Financial topics

[abs]

John -

I thought you would like that one - glad to know I was right. And I like the generational dynamics twist you placed on your summary in your last post.

I have another chart for you to look at. This is similar to some of the historical charts showing index performance I've seen on your site, but these go back to 1800 and have at least two different takes on inflation rates (since we know that the US government has changed the calculation multiple times so difficult to see a continuous and accurate view).

Here's the link:
http://www.geocities.com/cyclepro2/Char ... utlook.htm

And a couple of the chart's I've been mentioning:

200 year DJIA analysis

InfDji200_0810.jpg (77.73 KiB) Viewed 6516 times

17.6 year cycles since 1930

Djia176_0810.jpg (67.4 KiB) Viewed 6508 times

DJIA with Fed BLS inflation rates

InfDjiBLS_0810.jpg (56.27 KiB) Viewed 6514 times

Andrew

[abs]

John -

On another note, I stumbled upon the forecasts of a person named Gerald Celente today. After doing some investigation, I found a bunch of YouTube videos of him being interviewed on a number of radio shows. He is predicting that we will first observe a deep depression and then hyperinflation thereafter as the US government starts printing money like crazy to pay its debts/creditors. He compares the future prospects of the US to what has happened in countries like Argentina in the past. He also predicts that there will be tremendous public unrest, food shortages and that ultimately the government may freeze bank accounts to the point that individuals either can not access (or will simply lose) their money. He also anticipates that the US government will take over pension funds and other retirement accounts in their entirety.

Unfortunately, he doesn't give many rational reasons for exactly WHY he is predicting these sorts of things, just that this is what he expects will happen. I know that you do not believe we'll see hyperinflation in the US due to all of the deflationary pressures we've all been talking about. However, don't you feel there is a possibility that the government will eventually be forced to print so much money to pay its debts that we could eventually see hyperinflation?


Thanks in advance.

Andrew

[freddyv]

John,

Have you ever likened the predictive element of Generational Dynamics to earthquake prediction? It's very similar. Seismologists can never specifically say when an earthquake will occur, but they can say with near 100% certainty that an earthquake will happen on a given fault in a given timespan, usually decades. As a Californian living in Los Angeles, I deal with this topic frequently. The language you use about the coming generational panic/crash and clash of civilizations crisis war is very similar to what is said about, say, the coming Big One. It might happen tomorrow, next week, next year, or sometime thereafter, but it's going to happen with near 100% certainty over the long term because the geological record says it must happen every so often and the tectonic pressures increase with each passing year that there isn't a major earthquake. The fact that no one can say when it will happen creates complacency...just as GD's inability to say precisely when things will happen creates complacency.

I think the earthquake analogy works better than the tsunami analogy you frequently cite. Major earthquakes on active faults occur on a regular basis in geologic time. Tsunamis are extremely rare and strike out of nowhere. There have only been a few in all of human history. That doesn't fit the way you describe these generational panics and crashes, which occur with a certain amount of regularity (on average, every 70 years or so) and always have warning signs caused by building pressures that people conveniently ignore until it's too late, then after it happens they are struck by how sudden everything collapses.

Barion,

Don't know about John but I agree and have long believed that the earthquake analogy is excellent for describing the pressures that build up and must eventually be released. They may be released slowly with many small quakes or if the pressure gets to be too much we will have a big one. One thing is for certain, the pressure must be released sooner or later.

How people react after the two is similar also. People get shell-shocked after such a great unheaval and become overly cautious for a long period of time. In both cases, however, the safest time (to be in that area or investing in the stock market) will come once the after-shocks have died down and the pressure is off. Most people will take years to trust the markets again but there should be a long, long untrend ahead with little downside risk.

Another big factor why the markets will take years and even decades to recover is the amount of wealth lost. That's why capitol preservation is so important in times like these.

--Fred

[Barion]

Another good analogy is volcanic eruption, in terms of their destructive power, especially the difference between composite volcanoes and supervolcanoes. Composite volcanoes are like Vesuvius or Mount St. Helens. They lie dormant for years, often centuries, and then explode with destructive force. But they typically don't cause devastation beyond a local effect. These would be analogous to typical garden variety recessions that come and go every 8-10 years. Then there are the Krakatoa and Pinatubo type eruptions, which are much bigger and pump out enough gas and dust into the upper atmosphere to partially block out the sun and lower temperatures for a while. They have a global effect, but it's still not that bad. You might wind up with a year without a summer. This would be like the global recessions that occur with less frequency, but aren't still that horrible. Finally you have the supervolcanoes, like the one under Yellowstone, or Toba in Indonesia. These happen every several hundred thousand to several million years. These are the game changers, with explosions so massive that it creates incredible devastation for hundreds of miles where all life is wiped out, plus it causes so much blockage of the sun that the world experiences drastically lowered temperatures for years, causing mass extinctions. The human race is thought to have nearly died out when Toba erupted 75,000 years ago. These supervolcanic eruptions would be akin to the global Great Depression events that come along every 70 years or so.

[DisIllusionist]

Mish has a recent post up about changing attitudes toward frugality in cosmetics. The chart of the Liz Claiborne stock was a bit surprising, down to $2-3 from a peak of $45, which is comparable to the failed banks.
http://globaleconomicanalysis.blogspot. ... udity.html

John, would it make sense to start a new thread on evidence of large scale mood shifts (or perhaps on socionomics) to track this kind of evidence?

[John]

> Have you ever likened the predictive element of Generational
> Dynamics to earthquake prediction? It's very similar.
> Seismologists can never specifically say when an earthquake will
> occur, but they can say with near 100% certainty that an
> earthquake will happen on a given fault in a given timespan,
> usually decades. ...

> I think the earthquake analogy works better than the tsunami
> analogy you frequently cite. Major earthquakes on active faults
> occur on a regular basis in geologic time. Tsunamis are extremely
> rare and strike out of nowhere. There have only been a few in all
> of human history. That doesn't fit the way you describe these
> generational panics and crashes, which occur with a certain amount
> of regularity (on average, every 70 years or so) and always have
> warning signs caused by building pressures that people
> conveniently ignore until it's too late, then after it happens
> they are struck by how sudden everything collapses.

> Another good analogy is volcanic eruption, in terms of their
> destructive power, especially the difference between composite
> volcanoes and supervolcanoes.

I can see your point about some advantages of the earthquake and
volcano analogies, but there are a few reasons why I really like the
tsunami analogy.

First, even though tsunamis are rare, the vast majority of people
remember the Pacific tsunami in 2005.

Second, there's a clear visual image of anticipating a tsunami. One
can imagine a tsunami that was launched decades ago (as I like to
say), and one can imagine seeing it coming, even if that's impossible
in real life.

Third, and most important, there's an obvious way to prepare for a
tsunami if you know it's coming - run for higher ground. That
phrase, "run for higher ground," is very appealing, and even
metaphorically makes sense for financial crises. There are no
similarly nice phrases for an earthquake or volcano.

Sincerely,

John

[John]

Dear Andrew,

> I thought you would like that one - glad to know I was right. And
> I like the generational dynamics twist you placed on your summary
> in your last post.

I assume that you noticed that I tracked down the entire 1 1/2 hour
presentation in my web log entry. I recommend to everybody to invest
the full 1½ hours to listen to it -- it's absolutely fascinating.

> However, don't you feel there is a possibility that the government
> will eventually be forced to print so much money to pay its debts
> that we could eventually see hyperinflation?

Well, I've never believed that, for reasons I've given many times.

However, the author of the presentation that you referred me to
doesn't believe it either - for a completely different reason. He
says that there's no problem at all, since the savings from debt
repayment will be exactly equal to the cost of the fiscal stimulus
package. Quite startling!

** The effects of massive fiscal stimulus.
** http://www.generationaldynamics.com/cgi ... 24#e081224

Sincerely,

John

[John]

> Mish has a recent post up about changing attitudes toward
> frugality in cosmetics. The chart of the Liz Claiborne stock was a
> bit surprising, down to $2-3 from a peak of $45, which is
> comparable to the failed banks.
> http://globaleconomicanalysis.blogspot. ... udity.html

Yes, I saw that, and I was surprised because women always want
cosmetics. I guess Liz Claiborne cosmetics must be extremely
expensive.

Every now and then I like to check up on Estee Lauder's Lipstick
Index. It goes up during times of recession, because buying lipstick
is a cheap way for a woman to cheer herself up.



(http://belladonna.org/lipstickindex.htm)



(http://www.nytimes.com/2008/11/09/fashi ... ef=fashion)

> John, would it make sense to start a new thread on evidence of
> large scale mood shifts (or perhaps on socionomics) to track this
> kind of evidence?

I think you should start a thread on anything that interests you, and
where you can make a contribution.

Sincerely,

John

[The Grey Badger]

And lipstick - like getting a haircut - is far more than a way to cheer yourself up! The better you present yourself, the better your chances of survival in hard times. I'll bet sales of cosmetics, hairdos, and other 'vanity' products shoots through the roof as people try to compete in a very tight market.

However, the only fancy name brands that will sell are those the bosses can see you own and would be impressed by. Fine leather goods, for example. Lipstick? Get it at the Family Dollar Store.

[John]

-- Some ruminations about massive fiscal stimulus

It looks to me like we're coming to the culmination of the Unraveling
era. It's all so easy. Just spend as much money as you want, and
it's free money, since Richard Koo tells us that the amount saved by
the public will cancel out the expense.

** The effects of massive fiscal stimulus.
** http://www.generationaldynamics.com/cgi ... 24#e081224

This is not a new concept.

Here's a 1962 announcement by President Kennedy:



This was a seminal moment in American history. It was at this point
that the "Keynesian" concepts began to take hold. Keynes said that
you should raise taxes (or reduce spending) during a growth era, and
lower taxes (or increase spending) during a recession.

Of course what happens is that taxes never get raised. There are
always reasons to lower taxes (or increase spending), but even in a
growth era, raising taxes or lowering spending always "hurts the
poor."

In fact, there's never a time when you want to "hurt the poor."
That's what caused the "subprime crisis" -- Barney Frank and others
of his ilk insisted that mortgage loans be given to "poor people,"
since they would be hurt otherwise.

Well, goodness, the only thing wrong with the subprime crisis is
apparently that we didn't spend enough money on it. Well, President
Obama will fix that.

It's like the eternal quest for perpetual motion. People have been
searching for that answer for centuries, and never succeeded.

But they have succeeded in finding the answer to perpetual
indebtedness. It turns out that the solution is more indebtedness.
And it's all free. It's a perpetual motion machine that produces
more energy than it uses.

Wheeeeeeeeeeeeeeeeeeeeeeeee!

Sincerely,

John