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Subscribers Alert:  This weekend we visit with the search engine oracle to search out the investment implications of an Islamic Superstate that will likely coalesce from our pending Iraq invasion.

Independent Validation:

(Tuesday: Preopen) I received a wonderful letter this past week from a fellow who is a PhD in engineering - and who works for a principal engineer for a major defense contractor.  His name is Dr. Stephen A. Rinehart, and what he sent along was extremely interesting - an independent proof of the concept behind UrbanSurvival.Com:  we're Replaying 1929.  With Dr. Rinehart's kind  permission, it is reproduced here:

The Late Great Dow Jones !?

By: Dr Stephen A Rinehart                   Oct 2002

Background (1929)

The real bear market from the Crash of 1929 actually occurred from Oct 1930 until June 1932 when the stock market lost over 80% of its value and dropped almost daily. The market rally had begun in 1924 with an expansion of credit by the Fed and in April 1929 was fueled by a massive inflow of gold from the Bank of London. RCA was typical of the wild speculation in stocks of the time in which it reached a high of 109 in October of 1929 and never recovered. The extent to which New York and London Banks were involved in "short-selling" the NYSE market in 1929 has to my knowledge never been revealed by the Federal Reserve Banking System or Congress to the American public.

One of the interesting stock market "cycle correlations" with the present "market crash" and the crash which occurred in 1929 has been presented by Mr. George Ure on his website (www.urbansurvival.com) in which the stock market waveform from the 1920s is compared to the current market waveform (1990s). These normalized graphs show a high degree of correlation with the start of the Bull Market as well as the formation of the market tops and start of the subsequent sell-off in the respective timeframes.

Market Cycles (1929 versus 1999)

Using the real-time weekly data for the Dow Jones Industrial Averages from 1906 thru Oct 2002, a proprietary band-pass filter (which provides the proper phasing) was run on the Dow Jones Industrial Averages weekly data to see if there were any predominant (major) cycles. Indeed, there were a number of very well defined market cycles over the past 70 years (amplitude slowly grew or decayed within the cycle) but the "long period waves" were reasonably well behaved! We found major cycles at the following weekly periods: 36, 51, 69, 86, 144, 208, 350 (seven year cycle), 600 weeks, and 750 weeks. Two of the strongest waves were the 350-week cycle (seven-year period) and the lower period of 36 weeks. Adding up all the cycles from the filters and comparing them to the actual data is shown in Chart 1 (Actual Data versus Major Cycles in Dow Jones from 1920 until 1930).

In the Crash of 1929, both the seven year cycle (i.e., appears to be a world banking cycle in the early 1900s) and the 36 week cycle played a predominant role in the crash in that the crash and occurred at the peak of the seven year cycle as shown in Chart 2.

In Chart 2, one can see the increasing amplitude of the seven year cycle which correlates very strongly with increasing worldwide "credit" as well as a massive banking failure of German banks (third peak in 1923) from WWI reparations. The second peak corresponds to 1916 and outbreak of WWI major hostilities (i.e., as well as international bank funding) involving US troops. The increasing amplitude may (mathematically) denote an unstable system which "breaks" or crashes when the amplitude of the exciting force (external credit growth) exceeds the structural stiffness of the system (i.e., inherent capability to absorb the excess credit and still be able to repay the interest) and there is insufficient damping (controls or restraints) to mitigate the response (to the taxpayer).

Chart 3 shows the "seven year cycle" in the market from 1983 thru 2002 with the market crash of 1999 coming just after the top of the cycle in 1999. In 1985, when the "peak" of the seven year "banking cycle" occurred so also did the massive S&L loan crisis resulting from the huge interest rate increases in 1981-1983 of Paul Volcker of the Federal Reserve System in conjunction with a "banking deregulation by Congress" and accounting failures.

To investigate the correlation that we are following or repeating the post crash period of 1929 (Oct 1930), Chart 4 compares the current cycles in the market to those which were present in 1929 (same cycle but different magnitude and phase). The initial "three major waves" following the crash of 1999 did follow the waveform from 1929 but the current amplitudes of the 36 week cycle are wildly different than 1929. Our current market is showing much larger "swings" in the subsequent "bear rallies" and the phasing (i.e., where the waves bottom) is different.

Chart 5 shows the 36-week cycle which occurred in 1929 as well as the "unstable" increasing amplitude build-up in this cycle with the cycle reaching a top on Sept 09, 1929 (i.e., coincident with the top of the market in 1929) followed by a subsequent crash. In a period of just over 18-months, the amplitude of this wave increased by a factor of almost 10X representing a huge growth in the "value of the Dow Jones Industrial Averages".

Chart 6 shows the 36-week cycle in the Dow Jones from 1985 until 1989 with the same "unstable" type of build-up in the amplitude of the 36-week cycle (correlates to lowering of the Fed Interbank Interest Rate off the bottom of the cycle). The peak of the cycle again occurred on a Sept 09, 1989 followed by the "crash of 1987".

The 36-week cycle from 1988 (post crash) until 1992 is given in Chart 7 which shows the peak of the cycle occurring on July 17, 1990 (Asian Contagion) and another "worldwide banking crisis" appearing on the scene together with NYSE major market drop. The peak of the 36-week cycle does not always correspond to the maximum market drop and in fact the sharpest portion of a market drop can occur when the 36-week cycle crosses the horizontal axis (which is the point of maximum acceleration). There are also many other interesting correlations of this cycle with interest rate moves by the Federal Reserve Chairman off the top and bottom of this cycle (different but related subject).

If we take the current cycles and amplitudes that are currently present in the market and project them thru 2007 we get a feel for the overall behavior of the coming market in the next few years. The market should make a "major double bottom" in 2003 followed by a "major bear rally" thru March 2004. After the top in Dec 2004 the market enters into a another "crash" or major sell-off (which may represent a capitulation in the market in late 2005) and this will be followed by two major market tops and a final bottom (end of the downtrend) in Feb 2007.

SUMMARY: The real bottom of the Dow Jones Industrial Average depends on how long the market remains in the current down trend. If the DJIA continues in the current down channel, the actual bottom of this Bear Market may not occur until Feb 2007 (DJIA between 1200 and 2200). If the actual bottom occurs in 2005, the actual value of the DJIA would be about 2800 points higher with a bottom around 4500 to 5000) consistent with a long term inflation rate of 3.5% (actually a devaluation of currency by printing more money).  However, there is a technical support line at about 6200 for the DJIA in 2002. We are in a long term Bear Market which will be characterized by short but sharp rallies based on position of 36-week cycle (not just tops and bottoms) with a final bottom in 2007!   After Feb 2007, we could lead into a major  market rally by hyping Internet stocks for 2008 Chinese Olympics! Mr George Ure was correct - we are replaying the 1929 Crash except the 36-week cycle has changed phase and grown much larger in magnitude.

Write when you see a bear!

(Again, our thanks to Dr. Rinehart for sharing this wonderful analysis with us.  He's also sent some additional materials that are on the subscriber side of the site now - and which I hope to have time to migrate over here something this week.

Oh year, one other thing.  Where does Dr. Rinehart see the market at year's end?  Oh around 6,000 and possibly lower.  It's interesting to hear him say that because it echo's our own work that suggests a yearend target around 5,800...

Classic Crudele

Once again, a gold star for NY Post Business Sleuth John Crudele.  If you haven't read this morning's NY Post, quick!  Click over and read his latest concept piece:  The concept is that bank and investment house fraud is so large among some of the biggest banks in the country that it's impossible to prosecute!!!

I know that sounds like something that never could or should happen in America, but you know the old joke:  If you owe the bank one thousand dollars, you have a problem.  If you owe the bank 100-Billion?  The bank has a problem.

Here's the link:  http://www.nypost.com/business/60774.htm

Four More Dots

(Monday - preopen)    There were four items in the news this weekend that really caught my eye - and I think they are worth sharing because they fit into our worldview.  If you aren't a regular reader, this is a web site that not only explores the notion that we are replaying the last Great Depression (although in slow motion) but that in addition, we can see the beginnings of a world war off there in the distance.  As the numerous papers on the site suggestion, not only are we replaying the early 1930's, but there is some predictable maneuvering going on that will eventually lead to a global conflict. Such a conflict, when it gets here, will be along the lines of Armageddon, or simply the ultimate proof that the Mayan calendar (which runs out in 2009-2012 (depending on whose conversion you believe) was right.

Our framework continues to be that there is already a low-level global war underway, and that if you know where to look for it, the evidence is continuing to mount up.  As discussed previously, the battle lines are a little fuzzy, but you can think of the players one of three ways:

• The Resource War:  This scenario  says that the world is running out of resources, and the people with remaining resources are fighting a major battle against resource theft by the "have not" countries.  The resource consumptive states include most of the big names in the West - the U.S., Japan, a good chunk of Europe, and the like on the one hand, versus the resource "owners" that include states like Iraq, Iran, Saudi Arabia, and so on.
• The Religious War:  This view observes that major religions seem to go through an internal "purification" stage at about 1,300 years of age and that modern Islam is undergoing the same phase that led to the Inquisition and the Crusades when Christendom was between 1,300 and 1,500 years of age.
• The Political War:  You have your U.S. Centrists on the one hand (the Bush administration and corporate America) are playing against the Globalists on the other, which include the voices for "one world government" and moderate states with limited resources and little clout.  The workout of this aspect of the war is being waged via banking and exchange rates and environmental "front groups".  The corporate America-centric view is pushing by banking policies and resultant consumptive behaviors while the globalists are using global warming, resource depletion and poverty depicted on media.

Mind you, I'm not taking any sides on this, because if you choose a side, then your analysis is suspect.  This is presented with as much detachment as I can muster.

OK, fine, so what are today's four new dots to connect?

1. There's a short piece in Russia's Pravda this morning that speaks of militant Islam as having an interest in part of Northern Australia as a part of its power-base in Southern Asia.  It makes sense, when you think about it, because Australia is in a strategically important forward are that could challenge the militants of Islam who are centralizing their power in the Southeast Asia area, and I'd have to throw in Indonesia and the Philippines.   Article: http://english.pravda.ru/main/2002/10/28/38763.html  Think about Australian resources.
2. The Washington Times has an article out this morning that goes into a lot of detail about the possibilities of al Qaida having nuclear weapons.  Apparently (and I somehow must have snooze through this little eye-opener) there were traces of radioactive material found after the fighting at Kandahar.  What we don't know is whether this was just nuclear junk being collected to make a radiological bomb, or if it was residual leftovers from something more sinister, like some fully functional munitions.  The real reason for reading the article is this:  The article explains how an attack on the Arab oil resources in the Middle East would cause a meltdown of the West.  Go read: http://www.washtimes.com/world/20021028-9543907.htm
3. The Chechen rebels that took over the Moscow theatre make the interesting points that terrorists can seize large public places.  As background, check out: http://news.independent.co.uk/europe/story.jsp?story=346567 .  OK, so what does that have to do with anything?  Well, a back issue of Russian Pravda suggests that Islamic group shave been funding the Chechen and Albanian separatist movements.  Checkout the back article at: http://english.pravda.ru/hotspots/2001/09/28/16603.html from September of last year.  The more you read about the Russia-Chechen conflict, the more you'll find Islamic militants tied into it.  Take this three year old report from Radio Free Europe for example at  http://www.rferl.org/nca/features/1999/10/F.RU.991004191521.html  - it makes interesting reading.
4. The last of our dots this morning comes from Time Magazine's report out yesterday on the possibility that terrorists would target our rail lines and other transportation infrastructure.  http://www.time.com/time/nation/article/0,8599,384759,00.html if you haven't heard these reports yet.

Synthesis:

If you wanted to take all of these dots and connect them, you can make a pretty interesting picture of a world war just a few months, or if it makes you feel better, a few years out.  It would begin with an attack on Arab oil production facilities in the Middle East using low yield nuclear devices.  This would shut down oil to the West.  The Islamic Militant forces would them declare themselves to be a "new alliance of Islamic Nations" - kind of like their version of the U.N. complete with pooled armed forces) and would declare themselves to be the majority in countries like Afghanistan and Pakistan, the Philippines, and would then launch an offense against lightly depended Australia.  "Securing their rights of passage" through adjacent waters would be their battle cry.  About the same time that is going on, sleeper cells of terrorists in the U.S. would be alerted to take our rail lines and oil refineries. The West then effectively is closed down.

The world's power would change hands virtually overnight because absent cheap energy and internal infrastructure to distribute goods and food, the U.S. ability to respond would be limited to escalation to nuclear - something that would be unthinkable in today's terms, but which is the likely outcome of such a coordinated attack on the "soft underbelly" of America's democracy.  Without power, cheap and plentiful power, this country is out of food and defenseless.

It's a notion  and scenario - that you have to hope hasn't escaped the notice of a few people in D.C.  That's likely to be one of the major factors behind the presently pending Gulf War.  If the U.S., doesn't control oil, either directly or through its proxies, we can be held hostage.

Just like the Russian theatre goers.

On to the charts!

(Deleted as outdated.  See current weekly report for updated charts)

Remember:

A conservative is a liberal who's been mugged;

A liberal is a conservative who's been arrested.

A libertarian is someone who's been through both experiences.

and write when you get rich...

George Ure

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All contents (c) 1998-2001 by George A. Ure, MBA, except authors as linked or noted