So how did the rest of us respond? Was it price capitulation or indifference? Money flow tsunami or ripple? Reaction or simply no action?

As one of us expressed loudly and clearly in these pages recently, “I’m short and I’d pay to have (these people) do their thing.”

The market today is not a matter of confidence; it’s one of credibility. None of these people have any. That, my friends, is all that happened yesterday. We simply came to the mutual understanding that none of these so-called authorities have any credibility or authority.

Long ago, I opined that we would soon be seeing a -1000 point drop in the DJIA index. In percentage terms, a DJIA over about 11000 would have given us that -1000 point drop. I guess I was right.

I guess I was right too when I gave you my forecast for 2008, which few of you wanted to hear. For 'proof of concept', let's review my notes.

---

Daily Report for Wed, January 2, 2008

With resolutions in hand, we can start the New Year fresh.

The year will begin cautiously. There are a lot of unknowns. Of what we do know from the economic data, there are a lot of negatives.

Wall Street analysts will be looking at the mega-billion dollar write-downs of the Humungous Bank & Broker firms like Citi and Bank of America, but this issue is also a Buy-side one as pension, hedge and mutual funds and corporations have also purchased this bad paper.

Globally, I expect the aggregate damage will be somewhere between $250 billion and $1 trillion, something the world has never seen before. In terms of the total size of the stock and bond markets (ie, at least $100 trillion), that is not an overwhelming amount, however. The issue is that some financial institutions will fail and when they do, others will not get paid and hence will run into financial difficulties along the way.

Accordingly, fiat money of most of the economic powers will be poured into the financial system to keep it afloat, which will drive up the price of precious metals, which are storehouses of value. Normally, the $USD would plummet at that point, but this time, I think, the $USD will remain in the 75-83 range.

While other nations may walk away from creditors, I think the possibility of the US authorities doing that are slim to none, and that will keep the $USD and Treasury prices strong.

The bond market though will have its challenges in 2008 because with all the money printing, interest rates will not be able to drop too low, and probably will be higher at year-end 2008 than at the beginning.

Crude Oil prices will have to fall unless the producers determine they wish to have a world depression. Already the economies of North America, Europe and some of Asia are slowing, and oil alternatives growing, which will pull down the oil price from its perch at almost $100/bbl. By year-end, I believe that prices will be much closer to 75 than 125/bbl.

I have no idea where equity prices will close the year at, but I suspect that as and when corporate earnings fall, due to write-downs, business failure affect, slowing economies, etc, there will be significantly lower prices in the interim. At the cycle lows of 2008 for the DJIA and Nasdaq Composite, I believe the levels will fall from 13264 to about 10000 and from 2652 to about 2000, respectively. But, frankly, forecasting major market index levels at times like this is a mug’s game since none of us knows how much money printing will happen among the major powers. As I say, I used to live in a modern $15,000 house and drink a six cent Coke. Money printing, taxation and wealth destruction via military conflict is one hundred percent the reason why the prices, apples to apples, are twenty times higher today. Share prices too are affected by money printing and inflation.

This morning, spot gold is up about +8 to roughly 843.50/oz, and the March USD is down -0.29 pct. March Palladium is weak, down -0.73 pct.

On the deal’s front, PHH Arval, a large mortgage and vehicle fleet company, has lost its $2 billion sale to GE and Blackstone because HB&B pulled the financing. I expect to see more of that.

Wrap Up

The New Year’s Junkanoo at the US Embassy party at Nick’s Iguana Restaurant was in fact an interesting one in that the parade didn’t start until 3:30am. I departed at 8:30am, having drunk coffee since 6am, still not having seen the Valley Boys. The Embassy staff was in good spirits, every one of them delightful people, and incredibly polite. I met the ambassadors, past and present, plus staff from customs, DEA, economics, etc.

The weather today in Nassau is the first nasty day in the past month, but it should blow over in a day. South Florida may get temps into the high 30’s, but with the Gulf Stream and being another 100+ miles south, I expect the low of the day will be about 60 and the high in the low 70’s, down from the usual 80-83. But it’s blowy, overcast and will probably rain.

I’ll just stay in and get more work done. :-)

Recently I received several unsolicited offers to join Team Cara in one capacity or other. Thank you and I will attempt to get back to all who wrote me.

Trader Geoff will write up the requirements in the trading area. We are looking for five geographically diverse full-time independent traders – Hong Kong, Singapore, Europe, etc.

Also, I am going to look for someone who is a former business editor, probably retired now, who could help me with copy edit of investment research and manuscripts for three books I’d like to publish in 2008 (ie, one of my resolutions).

One project I want to start this month… is to prepare a report on how the Cara Community has been affected by participating here… Some of you have stated that learning patience was the biggest factor. Others have pointed to how important you have found looking at the cause-and-effect paradigm, or at the big picture.

One factor in your success is that many of you now have learned how to filter info from sales discussion. For some reason, the mainstream media thinks that well-informed investors and traders have interest in hearing self-interested promoters. I mean, today the public even clearly sees when the supposedly independent media are grinding axes, and these media personalities are shocked that we call them clowns for doing so.

I think 2008 will be possibly my busiest year ever, so retirement isn’t as bad as I thought it might be. LOL

---

Given that the DJIA is now at 8149 (down -38.6% from 13264) and the NASDAQ is 1398 (down -47.3% from 2652), and that C has fallen -76.8% from 27.89 to 6.45, and BAC is down -67.1% from 39.02 to 12.85, I think my pessimism to start the year was justified.

Yes, financial institutions have failed – the biggest ones in fact – and yes, the rest are worried they won’t get paid. Yes, Crude Oil has moved from 100 to 50, which is closer to 75 than 125. Yes, both the $USD and $GOLD is stronger than most thought it would be. And, yes, there has been $1 trillion or more pumped into the system by the monetary authorities, with no end in sight, as active printing presses (ie, debt monetization) emerge.

But, mostly, my forecast was right because “many of you now have learned how to filter info from sales discussion… (and can clearly see) self-interested promoters (like the Administration, the bankers, Financial Entertainment TV and even the supposedly independent media) have been grinding axes, and these media personalities are… clowns for doing so.”

Just for the record, as they say.

---

SITE ADMIN NOTE:
We have moved this site to http://caracommunity.com and are only posting articles here for a limited time to allow people to switch over in an orderly fashion. ALL comments are now on that site. If you are reading this, you need to start going to the other site. If you are reading this in an RSS reader, you should probably change your RSS feed link to http://caracommunity.com/rss-full.xml or one of the other RSS links provided on the front page of the new site.

---