Stock Market Forecast
Bear Market City!

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Year 2000 Economics
January 19, 2000

"Stock prices have reached what looks like a permanent high plateau... I expect to see the stock market a good deal higher than it is today within a few months" Irving Fisher, Professor of Economics, Yale University, Oct 15, 1929

"The markets generally are now in a healthy condition... values have a sound basis in the general prosperity of our country" Charles E. Mitchell, president of the National City Bank, October 15, 1929

The U.S. economy is still very strong and the market averages were (recently) at new highs. The reality was (is) that about 80% of stocks are nowhere near new highs. The breadth of the gains of the 1999 rally have been extremely narrow, mostly in a handful of technology and blue chip stocks.

There is no real basis for these high market levels...as we soon shall see! Eventually it should reach a trough of between Dow 400 to 1000 (2400 best case) by 2003/2004 in accordance with the Elliott Wave principle.

It likely that we will see a replay of the 1929 bear market, and the DOW would plunge to triple digits. It is a virtual certainty such a decline will begin within the years ahead. In my opinion, there has never been a better time to 'Take the money and run.'

Two charts showing striking similarity to the 1920's run-up:

narrowing market breadth indicates the number of stocks reaching new 12-months lows far exceeds those tiny minority reaching news high; those dang blue chip and technologies. So in this sense we can say that the vast majority of stocks are right now in a bear market, despite whatever new highs indexes occur, pushed by these over-achievers. Stealth Bear Market City!

This is a sure indicator of an upcoming (technical, official) bear market, among many, many others.

Max Moseley has this to say:

"Decreasing market breadth is highly characteristic of the end of a mania. Breadth on the NYSE began to deteriorate in May 1928, long before the Great Crash. It happened prior to the 1973-74 downturn. Older investors will remember the Nifty Fifty. The phenomenon also happens with assets other than equities: it is a normal consequence of any psychology-driven asset mania."

And as bearmarketcentral.com mentions:

• Market breadth is thin as paper.
• Declining issues have just swamped gainers day in and day out. New 52-week highs have been swamped by new lows.
• Various indicators based on the TRIN have been extremely overbought. Daily advancing volume has slacked way off.
• Put/Call ratios have demonstrated extreme bullish sentiment (a contrary indicator).
• The CBOE Volatility Index (VIX) has been screaming "overconfidence and complacency."
• About 65% of all stocks are down more than 20% from their 52-week highs.
• About 65% of NYSE stocks are below their 200-day moving averages.
• Price to Earnings (P/E) ratio on the NASDAQ is an estimated stratospheric 150, though an exact number
• can't be calculated since so many NASDAQ stocks don't have earnings at all!
• The yield on the S&P 500 is a miniscule 1.13%.
• And on and on and on.

This is why the household savings rate has been into negative territory the past couple years (a) the stock market significantly replaced traditional avenues of savings such as banks and; (b) consumers continue to vastly over-spend, beyond the rise in incomes, fueled by an inflated stock and housing price boom via the wealth effect.

What does George Ure think is going on over at urbansurvival.com ? Here is a chart:

I think he's onto something.

Historically, market valuations are about 50% of GDP. Before the 1929 crash it was 87%. It is now over 125% of GDP.:

Year	Approx. Dollar Trading Volume/GDP
1926	45 %
1928	97 %
1929	130 %
1940	6 %
1968	20 %
1974	10 %
1987	55%
1988	155 %
1999E (annualized)	200 %

Many dreams will vanish as the 16-year-old bull market ends.

There is a mistaken sentiment that double digit gains will always be made. Historical charts show that over the VERY long term (generations) stocks do in fact earn better returns than other instruments...however, they tend to go through 16-20 year periods when it's either bullish OR stagnant. For instance, from 1966-1982 ,the Dow barely moved. In real purchasing power, long term stock investors According to this chart there is a risk of a potential drop of 76% in the coming years:

The current long-term secular bull market that began in 1982 is soon to come to a close.. We may then have another 15-20 year stock stagnation. It certainly will not continue the recent absurd meteoric ascent for very long. Note that the degree of rise exceeds the level seen just before the crashes of 1987 and 1929. P/E ratios for US stocks:

Extensive bear market links and editorials:

http://www.users.dircon.co.uk/~netking/bearlink.htm
Economagic.com

Nick Chase: The Contrarian

For long term chart showing inflation adjusted DOW, CLICK HERE.

Check out this great book: 'Surviving The Coming Mutual Fund Crisis' By Donald Christensen , at Amazon.com

Also Some Other Good Bear Links: Bear Market Central

Here's the latest DJIA quote and financial headlines from The Wall Street Journal.

Links to some financial sites:

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Year 2000 Economics

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