Subscribe to J. Taylor’s Gold & Technology Stocks newsletter

Jay Taylor is featured on the Korelin/Hartfield Radio show every other week. Al Korelin interviews Jay Taylor and other Gold newsletter writers and gold companies and contributes articles to Kitco.com.

If you would like to listen to a recent Jay Taylor interview, click here
(http://www.kuik.com/KH/KH.html)

There were more signs last week that the temperature in the Kondratieff winter is continuing to drop. As such we continue to believe the "winter" forecast of Ian Gordon, who first identified the "seasons" of the Kondratieff cycle remains in place. We unfortunately must tell you that we subscribe to Ian’s theory that the U.S. is inevitably heading for another depression akin to or worse than that of the 1930’s.

Signs of hope for averting an impending economic disaster were hard to find last week. Unemployment was up more than expected amid signs that manufacturing was weaker than expected. With respect to unemployment, what is really frightening for America is the prospects of permanent job losses to China and/or other lesser developed countries. Unlike other recessions, these are gobs that will not come back with the economy. Indeed, what we are witnessing now is a major and permanent decline in the standard of living for Americans. But then we should not be surprised. Economics 101, at least in my day taught that a nation could only spend more than it earns for a while before its living standards would begin to decline. And now, can there be any question but that America is now experiencing that deafening "giant sucking sound" that Ross Perot warned us about in the1992 presidential election campaign. Our interview with James Tu provided us with some very interesting insights into how the Chinese are waging economic war at all costs against America. But in our delusional state, few of us Americans seem to worry very much. Guess most people think we can simply march off to another war to make things right. Howe will it be paid. No problem at all. Just print money. No problem man!

After all, the money center banks – those with their roots in Jekyll Island and who own our politicians, like this action. It serves those internationalists very well indeed!

The latest housing start number was higher. However, the secondary market for housing slumped considerably and as Richard Russell pointed out, lumber prices have been in a monthly decline, suggesting that the housing bubble may be about to burst. No doubt rising unemployment will put a damper on the housing market as will rising interest rates, should that begin to unfold with a dollar collapse. But printing money to fix these problems will and always does fail.

We can recall a large number of funding crazes that took place in our life time, all of which ended in tears. Theenormous explosion in mortgage debt over the past several years is not likely to be any different. An excellent article published last week by Comstock Partners Inc. helped us flash back on some of America’s Credit/debt excesses that were by the way, always led by the same elite institutions at Jekyll Island who conceived the Federal Reserve cartel. Other examples of extreme lending excesses?

· Loans to lesser developed countries in the 1970’s.

· Crop loans in the 1970’s when farm land prices became extremely excessive in relation to cash flow from crop prices.

· Energy loans were made in extreme excess thanks to anticipaton of $100 oil, not unlike the euphoria during the 1990’s that caused people to predict a 100,000 DOW. Just before this delusional lending binge self destructed, certain Oklahoma bank lenders were engaging in wild parties where booze was being drunk from cowboy boots.

· Loans to OPEC during the 1970’s were made in extreme escess. That also ended in tears and loan rescheduling for the Jekyll Island bankers.

· Loan excesses were made to the rust belt.

· Junk bonds led by Michael Milken were issued in excess during the 1980’s, which led to major losses.

The point Comstock Partners made in their piece is that banks tend to go overboard from one lending craze to another. They don’t learn from their past. But always, always, always, when they get involved in excessive binge lending like those noted above, eventually they loose big time. So what is the current binge? You guessed

it. Its housing! What happens now when growing unemployment leads to still higher credit card and mortgage defaults and when the dollar begins to fall ever more sharply and interest rates begin to rise dramatically?

Especially, what happens to folks with variable rate mortgages as interest rates begin to rise? But this is exactly what is to be expected in the Kondratieff winter. Debt cannot be repaid, no matter how much money Mr. Greenspan tries to pump into the economy because in the process of pumping he is creating still more debt which sets our nation back all the more! Burrrrrr…………….The Kondratieff winter is getting colder and

colder!

But what about the Near Term for Stocks?

"Chart provided courtesy of www.decisionpoint.com

At least one subscriber has contacted me to complain my constant Kondratieff winter refrain by quoting John Maynard Keynes who said, "In the long run we are dead" or something akin to that." What about the intermediate term he wanted to know?

This letter will never be short-term trade orientated. Trading in and out of markets is simply beyond the scope and skill sets of your editor. So we will leave that to someone. What I will do from time to time is pass on the advice of the existing master of Dow Theory, namely Richard Russell. There is most likely no one alive who practices and understands Dow Theory more thoroughly than Richard Russell so I like to pay great attention to his thoughts. I read his "Daily Remarks" Monday through Saturday every day of every week. With Dow Theory, you try mostly to identify the primary trends of markets, but within those longer term trends, you can trade some secondary trends. The absolutely best way to follow this master’s advice is to subscribe to his service. Visit www.dowtheoryletters.com to do so.

What does Dow Theory currently say about the equity markets? At present it is suggesting a neutral position regarding U.S. equities. One Dow Theory concept Mr. Russell passes along to his readers is that in order for a sustained move either up or down to occurr, the Dow and the Transport averages need to confirm the move of the other. With confirmation, a sustained move, either up or down becomes more likely.

For Now, Watch 8521.97 on the Dow!

On March 21st of this year, the Dow hit a 8521.97 and the Transports hit a peak of 2263.49. Since then, I believe it was last Wednesday or so, the Transports bettered that peak. In fact it closed this week at 2326.19, or slightly ahead of its March 21st high. However, the Dow has so far failed to better its March 21st peak of 8521.97. This week it closed at 8337.65.

If the Dow can also rise above its March 21st peak while the Transports holds above its March 21st peak, a sustained move upward in the averages would be likely. How far might they go is another question for another day. Russell also points out that the closer together in time the two averages confirm a move, the more compelling the signal.

If on the other hand, the Dow fails to better its old highs, then we could be looking at a period of sustained weakness in the Dow such that the October 2002 lows are likely to be tested on the down side. Which way will it go? Only God knows. But it may be worth pointing out however, that the six-month period ending in April is usually the strongest six months during the year for the stock market. Despite that fact, the major averages are

barely above where they started the year. There is no doubt we are in a secular bear market, perhaps the mother of all bear markets. So my thinking is more than likely we could test and fall below the October 2002 lows. At some point, perhaps soon after the October 2002 highs fail to hold, we could be looking at the next phase of the bear market, which I think will be the beginning of a true capitulation phase. When people finally give up on stocks and order their broker to sell at any price so they at least get some value, and when they swear they never want to own stocks again, that will be the time to begin paying more attention to undervalued stocks and watching their PE ratios. When shares once again sell for PE multiples below 10 and pay 5% to 10% dividends for some of the strongest companies, we may then have hit bottom. The question then will be whether we have a short time frame before stocks rise off that bottom or will the recent pain convince the masses to stay out of stocks because of their most recent experience such that we have a long, long bottom forming period, not unlike the market of the 1930’s or that of Japan now or like the gold market over the past decade following the major decline from $850 in January 1980.

Looking at the chart of the Dow above, it seems we are at a very crucial point. A breakout above the declining wedge area would be intermediate term bullish, while a decline to the downside of the wedge would be bearish. In combination with the Dow Theory Confirmation, we might get a much more clear picture of where equities are heading in the next few days. If this resolves itself in a positive manner, you might want to play the upside by way of the QQQ’s or the Spiders or the Dow Indexes. But don’t forget we are in a very long-term bear market so if you are fortunate to make profits from the long side of the market, don’t be shy in quickly taking profits. As for me, I’m staying out of these shorter term trading games. I’ll just try to focus on the primary trend so I’m sure to be ready to take advantage of the major moves in the primary trend.

For more information please visit www.miningstocks.com.

You can subscribe online at our website by clicking here