2004 MEGA TERROR ALERT

J. Adams
January 1st, 2004

"At this stage it is possible to turn to biological attack, where a small can,
not bigger than the size of the hand, can be used to release viruses that affect everything....
The viruses easily spread by air, and people are affected without feeling it."

- Uday Hussein, 9/20/01 (NOTE: The first Anthrax-laced letters were mailed on 9/18/01)
(That means Hussein's son wrote this before any news had come out about the Anthrax mailings in the U.S.)
(Noted in the Wall Street Journal, "Saddam and the Next 9/11", 2/14/03)

Given the current sentiment readings in the stock market and recent developments concerning threats of a new wave of terrorism against America, the outlook for 2004 is for a "second wave" of mega terror attacks against U.S. interests that will involve the use of weapons of mass destruction (WMD), especially biological weapons.

An individual or handful of terrorists armed with WMD can discretely unleash devastating attacks on our nation. As determined in this recent analysis, if a terrorist dumped two pounds of powdered Anthrax like that used in the 2001 mailings from a tall building in New York City, 100,000 or more people could die and many, many more would be sickened. What's worse, since it would take upwards of 24 hours for such an attack to be discovered, the culprit(s) could proceed to strike other targets throughout the country and may never be caught. The direct and indirect economic impact of such bioterrorism would of course be enormous since mass hysteria would erupt across America and a mass exodus from urban centers could ensue.

The pivotal question is whether or not al Qaeda or other would-be terrorists have gotten their hands on powdered Anthrax and/or other such WMD. And, most tragically, there is substantial reason to believe al Qaeda has acquired such horrific weaponry. Indeed, the 2001 Anthrax mailings, a crime that remains unsolved, was likely proof positive that, at the least, al Qaeda has super-lethal powdered Anthrax. Thus, the large-scale terrorist use of WMD against America is most likely just a matter of time. The historical pattern in stock prices and mass mood suggest that may be close-at-hand.

HISTORICAL TURNING POINT

Recently the DJIA broke above the psychologically critical 10,000 mark:

And now the Nasdaq Composite has just closed above the 2000 mark:

The Dow Jones Transportation index has climbed above the 3000 mark:

And finally the DJIA Composite just rose above the 3000 mark:

As I have pointed out time and time again, the DJIA and other major stock market indices tend to top around key thousand marks and then turn down, sometimes very sharply. Indeed, there is reason to be concerned that reversing from Dow 10,000 has everything to do with a reversal into a Grand Supercycle collapse that has been at least 200 years in the making.

Historically, when the major stock averages, and the DJIA in particularly, reach or trade around psychologically important round numbers like thousand marks, the stock market may top-out and, failing to hold near or above the mark, sharply reverse course. A remarkable feature of these stock market reversals at thousand marks in the DJIA is that they are often associated with bad news that follows the market top.

For instance, on September 6th of 2001, the DJIA dropped decisively below the 10,000 mark and the Dow Jones Composite index broke below 3000, THEN September 11th occurred driving the market down sharply.

Thus, when the DJIA reversed decisively from 10,000 in September of 2001, the breakdown in Western confidence manifested as the literal collapse of a key symbol of Western financial prowess and American global economic hegemony....the World Trade Center towers in New York City. Likewise, a blow occurred against the Pentagon in Washington DC, the symbol of American global military hegemony.

There are other major examples of significant negative historical events erupting in conjunction with reversals from key thousand marks in the DJIA.

Right after the DJIA failed at Dow 8000 in late-October of 1997, a mini-crash occurred in association with a financial panic in Asia.

In August of 1987, the Dow Jones Composite Index reversed after reaching the critical 1000 mark for the first time in history (for one day). What followed was the 1987 stock market crash, the largest crash on Wall Street since 1929:

 

Finally, between 1966 and 1982, the DJIA reversed from the "Magic 1000" barrier several times. After each reversal, all kinds of troubles emerged ranging from OPEC oil embargoes, to the Vietnam War, to Watergate. One of the most notable cases occurred in October of 1973 when the DJIA rose to just below Dow 1000 as the Arabs launched a surprise attack against Israel which, in turn, led to a major East/West confrontation and an Arab oil embargo against the West. Consequently, the world economy entered a severe contraction and stock prices plunged in the largest market correction up to that time since the Great Depression.

Given the historical pattern of major stock market reversals from key thousand marks in the DJIA, there is reason to believe that the current test of Dow 10000 will be followed by a major decline in stock prices. Indeed, such a reversal may be triggered by some sort of historical "shock" like occurred with past breaks from thousands marks in the DJIA.

EXTREMELY BULLISH INVESTOR SENTIMENT

Reaching Dow 10,000 and the 2,000 mark on the Nasdaq Composite comes as readings from investor newsletter surveys as well as implied volatility and put-to-call trrading volume for options are showing some of the most bullish investor sentiment since the stock market topped in the Spring of 2000 (historically an ominous bearish sign).

Investment letter sentiment has recently been the most bullish since August of 1987, and the low VIX reading and put-to-call ratio reflects some of the greatest investor complacency in recent history. In other words, an extreme of optimism is occurring that is characteristic of other major tops around psychologically significant thousand marks in the past. The questions is, when and what form of a reversal will occur in the wake of this top.

ELLIOTT WAVE GRAND SUPERCYCLE CRASH

Importantly, according to Elliott Wave analysis, the stock market should be nearing a key reversal into a third wave down (the crash wave) potentially of Grand Supercycle degree. The Grand Supercycle top was reached above Dow 10,000 between 1999 and 2002 after which an initial 40% downleg completed into October of 2002 and then an initial bounce back to Dow 10,000 has unfolded to present.

Will a third wave Grand Supercycle crash follow? And if so, what form will such a crash take? If the Elliott Wave Principle is correct, we are looking at an upset of historic proportions.

TERRORISM WITH WEAPONS OF MASS DESTRUCTION

The obvious course of history to present has been toward terrorism involving weapons of mass destruction. The attacks on 9/11 were likely just a prelude to a far worse "second wave" of terrorism that would utilize some of the worst weapons known to man and biological weapons in particularly. Indeed, I believe the Anthrax mailings were intended to foreshadow the coming second wave of terror...bioterror that is.

In his exhaustive article, dubbed "Al Qaeda, Anthrax and Ayman", Ross Getman explores at length the strenuous efforts al Qaeda operatives have made to acquire weapons of mass destruction and Anthrax in particularly. His article opens as follows:

Mr. Getman elaborates from there.

If, as I suspect, Iraq teamed up with al Qaeda, then there is little doubt that the weapons-grade, powdered Anthrax used in the 2001 mailings was complements of Saddam Hussein and al Qaeda. The wars in 2002 and 2003 to defeat al Qaeda in Afghanistan and Saddam in Iraq likely will not succeed in stopping the bioterror that was being planned. Iraq had weapons-grade Anthrax and al Qaeda, certainly at this point, has gotten its hands on some of Saddam's WMD arsenal.

With Anthrax and possibly other WMD in hand, it has simply been a matter of when al Qaeda terrorists, possibly with assistance from remnants of Iraqi intelligence, will choose to strike. Given the current historical turning point into a Grand Supercycle collapse, the odds of getting through 2004 without Osama bin Laden's "second wave" of terror using WMD taking place seems to be quite low.

CONCLUSION

The stock market and psychological indicators of investment sentiment strongly suggest that another cyclical high is being reached prior to another downturn in mass mood that will involve negative historical events....possibly in the immediate future. Could it be that reversing from Dow 10,000 and Nasdaq 2000 will be triggered by terrorist attacks involving weapons of mass destruction?

Let's hope and pray the bad guys will not again succeed. But the hard truth is that history is running a predictable course and the next turn looks most dangerous indeed.

"All that is needed for evil to triumph is for good men to do nothing." - Edmund Burke

"It is natural for man to indulge in the illusions of hope.
We are apt to shut our eyes against a painful truth,
and listen to the song of that siren
till she transforms us into beasts.
Is this the part of wise men,
engaged in a great and arduous struggle for liberty?
Are we disposed to be the number of those
who, having eyes, see not,
and having ears, hear not,
the things which so nearly concern their temporal salvation?
For my part, whatever anguish of spirit it may cost,
I am willing to know the whole truth;
to know the worst, and to provide for it."

- Patrick Henry