If you look on a chart for 30+ years ... the long term growth curve is near back to where it should never have strayed if the policy makers and regulatory bodies in the US had not been asleep for the last 15 years. In fact the Dow is a little low from where they should be and the TSK remains slightyly high to correct.

If this is in fact where the market should find its equilibrium as I would contend, then the markets should stabilize. (I'll explain below why I don't think they will)

Case 1 - Equilibrium has been reached and normalization will occur

Given the current recessionary pressure ... it would not be surprising to see a mild pull back in stock prices ... followed by a cautious rally with the weak dying and the strong getting stringer over the next two years. There is no justification to a sizable bouce back given the likelihood of a global recession. There is also no justification for much of a correction or drop because we have reached the longer term curve for the markets.

Case 2 - A further decline

The shift in the curve that has brought back the current levels of the Dow and TSX was inevitable under normal conditions. This begs the question: Are today's conditions normal? Given the debt level of the US govt and consumers and now the US banking institutions ...NO ... in fact I would contend if the market had never skewed off with the irrational exuberance it showed from 95ish to 2007, we would be in for a marked decline caused by what I would have considered to be excessive debt levels and normal influences in the market that existed in 95.

These consitions were masked by regulators and policy makers who regardless of their intent ... attempted to manage the economy for accelerated growth at a time when the North American economies were really hitting their maturity (that is the super growth rate caused by an emerging nation was coming to an end .. i.e. birth rates were in decline, there was no new sources of employees ... women were now a strong and essential component of maintaining NA competitiveness... etc)

The mismanagement of the regulators and policy makers instead of creating an environment for growth created an environment for greed and corruption ... I think we will all agree with that! Now its will be time to pay the piper and it won't be the ones who stole the money from an unsuspecting public ... it will be all of us with a continued decline in the asset values we hold in various forms in the market until such time as the excessive debt levels are cleaned up and like people and gov't did in the 40's through to the 70's primarily lived within their means ... there is no market panacea that can correct that one simple fact.

Excess spending can not go on indefinitely and those including govt's who overspent beyond their means and capacity for re-payment (which by all accounts is 80%+ of the population) will have no choice but retract into a lifestyle more suitable for their income levels and ability to generate wealth. In the meantime contraction which will result from the need for gov't to repay its own debts and once again begin acting responsibly will accentuate the downward lifestyle which we are destined to endure.

Like it or not the orgy of spending is over and we will pay the piper. I remain convinced that as a minimum we will hit the 4000 range (which may indeed be a more correct range over a 80 year growth chart) ... but just as the expansion was excessive so to will be t he contraction.

I exhort you all to be very cautious .... keep cash for a rainy day ... and plan for the worse .... you will either be prepared or like myself be pleasantly surpised.

Orgy