and actually whittled down somewhat the annual increase in Federal spending. There have also been attempts at "restructuring" entitlements, of which the so-called welfare "reform" recently passed is the latest. Finally, we have Clinton's 1993 tax increase, which by static analysis was supposed to increase tax revenues, but because it knocked about 1/2% off the rate of economic growth, this was probably a wash. (The latest figures show that the percentage of the Feds' total tax take paid by the top 1% of wage earners has dropped slightly due to the 1993 tax increase.... no surprise here.... which means that we middle-class suckers are making up the difference.)
The official budget deficit for the fiscal year about to end will probably be somewhere under $140 billion.... maybe under $120 billion.... far less than the "$200-billion deficits as far as the eye can see" projected as part of the 1993 tax increase. So it would seem we are making real progress in solving the problem of our national debt, right?
Well, let's look behind the numbers. I base my calculations on the "Treasury Gross Public Debt" figures listed weekly in Barron's. Using the figures in a recent issue, a year ago TGPD (as I'll call it) was $4,967.4 billion, now it's $5,217.2 billion. This is the figure people refer to when they talk about our "$5 trillion national debt". Now, I have a simple mind when it comes to calculating the deficit, based on a reasonable understanding of what words in the English language mean, and on grade-school math, where I learned that 2+2=4. If you take the current TGPD (national debt), and subtract the TGPD of a year ago, then the difference is the budget deficit for the period, right?
Doing the calculation, the deficit for the period mid-September 1995 to mid-September 1996 is $249.8 billion, that is, almost 250 billion dollars, and this is not likely to be a substantially different figure from the one we'll have in less than a week, when the government's current fiscal year ends. How can this be, you might ask, when the official budget deficit will be well under $140 billion? Well, I find that where politicians are involved, 2+2 frequently equals 3.1, if it's something bad. (If it's something good, 2+2 may equal 5.7.) Maybe you can ask your local congresscritter, how can the national debt grow by $250 billion per year if the annual budget deficits are $120 billion? His/her answer should be interesting, but I'll bet it won't be "We cook the books".
At any rate, just how much progress are we really making on the debt/deficit problem? First, we need to correct the figures to "real" dollars. For the past year the debt has been added to with dollars that are slowly losing their purchasing power.... the current rate of inflation being about 3%.... so using 1.5% as an average, we find that the inflation-adjusted deficit for the past year is about $175 billion in current dollars, a 3.5% increase, in real terms, in the national debt for the year. This is 1/2% less than the 4%-forever scenario I projected in the "Debt Overhang" booklet, so we're making progress, right?
What's wrong with this picture?
First, in real terms, our national debt is still increasing in excess of 3% a year during what are supposed to be very good times, when we should be reducing the debt. Even in relation to GDP, debt growth exceeds the real growth of the economy by 1% per year.
Second, even the government's own figures project that we are at the "low point" for the deficit; it should begin climbing again within the next two years, and start to soar early in the next millenium as increasing numbers of baby-boomers retire.
Third, there is no margin for error. Do you really believe we are going to make it to the year 2015 with no intervening recessions? In any kind of tough times, the budget deficit, however measured, will soar as tax revenues decline and the government's expenditures increase.
Fourth, a lot of the improvement is because the government is financing an ever-increasing portion of the national debt with short-term paper at lower interest rates. What if short-term rates rise?
I won't deny that the situation has improved beyond what I originally projected; but so far, we've only pushed the moment of truth a few years further into the future.
The Federal Reserve was a heavy buyer of stock on July 16, when the Dow Jones Industrial average was down 165 points, following the previous day's decline of 165 points. This gives a new twist to the notion of "too much money chasing too few stocks."
This was the first I had heard of the Federal Reserve intervening in the markets during the July swoon, so I e-mailed to him a request for more details, who did it and how. His reply: Alan Greenspan's work and home phone numbers.
The next day, another Grabbe Internet post provided the details:
The Federal Reserve has no legal authority to intervene in the stock market. But they have been doing just that.
The existing Fed powers of conducting open-market operations in the Treasury market, of setting the discount rate for commercial bank borrowing of reserves, of establishing reserve ratios on demand and time deposits, and of controlling margin requirements governing the purchase of corporate stock -- all these are apparently not enough for Mr. Greenspan.
So he has also arrogated to himself the right to intervene in the stock market. An example of this is the Federal Reserve's massive purchase of S&P 500 stock index futures, traded at the International Money Market of the Chicago Mercantile Exchange, on July 16, 1996. The trades were executed through the brokerage firm of Merrill Lynch. At that time the Dow Jones Industrial Average had fallen about 165 points, following the previous day's decline of 165 points.
Why does Mr. Greenspan wish to promote the illusion of prosperity brought about by vastly inflated stock and other financial asset prices? Was he, on July 16, secretly working for the benefit of Bill Clinton, in an attempt to keep stock prices pumped up prior to the Democratic National Convention?
Let's consider some of the uncomfortable stock-related financial records that have been set this year:
* Stock margin loans at an all-time high.
* A ratio of liabilities to equity capital at large Wall Street investment firms near 50 to 1, as high as it's been in U.S. history.
* A dividend yield for the Dow at a hundred year low.
* A price/earnings (P/E) ratio on the S&P 500 at 22.4. This compares to a historical average of about 15, and an August 1987 high (just before the October crash) of 22.
* A P/E ratio on a group of 30 favored OTC stocks at around 170.
Do these figures make you nervous, Mr. Greenspan? Is that why you are trying to bolster the myth that stock prices always rise, and hence postpone the day of financial reckoning to some time beyond the November election? It sure looks that way.
Did some unknown authority sanction your intervention into the stock market? If so, why not make this information public, and cite your legal authorization for this activity? Why are you keeping your stock buying secret?
Now, there is credible evidence the Federal Reserve manipulated the Major Market Index to stem the 1987 Crash, so this is certainly precedent for a similar action; and I had in the meantime seen the Fed's possible manipulation of the stock market last July described in another source. Thus was I prompted to send another e-mail:
Thanks for answering my question of how the Federal Reserve manipulated stocks on July 16, even though your answer came in the form of a new post. (E-mailing me Alan Greenspan's phone numbers was not particularly helpful.)
You seem to think that Alan Greenspan is maneuvering to ensure Bill Clinton's re-election. My own opinion is that I don't think Alan Greenspan is particularly enamored of Bill Clinton, he's just trying to do his job, which is to protect the U.S. banking system.
Much as I dislike Bill Clinton's policies, it's not his fault that the country is strung out on debt; this problem goes back at least to Lyndon Johnson, and has its roots in the Keynesian efforts to money-print our way out of the Great Depression. But our debt situation is now so delicate that a meltdown in the stock market (which I rate as highly likely) could rapidly spread to the debt markets, then the entire financial system. Derivatives turned the tide in 1987, so you can't blame the Fed for using them again; whatever works, after all.
I think Greenspan is aiming to deflate the bubble slowly, similar to the decline in 1969-70. Or, for a more recent example, like the efforts by Japan's central bank in 1990 to deflate that country's financial and real estate bubble without throwing the country into depression, which have met with limited success (so far). He definitely doesn't want a rerun of 1987.
You're a derivatives expert, so you know how closely intertwined the financial markets are, and how vulnerable they currently are to an accident. The "weak link" in the chain is the stock market, so one would expect a central banker doing his job to focus his attention there. (I agree that such fixes are only temporary, for once the public draws its attention away from stocks and to another area of investment, the decline will come; the only question is, how quickly?)
Greenspan's options are few, after all; the only chance we have of continuing to finance our enormous debt load is for interest rates to gradually decline over the long term, giving us breathing space to "grow" our way out of the problem. An unwanted side effect is that stock prices reach the absurd and are highly vulnerable to surprise shocks. But no modern central banker wants to be remembered as the person who had an old-fashioned turn-of-the-century-style money panic on his watch, so if keeping stock prices propped up at these ridiculous levels is what's needed, then it shall be done for as long as the tonic works.
Grabbe's replies were brief but succinct:
Well, I say Greenspan has no idea what he is doing. He should stay out of the stock market entirely.... In economics, motive doesn't matter. And Greenspan's policy makes absolutely no sense. He's not letting the market down gently: he's maintaining the charade.
and
You are right: his options are few. But pumping up stock prices is not the way to stem a money panic -- it only complicates the problem.
On the latter point Orlin Grabbe and I agree completely. Greenspan may delay the inevitable, but only at the cost of sucking in more money at high prices, leaving people that much more distressed when the débâcle finally arrives. (And from the number of nasty e-mails I've gotten from baby-boomers expecting to get rich in stocks, just because I am urging extreme caution and a high-cash position, I'd say my influence on this point is not very great.)
Did the Federal Reserve, in fact, manipulate the stock market in July? Well, Orlin Grabbe has the expertise to know when stocks are being manipulated, and we have the 1987 precedent, so my reply would be: Probably.
Now, manipulation of the stock market by the Federal Reserve is not something I had expected when I described the outlines of the coming market meltdown in the May 1995 issue of The Contrarian's View (except possibly as it was done in 1987, near the bottom). But even the Fed is sharp enough to know not to try to catch a falling knife.... if, indeed, it manipulated a market index last July, it did so only after stocks were short-term oversold, thus responsive to upward manipulation.
When the meltdown finally arrives, the Fed's hands will be tied because the markets will be closed, and the manipulation can occur only when the markets are open. But in the meantime, the Fed does have the clout, if it chooses, to try to keep those short-term selloffs from turning into something bigger.... for awhile, anyway. Eventually, even with Fed intervention, the money being added to mutual funds will diminish, stock prices will soften, investors will become disillusioned with the miniscule return, and the prerequisites for a panic will drop into place. After the meltdown, the Fed will have its hands full trying to restore liquidity and to insulate the banking system from the panic; it's not likely to be terribly concerned with the decimated state of your portfolio.
Earlier this year I expected that stocks would reach their ultimate top by late July or early August. After the July selloff, I then felt that the market as a whole had peaked in late May/early June, but that a "flight to quality" rally would take place with a secondary top likely in July/August, with the possibility that enough cash would continue to pour into stocks to "coast" into September, and a remote possibility that the Dow and other large-capitalization indexes would see new marginal highs.
Well, the "remote possibility" has occurred (+1.9% to date), but except for the end of the "coasting" period, which could be for as long as the Fed's manipulations work, my opinion has not changed. I can hear you, my faithful subscribers, crying out "OK, Nick, when do we start counting the weeks to the crash?" My answer..... not yet. That's equivalent to asking me, when will the "coasting" period end, and my honest answer is: I don't know. The only possible answer is: When the money inflows dry up. (Just like when I was a kid, I would ask my mother, "When's dinner?", and she would reply, "As soon as the beans are done". Of course, only she knew when she would even start cooking the beans.)
Last spring I said, you could flip a coin whether the crash would come before or after the elections. Now, barring a political surprise, but based only on the unfolding economic picture, it is more likely to occur after the elections, perhaps as late as the spring of 1997. Generally, in the latter half of election years, things go "on hold" until the elections are over. The Federal Reserve is unlikely to raise any short-term interest rates in the month prior to the elections, and in the four months bracketing the elections stocks typically fluctuate no more than a few percent as the powers that be put a "rosy spin" on the economic numbers.
But events are unfolding that will cause some economic distress shortly after the elections. First, there is likely to be a "bump" in the inflation numbers in November and December as the energy-price increases which have been working their way through the economy finally show up in the statistics. Second, there is increasing upward pressure on long-term interest rates caused by our persistent trade deficit, which is being (mostly) financed by foreign buyers of our Treasury paper at less than two-thirds the rate of last spring.... a rate that's still declining.... and which means that we must increasingly "eat our own budget deficit" instead of passing it on to other countries. And finally, the normal election-year cycle, meaning that politicians prefer to take their lumps on the economy shortly after the election and well before the next presidential election four years away, plus the sharply-rising levels of personal bankruptcies and credit-card defaults which indicate the consumer is "tapped out", mean that a recession is highly likely to begin by the second half of 1997.... which the stock market will begin discounting by the spring.
So a "normal" (nonpolitical) unfolding of events would indicate that this long, rolling top would last no longer than March of 1997; and many post-election bear markets have begun in January of the new year. This would make the period similar to the major market top of the late 1960s: Most stocks, particularly the equivalents of today's "high-tech" wonders, peaked in 1968, but the blue chips didn't finally top out until March of 1969.
But stocks are so strung out that an untoward political surprise could quickly send them to the cellar. And what do I mean by a "political surprise"? Well, for example, the indictment of Hillary Clinton, which would instantly make Bill a president with zero credibility (assuming you feel he has any credibility in the first place). The conventional wisdom is that, even if indictments against Hillary are forthcoming, Starr would never dare put himself in the position of being accused of influencing the elections by passing down indictments beforehand. I find the Internet chatter is really noisy on this point, with a number of people claiming to have "inside info" that indictments will be handed down in October. I doubt it.... time will tell.
Another "political surprise" could be an unexpected twist in what could turn out to be a very dangerous war with Iraq. What could have possessed our president to start a war without the backing of our allies, without sufficient firepower in place, with inadequate protection for the ground troops which are present, with no vital interests at stake and with no clear objective in mind? This is how we got sucked into the war in Vietnam.... Lyndon Johnson was snookered by a military establishment which grossly underestimated the tenacity of the enemy, based on an incident (Gulf of Tonkin) which ultimately was proved bogus. The buildup (such as it was) before the first missile attack on Iraq had been going on for two months... this escapade was intentional and planned, apparently withought much thought of the consequences (other than a pop for Clinton in the polls).
Pinpointing a market top is an art, not a science, and I do the best I can based on my experience and the available evidence. I don't want to end up like Chicken Little.... you know, "The market will crash! The market will crash!" ad nauseum, to the point where, even when it does crash, my warning will have been so premature as not to be believable. (Even a stopped clock is right twice a day.) Based on valuation measures, stocks could easily have crashed in the fall of 1995, the first likely period I pegged for this event. But it is mute testimony to the power of the baby-boomers saving for retirement that, not only did stocks not crash last year, they have continued further modest increases in prices to the present. (It is also mute testimony to the power of the government to create a tax dodge.... boomers buy their houses, cars and durable goods on their home-equity lines of credit, where the interest is tax-deductible, while adding to their tax-deferred retirement plans. This looks good for as long as the net return on stocks exceeds the cost of carrying the home-equity loan.)
If I feel frustrated, it is not because I have been unable to precisely predict when the ultimate top will occur. I feel frustrated because I seem unable to convince people to be cautious during a time when their accumulated wealth is at great risk. Recall the fairy tale of The Emperor's New Clothes, where everybody can see the emperor is naked, but it takes a young boy speaking the truth to destroy the illusion. Well, I feel like that young boy, speaking the truth, but unlike that boy I am unable to destroy the illusion.
In past issues I have pointed out how, historically, already-overvalued stocks were unlikely to rise further, only to see them far surpass the peaks of valuation seen in 1929. I have presented the depressing mathematics of likely total return (negative!) over the next decade, even if stocks remain overvalued, only to have people tell me that stocks will continue to rise at 15% per year forever. I have warned that a very major bear market is likely if for no other reason than stocks have so far to fall just to reach fair value (generally, the maximum level of a bear-market bottom). I have pointed out that stocks are the only major asset class not undergoing deflation, and are "out of sync". I have warned of the high levels of debt and of the derivatives foolishness that are feeding the boom, only to be given blank stares.... as if this is normal. I have warned that the mutual funds' promises of always being liquid are bogus and dangerous, only to be branded as a crackpot. I have described the Japanese bear-market experience, only to face a "who cares?" attitude.
The Contrarian's View is offered free on the Internet, so people who are receptive to having their eyes opened can read, think, and decide for themselves. But there's not much else I can do to lift the film from peoples' eyes.... I don't have the resources, for example, to run a big ad in Barron's (and even if I did, people would probably blame me for triggering the crash).
I feel frustrated because I know, and have lived, the pain that comes with a stock-market downturn and recession, yet I cannot get people to believe that it could happen to them. But this is the nature of the capitalist system; when things turn downward, most everything turns down together. The stock market does not decline, disconnected from the economy, while the rest of life goes on as normal. When stocks enter a big bear market, the economy also tanks; businesses cut employees; and you may find yourself standing in an unemployment line, just as I did back in 1975. You don't need your excess capital when times are booming and your finances are secure; that's why you keep it in the market. But when times are tough, and you need to draw on your capital to make it through, you don't want to find it's lost half or more of its value in a vicious bear market.
So please, please, for your own sake and the sake of those whom you love, if you have not already done so, move your savings (including retirement savings) to the safety of cash or cash equivalents until the storm clouds have passed. If I am wrong, you will make, maybe, 10% to 12% on your money over the next two years, against the maximum risk of "losing out" on the chance that U.S. stocks will duplicate the performance of Japanese stocks in the late 1980s... up by half to P/Es of 40 or 50. But if I'm right.... and I believe I am.... your caution may mean your survival.
For another view on the current riskiness of stocks, here follows a recent Internet post by Orlin Grabbe:
What is believed to be obviously true now (steady or increasing real growth rates of GNP, record cor-porate earnings, low inflation, steady commodity prices, stable and sound financial institutions, and widespread peace under a "new world order") will a year from now be viewed as obviously false in light of the "facts" (declining real GNP, falling corporate earnings, inflation in some sectors accompanied by deflation in others, wildly gyrating commodity prices, extended problems in the banking and in-surance sectors, a renewed crisis in the savings and loan industry, and "old world chaos" in the Middle East and in the area of the former Soviet Union).
Not because the world will have really changed that much in a year. But perceptions of what is happening will be radically different. Some might say, more realistic. According to the Swiss economist Eugene Boehler, the "modern economy is as much a dream factory as Hollywood." It is based only a small part on real needs, and for the greatest part on fantasy and myth. The stock exchange, far from ruling economic life, is at the mercy of tides of collective fantasies. Depressions come about when there is a loss of economic myth (Eugene Boehler, "Der Mythus in der Wirtschaft," Industrielle Organization, XXXI, 1962.)
An example of the Hollywood dream factory at work was this year's Democratic Convention in Chicago. We were lead from the sideshow entertainment of an actor in a wheelchair, then cast down into the tear-jerking death-throes of Al Gore's drug-addicted sis-ter, but finally swept upward in the euphoric cross-ing of the 21st century bridge behind Pied Piper Bill Clinton. Or that was the intention, anyway. The grand climax was instead punctured by the reality of politics as usual. Dick Morris -- Clinton's closest advisor, whom Time magazine had originally intended to depict as Clinton's brain on its cover --was found shacked up with a hooker, confiding to her that Bill was a "monster" and Hillary a "twister", and that he had handled the details of secret Saudi Arabian side-payments to the President.
The dream view of the stock market is, of course, at variance with the prevailing doctrine of "rational expectations." Rational expectations began as an extremely useful view of price equilibrium created by John Muth ("Rational Expectations and the Theory of Price Movements," Econometrica, July 1961). But it grew into a cult view that all economic and financial decisions were "rational" in a quite different sense than originally proposed by Muth.
The essence of rational expectations can be grasped by imagining a long line of cars waiting for a traffic signal to turn green. When the light turns green, the entire line begins moving at once, uniformly accelerating through the intersection. And why not? After all, each person waiting in the line knows the light is about to change from red to green. Each person knows that each other person in the line knows this also. And they all know they will get through the intersection faster if they all move together. So each expects the other to rationally act as he himself does, and they all make it through the light before it turns red again.
People with these expectations are called "rational" in economics. In real life, they are known as "fender-benders". Because in real life, traffic doesn't behave this way, and neither do people. There will always be the curmudgeon who has just broken up with his girlfriend and is staring out the side window at the marquee of a topless bar, oblivious to the horns blowing behind him. The Russian novelist Fyodor Dostoyevsky explained it best more than a hundred years ago. One of his characters describes the new (rational) economic world order:
'Then,' (this is all of you speaking), 'a new political economy will come into existence, all complete, and also calculated with mathematical accuracy, so that all problems will vanish in the twinkling of an eye, simply because all possible answers to them will have been supplied. Then the Palace of Crystal will arise.Current stock prices, which (except for a severe downturn in the first half of 1994) have been rising ever since the Gulf War, have ridden a vision of new-found American strength, our return as the world's policeman, putting down the evil Saddam Hussein, and bringing lasting peace to Bosnia. With the demise of the Soviet Union, the vision saw the U.S. leading a resurgent United Nations to a political solution of all the world's ills. But this was only an idea, a voluntary con. The U.S. intercession in Bosnia quietly overlooked the Russian intrusion into Chechnya. The U.S. reaction to Iraq's intrusion into the Kurdish zone equally overlooked the Turkish intrusion into the same area. The U.S. cannot dictate either Japanese trade policy or Chinese missile sales. And so on. A false illusion that began with Saddam Hussein is likely to end with Saddam Hussein. After all, for all its saber-rattling, the U.S. needs Saddam to avoid an Iranian takeover of the Middle East.
Then [blah, blah, blah] . . . 'Well . . . why shouldn't we get rid of all this calm reasonableness with one kick, just so as to send all these logarithms to the devil and be able to live our own lives at our own sweet will? . . . One's own free and unfettered volition, one's own caprice, however wild, one's own fancy, inflamed sometimes to the point of madness - that is the one best and greatest good, which is never taken into consideration because it will not fit into any classification, and the omission of which always sends all systems and theories to the devil. (Notes from Underground, 1864.)
It is inevitable that such punctured illusions will puncture the inflated balloon of asset prices. Starry-eyed investors who see the owning of mutual funds as the sure way to new-found wealth, would prefer to quietly overlook what has happened in Japan since 1989. In 1989 the Nikkei 225 reached 39,000. From that peak, it fell 64 percent by mid-1992. Each dollar invested had turned into thirty-six cents. An equivalent fall in today's Dow Jones Industrial Average (say from 5850) would leave it at about 2100. The carnage on Wall Street would be something to behold.
As is probable in the U.S., the Japanese inflation in asset prices was followed by a restriction in the money supply. The rate of growth of the Japanese real money supply, which had come to exceed 10 percent in 1989, fell to minus 2 percent by 1992, a year in which industrial output fell by 8 percent, the worst since the oil shocks of the mid-1970s. At its peak in 1989, the Tokyo stock market was valued at more than Yen 500 trillion ($3.6 trillion), or about 30 percent higher than the listed value of all U.S. companies. Japanese stock P/E ratios stock were 70 to 1 in 1989, then fell to 38 to 1 in 1992, but by end of 1993 were back above 70 to 1 because of falling corporate earnings.
The drop in land and stock values put the Japanese banking system into jeopardy. No one any longer thought the land around the Imperial Palace was worth more than all of California. Corporate stock, which was held as part of bank capital, and fluctuates with the market, became one of the reasons the Ministry of Finance in early 1993 used money from the postal savings system to purchase stock in an attempt to bolster stock prices. (The difference between Japan and the U.S. is that the U.S. Federal Reserve has recently intervened to purchase stock at a market peak. This in itself will exacerbate the ensuing crash in the U.S.)
But things seemed different in the late 1980s in Japan. There was an image, supported by continued credit creation, that land and stock prices would always rise. Equity-linked corporate finance, such as convertible bonds, seemed destined to drive the cost of capital to almost zero. Equity and equity-related sources of funds for manufacturing companies rose from 25 percent in the first part of the 1980s to 70 percent by 1989. Forty percent of the funds raised by manufacturing companies were then invested in other financial assets. And as banks' lending base to manufacturing fell (from 50 to 16 percent), the banks began lending to households, property companies, and service firms to make up the slack. The latter in turn invested in land and stocks, because their prices, it was thought, would continue to go up. In 1989 the Bank of Japan helped bring the party to an end.
In the U.S., the recent rise in stock prices has been fueled by a shifting of household assets into stocks and stock mutual funds. The average household exposure to stocks is the largest it has been in U.S. history -- larger than before the 1929 crash.
"Speculative excess, referred to concisely as a mania, and revulsion from such excess in the form of a crisis, crash, or panic can be shown to be, if not inevitable, at least historically common" (Charles P. Kindleberger, Manias, Panics, and Crashes: a History of Financial Crises, 1989). Financial crises are often associated with the peaks of a business cycle. Booms in asset markets (stocks and bonds) are generally aided by an excess increase in the supply of money, which is then inevitably restricted because of rising inflation.
The slow decline of the French bank Crédit Lyonnais is a foretaste of similar things to come in the U.S. The S&L bailout of the 1980s may turn into an attempted massive government/FDIC bailout of the U.S. banking system by the turn of the century. Distortions equivalent to those seen in the S&Ls have been created in the banking system by the presence of federal deposit insurance. The existence of deposit insurance has isolated banks from market discipline in lending. It has allowed banks as well as thrifts to engage "with impunity in all manner of excessive risks -- foreign exchange speculation (Franklin National), speculative energy loans (Penn Square), inadequately investigated loans (Continental Illinois), insider loans (the Butcher banks), uncollectable Third World loans (almost every top ten bank) and so forth" (J. Huston McCulloch, "Bank Regulation and Deposit Insurance," Journal of Business, January 1986).
The U.S. government has written enormous amounts of unhedged put options on bank assets, and will be faced with a massive increase in insurance obligations at the same time tax receipts are drastically reduced by a declining economy. Thus federal government quasi-defaults (mandatory roll-overs of debt) are likely. Interest paid on the debt is already one of the largest categories of the U.S. federal budget.
Currently, government debt is largely in the hands of professional portfolio managers. So the usual temptation of a central bank, such as the Federal Reserve, to reduce the real value of federal debt by inflation is restricted. Any hint of a move toward an inflationary policy will lead to massive dumping of government securities, which will drive up long-term nominal and real interest rates. Marginal borrowing rates of both government and industry will rise. The U.S. may attempt to maintain revenue through tax hikes. (In 1929 the top income tax rate was 25 percent, but had increased to 63 percent by 1935, and by the end of World War II was at 93 percent.) But such efforts may not succeed, during a time when the abolition of the IRS has become increasingly popular.
The ensuing credit crunch will hit industry hard, as the banking system becomes a circular conduit for government funds -- receiving payments of deposit insurance, and (perhaps forcibly) purchasing government securities as assets. Base capital requirements currently give a zero-risk weighting to OECD government obligations. One of the consequences of this requirement has been an increased incentive for U.S. banks to purchase U.S. government bonds or similar obligations to conserve on capital usage, to the exclusion of corporate lending.
As securities are dumped, the mark-to-market value of banks' remaining assets will fall. A similar process occurred at the beginning of the 1930s: "Banks had to dump their assets on the market which inevitably forced a decline in the market value of those assets and hence of the remaining assets they held. The impairment in the market value of assets held by banks was the most important source of impairment of capital leading to bank suspensions, rather than the default of specific loans or of specific bond issues" (Milton Friedman and A. J. Schwartz, A Monetary History of the United States, 1867-1960, 1963).
There will be bank failures. Having the Federal Reserve as a lender of last resort will not prevent this. Canada, without a lender of last resort between 1930 and 1931, did not suffer any bank failures. The U.S. suffered thousands. This was partly because Canada allowed branch banking nationwide. In the U.S., a legacy of prohibitions against branch banking have impacted both the asset and the liabilities side of banks' balance sheets. Because banks do not branch nationwide, they are more vulnerable to banking runs in a particular section of the country. Because banks are local, they have overspecialized in local loans -- to oil and real estate in Texas and Oklahoma, to timber in the Northwest, to farmers in the Midwest. The money center banks, meanwhile, may have overextended themselves in international directions.
What are some of the other likely consequences? Consider the declines of 1929-1932 and 1973-1974. On September 3, 1929 the closing high on the Dow Jones Industrial average was 381.17. Three years later, on July 8, 1932, it reached a low of 41.22, or 10.81 percent of its previous level. In January 1973, the Dow Industrials reached a closing high of 1061.14. Less than two years later it closed at 572.20, or 53.92 percent of its previous level. Using a hypothetical figure of 5850 for the Dow Jones Industrials, these same percentage drops imply Dow Industrial levels of 632.39 by analogy with 1929, or 3154.32 by analogy with 1973. The first would imply a drop of over 5200 Dow points, while the second would only imply a drop of 2695 points. Either would be serious.
Stock investments take place under the influence of an overriding image of the future. The economist Kenneth Boulding wrote: "A decision is essentially a choice among competing images of the future, . . . and with the development of complex images of the future, decisions become an increasingly important element in the dynamics of the individual human being and his society.... The human race is not merely pushed by past events or present circumstances, but it is also pulled by its own images of the future into a future, which may not be the same - and in fact is not likely to be the same - as its images of it, but which is nevertheless powerfully affected by those images" (Ecodynamics: A New Theory of Societal Evolution, 1978).
The changed image of the future that brings about a stock market crash will bring about a concomitant fall in business investment, this decline to be reinforced by government deficits and a banking crisis. Decreased employment and a declining industrial output will follow. At the beginning of the Depression of the 1930s, Keynes wrote that in "the fall of investment . . . I find - and I find without any doubt or reserves whatsoever - the whole of the explanation of the present state of affairs" (John Maynard Keynes, "An Economic Analysis of Unemployment," 1931).
International political consequences may be the most tragic of the coming U.S. asset price deflation. Following World War I (the Great War), disruptions caused by the war itself, followed by the collapse of the Austro-Hungarian empire, lead to hyperinflation and social revolution in Germany and Eastern Europe. When the U.S. went into depression following the 1929 crash, and the depression spread internationally, the German Weimar Republic (1919-1933) gave away to National Socialism. Today a similar process is evidently taking place in the remnants of the Soviet Union. The rise of a new dictator in Russia of the order of Stalin seems assured.
Carl Jung noted that times of major change are accompanied by symbols of transformation (Carl Jung, Symbols of Transformation, 1976). Among other things, these include socially-observed "signs in the heavens" (Carl Jung, A Modern Myth of Things Seen in the Skies, 1969). Through the influence of archetypal processes, the attention paid by the popular media to the unexpected or the unexplained greatly increases. The fin-de-siècle timing of the economic downturn will undoubtedly generate an excess of eschatological fervor. At the last major economic downturn, toward the end of 1973, the public eagerly awaited the arrival of the comet Kohoutek and leading newspapers carried reports of space creatures seen in Pascagoula, Mississippi. Today we observed the popularity of the "X-Files," the movie Independence Day, and speculation about cosmic debris causing catastrophe on earth (e.g. Arthur Clarke's The Hammer of God).
Given that the technological myth of space visitors is already ensconced in the popular imagination, the arrival of extraterrestrials either to save us or to destroy us will also be widely anticipated.
But one thing is for sure: Bill Clinton will not be around to lead us out of Egypt, and across the 21st century bridge into the Promised Land.
- J. Orlin Grabbe, September 15, 1996
The fallacy in this argument is that stock prices must drop because they have risen at such a rapid pace over the past 15 years. P/E ratios, however, are not drastically out of line from historic levels. Stock markets fall because earnings do not warrant the current price level. So if we are to have a major falloff in stock prices, one must also rationalize severe economic conditions that could cause the requisite earnings drops. Otherwise, with earnings still intact, savvy investors looking for bargains will quickly bid up stock prices again.
The world is not the same as it was in 1929. Nor is it even the same as it was in 1973-74. For starters, we have a much wiser Fed, the end of the cold war which drained the country's resources, etc etc. To argue that stock prices are going to drop soon simply because this happened in the past is faulty logic.
Me, I'm fully invested.
- David Debertin
And Eliades' reply was:
Sorry, Mr. Debertin, wrong, wrong, wrong! The market never was a function of earnings alone, but rather a much more psychological animal than that. Perhaps some history will help you with the facts.
Within a few months after the end of 1972, we knew that the earnings for the Dow Industrials for the year 1972 were $67.11. What if I told you then, in the first quarter of 1973, that the Dow earnings for 1973 would be $86.17 and the earnings for 1974 on the Dow would be $99.04? That works out mathematically to an improvement of 28.4% from 1972 to 1973 and a further improvement of almost 15% from 1973 to 1974. Overall, from 1972 to 1974 it represented a stunning 47.6% growth in Dow earnings.
I can see you salivating now in anticipation of the appreciation that would occur on the Dow with that kind of earnings explosion. Whoops!! How the hell could the market fall almost 50% in the face of such an explosion in earnings?
No one ever put a corporation's stated earnings in his or her pocket. That's why the real valuation factor always was and probably always will be dividend yield. It has never been this low in history and that tells you very simply that the market has never been this overvalued in history. Mind you, it does not tell you when the top will occur or how low the dividend yield could ultimately go, but you are best advised to look at your market history. If you are waiting for an indication of lower earnings before you sell your stock(s), history tells us you will be one sorry investor.
I apologize if I sound somewhat smart-ass about this, but I consider myself an excellent market historian and I can't let your incorrect assumptions on the relationship between earnings and stock prices go unanswered.
- Peter Eliades
Earlier this year, Eliades also provided an interesting analysis of "buy-and-hold" investing:
....I want to respond in as strong a manner as possible to the great fiction of the times:" Invest for the long term because it is impossible to time the market. In the long term stocks always go up."
What everyone who presents data to prove that thesis fails to report is that the stocks that go "belly-up" within market indices and averages are subsequently ignored. The indices that have included some of those stocks are revised to include a new stock(s), but no allowance is made in the index for the stock(s) that have expired into bankruptcy. Not too much of that has happened lately, of course, not in a 21-plus-year bull market, but the following story might give you an idea of the deception behind those statistics relating to past history.
I found the story in a booklet called Charting the Markets by Richard Palmer of San Diego, CA.
Adam Smith in "The Money Game" tells the following story that illustrates the potential perils of investing for the long term.
A certain Timothy Bancroft had been shrewd enough to come through the Panic of 1857 unscathed. His experience [of holding on despite any market panics or crashes] convinced him that the only way to invest was to "buy good securities, put them away and forget them." These companies should, of course, be companies dealing in essential goods and services that "the Union and the world will always need in great quantity." Mr. Bancroft died leaving an estate of $1,355,250 in untaxed mid-nineteenth-century dollars. Not a small fortune at that time when an eight-course meal at Delmonico's cost less than a dollar.
Mr. Bancroft bound up his portfolio so carefully that it was some time before his heirs could get their hands on it. When they did, the shares of Southern Zinc, Gold Belt Mining, Carrel Company of New Hampshire, and American Alarm Clock Company [all the bluest of blue chips in their time] were all worth zero, as was his entire estate.
Because I feel very strongly about the market's inherent risk, I would urge you to read that story more than once and then react appropriately to the next person who recites to you the virtues of long term buy and hold investing. Be careful out there, please!
- Peter Eliades
The same survivor bias that exists in the indices also exists for investors' investment vehicles of choice, mutual funds. For example, the 30-odd investment trusts which survived the Great Depression (as closed-end funds today) have respectable long-term track records. Tough luck for you, though, if back in the late-1920s you put your money in one of the other 700-odd trusts that disappeared without a trace.
Now, just to get you really depressed, we conclude with comments on the stability of the financial system made by Lyndon LaRouche, from an interview he gave last July, after the 300-point stock-market selloff (my printing this does not necessarily mean that I agree with it):
One should look at the stock market as a fever symptom of something else. There's much talk that it's the stock market, or, in the beginning, the bond market. Now, all these things, obviously, are affected by what's going on. The entire financial world is affected by what's happening. But, what is happening is not a "stock market problem." It's a problem of banking.
The world has been functioning, for some period of time, most emphatically since 1987, since the '87 crash, on the basis of derivatives, wild kinds of speculation. Now, derivatives, essentially, are not investments, they're really side bets. They are gambling side bets introduced into the domain of finance.
Side bets are based on betting how money is going to flow. And, therefore, the whole system depends on what's called leverage, where the world is dominated by a vast financial bubble. Typical is the fact, that, of the total financial turnover on world markets today, about 99.5% is devoted to pure financial speculation, as opposed to a mere one-half of one percent of the total financial turnover devoted to trade. That's our problem.
Now, what happens, therefore, in order to keep the bubble going, the financiers have to do everything, especially hocking {your} grandmother. Not theirs -- they'll do that, too, but your grandmother comes first, and selling her, what not, in order to raise a bit of cash.
Now, the way this is done, is you take away her insurance. She puts her pension in mutual funds, and the mutual funds gamble on the stock market or on the derivatives market; they go bankrupt, and Grandma loses her pension. That's the nature of the general process.
So, the whole system depends upon this looting process. Looting pension funds, looting this, looting that. And, it's all done very self-righteously. It's done through methods such as Gingrich's methods: the methods of cutting everything in order to save more money, government money and other money, to be invested in this vast bubble of speculation.
So, inevitably, since the speculative bubble, by looting the economy, is shrinking it, this means that the more the bubble grows -- that is, the bigger the financial load becomes -- the more financial leverage is required to keep it from popping. And thus, the greater the pressure is on to loot and drain all kinds of resources, in order to keep the bubble going. It's like Grandpa giving away his week's pay on the way home from work for gambling, then going into hock, then hocking the house, then selling his children and then grandchildren into slavery, and so forth, to try to cover his gambling debts. And, that's what's happening on a global scale.
The big financial bubble, derivatives, is gambling. It's side bet gambling. In order to keep his place at the table, Grandpa, the gambler -- in this case, a Yuppie running a mutual fund in New York City, for example -- has to bring more money every week to the table to cover his position. Otherwise he's out of the game. He's wiped out. So, he has to steal people's money to do it. Money from pensions, money from wages, liquidate corporations. Gamble away your investment, and that sort of thing.
What is happening, therefore, is that we've come to the point that there is a cash shortage throughout the system. That is, a shortage of sufficient new floods of cash to bring to the gambling table, in order to keep the bubble going, and to keep the game going. That pressure is reacting back upon all markets.
As a result, you have a cash crisis, that is, inadequate cash to keep the system going under present circumstances, which is hitting hardest at the one institution which supplies money into the system, that is, the banking system.
What you're looking at, is {not} a stock market crisis, {not} a bond-market crisis, not just a derivatives crisis: {you're looking at a banking crisis, a global banking crisis which could threaten, in the fairly short term, to blow out the entire international banking system.} So there are no banks, virtually, and in which money circulation becomes doubtful, because of the hyperinflationary effects, or chaotic effects of any kind of crisis of this type, if it's uncontrolled, if government doesn't act to put the whole system into receivership.
So, the point is, unless the system goes into receivership, we're looking at a major banking crisis, with all kinds of side effects coming up front in the near future, and, beyond that, if we don't put the banking system into receivership, globally, that is, the IMF and so forth, then we can look at the whole system blowing out down the line.
A. "Phoenix" -real portfolio, begun on October 1, 1995.
Original cost: $ 8,090.45
Present value: $ 7,950.07
Increase: $ -140.38 [-1.74%]
Yield: $ 311.53 [3.87%]
The performance of this portfolio and its predecessors ("Hedger's Delight", "Present and Future Income", "Crapshooter's Folly") from January 1987 to the present is +11.43%, for a compound annual rate of return of 1.12%.
B. "Professors' Investment Group (PIG)" - investment club portfolio.
COMMENT on "PIG": There is no change from the last issue. Note, though, that this very volatile portfolio has fully recovered from the July paper losses; most positions show a profit. Since I am no longer acting treasurer of the group, I don't have at my fingertips the dollar total put into the portfolio and thus can't track the net gains or losses.... but I think you'll be able to see how the PIGs are doing by watching the individual stock positions.
C. Fidelity IRA - real portfolio, includes commissions:
SUMMARY - IRA:
Original (1983-86) cost: $ 8,326.19
Present value: $18,881.57
Increase: $10,555.38 [126.77%]
Current yield: $ 886.95 [4.49%]
The performance of this portfolio (including its predecessors) from January 1, 1987 to the present is +72.16%, for a compound annual rate of return of 5.74%.
F. CREF Pension plan; I switch between indexed stock/bond/money funds:
Date Sold Bought
13Mar92 stock @ 56.65 MM @ 13.41
29Apr92 MM @ 13.48 bond @ 31.19
19Jun92 bond @ 32.14 MM @ 13.55
29Jun92 MM @ 13.57 stock @ 56.74
24Jul92 stock @ 56.76 MM @ 13.61
29Oct92 MM @ 13.72 stock @ 58.61
23Dec92 stock @ 61.48 MM @ 13.78
16Jan95 MM @ 14.83 equity-index @ 26.44
20Jan95 eq-index @ 26.19 MM @ 14.84
Values, 30Sep96: stock, 102.50; MM, 16.28
Gain, 1988: 18.91%; 1989: 14.48%; 1990: 8.28%; 1991: 27.93%; 1992: 10.20%; 1993: 3.08%; 1994: 4.07%; 1995: 4.80%
Gain, January 1 through June 30, 1996: 2.57% (5.21% annual rate)
Total gain since January 1, 1988 (8.5 years): 139.63%
Compound annual rate of return: 10.83% (My long-term target: in excess of 15%)
Gain shown excludes the impact of additional monthly cash contributions.
Buying CREF stock on January 1, 1988 and holding it gained 218.89%, for a compound annual rate of return of 14.62%.
COMMENT on "Timer's Trend" : After a summer of whipsaws, the September 6 "Timer's Trend" buy signal was a good one (so far).... but this is, of course, irrelevant, because everybody should be out of stocks now.
{, } = "Timer's Trend" (4% and 10% exponential) SELL ({) or BUY (}) signal
=============================TIMER'S TREND===========================
Mon 18 Mar 96 . | . # }| 5683.60 |~.+~~~~~~~~~~~~~~~~~~~~~~~~~~~~~*
Tue 19 Mar 96 . | .# | 5669.51 | . + *
Wed 20 Mar 96 . | .# | 5655.42 | . + *
Thu 21 Mar 96 . | # | 5626.88 | . + *
Fri 22 Mar 96 . | .# | 5636.64 | . + *
Mon 25 Mar 96 . | .# | 5643.86 | .+ *
Tue 26 Mar 96 . | .# | 5670.60 | .+ *
Wed 27 Mar 96 . | .# | 5626.88 | .+ *
Thu 28 Mar 96 . | # | 5630.85 | .+ *
Fri 29 Mar 95 . | # | 5587.14 |~.*~~~~~~~~~~~~~~~~~~~~~~~~~~
Mon 1 Apr 96 . | . # | 5637.72 | . + *
Tue 2 Apr 96 . | .# | 5671.68 | . + *
Wed 3 Apr 96 . | .# | 5689.74 | . + *
Thu 4 Apr 96 . | . # | 5682.88 | . + *
Mon 8 Apr 96 # . I . {| 5594.37 | + *
Tue 9 Apr 96 . I .# | 5560.41 |~+*~~~~~~~~~~~~~~~~~~~~~~~~~~
Wed 10 Apr 96 . I# . | 5485.98 |+.~~~~~~~~~~~~~~~~~~~~~~~~~~~
Thu 11 Apr 96 . & . | 5487.07 + . *
Fri 12 Apr 96 . I . # | 5532.59 + . *
Mon 15 Apr 96 . I . # ]| 5592.92 | .+ *
Tue 16 Apr 96 . | . # }| 5620.02 |~.+~~~~~~~~~~~~~~~~~~~~~~~~~~~~~*
Wed 17 Apr 96 . I # | 5549.93 | . + *
Thu 18 Apr 96 . | . # | 5551.74 | . + *
Fri 19 Apr 96 . | . # | 5535.48 |~.~~*~~~~~~~~~~~~~~~~~~~~~~~~
Mon 22 Apr 96 . | . # | 5564.74 | . + *
Tue 23 Apr 96 . | . # | 5588.59 | . + *
Wed 24 Apr 96 . | . # | 5553.90 | . + *
Thu 25 Apr 96 . | . # | 5566.91 | . + *
Fri 26 Apr 96 . | . # | 5567.99 | . + *
Mon 29 Apr 96 . | .# | 5573.41 | . + *
Tue 30 Apr 96 . | .# | 5569.08 | . + *
Wed 1 May 96 . | . # | 5575.22 | . + *
Thu 2 May 96 . #I . | 5498.27 |*.+~~~~~~~~~~~~~~~~~~~~~~~~~
Fri 3 May 96 . I # | 5478.03 |~.+~*~~~~~~~~~~~~~~~~~~~~~~~~
Mon 6 May 96 . I #. | 5464.31 | + *
Tue 7 May 96 . I# . {| 5420.95 |~+~~~~~~~~~~~~~~~~~~~~~~~~~~~
Wed 8 May 96 . I #. | 5474.06 |+. *
Thu 9 May 96 . I .# ]| 5475.14 | + *
Fri 10 May 96 . | . # }| 5518.14 | .+ *
Mon 13 May 96 . | . # | 5582.60 |~.~+~~~~~~~~~~~~~~~~~~~~~~~~~~~~*
Tue 14 May 96 . | . # | 5624.71 | . + *
Wed 15 May 96 . | . # | 5625.44 | . + *
Thu 16 May 96 . | .# | 5635.05 |~.~~+~~~~~~~~~~~~~~~~~~~~~~~~~~~*
Fri 17 May 96 . | . # | 5687.50 |~.~~+~~~~~~~~~~~~~~~~~~~~~~~~~~~*
Mon 20 May 96 . | . # | 5748.82 |~.~~+~~~~~~~~~~~~~~~~~~~~~~~~~~~*
Tue 21 May 96 . | .# | 5736.26 | . + *
Wed 22 May 96 . | . # | 5778.00 | . + *
Thu 23 May 96 . | # | 5762.12 | . + *
Fri 24 May 96 . | .# | 5762.86 | . + *
Tue 28 May 96 . |# . | 5709.67 | .+ *
Wed 29 May 96 . & . | 5673.83 | + *
Thu 30 May 96 . | .# | 5693.41 | + *
Fri 31 May 96 . I #. | 5643.18 |~*~~~~~~~~~~~~~~~~~~~~~~~~~~~
Mon 3 Jun 96 . I #. | 5624.71 |+.~~ *~~~~~~~~~~~~~~~~~~~~~~~~
Tue 4 Jun 96 . | . # | 5565.71 |~ +~~~~~~~~~~~~~~~~~~~~~~~~~~~
Wed 5 Jun 96 . | . # | 5697.48 |~. +~~~~~~~~~~~~~~~~~~~~~~~~~~~~*
Thu 6 Jun 96 . | #. | 5667.19 | .+ *
Fri 7 Jun 96 .# I . {| 5697.11 | + *
Mon 10 Jun 96 . I #. | 5687.87 | + *
Tue 11 Jun 96 . I #. | 5668.66 | + *
Wed 12 Jun 96 . I# . | 5668.29 |+. *
Thu 13 Jun 96 . & . | 5657.95 + . *
Fri 14 Jun 96 . I# . | 5649.45 |+. *
Mon 17 Jun 96 . I# . | 5652.78 |+. *
Tue 18 Jun 96 . & . | 5628.03 + . *
Wed 19 Jun 96 . & . | 5648.35 + . *
Thu 20 Jun 96 .# I . | 5659.43 + . *
Fri 21 Jun 96 . I #. | 5705.23 + . *
Mon 24 Jun 96 . I #. | 5717.79 + . *
Tue 25 Jun 96 . #I . | 5719.27 + . *
Wed 26 Jun 96 #. I . | 5682.70 |-. *
Thu 27 Jun 96 . & . | 5677.53 |-. *
Fri 28 Jun 96 . I . # | 5654.63 + . *
Mon 1 Jul 96 . | .# | 5729.98 + . *
Tue 2 Jul 96 . | #. }| 5720.38 |+. *
Wed 3 Jul 96 . |# . [| 5703.02 | + *
Fri 5 Jul 96 # . I . {| 5588.14 | *.~~~~~~~~~~~~~~~~~~~~~~~~~~
Mon 8 Jul 96 # . I . | 5550.83 | *.~~~~~~~~~~~~~~~~~~~~~~~~~~
Tue 9 Jul 96 . & . | 5581.86 | - *
Wed 10 Jul 96 .# I . | 5603.65 | .- *
Thu 11 Jul 96 # . I . | 5520.54 |~ *~-~~~~~~~~~~~~~~~~~~~~~~~~
Fri 12 Jul 96 .# I . | 5510.56 | . - *
Mon 15 Jul 96 # *. I . | 5349.51 |~.~-~~~~~~~~~~~~~~~~~~~~~~~~
Tue 16 Jul 96 # . I . | 5358.76 | . - *
Wed 17 Jul 96 . #I . | 5376.88 | . - *
Thu 18 Jul 96 . I # | 5464.18 |~.-~~~~~~~~~~~~~~~~~~~~~~~~~~~~*
Fri 19 Jul 96 .# I . | 5426.82 | .- *
Mon 22 Jul 96 # . I . | 5390.94 | .- *
Tue 23 Jul 96 # . I . | 5346.55 *|~-~~~~~~~~~~~~~~~~~~~~~~~~~~
Wed 24 Jul 96 # . I . | 5354.69 | .- *
Thu 25 Jul 96 . #I . | 5422.01 | . - *
Fri 26 Jul 96 . I# . | 5473.06 |~.~-~~~~~~~~~~~~~~~~~~~~~~~~~~~~*
Mon 29 Jul 96 #. I . | 5434.59 | .- *
Tue 30 Jul 96 . #I . | 5481.93 | .- *
Wed 31 Jul 96 . & . | 5528.91 |-.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~*
Thu 1 Aug 96 . | . # | 5594.75 +~.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~*
Fri 2 Aug 96 . | . # | 5679.83 | +.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~*
Mon 5 Aug 96 . | #. | 5674.28 | + *
Tue 6 Aug 96 . | #. | 5696.11 | .+ *
Wed 7 Aug 96 . | .# }| 5718.67 | . + *
Thu 8 Aug 96 . | # | 5713.49 | .+ *
Fri 9 Aug 96 . | # | 5681.31 | + *
Mon 12 Aug 96 . | .# | 5704.98 | .+ *
Tue 13 Aug 96 . #| . [| 5647.28 | + *
Wed 14 Aug 96 . | .# ]| 5666.88 | + *
Thu 15 Aug 96 . | .# | 5665.78 | + *
Fri 16 Aug 96 . | . # | 5689.45 | .+ *
Mon 19 Aug 96 . | . # | 5699.44 | .+ *
Tue 20 Aug 96 . | .# | 5721.26 | . + *
Wed 21 Aug 96 . | #. | 5689.82 | . + *
Thu 22 Aug 96 . | . # | 5733.47 |~.~ +~~~~~~~~~~~~~~~~~~~~~~~~~~~*
Fri 23 Aug 96 . | #. | 5722.74 | .+ *
Mon 26 Aug 96 . |# . | 5693.89 | .+ *
Tue 27 Aug 96 . | . # | 5711.27 | .+ *
Wed 28 Aug 96 . | # | 5712.38 | .+ *
Thu 29 Aug 96 . #| . | 5647.65 | + *
Fri 30 Aug 96 .# I . | 5616.21 *| +.~~~~~~~~~~~~~~~~~~~~~~~~~~
Tue 3 Sep 96 . & . {| 5648.39 |+. *
Wed 4 Sep 96 . | # }| 5656.90 + . *
Thu 5 Sep 96 . #I . {| 5606.96 |-. *
Fri 6 Sep 96 . | .# }| 5659.86 + . *
Mon 9 Sep 96 . | . # | 5733.84 |~ +~~~~~~~~~~~~~~~~~~~~~~~~~~~~~*
Tue 10 Sep 96 . | .# | 5727.18 | .+ *
Wed 11 Sep 96 . | .# | 5754.92 | .+ *
Thu 12 Sep 96 . | . # | 5771.94 | . + *
Fri 13 Sep 96 . | . # | 5838.52 |~.~~ +~~~~~~~~~~~~~~~~~~~~~~~~~~*
Mon 16 Sep 96 . | . # | 5889.20 |~.~~ +~~~~~~~~~~~~~~~~~~~~~~~~~~*
Tue 17 Sep 96 . | # | 5888.83 | . + *
Wed 18 Sep 96 . | #. | 5877.36 | . + *
Thu 19 Sep 96 . | # | 5867.74 | . + *
Fri 20 sep 96 . | . # | 5888.46 | .+ *
Mon 23 Sep 96 . | #. | 5894.74 | .+ *
Tue 24 Sep 96 . | .# | 5874.03 | .+ *
Wed 25 Sep 96 . | # | 5877.36 | .+ *
Thu 26 Sep 96 . | .# | 5868.85 | .+ *
Fri 27 Sep 96 . | # | 5872.92 | .+ *
Mon 30 Sep 96 . | . # | 5882.17 | .+ *
=====================================================================
[, ] = 4% exponential change unconfirmed by 10% exponential (not a signal).
@ = market overbought or oversold. I or & (on baseline) = 10% exponential SELL.