Long Wave Econ Notes: Is a Mega Cycle Ending?

Please accept this in lieu of our usual “Coping” section this morning.  This is more the flavor of a Peoplenomics report, but since we are doing through Ebola trigger points and preps in tomorrow’s report, I wanted to share some perspective on what’s ahead for the economy.

The value of the old Beechcrate is showing up this weekend as we’re going to pop up to Oklahoma to spend some time with Robin (and Mrs.) Landry.

I appreciate you don’t give a rip about my comings and goings (except that it it interesting that the trip with tail wind tomorrow morning should clock in at 1:53 of flying versus about 6-hours for driving).

What you like do care about is the reason

Both in our Peoplenomics charts and in Robin’s extensive work using both Elliott wave counts and regression channels, the stock market is in an extremely precarious position.

We both has a very good handle on the “long wave” elements of it.  Here, the short version is that a collapse into a 1930’s-style event looms larger than life.  It’s just a matter of identifying what the “nominal” cause will be.

As explained in yesterday’s column, there’s been no appreciable dialing-back of debt, just more promises and cross-insurance to keep things from falling apart.

So the focus of this weekend’s working session is “When?”

There are two general cases:  One is a continuing “muddle through” where we slog along until the Fed bumps up rates a tiny bit (they’ve been yammering about how this has got to be coming for months, now). 

Under this scenario, we have a decline here (1,900 on the S&P?) and it possibly could decline to as low as 1,740.  If that’s how coming months work out, then we would expect there to be one more absolute hum-dinger of a blow-off top.

That’s the best case.

The worst case is what happens if the markets continue to slide and wipe out critical support at 1,740 on the S&P.

If THAT comes around, we’ll be in a  position of having all the modern risks of pandemic disease at the same time as we get a mega-collapse and replay of the Great Depression of 1929-1941.

This latter case is interesting because of the “mood control” of the last Depression.  Remember, The Communications Act of 1934 was how government made sure that corporate (responsible/compliant control) of mass media of the time (radio) would play out.

However you want to characterize it, the result of government machinations during the Great Depression was the wholesale distribution of Keynesian Theory which today would be more properly labeled “corpgov” based on what we know.

The Great Depression brought with it an opportunity to enact sensible concentration of wealth programs to prevent the cyclical collapse which stands before us, either sooner, or later.

This happens because in a Great Depression, the One Percent are mostly wiped out.  They have spent almost 50-years accumulating wealth.  But it has cost us dearly, in that working people’s share of income has fallen to fund those at the top.

A good discussion of socialism’s resurgence in the 1930’s may be found over here, and in many ways it parallels the activist climate of today.  Which is being managed and manipulated, if case you hadn’t noticed.

Naturally, socialism isn’t the answer, but then again, neither is ultra-capitalism – those policies that allow capital to accrue in the hands of the very few.  It is the cyclical re-accumulation of wealth that triggers collapse as when working people wake up and demand part of their due in the face of deteriorating personal balance sheets that revolutionary talk arises.

I note that Marx and the other “great socialists” were offspring of upper strata families and didn’t have a real hands-on knowledge of work.

“Karl’s father, as a child known as Herschel, was the first in the line to receive a secular education; he became a lawyer and lived a relatively wealthy and middle-class existence, with his family owning a number of Moselle vineyards. Prior to his son’s birth, and to escape the constraints of anti-semitic legislation, Herschel converted from Judaism to the Protestant Christian denomination of Lutheranism, the predominant sect in Germany and Prussia at the time, taking on the German forename of Heinrich over the Yiddish Herschel.[

Young Karl was privately educated, by Heinrich Marx, until 1830, when he entered Trier High School, whose headmaster, Hugo Wyttenbach, was a friend of his father. By employing many liberal humanists as teachers, Wyttenbach incurred the anger of the local conservative government. Subsequently, police raided the school in 1832, and discovered that literature espousing political liberalism was being distributed among the students. Considering the distribution of such material a seditious act, the authorities instituted reforms and replaced several staff during Marx’s attendance

Marx skipped military service and after a seven-year engagement married a baroness.

His cohort, Frederich Engels was another one who didn’t do well at real work:

At 17 years of age, young Frederick had dropped out of high school due to family circumstances. He spent a year in Barmen. In 1838, his father sent the young man to work as a nonsalaried office clerk at a commercial house in Bremen.[6][7] His parents expected that he would follow his father into a career in business. His revolutionary activities disappointed them

In 1841, Engels joined the Prussian Army as a member of the Household Artillery. He was assigned to Berlin, where he attended university lectures and began to associate with groups of Young Hegelians. He anonymously published articles in the Rheinische Zeitung, exposing the poor employment and living conditions endured by factory workers.[7] The editor of the Rheinische Zeitung was Karl Marx. Engels did not meet Marx until late November 1842.[10] Engels acknowledged the influence of German philosophy to his intellectual development throughout his life.[6] He also wrote, “To get the most out of life you must be active, you must live and you must have the courage to taste the thrill of being young …

Between the two of them, they didn’t have the makings of even one ultra-capitalist, but you see that’s the problem:

History is oftentimes guided not by those most experienced at “the work.”

Instead we see much of history dominated by ne’er-do-well who have more talk than action, lack specific experience, and are above all else, manipulators par excellence!  (I’d point in the general direction of Washington DC, ask “What does a fish do from its head?” but that would be neither kind nor subtle.  I’ll leave that project to your keen intuition.)

So that’s what causes periodic collapse:  concentration of power and wealth to the point where the middle class (working people) get sick of it.

The “right condition” is somewhere between the self-aggrandizing ultra-capitalists “I want it all” mentalities and the ultra-socialist “From each according to their ability, to each according to their needs..” hyperbole.

The ultra-capitalist misses the fact that a healthy middle is what keeps factories going.,  The socialists miss that someone has to pay the bills.  But between then, their conspiracy to dominate ignores the need for a motivated middle.

This is where a keen understanding of WIIFM (“What’s in it for me?”) is critical.  With the Kennedy assassination, America rolled into the accumulator phase under the false promises of LBJ’s “Great Society.”  50-years later, all that’s been established is the breakdown of the nuclear family; poverty rates are virtually unchanged.

The timing of Kennedy’s death was interesting, too:  It came at a long wave economics point 56-years after the famous financial panic of 1907:

The Panic of 1907 – also known as the 1907 Bankers’ Panic or Knickerbocker Crisis[1] – was a United States financial crisis that took place over a three week period starting in mid-October, when the New York Stock Exchange fell almost 50% from its peak the previous year. Panic occurred, as this was during a time of economic recession, and there were numerous runs on banks and trust companies. The 1907 panic eventually spread throughout the nation when many state and local banks and businesses entered bankruptcy. Primary causes of the run included a retraction of market liquidity by a number of New York City banks and a loss of confidence among depositors, exacerbated by unregulated side bets at bucket shops.[2] The panic was triggered by the failed attempt in October 1907 to corner the market on stock of the United Copper Company. When this bid failed, banks that had lent money to the cornering scheme suffered runs that later spread to affiliated banks and trusts, leading a week later to the downfall of the Knickerbocker Trust Company—New York City’s third-largest trust. The collapse of the Knickerbocker spread fear throughout the city’s trusts as regional banks withdrew reserves from New York City banks. Panic extended across the nation as vast numbers of people withdrew deposits from their regional banks.

And remember, seven  years after the Panic of ‘07, we began embroiled in World War I, and similarly, seven years on from Kennedy’s death, we were up to your butts in Vietnam.

# # #

The speed of information, therefore, will be one of the major discussion points this weekend with Robin.  You see, from 1907 through 1922 there were no less than four major market slides on the order of 40%, or more.  Including one involving WW I.

As we look around today, two 53.5 year cycles after the Panic of 1907, we might well ask whether we stand ready to ramp up into a 1922-1929 type blow-off, or whether that will fail to appear because of compounding externalities (Ebola, negative interest rates, etc) that threaten to change the previous period’s “normal” cyclicity.

The discussion might well involve the curious information propagation rate context.  As everyone knows, crashes in markets result from information asymmetries developing.  The fast communications, the more moderated the market action.

But faster information, arguably a good thing in markets, may work against us in a different sphere:  In the 1907-1930 period, the bulk of information was paper-based and very slow (newspapers).  Today, with streaming video, we may not have the time-luxury enjoyed by previous generations of investors.

I’ve done the chart over on the Peoplenomics side, and subscribers ought to be able to look it up in the archives.  But the main thing to draw your attention to is that the economic long wave may actually be two distinct wave-trains, not just one.

The first, of course, may be simply counted on a 50-60 years basis from the Civil War:  World War 1, then first troops into Southeast Asia, and that cycle comes up in 2015 and here we are sending force to deal with ISIS.  The Long Wave suggests boots will be on the ground by 2015.

The interleaving cycle may be seen from the onset of the Great Depression:  1930, let’s call it.  Then the major recession 1980-1982 and the market break of 1987.  The good news (such as it is) is that we should not see this one arrive in full force again until 2030.

Another possibility is that there is a 73-78 year cycle, or my intuitive favorite, the idea that the length of economic cycles is drifting because the age of people (populations in general) have been extending. 

We’re left with a good hot bowl of chili for breakfast and many thoughts rattling around, including wondering whether government will act to seize social media in the same manner than pirate broadcasters were regulated in the last depression.

And, what is a depression like if there’s a pandemic at the same time.

All damn fine questions, so more than anything, the discussions this weekend will involve looking at charts of market action because these may offer insight as to “bounding constraints” that in turn, may sketch out our most probable future.

The absolute best case ahead is Ebola is constrained, a vaccine is evolved, the Fed’s plans work, and ISIS is stopped.

The absolute worst case is Ebola goes wild, vaccines fail, the Fed screws up, ISIS continues to build on a roll, and a mega quake hits the West Coast in the middle of all this.

The www.nationaldreamcenter.com and www.nostracodeus.com sites are marvelous futuring tools, but then too, so are stock charts…and we’ll report on any new insights from that direction, should they occur.

OK, so much for Friday morning’s pep talk.  Go do something for your own accounts this weekend.  More Monday on the free side and a very long discussion tomorrow on Peoplenomics titled “Ebola Prepperdemic: Staying ahead of the curve..”

Write when you break-even

George  george@ure.net