Dow 400?

Tim Iacono quotes the Elliott Wave people:

For the record, EWFF also shows a "grand supercycle," beginning in January 2000 and ending at 400. Yes, that was FOUR HUNDRED.

And I thought I was being Eeyorish at 2,000.

When the music stops, a dollar collapse?

Brad Setser's analysis is that Americans have been repatriating their dollars even faster than foreigners have been getting rid of theirs:

"Words cannot really capture the sheer violence of the swings in private capital flows that somehow produced a a rise (net) private demand for US financial assets."

At some point, the balance of these cross-currents will change, and then? Maybe the turning point will come when Americans are forced to sell financial assets to meet living expenses and medical costs.

Meanwhile, Tim Iacono comments on a proposal to substitute the dollar as the world's reserve currency, with drawing rights from the IMF, i.e. a mixed bag of currencies. China's central bank seems terribly keen.

I have a sense of something being held up, but not for ever.

September 15, 2008: the secret bank run and corralito

According to Paul Kedrosky (htp: Tim Iacono), Hank Paulson and Ben Bernanke scared the wits out of Congress with references to a potential $5.5 trillion electronic cash withdrawal from the US banking system, which would have led immediately to economic and political Armageddon. Electronic money accounts were closed down to stop the flight and collapse.

I said a month later that Paulson looked like a bully. But when Congress threw out the first bailout plan, he had also looked scared-angry, turning his head this way and that, like a bull throwing off dogs.

Perhaps the scare story was true. Perhaps not. Shame it took the ex-head of Goldman to drive the Bill through. I assume that rescuing the banks also rescued much of his personal $500 million wealth.

It's time for us to leave off discussing the affairs of the Gods, and return to our own interests. We ordinary mortals don't have the luxury of that kind of money transaction facility. If the system had gone down, presumably it would have taken our little all with it. And is anyone so brave as to say that it's been fixed?

Be prepared; don't be panicked (as it seems Congress was), but take what sensible precautions you can.

Dow 2,000: confessions of an optimist

Karl Denninger looks at one of the shapes chartists use to guess market movements, and concludes that a Dow fall to 2,000 points is one possible outcome.

Back in November, I did my own work on the "in-real-terms" Dow (i.e. adjusted for CPI), and if history repeats itself, a fall to below the equivalent of 2,000 points would merely be a repetition of what happened twice in the 20th century. But the second low (1982) was not so deep as in 1932, and in December I re-drew the graph with (sort of) reassuring curvy lines, which suggested that maybe the low point next time might only be c. 4,000 points.

This latter attempt of mine sturdily ignored two facts: debt, and its recent monetization (look at Tim Iacono's second graph here) have gone far past all previous levels; and so did the Dow in its "twin peaks" episode of years 2000 and 2007. Maybe the next low will be as devastatingly deep as the last peaks were dizzyingly high.

I will comfort myself with the illusion that the Dow will merely halve, until reality proves me wrong.

Hi yo, Silver

Jesse surveys measures of monetary growth in the USA. He concludes that inflation is likely to drag the dollar down and shares upwards (N.B. in the 70s, they didn't rise as fast as inflation); as to commodities: "silver may be one of the first commodities to break out because the government maintains no significant physical inventory of it as it does for gold and oil."

UPDATE (re silver): Tim "Mess that Greeenspan Made" Iacono thinks so, too.