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Jeff Saut: A Triple Bottom for Dow, S&P 500?


Capitulation low would leave us ripe for a rally.


"Toto, this certainly isn't Kansas anymore!"
Dorothy, The Wizard of Oz

The holiday season officially began at the Saut household last weekend: As I sat down in front of the TV to catch up on some overdue reading, the movie The Wizard of Oz appeared on the screen.

While The Wizard of Oz is one of the most popular films ever made, few people know the book on which it was based. Some have argued that L. Frank Baum's original story, written in 1900, was intended as an economic and political commentary on the "sound money" debate which occurred in the late 1800s, causing great unrest in the agricultural arena.

The book could be read as a fairly straightforward allegory: Dorothy represents traditional American values; the Scarecrow the American farmer, the Tin Man the American industrial worker, and the Cowardly Lion stands in for William Jennings Bryan.

At the time, Jennings Bryan was the official standard bearer for the silver movement: During his unsuccessful bid for the presidency in 1896, he delivered his famous "Crucified on the Cross of Gold" speech at that year's Democratic National Convention. (Interestingly, in the original story, Dorothy's slippers were made of silver, not rubies, implying that silver was the Populists' solution to the nation's economic woes.)

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The Yellow Brick Road patently symbolizes the gold standard, and Toto (Dorothy's faithful dog) represents the Prohibitionists, who were an important part of the silverite coalition. The Wicked Witch of the West is meant to evoke President William McKinley; the Wizard is Mark Hanna, chairman of the Republican Party and the maker of promises he could not keep. "Oz" is obviously also the abbreviation for "ounce."

Plainly, the turmoil following the 1873 Coinage Act (which embraced the gold standard and demonetized silver), the Sherman Silver Purchase Act of 1890 (which increased the quantity of silver the government was required to purchase each month), and the subsequent panic and depression of 1893, left Americans longing for a "time for a change" and struggling to correct the numerous wrong-footed, hastily conceived plans dreamt up by the country's elected "nimrods."

Sound familiar? It should: Following the Bear Stearns bailout, a similar series of wrongheaded, reactive "plans" have been carried out - only to subsequently fail. That happened again last week, when Treasury Secretary Hank Paulson abandoned the Treasury's scheme to buy toxic assets under the original TARP legislation in lieu of "capital injections."

This is a stunning reversal by "stammerin' Hank," who made "toxic asset" purchases the centerpiece of the $700 billion Troubled Asset Relief Program (TARP). His bait-and-switch tactics caused howls from Congress about how anyone can be rational, when government can change the rules of the game at whim?

Change the rules, indeed. Eliminating the short-sale "uptick rule" was one of the dumbest decisions I've seen in 38 years in this business. Of course, it wouldn't have been so bad if "they" would have strictly enforced the "no naked shorts" provision. Though much lip-service was paid to this dirty little Wall Street secret, not much has been done to correct it.

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