Tax season for accountants is a grueling ordeal that begins at the first of January and does not wind down until the last day of April (first quarter payroll taxes are due 4/30).  Accordingly, only time has prevented my thoughts from arriving on these pages prior to today.

Meeting with approximatly 1400 people and requesting their opinions on what we are fed by the media as to the current state of the economy has provided me the basis to make the following analysis:

By a factor of 1398 to 2, folks overwhelmingly disapprove of how the economy is being handled.  The taxpayer has reached a tipping point with regard to our Treasury Department’s approach to handling this crisis.  The very idea that we are literally giving trillions of dollars to billionaires in the hope to stop a downturn in our economy is absurd, at a minimum.  The absurdity rises to the level of outright theft when the Federal Reserve (a private consortium of banks not connected at all to our government) announces their intention to create massive inflation as a cure to the “economic crisis”.

The approaches taken by the Federal Reserve and the Treasury Department combined will result in the wealthy elite bankers and their Wall Street cronies enriched with trillions of dollars, while the rest of society is saddled with massive price hikes for everyday goods, massive unemployment, and a collapsed economy.  Regardless of whether we suffer massive inflation or deflation, the wealthy elite have been protected by receiving trillions of dollars of taxpayer money to carry them through the crisis and beyond.

We have heard the argument by the folks in the conservative media that President Obama is a socialist.  Well, it appears that the appointment of Mr. Geitner (who previously ran the NY Federal Reserve) insured that the socialist tag was correct with respect to the wealthy elite.  It appears that our President has adopted a policy of socialism for the wealthy-as Mr. Geitner’s trillion dollar giveaways at taxpayer expense prove.  We will never see a larger transfer of wealth in our lives than the transfer underway now.  Should the present policies instituted by Mr. Geitner and our President continue to fruition, our entire middle class will be wiped out.  The fallout to society will be a class system of the wealthy and the poor.

The media folks at CNBC and their cheerleading stock market hypers will have you thinking the economy is on the mend, that things are just jim-dandy.  Let’s look at the stock market of 1929 first and compare to today:

The above chart is the beginning of the worst economic collapse in recorded history.  Note the nearly 40% decline, with a bear market rally of nearly 29% post crash.

Now let’s take a look at a chart of the DJIA today:

Anyone notice the severity of the present day stock market collapse is significantly greater than 1929?  We can calculate the drop in the DJIA average in 2008 is greater by a factor of 22%.  Accordingly, should we implement a bear market rally measuring 22% higher than the 1930 rally, we arrive at the approximate point of  intermediate downtrend line intersection with the upward trendline of the present rally.  It would appear then that we have less than 30 more days  to this stock market rally, after which it (the market) almost certainly will get ugly.

The four year DJIA from 1929 to 1933 appears below:

Should we suffer an 86% decline post rally, the DJIA will fall to nearly 1250.

It should be noted that the government’s first response to the economic collapse in 1929 was to attempt to create massive inflation in 1931.  As we all know, that response failed gravely.

Let’s hope we come up with a better plan.  Perhaps we can simply let nature take it’s course and free markets correct things accordingly.

2009 should officially be called the year when upside down is right side up, when black is white, when wrong is right.  It’s as if we are all walking around in a dream world where everything we know to be common sense has been turned on it’s head.

2009 is the year when we decided that in order to get ourselves out of debt, we borrowed three times more than we borrowed the year before.

2009 is the year that we decided that in order to provide assistance to the unemployed, we gave trillions of dollars to the wealthy.  See stimulus 101, bank bailout 102, and the 2 trillion dollar Geitner printing press.

2009 is the year we decided that in order to allow capitalism and free markets to correct real estate prices, we lowered interest rates to zero and pulled the plug on home foreclosure proceedings.

2009 is the year we ushered in a new president to change things, and his first major policy initiative was exactly the opposite of what he campaigned to change.  President Obama’s stimulus package is more of the “failed Bush policies” he so correctly campaigned against.

2009 is the year that the media tells us that saving money is bad for the economy.  Huh?

2009 is the year that the media tells us that we borrowed too recklessly and spent too much borrowed money to fuel the economic depression the country now faces.  Wait-I thought saving money was bad for the economy?  Now I’m really confused…

2009 is the year Washington decided to print enormous amounts of money out of thin air, creating enormous inflation that is supposed to stabilize our economy.  That’s right, folks, by raising prices 300% across the board with all this excess money chasing too few goods (the definition of inflation), we are supposed to be able to help those millions of folks who just lost their jobs and must live off their savings until they find another job.  Huh?

After speaking with approximately 265 people in the last two weeks, I have determined that 2009 will be the year we all finally get it-that Washington is totally wrong.  We finally get it that Wall Street and Washington have moved so far off course that we know something  smells very wrong with all this bailout stuff.  Every single taxpayer I have spoken with is against the bailouts, the stimulus package and no longer has faith in Washington.  Rightfully so, we have finally begun to take notice.

We have finally begun to figure out the end game here.  Each and every “initiative” introduced by Washington and the Federal Reserve has one end game-to erode our savings and eliminate retirement for the majority of the baby boomer generation.  We are finally pushing to the side social issues and focusing on the meat and potatoes of what keeps us working every day-money.  The good that is coming out of this is that all of us are finally realizing that the media-from CNBC to Fox News to MSNBC are full of crap and are not to be taken seriously.

That will happen when you take away every one’s pensions.  People start to really pay attention.

Today’s Bizarro World will lead to tomorrow’s world of close scrutiny.  2009 will bring an end to petty political ideology disagreements for the greater good of all middle class families coming together in unity of purpose.  The brainwashing of the media has begun to lose it’s grip on us, as we increasingly begin to think for ourselves.

2009 begins our awakening.  It’s a wonderful time to be alive.

As we embark on this new calender year, I have taken some time to review and analyze data, new and old, before setting my 2009 market expectations.  Upon further review, I am of the belief that the generational downward moves in the markets experienced in 2008 will not abate in the aggregate during 2009.  My previous column, published on the Market Oracle and also picked up by Jack Myers day life, a media website in NYC, compared the DJIA in 1929 and today.  As we all know, the Great Depression began in 1929, highlighted by massive stock losses.  The DJIA performance of July 2008 to the present, is quite similar in chart performance.

Folks, even though we are in a distinctly different world today-far removed from the agricultural economy of 1929, there are similar stresses in our financial world of 2008 and 1929.  First and foremost, credit contraction-the literal shutting down of credit by banks in 1929 caused the market meltdown of that era.  When banks called in their markers in the stock market, stock holders were forced to sell, commencing a market collapse that dived 90% peak to trough.  The similar instances of bank credit contraction and bank failures are too large to dismiss as mere coincidence.

Our Federal Reserve has promised virtual unlimited backing of virtually every credit instrument on the planet to save our economy from the ravages of credit contraction.  The literal unlimited printing press of money has landed at our feet via the Fed, with guarantees of credit to all who have their hand out.  The notion that our money supply can multiply to such heights is quite scary, as such actions would lead to massive inflation if not held tightly in check.  In other words, for every dollar the Fed prints up to buy bad banks, bad mortgages, or bad car loans, they must find a way to retire a dollar presently in circulation to keep our money supply stable.  I believe the Fed will attempt to accomplish this feat by implementing a staged program out in time so that major monetary inflows will be accompanied by retirement of previous monetary inflows to limit the inflationary effects of it’s initiatives. Although this notion has a conceptual ideal, I do not believe it can succeed based on faith alone.  The Fed’s measures are unprecedented, and they themselves can not guarantee success.  Monetary policy has, in my opinion, been the genesis of the economic calamity we face today, and as such, expanding such a faulty monetary policy cannot be the panacea to correct the ills that plague our financial system.

Our new President has embarked on an aggressive stimulus plan to energize our sagging economy.  President Obama will attempt to stimulate our economy by providing three million infrastructure jobs that will return three million unemployed folks to work, and in theory, return three million people to the shopping malls and tax rolls.  The glaring elephant in the room, if you will, is that President Obama plans on borrowing the money to implement this plan.  The question I ask of you-if you were having financial difficulties, would you take out another loan and spend the proceeds on temporary, or consumable items to cure your finances?  I don’t believe any prudent individual would implement such a personal stimulus plan.  My point is, once the three million infrastructure employees have completed the roads and bridges and whatever else we happen to be fixing under the plan, what happens?  These employees are temporary by nature, thus they will return to the rolls of the unemployed after their jobs are completed.

I’m not sure that’s really a plan I want to get deeper into debt signing on to.

As for the markets, I don’t believe they will ultimately sign on to such a plan.  I believe the market will see this plan for it’s shortfalls and behave accordingly.  We are losing 600,000 jobs per month, and the effects of such staggering job losses on spending will continue to erode an already faltering economy.  Public companies will see further declines in profits as a result of the contracting economy, and their stock prices will continue to decline.  Although 1929 was 80 years ago, 2008 may prove to be deja-vu, with 2009 replicating 1930.  The similarities in economies are real between these two periods, thus the similarities in the DJIA performance.  I believe 2009 will be the year we all start to personally feel the effects of this economic downturn, from a loved one losing his or her job to more bank failures limiting our access to funds.

I hope I’m wrong on this one, folks, but I don’t see any way out of the present economic circumstances that are eroding our way of life but one-take the medicine.  When Washington and the Fed wake up and realize that a sharp depression allowing markets to adjust (it’s called capitalism), whereby the strong survive, thrive, and ultimately create wealth to hire the unemployed, will we see the end of this economic downturn.  Government intervention has never in recorded history enabled an economy out of a downturn.  Conversely, government intervention has always perpetuated and exasperated economic downturns.  This time should be no different.

This year I will stay nimble, in cash, and await opportunity should it arise.  I am out of the markets and will stay out until the charts deviate from their present course.  Expect the DJIA to end the year just shy of 6000.

Best wishes for a safe, happy and healthy new year.