As some readers may know, this website’s core, solid, founding value point is something called longwave economics. Before running off simpering to some pop-news anti-think site screaming “I don’t get it!” it’s really very simple, so this morning we will give you a quick dose of the reality.
1. Cycles Are Real
There are cycles in everything. Life, relationships, and, current case in point: Investing.
The sun comes up, the sun goes down. That’s a cycle. Same thing works for markets. They rise (like yesterdays predictable reaction to the Easy-Money Gang at the Fed, which continues making up money through “quantitative easing” because if they don’t print, we crash. And they fall. Like at the open this morning, likely.
Now, see? I told you this would be easy.
2. We in a SMALL recovery cycle inside a LARGE DEFLATION cycle.
The small recovery cycle is because the Fed is printing money like crazy. The SMALL recovery is seen when you look at a 5-year chart of the S&P. Since the bottom of the 2009 market bottom, when the S&P was around 683, the S&P has risen to a remarkable 1,810 and change as of yesterday’s close. Almost a 3X rise. Better than your house, huh?
You can see, however, the larger BIG DEFLATION CYCLE when you look at a 10-year Treasury Note chart at maximum zoom out over here. Notice that in July of 1981, the 10-year note was paying almost 16%. As of the close Wednesday, it was paying 2.89%.
This is called DEFLATION and when it ends, maybe in the 2014 – 2017 period, we still likely start up the inflation path, yet again.
3. Proofs of Deflation
God, this is simple! Look at housing prices. Look at the declines of income. Inflation-adjusted consumer discretionary. Your lifestyle. Are you blind?
4. Then Why are Stocks Going Up?
There are two simple reasons:
First is the Fed is making money extraordinarily available for its buddies. You and I have to deal at the retail level, but at the wholesale level, if you will, money is cheap. When the Fed stops passing out money on street corners the market goes into a tizzy. And when you see a good-sized decline going into a Fed meeting, it’s really just the market trying to strong-arm the Fed into passing out still more money.
And in yesterday’s “easy way out” decision, Ben Bernanke, el al, did exactly this, because they read the same history we do. And they probably have a very good idea of where we are.
The second reason stocks are going up? The returns on stocks, which would have been a laughing matter at these level 10-years ago, look pretty good compared to what banks are paying. Last time I looked (two weeks ago) the Big National Banks were paying little guys like us one-tenth of one frigging percent. Per year.
That’s BS because you know what? Government figures out this week showed, if you were paying attention, that prices of stuff we actually BUY are going up at 1.2% per year..
5. What’s Ure point?
Lookie here, and I’m talking to that dodo next to you: If you put money in a bank at 0.1% and the cost of stuff is going up at 1.2%, that means you’re actually losing money putting it in a bank! Yes: I think only an idiot puts money they want a return on their dough. Buy something there will be a greater demand and price for in the future!
Sure, a bank is a great place to stash tax payments, property tax money, and you need it for transactions, of course. But with the bad taste the public has for stocks (thanks to the lack of dough due to the housing disaster and memories of the Tech Wreck/Internet bubble collapse, stocks have been screaming.
6. But stocks can go down…
So can banks. In fact: There have been about 6,500 bank branches closed in the USA since the IndyMac crisis. Just last week, the Texas Community Bank, National Association down in the Houston area went down. The painful purge is still with us.
7. But can’t companies go bankrupt?
Maybe, but remember the Fed has been passing out money like crazy. Pick solid companies with products you really use (medical supplies like Band-Aids, or food products, toilet paper, or whoever makes that next computer you’re thinking about). They can go bankrupt, too, but by then if they do, banks will have done a bail in anyway.
8. But stocks can go down…
Would you shut up on risk? Driving is a risk, getting out of bed is a risk. If you think a stock, or group of stocks is going into free-fall, read up on the intelligent use of options to protect your position from downside.
And better, learn to use the triple-levered exchange-traded funds (ETFs). These are amazingly simple, liquid as hell, and our Peoplenomics trading model, based on using triple levered funds turned in 39% year to date when we ran the numbers a couple of weeks back. The market’s still moving up and I figure it will end the year up about 44%.
This is NOT investment advice. All I do is advise people to think.
9. I’m not sold on the Longwave view of Life.
Back in April of this year, I presented Peoplenomics readers with a Kondratieff view of 2013. And in it was a most revealing chart that most people are totally ignorant of. Even professional economists hold something magical about the 1930’s Depression, but from the Longwave perspective, the Great Depression was NOT, as it turns out the “biggy”.
Here’s what I think many of the hackademics miss: There were actually four distinct panics in the period 1903 to 1921. Only one of these is attributable to the outbreak of hostilities in World War I.
And then what happened? Easy money, good times, and the run-up to what turned out to be the 1930’s Great Depression event.
However, since the Kondratieff wave timing low was likely “set” with the trough war (called the US Civil War, if you’ve heard of it?) then when would we expect the first of the panics to arrive, given that the nominal length of a longwave period is 54,5 years?
Well, the Civil War broke out in 1861. So adding 54-years to that would give us what? 1905, ideally, and yet here we are with the 1903 and 1907 panics and this latter one saw the market drop half of its value, as measured by the Dow Jones average.
Where does that 1905 ideal low land us in the next cycle? Well, at another little trough war called the Vietnam War, which you may have also heard of.
And OMG, look: the K-wave low was hit in 1962.
Which brings me to the Big Picture of where we are today and where I think we’re going.
I’m just penciling 1962 plus 54 and you can do the math yourself. These charts do not decrement for purchasing power dilution/monetary inflation, which make the assertion even more obvious.
10. So when do we get to the bottom of this crappy economy?
This is what I reported to Peoplenomics subscribers in April 2013.
When our “Bottom is Due”
Well, the short answer is that it should have been here on February 14, 2013. However that would only be true if we had perfect symmetry between the 6/22/1962 low and the mini-crash low on 10/19/1987. Unfortunately, the date range as Kondratiev himself notes, may vary by as much as 25%. We’ll study this in detail as we move forward this morning.
Still, that does give us a pretty good insight into the market timing: We observe an implied rather precise economic cycle length here as being made up of ~9,250 days, which would translate to a recent K-Wave length of 50.6849 years. From this basic calculation we can inspect how well this fits by looking back through market history.
9,250 days before that 1962 low was 2/23/1937. But the actual market low for what most economists figure to have been a secondary Depression, off the 1929 collapse, showed up about a year off-schedule on March 31, 1938. Still, that’s pretty darned useful information. It tells us the error rate to expect is one year. And since we have already calculated February 14, 2013 was when the Big One should have arrived, using the method above, we can be somewhat comfortable saying the that a large crash remains ahead.
Further, using this calculation approach (1987 + 9,250 days X 1.25 for K-? max.) we can foresee the window for collapse doesn’t totally close until as late as 6/15/2019. By then, however, odds are that America will be back humming again after whatever it is, in economic and geopolitical terms, we’ll work through between now and then.
Printing money at will does screw up cycle length.
11: Wait! Shouldn’t there be a Trough War Coming?
Abso-frigging-lutely. Who, where, when, and all, is one of the things Peoplenomics is all about. Plus making a few bucks, if we can, too.
Consider this your early Christmas present. A very different view of the economy, of cycles, and how the world works out. But, so far, it seems to work. And when I tell you I think there’s a good reason that gold could head for $1,000 and why the Dow could really pop up to the 17,250 level and possibly much higher, go up and look at that chart from the serial panics of the 1900’s through 1922.
I don’t mean to turn this into a Peoplenomics update, but understand that the economy could do very well, at least into the early part of 2014. And then we will be doing the play-by-play on the necessary decline into the Trough War to come.
Did I mention we are doing an ultra-tight metal duct tape and caulking job on the new addition we’re putting on our house so we can (if time comes) go to a slightly positive air pressure with an N-100 filtered air source when we get out there? And why, we may sell the old Beechcrate we might buy a backhoe?
Like I said, there’s a cycle to everything. And by 2015-2016 here’s one you can almost take to the bank as coming around in the cycles:
More from “Mr. Live a Year in the Future” after this…
Flash Goggles: East or West?
Jeez, this is sounding like a Peoplenomics report and if that’s not interesting to you, bear with me. It really is the one thing that might matter. Even beyond the flash-in-the-pan headline stuff.
Which brings us to whether it will be war with China over the Senkaku Islands, under which there is oil, or whether it will be in the Middle East under which this is…. which (despite the jagged top of Peak Oil, momentarily delayed by groundwater-wrecking fracking) is also an interesting bet.
Which is why I pass on well-done commentary from our resident war gamer and our news analyst fellow up in tropical Winnipeg when it comes in. Not to mention our news-scanning software project over at www.nostracodeus.com.
So, let’s make the rounds, shall we? From :warhammer:
Troubling developments regarding U.S. foreign policy in the Middle East.
According to sources in the article, “the Saudi leadership viewed support for the Syrian rebels and overthrow of the Iranian-aligned Syrian regime as vital for its own security.”
The fact that a substantial part of the Syrian rebel forces are al Qaeda fighters puts the American administration (and by default Israel) in a difficult diplomatic ‘no win’ position.
America can turn a blind eye to al Assad’s domestic atrocities and ignore the fact his regime is largely propped up by Iranian aid, thus placing Iran in a favorable regional position (at the likely detriment to Israeli security), or the U.S. can provide military support to the Saudi-favored Syrian rebels and risk possibly putting an al Qaeda led regime into power in Syria.
The angst in the bowels of the White House decision room must be palpable. Obviously an Iranian supported Assad regime is viewed as the lesser of two evils. But the fallout over losing longtime ally Saudi Arabia in the process cannot be taken lightly. The Saudis hold a strategic military and economic position in the region. If the monarchy turns away from the U.S., Russia and China will naturally fill the void and each nation stands to gain substantial regional influence in the process.
Oh, the webs we weave! And the web being woven by America with Syria and Iran is a particularly sticky one. Democratic Israel stands largely abandoned by traditional ally America in favor of both the Syrian Assad autocracy and the terror sponsoring, nuclear wanna be Iranian mullah led theocracy. What will this fateful diplomatic decision force Israel to do in response?
For Israel, the choice between an al Qaeda led Syria versus An Assad regime backed by a nuclear capable Iran is easier. Israel can fight al Qaeda armies. Nuke tipped missiles are a different problem all together. I would wager Netanyahu would side with the Saudis, for a short time. Once the Iranian nuclear threat to Israeli national security is neutralized, attention can be directed to containing an al Qaeda led Syria.
Choose your poison!
I’d note that in addition to Iranian aid, Russia maintains a sizeable presence from Syrian ports as well, so let’s not leave out the escalation path to broader conflict, which may be seen (in shadow form) in how the present Ukraine missile site story is playing out.
Which now gets us to the view of the smaller (and distinctly no Obama going) to the Sochi Games. As Winnipeg sees it…
Dear Mr. Ure,
This “New York Times” report outlines for public digestion a framework of Syrian chemical weaponry neutralization. Once the Russian trucks and Chinese ambulances successfully reach a Syrian seaport, Western interests can take over. Do you have thoughts on leaders sending in regrets regarding their anticipated absence from the Sochi Games?
There’s only one that screams forward: The US, Russia, and China would not be spending as much as they are on militaries, if the world was all led by reasonable humans with best intentions to do right.
And that brings us to Nostracodeus where we have seen a major shift in language this week toward bankers and gold, which circles us back to the decline in Bitcoins, the drop in gold, and all the other financial goings on which a) continue the deflation and b) which pretty well nails the eventual outcome.
Remember, for us to have a major war (something largish and on the order of WW I, we need to have an economic fail, and so one more pop to the upside and then a couple of years sliding down into the sewage lagoon, oughta do it. When all else fails, governments bring out “external enemies” as a reason to tax.
Another cycle will come along in 2017-2020: War bonds. (Ho, ho, no, is this the Christmas spirit, or what?)
Gold was just two bucks from busting into upper end the $1,100’s when I looked a few minutes ago. Remember my friend Robin Landry, who’s one of the world’s experts in Elliott Wave analysis, thinks we could go lower. Like under a thousand.
Which would have gotten me crucified (*readers who were gold bugs left en masse when I reported this was coming a couple of years ago, oh well, lead a horse to water, yada yada).’
The equities marts have turned down a bit, too. Did someone shoot the Santa Rally when I wasn’t looking? We’ll inspect the 10 year bond for motivation later on.
About those Friends in High Places
The world is out that federal prosecutors delayed filing charges in connection with a gift scandal to give attorneys for the republican gov of Virginia time to take their case to Washington directly.
No charges filed and I’m not clear what the big deal is… since the gifting source was a company that doesn’t do business with the state. But, then I wasn’t appointed by the democratic controlled DoJ either.
So is this preemptive politics, or just what, remains to come out in the wash.
That’s how transparency works, here lately.
Gets me to thinking of ex-Clintonista John Podesta as the democorp version of the republicorps Karl Rover, know what I mean?
You’re the Target?
Credit card data on 40-million shopped has been breached by Target. Builds the case for cash, doesn’t it?
Welcome to the Corpworld
Headline in USA today this morning: “Tech leaders seek borderless world, now”
So that rather than hiring Americans, we can bring in more people on working visas to steal jobs here, or so they can export the seven last remaining good jobs in America to India? Help me on this…