The “DAX,” is the German equivalent of the Dow, and as I write this is less than a third of what it was a few months ago. But as Paul Harvey says, now you will get the rest of the story.
On December 30, 1997, the Germans started what was to become the German equivalent of the NASDAQ. They called it the “Neuer” or “New Market.” It started out with a value of 1000. Like the NASDAQ, it roared up, reaching its peak on March 10, 2000, at 9603.46. It had a peak market cap of $400 billion US. On September 26, 2002 it gave up the ghost, and faded away, with a point value of 364.31. What was left, was merged into the DAX, I assume. It lost 96% of its value.
The DAX peaked at about 8200, and today at about 2600, a loss of 70%
The Japanese Nikkei peaked at just under 40000, and today sits at around 8500, a loss of 79%.
The French CAC went from 7100 to its current neighborhood of 2900.
You know about the NASDAQ going from 5390 to its current loss of 79%.
Historically, the bottom of a bear market has been reached, when the P/E ratios are at an average of 7.8, meaning the price of a stock is priced at 7.8 times its earnings. This is an average remember, but today the average P/E ratio is about 25. If one divided the Dow’s current 7900 by three, (25 or so divided by 7.8) it comes out to 2465, or 5000 points less than it is now.
I don’t sell stocks, nor own any. I deal in bullion gold and silver, which has no P/E ratios. Gold and silver are self-contained, and owe no one for their value. The dollar, and all currencies in the entire world, are dependent on the governments that issued them, to maintain their purchasing power, by self control. Self control by a government, means they do not print the currencies endlessly to pay their bills, because they have financial integrity. No government has any self control today. Their only control is a continuously increasing control over their citizenry. Nothing tangible has a P/E ratio. A street light isn’t dependent on government’s fidelity to stand, nor does your sofa, auto, or carrots in the ice box. These are tangibles that stand on their own, and have no PE ratios.
Unfortunately, people are still buying stocks. I say unfortunately, because the bear market continues, while a bull market in gold and silver is just getting under way. Why do the majority always act the wrong way? Why do the stock brokers always say the “bottom has been reached?” Is it because they are greedy for commissions? Why don’t people think before they leap into “investments” such as stocks, which by historical ratios, cannot be anywhere near the bottom? Why do people insist on “holding on,” when it will cost them even more than they have lost already?
One of my best friends has lost over $250,000 from the market crash. I told him to get out before it happened, but he paid no attention. Now he is buying back again. To quote him, “they’ll go back up.” The gold I sold him has gone up by 40%, but will he buy more? Oh no! It’s right back into the stock market, where he’ll lose maybe the rest of his retirement. He says he could have retired a couple of years ago, but now he’ll have to keep working. I guess so, and especially when he takes another bath in the stock market.
We are creatures of habit. The majority of us are not contrarians, as am I and the fortunate few that didn’t get wiped out, and have bought tangibles, such as gold and silver. A contrarian, is simply a thinker who looks at history, and uses logic and facts to make a decision. There are a thousand times more stock brokers, than precious metals brokers. There are a thousand times more, who lost in the market in the last two years, than those who made a profit.
When Sir Greenspan lowered the interest rate again, most thought the problem of the bear market would be solved. Government can do nothing to correct a situation like we have now. When corporations over-build or over-invest, they have to work it out by themselves, or fail. Many will do both. When people over-invest in overpriced stocks, which always correct to their correct values and prices, nothing government can do will correct it. It has to be worked out by those who invested poorly, or took the wrong advice. The Japanese have been operating at a virtually zero interest rate for some years now, and the Nikkei continues to hover at 8500. Interest has nothing to do with over spending, paying too much, or a bank lending to the wrong borrower. Nothing. It all has to work itself out, and nothing government can do will change that fact.
In the 1930’s, FDR tried every hair-brained scheme that came into his or his associate’s minds to break the depression. Bureaucracy after bureaucracy came into existence, and most are still with us, unfortunately. He raised the price of gold from $20.67 to $35 per ounce, after he had told everyone to turn theirs in, which was one of the greatest thefts of the citizenry of any nation in history. Finally, after everything else failed, he cut off Japan’s oil, cut off their use of the Panama Canal, stopped selling them steel, and in general, forced us into World War II. That ended the depression, but by the end of the war, the dollar was worth 50% of what it was 4 years earlier. We are going to war with Iraq, without Congress constitutionally declaring war. This will probably finish the stock market, and cause gold and silver to reach heavenward. Probably. No one knows what will happen tomorrow. If I knew what was going to happen tomorrow, such as the lottery number or what the price of anything would be, I would be an instant millionaire. No one can successfully do that. One has to make decisions based upon the best information available, and couple that with logic and history, if one is to keep from losing one’s shirt. The stock market may rally before it crashes further. Gold and silver may correct before they go further up, I don’t know. No one knows. One must not do what the majority does; that’s the point. Because the majority is usually wrong.
When the NASDAQ broke 5000, many highly paid consultants and advisors said it would go to 11000, or 20000, or there would be no limits. This was with P/E ratios of 200, or many times no profits at all. The same advice was given in summer of 1929, and most believed it.
Meantime, the airlines are losing billions, the layoffs continue from just about every industry, auto sales are negligible, and real estate’s decline has begun. Real estate has declined, and sales are sluggish in spite of reduced prices, in the more ritzy places such as Telluride and Aspen, but other areas have begun. I know a fellow who works for a major credit card outfit, and he says failures are 18% in his company. In Colorado, foreclosures are at an all time high, according the Denver Post.
Meanwhile, mortgage debt has risen from 51% of personal income 25 years ago, to over 100% now. In the last 5 years, mortgage debt has risen by 60% to $2.2 trillion. Credit card debt is enormous, and I am afraid we are headed for a great awakening. Remember, in 1929, there were no credit cards, no easy mortgages as there are now, and the dollar was backed by gold. The coins were 90% silver, and we had only been through one world war that we should have not been in, vs now, when we have been through World War II, Korea, Viet Nam, and now will go into Iraq foolishly.
The presses will wear out and have to be replaced. There will have to be more presses! The paper monies of the world will collapse, but at different rates. The dollar is never going to be backed by anything, no matter what platitudes Sir Allen utters. New markets? Nah! It’s the same old ones, only greatly inflated by oodles of money flowing out of DC. Monsoons of dollars are swamping the world! Is it any wonder everyone is buying gold and silver? Protect yourself!