Everything seems to be right on schedule. The scent of Calamity is in the wind, yet everyone on the rock seems bound to denial. Why, you can see it in the Dow futures this morning, up about 270 points. Dandy!
Enjoy it while you can.
The four “horsemen” that are presently on hiatus for a few days, which is what we would expect of a major Wave II rally. The four are Deutsche Bank, BREXIT, Trade Wars, and the Inco-Pak flashpoint. We’ll highlight these in a moment.
First, for those unaware of how markets work, we haul out our Aggregate Index approach to project a financial view into the future.
The all-time high, is a starting point. Seems like eons back, but in reality is was just July of this year in our (admittedly-odd) aggregated view of markets topped. Once we come to terms with that idea, we can figure out how much the “wave III into fall” could drop” if things run a certain course and if the present run ends as a Wave II bounce:
What would this drive us to? Well, not full-on Depression, for sure. A total drop from July of this year of more than 17%. is survivable just maybe not comfortable.
The good news is that from where we are now (if we’re anywhere near right) in this Wave II rally we could rally another 500 points, or more, and then have a panic attack in the fall.
All of which would imply an end-of-year rally to wind up the decline and we’d be into Happy Valley in 2020. But not so fast, old pard.
You see the way “waves work” is they “nest” – which means we could have a Wave I through Wave V down work-out through the fall of this year, then we could rally a bit into late winter/ early spring which would form Wave II of a larger degree. And THAT dear reader, is the possibility to lose sleep over.
Because, as we’ve explained almost endlessly, if this is a declining “nested wave” function (though it may not be) the five waves down we’re in right now could resolve into a larger Wave I, with a year-end Wave II rally and then utter panic in spring 2020. That’s when the large Wave III would smack us.
In other words, take the possible medium target zone for Wave 5 of this move, the 20,975.48 possible this fall. That would become the larger degree Wave 1 down move. From there, should it roll that-a-way, our handy Elliott projecting spreadsheet presents a view of a Grand Canyon of Financial Collapse in the 2020-2021 area:
The magnitude of the total decline doesn’t seem so bad. Wasn’t the Great Depression worse?
Yes, the Great Depression Was Worse…BUT…
Here’s where we need to be extremely clear-headed in our thinking about inflation. Let’s assume, momentarily, that we could be heading into something as large (impacting daily life as bad or worse) as the Great Depression. It’s a dead-to-nuts ringer the government would paper it over if they can. How? Print!!!
How could things be worse when the decline is projected smaller?
This is all about inflation and how the Fed can attempt to maintain normalcy bias even in the face of historically large financial disaster.
A Thought Experiment:
Let’s say that tomorrow morning, there was suddenly twice as much money sloshing around the world. How would that look? Well, you’d make twice as much money. Government would make more than twice as much revenue from income taxes – through the magic of bracketing you into a higher tax-chattel category. And the price of gasoline would jump from $2.50 to $5-bucks.
None of which matters (unless you need gas): Point is the stock prices would also double. And yet, in reality, you’d actually be able to buy slightly less goods in the double-priced model because of income tax bracketing. Government makes more, market shills scream “Double your money!” and you get screwed. Welcome to Rinancial Reality. The game where we’re all ‘bottoms.’
OK, let’s say the Fed is making up money HUGELY faster than the actual growth in the economy. FACT: The most recent 90-day annualized print rate for M1 in Table 2 of the H.6 Money Stocks Report is up 8.6% per year.
“Wait!” Ah, seeing it, are you? GDP is growing at less than half that which means what? We could be in the opening round of (addictive) money creation to paper-over the facts of global financial ruin being at hand.
Let’s enumerate who the “four horsemen’ are in all this:
90-days to Crisis Crescendo?
As one deep-thinker reminded me this weekend, incubation periods for calamity have been in the 90-day area since Revolutionary (and Civil War) times:
“From the time of the State of War existing until the actual battle broke out over Ft. Sumter was approximately 3 months. (Jan 9 to April 12).
IMO a 3 month time frame is also a reasonable time frame to watch events unfold over the Kashmir issue.
Like with Ft. Sumter, even today it takes some time to get troops and supplies into place and draw up battle plans before a full scale conflict can erupt.
With Kashmir in addition to BREXIT (which will hog all the news attention so most won’t even pay attention to what is happening there) It is going to be an interesting fall … that is for sure…”
Just as I was posting that, here came another 90-day marker: Stocks Climb As Ross Confirms Another 90-Day Delay On Huawei Blacklist. Kicking the can how far down the road?
While there are lots of idiot-polarizing stories to glamorize this site with, none really competes from a personal strategic planning perspective with simply looking at these “flash points” to see where we’re heading this fall.
Deutsche Bank: Today the bank is bouncing as “Deutsche Bank leads European shares higher.”
BREXIT: The Labour Party will be trying to force a general election in the UK in order to avoid leaving the EU before a “deal” to hold regional trade ties and such together. Still, Halloween will have special meaning in the UK this year.
Trade Wars: Another sign of Wave (ii) of the smaller degree is scene in headlines like “Stocks are soaring on fresh hopes of a ‘tidal wave’ of government stimulus and an end to the US-China trade war.”
Why, it’s as my friend and Elliott Wave expert Robin Landry once told me: People tend to be as optimistic at Wave 2’s as they were at the top. Sure looking like that, isn’t it?
Indo-Pak War – Pending? “Restrictions on phones, movement return in Kashmir after clashes ” says The Hindu, while in the meantime, the UN is looking more and more like the Western Globalist front organization we always took it for as “Kashmir, Imran Khan ‘Warns’ World of India’s Nuclear Arsenal.”
The Pakistani’s will look at Indian restridtions as anti-Muslim and akin to martial law. Which is is…
An important historical perspective: Long before the current outbreak of “fidget toys” over a half-century back there was a novelty item called the “Handy-Dandy-Bullshit Grinder” – lots of pictures of it via Google here.
Today, we can summarize our “take on pertinent news” by labeling each of the four-sides of said device with one each of our problem children, the four horsemen of Crashpocalypese.
It’s a useful mental model, too. For really expert machinists, a six-sided version the device might be constructed to accomodate a longer-leadtime. The additional sides would be labeled Iran-Israel showdown which hits 72-years in 2020, and So Long Taiwan, China’s coming for you. But those will be for next year. We need to live in the present.
With that, we now return you to what “passes as news” for the frighteningly-stupid masses that we thinking people suffer-through on a daily basis. Ready?
Average American Headlines
“Buckingham Palace responds after video shows Prince Andrew in Epstein mansion” Just count the bodies…
Pregnant Ashley Graham lauded for sharing nude snap showing stretch marks. Monetizing stretch-marks to come?
Think that’s thrilling? Try The Winklevoss twins may work with Facebook again.
And new meaning to the street slang “meat check as a “Florida man arrested after allegedly shoving steaks worth more than $50 down his pants.”
That’s the news and most of it fits into that “Handy-Dandy Grinder” category. So go Mondays..
Other than J. Powell of the Fed speaking Friday, we can’t think of much reason to turn a computer on this week…
Write when you get rich (or this week, bored for that matter)…