100 Years of Market HIstory Ignored

SIt back, and let Papa take you on a ride, you may want to strap yourselves in...it could get BUMPY! (remember, this is attempt at bigger picture, not a call for pin point market turn)
When too many use the SAME tool, it can negate its usefullness, AKA LOW VIX. Now the SPX/VIX ratio is being questioned (in a healthy way)as to whether it also is either outdated or not useful.
In the very attack of the tool being not useful, IMHO it brings it back into usefullness, it is NO longer "accepted" it has any bearing what so ever.....as have other indicators like PE ratio and Dividend yield!
I believe the detractors have MISINTERPRETED the ratio.
AS before (1999-2000) this ratio has been topping for a period of about one year, except this time making even MORE EXTREME readings.
For over 100 years of market history, the DIVIDEND YIELD has been an ACCURATE MEASURE of CYCLE BOTTOMS and TOPS, without FAIL! (Figure 17 in DEC EWT) SO now.......2 of the most important measures of stock valuations and cycle degrees is...."no longer relevant?"
POINT IS, I think it prudent to understand what may be now occuring.
CYCLE LOWS, meaning beginning of NEW BULL MARKETS have occurred when the dividend yield reaches 6-6.5%. (PE ratio's single digits)
CYCLE PEAKS (Bull market TOPS) over 100 years of market history have occurred when dividend yields reach around 3%.
We are in process of making history, because at 2000 top the dividend yield on DOW was 1.5% (1929 top was 3%) DOW is curretly near 2% yield.
UNLESS you agree that 100 years of stock market study and history are meaningless and not relevant.....the current situations full impact should be crystal clear.
Then we must be making a top of a MUCH larger scale then almost anyone could imagine.
UNTIL the same measurements or criteria which defined EVERY BEAR MARKET in the history of the market are fullfilled, then what is now occuring is something other than a new bull market....and so long investments are at substantial isk.
To fullfill a cycle low according to past data, it doesn't take much imagination to figure out what that "COULD" mean.A drop in prices of more than 50% from current levels.
Knowing we have bettered the other outragious cycle top of 1929 by a magnatude when it comes to total credit market debt (now at near 300% of GDP) it makes total common sense that we soon enter or have already a period, a phase of unwinding of this EXTREME....the cycle goes from contraction to expansion and back to contraction, knowing prior extremes and knowing we have bettered them in many ways as I Have outlined, it is perfectly logical to assume the worst case scenario is more than possible.
The FED hs reversed its easing course, the outragious rise in money supply has slowed....the wind is no longer at our backs.
Also reaching extremes is borrowing 80% of the worlds SAVINGS to support our consumption addiction.
It is interesting that though the DOW is well below its all time high, its still below the 2004 high.....outdated unstrusted BULLISH indicators have reached levels never seen before.
The Bear Market which began in 2000, started to retrace the excesses and attempted to cleanse the system, right the ship....adjust the maladjustments and investments...the delerium.
HOWEVER, at the low reading to date, PE was 30 and div yield was under 2% (unless we IGNORE over 100 years of history, that means something)
The FED intervened the process, put it on cold ice...a LONG time out. Money supply DOUBLED in a short 5 years. Interest rates were dropped 13 times to 45 year lows in a "CRISIS" move.
Were the results worth it? sustainable? I SAY NO!
SUrely the liquidity went the easiest route, DID it STIMULATE growth through investment and manufacturing and savings? NO! It did it through speculating in ASSETS housing and the stock market.....and built a MASSIVE carry trade imbalance in BONDS which STILL goes on to this day! WHEN WILL IT GET UNWOUND? CAN IT?
ANother low SAVINGS at historic LOWS. DEBT and deficts at historic highs.
With everything I pointed out and we know, the consolidation of the DOW this past year is NOT in preperation for a move to new highs IMHO.
NO 2002-2005 has served to seperate us from PHASE I of the bear market from PHASE II...TEXTBOOK.
To adjust the paralell trend channels we need to draw the lines for bottom at 1980 and 1988 and top around 1987 and 1997. You can see 2000 is a "throwover" above this upper channel andnow consolidation near that area.....prices tend to move from upper trendline to lower tendline especialy after a throwover.
Dow Theory explicitly defines value for tops and bottoms.
To assume under current GOV predicament...and need for existing borrowing already straining trade and value of dollar and if not for continued carry trade speculation, interest rates......can this continue indefinately?
HAsn't stimulus and policy been an abject failure? and made things worse?
Built CHina into SUper Power, and they are now going around the globe buying it up! with our dollars! PSSSTTTTTT they are also using the dollars to build up their Military!
We still in entire RECOVERY only 2 -3 readings of job gains over 300,000. and we are still net 1 MILLION jobs DOWN from beginning of recovery!
When the economy grows from higher wages and employment is one thing, then it grows from ZERO savings and borrowings/DEBT is another.
These imbalances that existed and now the new ones wouldn't be present at the beginning of a new bull market.....we have managed to pass any past specualtion and top.....I feel it inevitable that we are near, at the end of the line.
And because of the extreme situation and imbalances, ill prepared to deal with it....what will the FED do next time? PRINT MORE MONEY? GOV......MORE STIMULUS?
Exact timing aside.....there is enough evidence IMHO to begin to prepare for some VERY tough sledding ahead.

Duratek