OK, fun's over. You knew it couldn't last.

By end of this quarter I think we'll see a sustained drop to 7,000 on the Dow. At the end of 1Q things will start to get worse. That is because companies will be forced to reveal their 1Q results and it will not be pretty. It will be accompanied by more layoffs, especially from larger employers (*cough* ...automotive industry... *cough* *cough*).

In a previous post I predicted the bottom would be 5,000 and mentioned Howard K. had written that the bottom was 4,000. I still think the bottom will be around 5,000 but maybe a bit lower (4,500-5,000, leaning toward the 4,750-5,000 range). I have to admit that the current Dow level of under-7,500 is a surprise to me. I thought it would stay at or above 7,500 until the end of Feb. But it's true though to say that the current level is not yet sustained since it has only been there for the last 2 days, so I may be jumping the gun. Alas, my crystal ball is sometimes wrong (don't I know it!).

As for the Dow's further decline, what I think will happen is it will drop to 5,000 and then trading activity will stagnate like it did in the 1970s. Not a lot of trading, buying or selling, will happen, so values will stay the same. At the same time though inflation will have kicked in starting this summer when the banks that have horded all this gov't-generated Monopoly cash rush to lend it out of final acts of desperation to remain relevant. So the value of the USD will fall due to inflation but the prices of stock issues will stay the same. In short, cold comfort that those left holding these issues are "not losing money anyway". 'Tis an illusion. We're all going to be "losing money" when inflation kicks in this summer. When goods that cost $10 today cost $20 in November, that is effectively a loss of money.

As for timing, a sustained Dow level of 5,000 will probably hit by the end of this year, maybe as late as 1Q 2010, even as the Dow membership is likely to change due to Dow's own listing rules. (Some Dow listees are now below $5/share and they can't stay that way for long and still be on the Dow.) There it will remain until new companies or something else arises to stimulate stock trading. (I can't predict non-company-forming-like events that might affect this, sorry to say, such as political events, natural disasters, etc.) We may not see a return to reasonable trading activity until 2012. Some have speculated as far out as 2015 but I am not that pessimistic. I have faith that the people's memories are short and their hands are greedy. So, I feel it will send them back into the market earlier rather than later. But be forewarned, I wouldn't go buying now to "beat the rush". A lot of companies currently listed on the exchanges will not survive to see 2012, at least not without going private again and thus their public share values will fall to zero. And I have little faith the mutual fund managers have the wisdom to pick the survivors, too, so I'd think twice even before going that route.

Other things my $4.99 Halloween clearance sale crystal ball from Wal-Mart tells me is that precious metals like gold and silver will continue to appreciate but that the best way to hold these items is as bullion. The minting premium on gold and silver is higher than it has ever been since minting started in the US, especially on silver. The spot price of these metals also seems to be more volatile than the bullion price. This should tell you something-- that people have greater faith (ie, are generating greater demand) for the actual physical metal than they do for claims of right to it (which is what metals stocks and trust shares are). "Paper metals" as they are called are more volatile and require legal enforcement action if the issuers fail to produce. That's a lot to expect from a securities law enforcement apparatus that is already overburdened. So the greater faith is now found in possessing the actual metals. I see gold and silver being double their current value (which is already quite high) by 2010. I think silver is something of a maverick in that since it costs less than gold it is more likely to have a greater spike in demand but also a faster sell-off curve when the masses decide, for right or wrong, that it is safe to go back into the water. One cannot eat gold and silver nor live in it, so while metals are a good inflation hedge they tend not to hold their exacerbated inflation-created value for too long in fiat currency-dependent economic systems. Timing is king and when the time comes to sell metals, one shouldn't dawdle.

But these are "dangerous times", from a financial standpoint. Crystal balls are sometimes wrong. Each one of us has one. Sometimes we ask others what theirs say, but when it comes down to it, each of us has our own and must rely on it to guide us. As nerve-wracking as this all is for some of us, it beats wondering if we will live to see tomorrow's dawn. As Thomas Hobbes observed, man trades the insecurity found in the state of nature for the security found in civilization, but it comes at a price: unfettered liberty. Uncertainty about mere economic fortunes replaces uncertainty about personal physical well-being. All in all, this is a better deal.

OK, time for some levity. The missus and I were parked on the couch last night and being that we are still pre-'70s in our TV technology (you'd think not, but no, for some reason, neither of us has seen fit these past 4 years to do anything other than adjust antennae. Of course that is rapidly going to end with the digital transition, but even I think it's kind of funny).

So, we have PBS on and are watching an episode of this series, about the British royal family and what they have to do to *gasp* earn a living (or at least look like it). Now on this one occasion, the president of some former African colony was coming to visit and had his wife and other entourage members with him. Well as it turns out one of them couldn't, for whatever reason, climb the stairs to one of the rooms they were scheduled to appear in and so of course, the palace has an elevator but it happened to be out of service for some reason at this critical moment.

Well the documentary cameras caught HM Queen Elizabeth II at the top of the stairs on the rather spacious overhanging landing on the second floor, at one point bent over the railing looking down to see what was going on on the first floor, probably with an eye to trying to resolve the embarassing situation that seemed to have arisen. Just as I saw this I had the perfect scenario go through my mind.

I can tell you this, if I had seen the following happen, it would have been just fine if I keeled over right then and there. My life would have been fulfilled as far as I'm concerned.

What did I want to see? I wanted to see (and hear) the queen curse like an immigrant former-Russian trade-unionist and bellow out something along the lines of "Jesus H. Christ, where the f*ck is the goddamn wiring panel for this mother-f*cker anyway?!? The goddamn fuses are all f*cked up and Lenny is a f*cking idiot and has no f*cking idea what the f*ck he's doing and we have to get this goddamned elevator working again!! I can't believe it, I work with a bunch of f*cking idiots, you guys are a bunch of useless f*cking a**holes!!"

This scene went through my mind in an instant and I began laughing. I almost fell off the couch.

I have to say I had a hard time explaining this to the missus. She saw the humor of course but it's one of those things that if you don't actually see it unfold in your head yourself, you probably won't be nearly as amused. But I do wonder what the queen would say if she were to stumble across this blog entry. Probably something like, "We are not amused!" :)

Mr. Sunshine strikes again! Well I couldn't stay away for long, could I? How can you go on in life without your dose of dismal predictions and misery from this, your #1 FAVORITE blog? :) OK, here goes...

Read European bank bail-out could push EU into crisis

16.3 trillion euros. Now bear in mind the EU members' combined GDP for 2008 was US$19,195 billion, or US$19 trillion (see this). That's 14,723,100,000 euros by the current conversion rate, or about 14.7 trillion euros. So the EU collectively owes ((16.3/14.7) x 100)% of its GDP in 2008. That figure is 110.88%.

Imagine this for a minute as personal debt. Imagine you make $100k/yr. Now imagine you owe $111k in debt. And your assets, like a house or car? Let's assume you have assets but can't really sell them, as they are in trust. That's sort of the position the EU's institutions, as well as ours, are in, since the hard assets associated with the debts are either immovable or can't really be sold to pay off the banks' collective debts either because there are no buyers willing to buy or the banks can't or are not willing to sell the hard assets to raise money to do what-- pay off debts? That makes no sense when you need every scrap of whatever it is you have a claim to to keep you from going over the edge.

So you are $111k in debt and make $100k/yr. and owe payments on that debt. You have to make P&I payments at, say, an average of 10%. That's $11k/year in payments. But that is just for this one year's worth of debt. You also owe on past debts. Your actual total indebtedness goes back about 10 years, say, and you owe about that much in debt over the past 10 years. So your P&I is doubled to $22k/yr. That leaves you $78k/year to pay for housing and the rest of life, which if you have even one child, doesn't go nearly as far as it used to. And for giggles let's say you live someplace with a high cost of living. That'd be Europe, all right. You make that $100k in L.A. or NYC, not Rochester or Buffalo. Ouch.

Oh yeah, you have taxes, too. Just like the banks do.

I am sure it's worse than this. There has to be a load of crap I am not factoring in. But just imagine being just in this situation. People declare bankruptcy with lesser debt:equity ratios and get away with it. Or at least, they used to, anyway.