Wednesday, January 20, 2016

Update and Outlook on Markets with Important Message

It's official. 2016 has gotten off to the worst start ever. The first week saw the Industrials decline -6.2%. The old Wall Street adage, "as goes January, so goes the year" will likely apply this year. And, 2016 is likely to witness record volatility in markets as the global bear market and deflationary depression accelerates. In my last update, I entertained the possibility of one more new high, but offered a count that had the rally complete in May 2015, at which point the markets almost precisely hit my calculated targets. The piece I wrote back in May 2015 which illustrates my work on these ratios can be found by CLICKING HERE.

On my last post, found by CLICKING HERE, I entertained the slight possibility, in order to remain objective, that the Bull Market from 1974 never ended, and was completing now. That possibility has now been virtually eliminated, as the market has not completed an impulse up from the 2009 lows, bur rather, as I have been alluding to for years, a 3-wave, corrective, bear market rally.

Despite the new all-time high in nominal terms, and indeed in inflation-adjusted terms as well, I remained firm that the entire rally was one giant, corrective structure that was bound to fool market participants into believing a "generational low" was in place in March 2009 and a new bull market had begun. Indeed, this is the goal of any bear market rally. And. this one sure accomplished the goal of fooling the vast majority of market participants and economic commentators into believing the worst was over, and we were recovering from the "great recession".  The tech bubble that burst from 2000-2002 and the resulting 78% decline in the NASDAQ was NOT the end of the bear market. The Financial collapse from 2007-2009 was NOT a "great recession". This was NOT an "economic recovery". Instead, it is just the beginning, in terms of price, of the most severe bear market, financial collapse and economic depression since the founding of the republic in the 1700's. Now that the topping process has lasted so long, and we can say with near certainty the larger bear market that began in 2000 has resumed, and considering the secular deflationary cycle has already been going on for 15 years, this leg of the bear market should be the most breathtaking yet. The imminent crash should be swift, to complete cycle wave c into the final bear market low of the cycle. However, the bottoming process, once the final low in price is in, should take longer than most expect. Just like the topping process took a long time, so should the bottoming process. Perhaps not in terms price itself, (due to the fact that bottoms tend to be more of an event vs. a process, whereas topping action in prices tends to be more of a process), but rather in sentiment. After the third financial collapse of the past 20 years, people are likely to be so put off and opposed to the idea of investing in stocks, that they will advice those in future generations not to go near the stock market. And, the resulting negative mood vibe in society is likely to persist far longer than almost anyone expects, even after stock prices have put in a final bear market low. This persistence of negative mood would serve to counterbalance the unbelievable persistence of optimisms that has accompanied the Grand Supercycle Top in stock prices.  I have covered extensively analysis of the economic and financial situation in recent posts, as well as technical reasons for the internal structure of the rally, so there is no need to go over all of the details again, but to recap, please see below for the internal structure of the rally from 2009, a triple zigzag upward correction, and the projections going forward for the remainder of the bear market.

Short-term, the market is oversold and it is interesting how the market recognized the lower trend line of a parallel channel connecting the tops of the first zig-zag in May 2011 with the May 2015 top:

Longer-term, the market is likely to trace out a series of impulse waves in a giant c wave, until the final bear market low, early-to-mid next decade.Please note these projections are not necessarily drawn to scale.

Now, in the short to intermediate term. Once wave 2 of (3) completes, the decline should turn from orderly, into disorderly. In fact, I would not be surprised to see a substantial market dislocation, and a violation of the 2009 lows in short order.

Notice the series of Head and Shoulders patterns setting up:

2008. Notice the truncation of wave 5 of (1) in 2008, similar to 2015:

Finally, the expected wave structure. This is an ideal approximation, and not an exact prediction of what how the bear market will play out. What is certain, is that absolutely unprecedented volatility is likely to hit global markets, and financial markets will set records for bear market activity.

Gold looks to be setting up for the biggest rally since the 2011 top, but, it will only be a bear market rally, and not a new bull market. Ideally, in order to realign with equities, Gold's rally should occur during Primary waves 1 down and 2 up in equities, then during Primary wave 3 all assets, including bonds, crash together as forced liquidation and margin calls occur and anything and everything is sold to raise cash in order to satisfy debt obligations and conduct daily transactions. Again, this is not necessarily drawn to scale.

Crude Oil has been in a bear market since 2008. Oil has been decimated and is now below the 2009 lows. It is lost 81% of its value since the all-time high. A rally can occur at any time, but the ultimate target is below $20 per barrel.

Commodities have been in a bear market since 2008. The bear market has been brutal as the CRB Index of commodities is now down 67% from the all-time high in 2008 and is now below not only the 2009 lows, but the 1999/2001 lows as well.

Both Commodities and Oil topped in 2008. 2016 represents a Fibonacci 8 years from the high, as well as a Fibonacci 5 years from the counter-trend rally peaks in 2011. This suggests a significant low will occur this year in these markets. However, it is not likely to mark the final bear market low for commodities.  

The housing collapse is NOT over. House prices on average, nationwide, should be down 90% from the top in 2005/2006.

I do not care what any pundit says, this is cold hard data, and it suggests these markets are falling because of demand destruction and deflation, as well as suppliers continuing to produce despite low prices, in order to satisfy debt obligations. Many oil and commodity producers will go bankrupt, and, along with a myriad of other credit problems in Student loans, housing, and auto loans, will once again freeze up credit markets and cause a banking crisis. Stocks have been the last holdout, and they, too, are now collapsing under the weight of too much debt and an ongoing secular bear market.

Finally, the most important part of this all:

Most people are not and should not be traders, and during the bear market period, far more important than return on capital is return of capital. Stay in the safest possible cash or cash equivalents. There is always the risk that governments will try to confiscate cash, but there are alternative cash equivalents that are relatively safe.

If you are reading this blog and unsure of what to do, contact me at the above e-mail address in the upper right hand corner of this blog. I cannot give investment advice as I am not a registered investment advisor, but I can suggest ways to stay safe during the bear market. This bear market is so severe, with such wide and potentially devastating implications, and it is so important that people act NOW to protect their wealth, that I do not charge at all. Simply e-mail me.

Those who act now can prevent personal financial devastation. Bear markets unfold faster than bull markets, and with the baby boomer generation getting ready for retirement, there is no time for political correctness, to "wait it out" like financial advisers will tell you. DO NOT listen to the financial media with their propaganda and the fools they have on, telling you how cheap this market is. The Bear Market has no mercy, will crush anything in it's path, including any portfolio that is not properly positioned for safety.

  It is absolutely imperative that people get safe now before it is too late.

Thursday, January 7, 2016

A Treatise on Government and Society

Happy New Year. Thought  I would start off 2016 with something completely different: A Treatise on Government and Society. 2016 looks to be a historic year in markets across the globe. Updates coming periodically throughout the year.

Greed can't be legislated away, there are no shortcuts. 

The only solution to corporate greed, is human social progress. A microcosm of this principle can be found in the average household. When family members are young (children) they behave immaturely. As time goes on, and they grow older, their behavior starts to change in a positive way. The same can be said of societies. When they are at their infancy they are relatively immature. As they mature it's people become more civilized. Past a certain point, however, the cycle peaks and society goes into decline again until it collapses and a new society emerges from the remnants.  

 Case in point, we aren't cavemen anymore, and have obviously progressed immensely from this point in time, both in intelligence, and civility. Natures fractal pattern of growth suggests life will one day progress to the point where there need not be competition anymore, but a society where beings work together to accomplish common goals, rather than competing with and harming each other and wasting resources in the process. 

A lot of people think that corporations are evil, and selfish. That's true with some of them, but that's human nature. We are geared towards survival, and aren't progressed enough yet as a species to put other's interests before or at least on the same level as our own. In the meantime, this is the question:

If groups of people (corporations) are who we are supposedly trying to protect the public against, why would we want to give any human being or any group of human beings power over other human beings? it makes no logical sense. Logic suggests that if corporations inflict X amount of damage on people, governments inflict far greater damage, because they have a monopoly on power (lawmakers) and a monopoly on force (police). It's like asking the wolf to guard the hen house.

Nature is cruel, and humans are part of nature. The best we can do is let natures cycles and patterns work within the human race, with free people. A lot of pain and anguish, but also a lot of good in the world, too. That's what nature is, expansion and contraction, good versus evil, Yin versus Yang. 

Government does not lessen the burden of any of these fundamental flaws, just redistributes it, while taking a cut of all the production "commission" in the form of taxes. In fact ,the government itself is a corporation. 

 Contention is, for every bit of "good" government does, there is an equally detrimental effect on society with something else it does, because there ain't no such thing as a free lunch, and no socialist leader can wave his magic wand and change that. Not advocating anarchism, but the role and function of government and regulation needs to be reexamined, it has gotten far out of hand, and the ballooning of the size of government is a lot of the reason why we are in this mess in the first place.

Have hope that one day the human race will wake up and realize we don't need a leader. The notion that we need a leader, a "Shepard", has been hard wired"in our belief systems for many millennia. But nature's dynamism suggests this could one day change. What's the old saying, "Change is the only constant." Maybe it will never change while humans are humans and not some other species. But truly do think that one day, perhaps many millennia from now, living beings on this earth will not feel they need a leader. 

In the meanwhile, we should let the market work. Problem is, the free market is blamed when in fact we haven't actually had a free market for a long, long time, and arguably never. In recent history the power was given to a cabal of bankers and their friends. This is the problem, consolidation of power. We need de-consolidation of power, smaller government, and letting nature run its course. Had we let the banks fail we would be much better off today. Government stepped in to supposedly save the system. But what they were actually saving, were their bankers friends on Wall Street, at the expense of main street. Had the market been allowed to function the excesses would have been worked off in 2010 and 2011. Instead the can was kicked down the road to create an even bigger crisis down the road. 

Goes back to no shortcuts. Government regulation is an attempt to stymie the effects of corporate greed, but, it doesn't. In fact, more often than not Government is a leveraging tool by the very people they claim to be "regulating". Had it not been for Government, the Federal Reserve Act of 1913 would have never been passed, and the criminal banking cartel would not have the monopoly on money they do today through the FED, and society would be rich instead of impoverished through a 99% devaluation of the USD. Government regulation does not work, but the prosperous times of the 1990's made it look like it did. We were prosperous despite government regulation, not because of it.