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Author: LevMyshkin Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 72  
Subject: CAPS Index Daily Update Date: 11/1/2006 8:29 PM
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The market is irrational. The market is irrational. This is our mantra here at CAPS Index HQ.

But wait. What's this little bird whispering in our ear? This might actually be a rational market you say? Why, that's impossible!

Not quite. Here's where this is leading. We want to know if the market is being irrational with it's last couple days in the doldrums, or if the last three-quarters of a year of relative (Wall Street) prosperity has instead been the truly irrational trend?

We don't pretend to know the total economic health of the world or even say we have the United States locked down. We never studied macroeconomics in a traditional setting. But we do read the Economist, because it's cool and it makes us look really good in airports. Er.

Seriously. We don't know everything, and our opinion might not matter for a hillabeans, but here is what we do know:

1) Despite the much heralded 'historic all time highs' the Dow Jones recently posted, if you look at the numbers based on real returns, adjusted for inflation, we are somewhere short of 'all time'.

2) The economy is noticeably slowing as evidenced by a weakening real estate market.

3) Personal savings are at all time lows. Starting in April of 2005, Americans as a whole spent more than they made and have continued the trend for the majority of that time up until right now. Americans have not done this since the Great Depression.

4) The US Government is spending money like it's going out of style. As of September 21, 2006, the total U.S. government debt was $8.500 trillion.

5) Since the mid-1990s we've been at 1950s levels of debt, relative to national GDP.

To management these things do not bode well. The sum of the above points is far more terrifying than any one piece of the equation.

These trends are happening for a number of reasons. Americans are addicted to consumption with an increasingly narrow worldview. 80% of us do not even have passports. In public schools even the most basic of financial education is not taught. We have Home Economics, where you learn to bake muffins. Not stock markets. Literacy rates are dropping. Fewer people vote, which only causes the two party political system of hack, slash, smear and pork barrel spend to get worse every election cycle. We are increasingly becoming a service economy and losing our industrial and agricultural roots.

When a country no longer grows its own food or makes its own steel and the majority of the population is employed in service jobs without benefits, well, the country starts getting what it's asked for. It serves the countries that take over and start manufacturing the food and making the steel.

That's all to say, until the debt bubble pops and Americans find themselves truly hungry and desperate, nothing's going to change. Workers demand less from corporations because they can still live comfortably on the borrowed fat of the land, while the newer generations grow increasingly disenfranchised and disinterested in how things work.

And don't get us wrong. Management served in the Army but it's no great red, white and blue patriot. Still this stuff impossible to ignore. It's disturbing. We like this place alright, but it could be a helluva lot better. That's all.

Since we hate to be harbingers of doom (no we don't), remember this is just the take of the CAPS Index management team, and it's worth what you paid for it.

With that, we'll get down to business. Today was a moderately poor day. We'll live with it and hope it starts improving. Here are the scores:

Score: 189.51 (-29.52)
Accuracy: 50.42%

Know when to walk away,

Lev Myshkin
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