CNBC SquawkBox Europe
October 10, 2008
The last time on CNBC was October 1st and I said it didn't matter if the bail out bill was passed or not -- the index was in the last leg down in a bear campaign and would not end until it got below 1020. The index was in the process of capitulating down and would not end until the 15th plus or minus two days. What is going on is not abnormal.
LET'S LOOK AT THE DOW JONES INDEX 1969/1970 SAME CHART WE LOOKED AT LAST WEEK
I've been reporting there were two roadmaps this index is following and when this bear trend is complete it will resemble something between the 1969/1970 bear campaign or the 1973/1974 campaign. This bear campaign 1969/1970 gave up 37%. Keep this chart in mind.
NOW LET'S LOOK AT THE 1973/1974 BEAR CAMPAIGN
The last leg down was a whopping 37% (the equivalent of 828) and the entire trend gave up 47% of the high price. The last leg was also a 75% extension of the trend. There was retest of the low 9 weeks later. Please keep this chart in mind.
NOW LET'S LOOK AT THE CURRENT S&P 500 INDEX
This is the last leg down which is easy to see when viewing the two previous charts. The window in price is between a 37% decline and a 47% decline. With a measurement from 1974 at a 75% extension as a possible low. We don't have enough time on the show to explain how I've calculated the time factor for early next week but it is just a repeat of the past. Here are some very important caveats related to "time." If the index has found a low yesterday and rallies up into Tuesday and turns down it could indicate the low will extend out to the 28th. But for now I'm staying with the forecast of the low for the bear campaign Monday or just a few days more. At a price of 880, 823 or even 780. Mutual funds saw 36 billion in redemptions yesterday, the entire month of September saw only 15 billion. There is now forced liquidation going on and that is how lows are made.
As I've been saying on this show for a year the fundamental reason for this crisis are exactly the same as 1929, exactly the same. Securitization of debt occurred in the late 1920s exactly as it occurred in this decade-exactly. The reason we have these problems congress allow the banks to underwrite securities and their greed for underwriting profits caused them to lower lending standards and created the toxic securities that are now burying the financial system. No matter how much they want to change history with propaganda that is the reason for the crisis. And everything the Federal Reserve and ECB have down so far is only making the situation worse. In fact the actions of the Federal Reserve & Treasury are nothing short of stupid and that is sugar coating my words.