Dow 4500.

Now that is a hard to swallow number.

But, if you use the Fibonacci sequence to assess market highs and lows, and 1 times the market peak is the intrinsic market bubble value, because markets always run ahead and so the peak is always a bubble, and .8 times the peak is reality, and then .61 is a level one dislocation like a real recession, and the action around Dow 8300 was fascinating to watch at the .61 level, and .5 is a deep recession, that is Dow 7100, and we may have just crashed through that one, and .39 times peak is a depression magnitude like event, then, you get Dow 5400 as the bottom, if this is a Depression intensity event in some sense, even though I see more of a hyper-pression (loss of price stability and a new currency as the solution) for reasons discussed elsewhere.

Even though Dow 10,000 is the reality low, if one were to wait a long time potentially, using the Fibonacci sequence method, we just have to level cross first to get there, to test the psychology of the market in terms of, "Is this over yet?"

Are stocks cheap, or is there more pain. This is by the way Efficient Market Hypothesis consistent, because in the end, what is going on is that investors are assessing collectively if there are more people on each side of the level that think stocks or cheap, or have farther to go.

We have one more level to go by this analysis, unless stocks move up soon.

Looked at another way, which incorporates history and political science, I see Dow 4500 as the ultimate low.

Such a cratering of a stock market is not of course unprecedented; the Nikkei hit 40,000 in 1989 and remains at 7800 or so now, even holding for the long-run.

The Nikkei is also the warning as to what is really going on now, by the analysis that incoprorates history and political science.

Note the date: 1989, with Japan still a core ally in the end game of the Cold War.

Remember 1987 and the Market Crash?

Curious synchronicity with Japan, or maybe causality.

I vote for the latter, as I explain below.

When people write about this moment in 100 years, it is my belief that at the macro level, they will say that the period of 1987-2007 was the Peace of Reagan, like the Peace of Nicias in the Peloponnesian War, which lasted for ten years, sort of, just like the Cold War never really ended, it just went to the intelligence services for a while. Which, by the way, is what happened in the Peloponnesian War.

By this analysis, the Cold War is about to be back in a big, big way.

Go back to 1987.

In 1987, you had two punch drunk societies, Ali versus Frazier in the Thrilla in Manilla, which are now called the United States and the Soviet Union.

Of course in the death match that is world politics, there are no judging errors as in Manilla, no offense Ali, but Frazier forced all the action, but rather errors of one party quitting too early or swinging too wildly.

By this analysis, the Russians quit too early in 1989, or were actually really just hibernating adn re-shaping their governing structures around outright Russian nationalist lines, and W. later swung too wildly and too early like Foreman in the Rumble in the Jungle, and we know how that ended in the later rounds.

In 1987 Reagan had pushed the United States to the edge of a national bankruptcy in order to defeat communism; I have no problem with that, because the first function of government is to preserve life, and the Soviet/Russian nuclear arsenal endangers  a lot of American lives every day.

That is by the way why I am all about missile defense: if the Russians say tear down our walls/ missile defenses, like the Spartans kept on asking the Athenians to tear down their walls because it "Hurt their Spartan feelings that the Athenians didn't trust them" the correct response is, as usual,

F U and the horse you rode in on, Ronnie style.

The defeat of communism was a closer run thing than many remember, however, and it required the use of monetary policy instruments that inflated asset prices beyond their equilibrium values; there is a reason for the Nikkei and Dow moving together in the late 1980's, and global markets are moving together now, because they are a part of the same instrument of state power to a significant extent independent of being economic institutions.

In 1987, the United States had massive external current account deficits and internal budget deficits, just like now.

In 1987 however, you could use the Greenspan Put to mask the problem by reflating asset prices, which would keep the economy moving enough to raise the taxes to keep the United States in the Great Game, especially with Japanese support. 

For the twenty two years since then, the Federal Reserve System "helped" Americans avoid hard choices about Empire and Entitlements.

That chicken has come home to roost now, however, and the proof is that Russia is back, stalking us all over the planet and in space, that satellite "collision" was no more of an "accident" than the French "bumping into" the British sub in the "MIDDLE OF THE ATLANTIC, REALLY?, and the Baby Boomers are trying to retire.

Sorry, but demography, inter-temproral economics and geography and reading between the lines of the "N.Y. Times/Pravda" are what they are, and they tell you this analysis is the right one.

Russia is back now, and meaner than in 1987  too, because they have their own really bad demographic problems now, their society is actually drinking itself to death, but they still have lots of nukes and oil and gas and fixed and rotary wing aircraft and tanks and an Army of Russians that, whatever their drinking issues, have to a man been real tough historically speaking, ask Napoleon and Hitler, and all of which are in the control of a man with a plan named Vladimir Vladimirovich Putin who could care less about anything than power right here, right now.

Sorry Vladimir, but radiation poisoning Antonin Litvinenko? That I just couldn't let go of; it says something about your mentality.

Hey, Vladimir, what is wrong with a bullet in the back of the head, and a watery grave afterwards? That is the old school.

But it digress.

I personally think the press is going to wait to tell us the truth about the real state of the world only when Mr. Putin's fangs have taken some deep chunks out of us, which he is about to commence delivering by my analysis.

But back to the main event, Frazier and Ali, and we want Frazier to win the late rounds on a Knockout, because it looked good in the short run but... .

Dow 4500. There was a big run-up  in 1987, and if you go back to the base of the 1980's, and say 6 per cent return on top of inflation, a bottom of 4500 is reasonable, even if the intrinsic value is actually 8- 10,000, which is .8 of the last peak.

History though, to me, says that a bottom closer to the 4500 range makes sense, that and the fact that I saw a license plate the other day that said Dow 4564 when I was drinving around thinking about the Dow, and because more fundamentally, I have had the distinct sensation of having awoken from a dream spun for the last twenty years by the American capitalist classes and the politicians and media hacks they bought, AND spun by the Russian Intelligence services for different reasons, and that both are coming to an end, and lately have had an irrestible urge now to point out a Bear I see on the prowl with the kind of hair standing feeling of:

 "Ah, hey guys, forget the terrorists, the Bear actually feeds them anyway. He always did, because the Bear likes to play Great Power politics the old school way. The Bear is back, in a big way, and we are not looking at him enough, actually he is the real story always, and he was just hibernating, and he looks really, really hungry, and as usual has big nuclear fangs and big conventionally armed claws, and is drooling at the chance of taking as big a chunk out of us as possible and if he could he is a Bear and would actually like to make us a meal. Danger Will Robinson."

And that would be DOW 4500.