Returning to the fearless Dow forecast of the recent past

Yes, among Dow prognosticators (and from what I can see in the mass media, there are no apparent credentials necessary for entrance into the club), only I have risked setting out my algebraic "proof" that the venerable market indicator will sink to 9,100 as its "essential" level. As a quick review, my GIGO, back-of-the-envelope calculation used the Dow's high point in the summer of 2007 (14,000) and then considered the following data: Americans were borrowing equity out of their houses in the period 2001 to 2006 at a phenomenal rate. Some analytical writers put this figure at 50% of the total "income" received by Americans during this period. For the most part, this source of money has dried up as housing prices have moved south. The Case-Shiller index puts the year over year decline in home values for April 2008 at -15%, the worst performance of the "housing sector" since the Great Depression. Thus, so much for the house-as-piggy-bank economy.

Since the American economy is based on consumer spending for 70% of its action, removing half its juice results in a 35% contraction of the GNP. 14,000 x .35 = 4,900. 14,000 - 4,900 = 9,100. An oversimplification? Of course. A little arbitrary in its equation of the Dow (with its big multinational corporations to an extent insulated from strictly American woes) with the overall economy? I agree. Naive, trivial? Take it easy there. The Dow is down to 11,590 as I write this and General Motors is at its lowest point since 1955. Imagine if you had bought GM at the midpoint of the Eisenhower Administration at $11/share and held it till this morning. Subtracting out inflation for those 53 years...Is it just barely possible that General Motors was a little shortsighted in not anticipating the increasing scarcity of oil, its high cost, and the climate change scenario now bearing down upon us?

When I made my fearless call, I did not take into account oil at $140 a barrel or gas approaching $5 per gallon. Thus, I'm going to embellish my terminology with a new term, which is calling the 9,100 number the Essential Floor. Where else can you read about the Essential Floor than here, in this blog manned by one fearless jeremiah living in rustic squalor, surrounded by drought-stricken trees a mere 3,000 miles from the legendary pond which lends its name to the site? Anyway, when we get to 9,100, most of the water will have been squeezed out of the watered stock of the American financial markets and our new standard of living will begin to click into place. The Dow will then begin to wobble around this new level.

Not all bad, by a long shot. For all I know, this may have been George W. Bush's secret plan for dealing with global warming. If the American economy swirled down the toilet under his stewardship, at least his subjects would finally be forced to curtail their reckless spending and promiscuous energy wasting. If that was the plan, it's definitely working.

I remember about four years ago, I was walking the Philosopher's Trail above Heidelberg, looking down on the pretty Neckar River as it flows past the castle. And I came upon a rude sign, white letters on red cardboard: "Amerika: Climate Killers." I suppose it was placed there by the trail's side because whatever German chose the spot knew that the large American presence in and around Heidelberg (military, etc.) would encounter it on a regular basis. Indeed, here I am, spreading the word. Well, I suspect it won't be long before our per capita consumption of carbon drops from its dubious position of first in the world, and our place in that category will begin to match some of our other rankings, such as those for education, infant mortality and health care. But it will all take a lot of time. The U.S. had built up such a fantastic capital base during the good years, that we can, as in the last, desperate phase of a Monopoly game, sell off the red hotels and the green houses, and finally mortgage the deeds themselves, in an effort to stay in the game. It's just that a lot of the players around the board observing our liquidation will be wearing burnooses or speaking Mandarin.