Long Term Dow Chart and what happens Next?

http://home.earthlink.net/~intelligentbear/com-dj-infl.htm (Take note this chart is ex dividends and inflation adjusted)

Observations: over time the stock market ALWAYS goes up. Periods of adjustment (Bear Markets) are used to correct excessive speculation, bullishness and malinvestments.

Bottoms of Bear Markets have much in common. The past 3 Bear Markets ended with trailing SPX PE at 8- 13 and dividend yields near 6%. NO wiggle room here for interpretation, it just was. We are at about 20 X SPX and UNDER 2% dividend yield!!! The 1929 TOP had yields near 3%!

Currently Value Line stocks have landed near all time highs, so while the NAZ and SPX took mighty hits, smaller cap stocks continued higher!

Copper http://stockcharts.com/def/servlet/SC.web?c=$COPPER,uu[w,a]daclyiay[df][pf][vc60][iut!La12,26,9!Lb14]&pref=G COpper had a "key reversal" week going to a new high and ending the week LOWER. Copper is very sensitive to the economy.

Lumber, wheat, almost all commoditites except oil have recently REVERSED lower. No one is talking about this.

AS above charts show, it can decades to return to the highs of previous BULL MARKETS after a LOW is hit in a Bear Market. These are the periods we must be MOST careful of, as depending on age, you certainly don't want to wait 20 years or so to break even! Of course averaging in during down years can help, but MOST pull in horns and sell near the lows while market regroups, they MISS that move, or certainly most don't add near lows.

What to do?

Well, that depends on individual. I am working on a plan of asset allocation for myself personally. On YHOO Finance you can set up "portfolio's" and track their performance.

I have set up 2 portfolio's so far (email me if interested). One a fuel cell, one dividend paying, about 7 stocks or funds in each. I had been more of a one stock hit or miss investor, it is obvious to me that diversification is the key, even in field of your interest. Both of my portfolio's are above water and the fuel cell one doing splendidly.

I am going to create 2 more, energy and commodity and Big cap or the best of the best corporations. Then perhaps a few scattered investments, giving me diversification to weather most markets.

My only caution to begin in earnest, is where I think we are in terms of histprical placement in that long term graph.

What strikes me as a WARNING is that the last time we hit top of graph trendline, we went down to visit the BOTTOM!

It has been roughly 70 years since that last occurred. Will it happen again? Nobody knows, but this chart leads me to believe it is possible.

I posted when I first began this Blog, an article on the Kondratief Wave/Cycle, you may want to read up on this. Can it be proven? Maybe not, as we won't know if Winter is upon us (bad times) and possible DEFLATION and severe recession of depression ahead of us, none a happy thought.

What worries me.

Total credit market debt is near 300% of GDP! It was around 275% near 1929 top. We know what followed.

We have had almost every known stimulus trick in the book: 13 rate cuts, trillion $$$ tax cuts, possible manipulation of SPX futures by PPT. (plunge protection team) and yet????? we have had WEAKEST recovery in history, weak wage growth, weak job growth, weak industrial production and factory utilization rates, you name it.

What we got:

Instead of stronger Recession where malinvestments and such get corrected, consumers were encouraged to "go out and shop!" til they drop. And they did! Household debt now at historic highs. Savings at historic LOWS!

We got ZERO interest car loans. We got 7 Year car loans. WE got car companies NOT making any money except from mortage financing arms. We got the most prolific housig BOOM (buuble?) in history, some areas experiencing 50% price increases or MORE in last few years.

More people OWN homes, the bank owns them and at todays prices, the most indebted in history, is it better to own a $200,000 home at 7% or a $300,000 home at 5% ? You still OWE $100,000 more!

HIGH oil snatching extra dollars from consumers, it is trickling down into most things.

Government has $30 trillion or more of unfunded benefits it can not pay future generations, suppose they will just PRINT IT? Down the road I suspect they will have to CUT benefits and or RAISE taxes. CUTTING taxes in time of war spending has put us at historic federal budget deficits.

Corporations not investing:

With $3 a day labor in China why bother. And service jobs at jeopardy to India and Pakastan.

NO chance for inflation IMHO when you have such world OVERCAPACITY.

No politician willing to confront the real problems, the longer they wait, the worse it will get.

WE have borrowed from future demand, nothing left to drive the economy forward, IMHO.

Consumer confidence reading just plunged and has been steadily dropping. A cut back in spending would kill off economy and could cause a world crisis.

I prefer to play it safe, while preparing for what I think is more than possible. Is it wrong to hang out in cash while the market goes nowhere? or when it may decline in earnest? Maybe it won't, but history is telling us what has happened before.

INvestment in equipment and the subsequent depreciation fuels wealth and earnings, and creates jobs, most of this has gone into hiding in this country. The consumer has born the brunt of economy.

I don't say run and hide, but I do say is think about what CAN happen, and THINK about where YOU are, a talk to professional couldn't hurt if you have worries or questions, but be prepared to think about things for yourself, and perhaps be ready not to follow the herd.

Is the Herd running for cliffs like the Lemmings or are they like the Buffalo heading to greener pastures, (or set up for ambush) I say you must decide.

Duratek