** 20-Apr-2021 World View: Macro- and Micro-Patterns
Higgenbotham wrote: ↑Tue Apr 20, 2021 2:52 pm
> Here's another way to look at it.
> As you said, the Dow reached a peak on 9/3/1929. Last year, the
> S&P 500 reached a peak on 9/2/2020. In both cases, there was a low
> in late October. In 1929 it was a crash low and in 2020 it was a
> correction low.
> After that, in both cases, the market rose until April. In 1929 it
> was a correction of the crash, reaching a secondary high on April
> 17, 1930. In 2020, it was a continuation of the bull market,
> possibly reaching a final bull market high on April 16, 2021.
> The commonality is that in both 1929/1930 and 2020/2021 the two
> highs are the same number of days apart, provided the April 16,
> 2021 high holds.
When we try to map current financial trends to historical trends,
I try to look at a longer picture.
I start from two "facts" that I believe that are now pretty firmly
established:
First: There's this paragraph from Galbraith's book:
> "A common feature of all these earlier troubles
> [[previous panics]] was that having happened they were over. The
> worst was reasonably recognizable as such. The singular feature
> of the great crash of 1929 was that the worst continued to worsen.
> What looked one day like the end proved on the next day to have
> been only the beginning. Nothing could have been more ingeniously
> designed to maximize the suffering, and also to insure that as few
> as possible escaped the common misfortune."
So I try to puzzle out what this means. It means that if you're going
to have a serious panic and crash, then you're probably going to have
a series of false panics, previous panics from which recovery was
fairly rapid and painless, but which convinced everyone that a serious
panic had become impossible. So by today we've certainly had several
such panics. And how many times did I read in the 2000s that a new
Great Depression was impossible because of laws that had been passed
in the 1930s (even though those laws were mostly repealed in the
1990s).
For example, the Glass-Steagall Act of 1933 mandated two different
kinds of banks: Investment banks that could issue securities, and
commercial banks that could lend money. Savings banks that offered
homeowner mortgages were another category. That act was repealed in
1999, and Fannie Mae and Freddie Mac turned seriously into structured
finance, resulting in the real estate crisis.
Finally, today the universal religion is Modern Monetary Theory (MMT),
which says that a stock market crash is impossible, because the stock
market can always be bailed out by printing out unlimited amounts of
new money creating massive amounts of debt that would never have to be
paid back.
Second: We have the 58-Year Hypothesis of Generational Dynamics, which
has now proven true in so many different contexts that it could be
called the 58-Year Rule.
Thus, the major false panics of the last two cycles were the false
panic of 1914 (58 years after the panic of 1857) and the false panic
of 1987 (58 years after the panic of 1929).
The "58-Year Rule" requires an event so catastrophic that it affects
the entire population. Everyone above age 5 who experiences the
catastrophe carries the experience around as a shared generational
feeling, not shared by younger generations. After 58 years, there's a
false panic among the people who shared the experience, who are now
all retiring or dying, and realize that the younger generations are
too dumb to realize that it's going to happen again, so they panic.
When I was growing up, there was universal fear of a new Great
Depression. My mother, who had suffered terribly during the Great
Depression after her father's candy business went bankrupt, always
feared a repeat. Starting when I was in college, she kept asking me
if we were about to have a new Great Depression, under the assumption
that I, as an MIT student, could give an authoritative answer. I
remember having such a conversation with her during the 1980s.
But after the false panic of 1987 and its recovery, everything changed.
There was no longer a fear of a new Great Depression, because the quick
recovery proved that the new regulations passed in the 1930s were
working to prevent it.
So then, as the survivors of the 1930s Great Depression all
disappeared, there was the tech bubble in the late 1990s, and the
Nasdaq correction in the early 2000s. Similarly there was a stock
market bubble in the late 1910s, and a stock market correction in
1921.
Then we come to the financial crisis of 2008 and the Lehman bankruptcy,
which should have triggered something like the panic of 1929. That's
what I was expecting, but something happened that I didn't expect --
the massive quantitative easing program and MMT, which prevented
a panic. This was a significant difference between 2008 and 1929.
So now we're on a different path, a unique path that's never been seen
before. The underlying bubble has not been resolved -- to the
contrary, it's grown into the most massive bubble in history. But MMT
has kept it from imploding so far.
So that shows how the macro pattern following the panic of 1929
is similar to the macro pattern following the panic of 1857,
with a divergence after 2008. We've shown how a large panic
is followed by generational changes that lead to false panics,
and then to a new large panic. That's the Generational
Dynamics paradigm.
But here we're talking about something different -- a "mini-pattern"
or "micro-pattern" that explains the timing of a new panic.
The speculation is that has something to do with end-of-quarter earnings
reports, though obviously it has to be more complicated than that.
During the Roaring '20s (1920s), the stock market grew rapidly because
everyone believed that everyone could get rich by investing in the
stock market. But starting on September 3, 1929, something changed.
All of a sudden, people began to lose faith. It was too early for
third quarter earnings, but maybe it had to do with 2nd quarter
earnings. Or maybe there were other financial reports that proved to
be more negative than expected.
I had been thinking that the October 28 panic was caused by
disappointing third quarter earnings. But maybe I was looking in the
wrong place. Maybe the September 3 loss of faith was caused by
disappointing second quarter earnings.
So my speculation is that October 28, 1929, was not some date
magically determined by Divine Providence, but was driven by events,
and I believe that those events were some kinds of financial reports.
Something happened that caused the public mood to change on September
3, 1929, resulting in a total panic 7 weeks later.
If we could figure out what those financial reports were, then we
might be able to look for similar reports today, and get a 7-week lead
on the next crash.
But wait!! Richard has discovered that the Nikkei has been gradually
falling for the last few weeks. There's no Law of Nature that says
that the next panic has to begin on Wall Street and spread to the rest
of the world -- and, in fact, the Panic of 1857 began in Hamburg and
spread to Wall Street. There's no reason why the next panic couldn't
begin in Tokyo and spread to the rest of the world.
So maybe Richard's discovery is the key. If the Nikkei began falling
on April 3, then the Tokyo Stock Exchange panic should occur on May
28. And that could spread to Wall Street and the rest of the world.
Higgenbotham wrote: ↑Tue Apr 20, 2021 3:18 pm
> This leads me to believe that there might be a crash sometime in
> May.
> Also, the recent comments on the World View News thread indicate
> World War III may be starting in May.
LOL!