Sunday, November 30, 2008

Spin is the Name of the Game

Last Friday CNBC.com ran this page. "Stocks have best 5 days in 75 years." Sounds great, but the 1933 market was at about 45 (it had dropped from a high of 380 in 1929). That historic 20% increase was about 9 points up (a real barn burner). Double click for a larger view.



Then they go on to add--- "Citigroup shot up 18 percent. The stock has more than doubled this week, ending at $8.29 a share. Still, the stock is down more than 39 percent for the month."--- If you were to go back a year, it would be more like a 75% decline.

Then we have this gem--- "Auto makers rallied again, with General Motors jumping 9 percent and Ford soaring 25 percent."--- These two companies are walking Zombies. The jump in Ford seems rather spectacular (for a penny stock). Poor GM was at $50 a few years back, it's lost 90% of its value. How much longer will it be a part of the Dow Jones Industrial average?

If this is a rally, would they describe a stopped up toilet as "A forced accumulation of disposable assets?" Do you get the feeling that Wall Street doesn't want the average investor to pick up their toys and go home?

Copyright 2008 All rights reserved

17 comments:

Anonymous said...

Well Jim... we can't trust in the media for a true picture of where we stand, eh? That is nothing new.

It is hilarious to read what politicians, pundits and media were saying back in the Great Depression. The "everything will be fine soon" palliative (even tho the US was going down the toilet) was very dominant.

All we need is the true key statistics and their trends to know what is happening. BIG TROUBLE!

I'm a bit worried about this rumor that the G20 is cooking up a global wide currency devaluation as their plan to stop the crash. Heard about this?

Jim in San Marcos said...

Hi Anon 6:31

A global wide currency devaluation is kind of an impossibility. Everyone is printing money--in essence, keep up with the neighbors. If you don't print as fast as everyone else, you risk having your exports being too expensive for others to purchase.

I do think at some point, gold is going to be the medium for international trade only because a lot of currencies are getting a little funky (more worthless than assumed).

The weird thing right now is the drop in the value of the Euro. Seems like maybe some big players are trading on inside information. The Euro could be imploding. It's possible that I have overlooked something here---I could be wrong.

What is done on an international level only affects imports and exports. Since we don't produce much, this isn't the best of news.

Thank you for your comments

Anonymous said...

Jim,
Is there enough gold for it to actually become the international medium? Global currencies could never be backed by gold due to its scarcity, right? Maybe 10 -20% of a global currency could be backed.

Euro might be going down because most all of the loans to emerging countries that have been exporting to the USA have come from England and Europe (not the USA, that is for sure). Those countries are suffering now because we Americans are cutting back on consumption and saving. They may start defaulting on those British/EU loans. (Maybe that is the insider info.)

Tyrone said...

Global currencies could never be backed by gold due to its scarcity, right?

Well, I'm all for revaluing it at $50,000/ounce to support the global currency. That would put the US reserves at ~$12Trillion. Just about right to pay off some debt.

Anonymous said...

Jim,

Your chart, although accurate, really does not depict how the market reacted in 1929. Its too compressed. Unless you look closely, it appears that the "crash" happened quickly.

There was about a 2 week run on the market starting Oct 10-28, 1929. A two day 30 point rally, then another run down until Nov 13, 1929. After this "mini-crash" the market slowly gained half of its losses over the next 6 months and supports a positive spin doctor theory. Just like today, I'm sure the government at the time was stopping at nothing to try to instill some level of confidence again.

The "mini-crash" took about a month to complete, but took over 3 years for the market to finally sink to the bottom.

I believe Oct 01 of this year marked the beginning of this same trend. There was a 10 day run that destroyed over 2400 points on the DOW. Had the election spin doctors not stepped in, I believe it would have continued for another 2 weeks.

The government is at it again, through the MSM spin doctors using words like "rescue-plan," "challenging times," and "economic recover teams." Anyone who believes with the world economy failing that the market has hit a bottom deserves the steel-wool bath put upon them over the next 3 years.

Tom

Jim in San Marcos said...

Hi Anon 9:39

What I was suggesting was that gold would be used for foreign exchange trade.

China right now has a trillion dollars worth of dollar denominated debt. If the dollar goes down so does the debt. I think in the future these debts don't necessarily have to be backed by gold but pegged to the price of gold.

Pegging to gold doesn't get rid of a country going bankrupt, so there would have to be some form of cash on the barrel head as a medium of exchange and gold is a very good medium.

It's really no big deal if you have balanced trade, its a wash. In our present situation, things are not looking good if you are a creditor like China.

Jim in San Marcos said...

Hi Tyrone

At $50,000 an ounce, no one would be wearing jewelry. Robbery would be the profession to excel in.

We could see gold at $3,000 in the next 20 years. But bear in mind it won't buy any more that it buys today. It does seem to be a very good store of value over long periods of time.

I like your solution, it would make me rich enough to retire now. A great wish, but it ain't going to happen.

Jim in San Marcos said...

Hi Tom

I agree with you 100 percent. Not only is the graph compressed, it is also logarithmic. The three year drop on up to the assumption of office of FDR was a real contraction of wealth.

I think that Obama will be the Hoover of our time. The next 3 years will define where we are at now.

Its going to get worse before it gets better. I would expect about 10 very lean years in our future. I could be wrong (my wife points that out to me often);>)

Thank you for your comments.

Anonymous said...

Hi Jim
Thoughts on silver ?
Catholic girl :)

Easysolar said...
This comment has been removed by a blog administrator.
I'm Not POTUS said...

Yes Jim your the best blog in the world. I would never have made a fortune selling pet rocks and New York City Bridges if I didn't read it.
(If Jim deletes the above post, this is not funny to you at all.)

Otherwise, I think some small country is going to get smart and nationalize the concept used by GoldMoney and BullionVault. Maybe the Swiss will wake up and jump on it but more likely some Caribbeans will try first.

If the swiss frank were to go back to the gold standard and its banks issued debit cards then the value of gold per ounce could skyrocket because they could track, transfer and redeem gold for francs at micro-gram levels. If it succeds you could go to even smaller divisions of measure. "NanoGold" could be used if the rest of the fiat world went onto mach 5 overdrive printing.

Heck even silver could work that way.

Jim in San Marcos said...

Hi Catholic Girl

I have always liked silver. Englehart makes some very nice 100 oz bars. You can also buy $1,000 bags of silver coins. These have about 917 ounces of silver in 1000 ounces. I would recommend the half dollar if you go that route. You pay an extra premium for them, but I think they are worth it.

Bear in mind that this amount of silver weighs about 87 pounds and you will need two safety deposit boxes for them.

Both the gold and silver that I bought dropped in price for several years and did nothing. I really don't know if now is the time to buy. But I do believe if you are going to hold it for 20 years, you should do OK.

What you might want to look for is a set of sterling silverware. People will be selling heirlooms wanting to raise cash, you might get a real deal.

Hope this is of some help.

Jim in San Marcos said...

Hi Potus

I had to kill the ad, sorry. Usually those turkeys post a year or two back in the blog and I can catch those and they are really no problem, you don't even see it.

As for your suggestion about gold, it won't work. when the Swiss were fully linked to gold, back in the 1980's, they didn't pay interest, they charged interest on Swiss Franc accounts. This was because all of this deposited money was causing severe inflation with their economy.

The only thing that really makes sense right now, is that gold and silver are real, paper currency's are not.

Anonymous said...

Jim,

Always wondered why website stock charts default to logarithmic scale, vice a linear one. When you use linear, bubbles appear in the chart more clearly. What is your opinion of this?

Is it to factor in inflation or to give a more realistic growth pattern or like stated above to hide bubbles?

Tom

Jim in San Marcos said...

Hi Tom

I use them both. See this Link of mine from the past.

Maybe, many choose the logarithmic picture because it is easy to fit in. Using real scale, makes the picture a bit awkward to display.

It is a really hard call to separate inflation from the bubble. But with a linear graph, you can take the area under the graph for one year and compare it to the next. This gives you a measure of the flow of new money coming into the market or leaving it.

The linear graph shows real perspective. The logarithmic graph is used to project the future using the slope. There comes a point where reality enters into the picture. Logarithmic graphs don't grow to the sky forever. The fact that something is increasing logarithmic suggests that things are getting out of control.

I don't think anyone is trying to hide a bubble here, if they were, the national debt is probably the biggest bubble yet. IMHO pure stupidity on the part of Congress, can perpetuate this mess for several years into the future.

Anonymous said...

Jim,

Thanks for the thoughts on the chart scales. Looking at your link containing both charts gives two different perspectives on history. The log chart clearly marks the Depression era, where the linear one shows the current one.

After posting my original comment I did a little research on the purpose of Log charts. Found that the main purpose was to compare two or more time series lines with specimens having largely different starting and ending points.

Example... To accurately compare growth slopes of two companies over say 7 years, Company A started at 120/share and ended at 360/share and Company B started at 10/share and ended at 30/share. If you compare both using a linear chart it looks like company A outperformed company B, but using logarithmic you see that both growth slopes are equal.

In good investments, it is said you should see your money double on average every 7 years. With this exponential growth, had you invested in a stock 100 years ago it makes sense to use Log to show smooth doubling growth over a long time.

If history repeats itself over the next 100 years and the market doubles on average every 16 years, by 2112 the Dow should be trading at over 716,800. Seems completely unlikely, but using a Log slope it doesn't seem out of the question.

Tom

Jim in San Marcos said...

Hi Tom

One thing to consider a 45 degree slope on a logarithmic chart means we have gone hyperbolic as we go up.

If you were to plot the velocity of a ICBM rocket from launch, it would look about the same. The trouble is, the rocket runs out of fuel. speed drops to zero and the missile returns to earth the hard way.

The ability to maintain the slope would indicate severe hyperinflation. With the government's spending spree, we could see the DOW at 700,000 next year if we aren't careful.

Your money doubling every seven years is a good rule. But if you use the rule of 72, divide the interest rate into 72 that will tell you how long it will take to double your money in the bank. At 3%, thats 24 years. Something smells real fishy here.