Financial topics

[freddyv]

John:

I don't know if you participated on the old Longwaves forum with Mike Alexander or talked to Bob Bronson back when he was actually arguing with people. I didn't.

However, what you keep talking about with your ongoing predictions of the "financial crisis" is Bob Bronson's old "Mass-Correlation, Hyper-Volatility, Illiquidity Event, or MCHVIE (pronounced “mac-vee”)". Basically, that's when everything fails and the financial past finally dies. Bob isn't good with market prices, but he's on target with respect to his MCHVIE, which is where you are in agreement with him.

That hasn't happened yet, which is why things still feel somewhat stable and which is why you keep telling everyone "the financial crisis is coming".

Perhaps if you incorporated that into your discussions, you could gain some additional traction on the Internet. I know that Doug Short is liking to Bob Bronson at dshort.com. Doug is often cited on Calculated Risk.

- Jon

My observations and comments:

I think that John provides a very unique and valuable service to a rather small number of people (at this time) because he does not water it down with other theories. GD, as John uses it, is a basic underlying principle for human behavior on a mass scale. I believe that there are longer term patterns that may be used and many, many shorter term wave patterns that may also be utilized to help determine future events but I believe that Generational Dynamics is the most important single "wave pattern" that we can use for long term predictions of human "trending". I hope that John sticks to his guns and does not worry too much if short term events do not play out as expected because those who have followed John and GD for any amount of time know that a lack of short term accuracy only increases the probability of the event and the degree of effect. I apologize if I have not used all the "proper" terms but in summary I KNOW that John's work is exceptionally valuable and will likely never be appreciated by most because of the very nature of people; and that is what makes Generational Dynamics valuable.

Fred
http://www.acclaiminvesting.com/

[freddyv]

I want to point out a few things for those who are beginning to give in to the "happy news" of a rising stock market based on QE2:

1. The market is still below the April highs which keeps us in line for a Dow Theory bearish confirmation should the Industrials and Transports drop below their July lows. Such a confirmation would suggest the March 2009 low would be taken out, according to many Dow theorists, and Tim Wood, the main one I follow. This despite a 3 month rise since the July lows.

2. AAII sentiment has recently risen to highs for the year and their data suggest a clear sell signal, IMO. In confirmation of the growing bullish (or non-bearish) sentiment, many bears are now slowly turning skeptical of the expected decline and seem to be willing to ride the market higher.

3. http://www.consumerindexes.com data suggests a big drop off for GDP dead ahead...




4. QE has a history of having little or no effect on an economy and likely the stock market has more than priced in any effect it will have.

I'll leave it at that, though I could go on for awhile.

Fred
http://www.acclaiminvesting.com/

[OLD1953]

I would caution all but the most sophisticated readers to stay away from buying gold or silver, as metal prices appear to be in a bubble.

In 1486 the Germans started using a 1 oz silver coin. It was very popular as the other types of coins had been debased and people no longer liked using them. In 1497 Spain defined their silver "pieces of eight" to match the German "thaler". After America's independence they defined the US dollar as 1 oz of silver to match the "Spanish dollar". Today silver is about $23/oz. So compared to silver the dollar has only gone down by a factor of 23 in more than 500 years. But really all of this drop is in the last 75 years. The Fed is printing paper dollars a thousand times faster than they did 75 years ago (printing a trillion per year instead of a billion per year). Paper money is being debased a thousand times faster and silver is only 23 times as expensive. Hum.

Lets try Occam's razor, "the simplest explanation is usually the correct one". It could be the value of the dollar is going down. Or it could be there are simultaneous bubbles in copper, wheat, cotton, oil, gold, iron, rice, silver, etc. etc. etc. Which explanation is simpler?

All these things look like they are in bubbles because the value of the dollar is going down. The dollar is going down because they are printing too many and because it is becoming less loved as an international reserve currency (in large part because it is being debased). Remember, China reduced their holdings by $100 billion over the last year.

Also, we could be getting closer to a "crack up boom" where people bail out of paper money into commodities and other real things.

http://en.wikipedia.org/wiki/Pieces_of_eight
http://en.wikipedia.org/wiki/Thaler
http://en.wikipedia.org/wiki/Dollar
http://mises.org/daily/4016

http://minerals.usgs.gov/ds/2005/140/

That's the raw data, I'm not sure you can make it support your conclusions though.

[vincecate]

http://minerals.usgs.gov/ds/2005/140/

That's the raw data, I'm not sure you can make it support your conclusions though.

Thanks, but... The most recent of that data only goes up through 2008. So it does not help with looking at apparent bubbles in commodities this month, or help test my theory that really the dollar is going down fast.

[Higgenbotham]

I want to point out a few things for those who are beginning to give in to the "happy news" of a rising stock market based on QE2...

Fred
http://www.acclaiminvesting.com/

I'm noticing that the chart looks similar lately to the run up to the April top. There was a rising wedge from about March 17 through April 13 that was broken to the upside on April 14. Similary, there's a wedge from about September 20 through October 12 that was broken to the upside today. So we may be close. I was thinking last night that 1190 might be about the limit if this move gets out of hand like it did in April.

We have a few other technical indicators of overbought that also occurred at similar places on the charts a few days prior to the January and April tops. The most notable I can see is the VIX has dropped outside the 2 standard deviation Bollinger Band on the daily chart.

I could also go on for awhile, but it does seem like the end should be near.

[OLD1953]

I meant that historically a copper dollar would show surges and falls in every recession and recovery, and that's what the data shows. Same for everything else. It's hard to call that inflation.

[freddyv]

Since I've become aware of the slide into depression starting in 2007 I have paid close attention to the ongoing argument between those who think that gold is the best hedge and those who think that holding cash makes more sense. I long ago came to the conclusion that it is smart to have a bit of both but probably not too smart to go overboard in either direction. I've also come to the conclusion that having ones own business that is highly profitable and able to downsize quickly is probably the single best protection against an environment of rising unemployment. Luckily I have been building such a business for a few decades now and have actually been able to grow my business substantially during the past several years.

But as for the hedge, I could never really make up my mind and while it feels nice to have a bit of gold and cash stashed away I always felt that if global trade should suddenly break down and the local supermarkets began to run out of food neither would really help much...and so finally I came up with the perfect investment against almost any terrible economic downturn: soup. Yes, not just food but soup. And yes, I am serious; I am stocking up on soup in a major way. Soup is ready to eat and has a high liquid content, in case of a water shortage, and with a good variety of soups you can live of off them and never get bored.

Another advantage of having a stockpile of soup is that if word gets out you just get laughed at, you don't become #1 on the list of houses to ransack when law and order breaks down because gold and cash are easy to carry away and obvious targets for thieves, soup is not. Soup will also hold its value well and while the cans may say, "best if used by..." they pretty much last forever. If it turns out that the economy improves and I have an abundance of soup I will donate it to a local charity.

My only concern is that if word gets out about what a great investment soup is, the government will try to regulate its purchase and sale.

Fred
http://www.acclaiminvesting.com/

[OLD1953]

Just be careful not to let the cans rust, Freddy.

I do find it interesting that the old depression "make do" articles have made a huge comeback. I suppose this could be titled "how to get by without a pizza stone by using cheap unglazed tiles from Lowes".

http://www.huffingtonpost.com/economybi ... 66798.html

That would've gone over like a lead balloon a couple years ago.

I did tell my wife she should make a pizza stone, as she's taking pottery classes and an unglazed flat piece of bisque is about the easiest thing in the world of pottery to make. Heck, she should run up a bunch of them and sell them at the local craft fairs, IMHO. Not pretty or fancy, but I bet they'd sell. You could even roll the clay out with a rolling pin, instead of taking the time to slip cast it.

[freddyv]

I've been waiting for a market top for at least a month now. I've stated prior and still believe that we have the surest thing on the short side that I have ever seen - not the biggest thing but the surest thing. But then along comes QE2....

But QE2 won't work and now it appears that it won't be as shocking and awesome as we were led to believe. So where does that leave us?

Well, I like analogies, so here's one:

I have a small business with 3 employees and every month they get paid on the 1st and the 16th. My rent is also due on the 1st as are many other bills. On the other hand my biggest sources of income pay me late in the month and unlike my payroll and rent, they aren't paid with tremendous consistency. If one of my income sources pays early I tend to pay employees, myself and bills early as well and the whole process is quite undramatic.

On the other hand if my checks come in late my bank balance drops lower than normal and then when the late payments come in, usually all at once, I have a very high bank balance for a short period of time and a lot of relief.

I have three main sources of income and the biggest one is easily Google so I know I'm gonna get paid. So you'd think I wouldn't get too worried because while my payouts may vary by a week or so I know they will show up before the end of the month...but worry I do. Why? It's human nature.

So on those months when the checks are late I go through higher highs and lower lows but the end result is the same as when the checks are early or on time. The amount I make was determined in the month prior and my expenses have also already been determined.

And that is exactly what is going on in the stock market. Though there are possible extenuating circumstances such as QE, stimulus bills, disasters, etc. these are not going to change the primary trend of the market. All that happens when BB throws money at the banks is that the high goes a bit higher. But the end result is that the stock market is in a downward primary trend and if the Fed can knock it off that trajectory for a bit it will come back with a vengeance - just ask Japan.

Fred
http://www.acclaiminvesting.com/

[gerald]

This appears to be an excellent overview of the cause of the mortgage/finance mess, illustrating fraud and greed.

http://vimeo.com/10239575

This year's department-sponsored lecture, The Steinhardt, features Dr. William Black, University of Missouri-Kansas City.
It occurred Thursday, Feb. 18th, 2010, 7:30-9:00 PM.
The title of Dr. Black's talk is: Why Elite Frauds Cause Recurrent, Intensifying Economic, Political and Moral Crises.

Presented by the Department of Economics at Lewis & Clark College, Portland, OR, USA