Nuthin' but Buffett...

For the reading enjoyment of all you Buffett fans.

http://www.beartopia.net/buffett.html

Buffet thinks that the U.S. economy will experience an eight year slump according to the article linked below.

Prepare to tighten your belts, my friends. Indeed, it is going to be a whole different world *if* the warnings ring true. At some point, there will be opportunities for the next bull run. A person will be in a fortunate position if he has saved cash for the next market advance after we get through the tough years. Now is the time to position yourselves, for that future event, by preserving your wealth. It will get worse before it gets better. Many think it will be the worst recession in the past 50 years. Plan accordingly and be prudent in your expenditures. The rainy day might be here soon. Good luck.

http://quote.bloomberg.com/fgcgi.cgi?T=marketsquote99_news.ht&s=AO4WUVxWnV2FycmVu

The news over at Dismal Science wasn't cheery, either.

Trouble is, that downturn is during the last remaining years of my employment (I hit 25 years at my current company in another 7 years) -- AND we'll have two kids in college! This means both my husband and I need to sit down and think about alternate investments and when we need to move into them.

Y'know, the old "sock under the mattress" is beginning to look like a better option. :)

If we have only an eight year slump, that would be far shorter than the historic correction period necessary for past bubbles to work themselves out.

How about a Dow of 4000 in the year 2012?

The article below is a well researched review of past bubble poppings.


John Mauldin's Newsletter of 8/29/01

Hi SMF,

Thanks for the sites.... Interesting stuff!

I closely follow a Buffett-style strategy in my own investing.... I figure if it works for Buffett for all these decades, it should work for me! And I found that it does....

But, I'm personally not as pessimistic as Buffett is when it comes to his statements on the stock market. I've been generally following his comments since around 1996, and I've found that every year he seems to talk down the stock market. Not only that, every year he also talks down the stocks of his own company, Berkshire Hathaway!

Why does he do that? Probably he really does believe both are overvalued.... As for talking down the Berkshire stock price, in his annual reports he has mentioned how he much prefers long-term investors in Berkshire. He's not too keen on having short-term traders invest.... Possibly this talking down of his own company's stock is to try to dissuade short-term traders from causing irrational fluctuations in Berkshire's price. That's just my guess....

When it comes to longer-term trends in the stock market, I follow a different person.... I really like the writings of Harry S. Dent, especially his observation of how the stock market index seems to follow birth-rates lagged by around 46.5 years for long term movements....

This sounds a bit crazy when you first read it. But there's a rationality behind it.... He found that average spending peaks at age 46.5. When everyone is spending more, there's a follow-on effect.... It means that companies who are selling to the people buying are also making more profits. And if companies are making more profits? It drives the stock market prices up.... So, there is a rationale behind it!

And it seems to really work! Let me show you, from Harry Dent's web site.... (By the way, I first found out about this in Harry Dent's 1993 book, "The Great Boom Ahead". Fortunately, now I can show you this very important graph on the internet!)

Go to this web page (it will open up in a new window)....

Now scroll down to the graph, and click on that....

This is an AMAZING graph.

The red bar graph is a graph of US births lagged by around 46.5 years.

The yellow line graph is the Dow Jones Index, adjusted for inflation.

See the pattern?

Using this graph, Harry Dent predicted the great boom in the stock market in the 1990s. He published this in his 1993 book, "The Great Boom Ahead" -- BEFORE the boom happened. He's the only person I'm aware of who did this.

Harry Dent also predicted the current mini-slump we are in, which he also published in his 1993 book, "The Great Boom Ahead."

You can see a dip in the red bar graph around 1998-1999.... This is the dip we're currently seeing in the stock market. (The years aren't exact by this technique, but the general pattern seems to be valid.)

So -- using this approach -- what do we expect to see?

According to this, we should get out of this slump probably by around next year some time, maybe even as soon as later this year.... Then we'll see another incredible stock market boom.

This boom should last until around 2008.... After 2008, it's bad news according to the demographic data. We'll probably see a very long recession, perhaps even a depression....

So.... I'm preparing for the boom ahead. BUT, I'm going to be extremely cautious by 2008.

What do you think? :)

I think Harry Dent has a very good record in his predictions the past 8 years or so. And I think his technique sounds logical to me too.... That's why I feel confident that future long term stock market movements will probably follow the predictions of this technique too.... It won't tell you what will happen tomorrow or even next week, but if you look at it on a year-to-year basis, I think it can give you a good idea as to what will probably happen to the stock market in general....

- Dien Rice

It makes sense -- particularly given the average age of the baby boomers. However, I wonder if this large population bulge will skew the data and make the next boost smaller.

> it. But there's a rationality behind it....
> He found that average spending peaks at age
> 46.5. When everyone is spending more,
> there's a follow-on effect.... It means that
> companies who are selling to the people
> buying are also making more profits. And if
> companies are making more profits? It drives
> the stock market prices up.... So, there is
> a rationale behind it!

The mid 40's is about when we all discover that a) we're going to retire in the next two decades and
b) our retirement money isn't what we thought it was going to be and
c) often our parents are in declining health and
d) those of us with kids are struggling with college. And we want some financial security.

Oh yes... if we've bought houses, the houses are getting to the point of being paid off.

(g) We'll know in a few months whether he's right. I sure hope he is!

Hi Mel,

I'm glad you liked that.... :)

I think it's quite remarkable.... According to this, it IS the baby boomer generation which has generated the boom of the 1990s and which will be driving the predicted boom for the next 6-7 years or so....

Anyhow, time will tell! The graph seems to fit the data from 1953 or so -- for almost the last 50 years -- so I expect it ought to continue fitting the data well for the next few years too.... But we'll see. :)

Another interesting thing this shows is that politicians etc. play only a minimal role in the economy. I think they play an important role in keeping down corruption, and keeping trade fair and transparent.... But apart from that, it seems that (according to this) the overall economy is more driven by demographics than anything else!

This is heresy to economists.... But it fits the data strikingly well!

- Dien Rice