Sunday, August 28, 2011

Hurricanes and The Great Deflation

All eyes have been on Hurricane Irene (2011) and its impact on the Atlantic seaboard for the last several days. The storm was not particularly powerful, peaking at Category 3 before making landfall a few days ago. The hurricane caused more than $7 billion in property damage and left 5 million people without power. The real area of concern, however, was that the storm went very far north, hitting New York City and Boston, something that was unheard of just 20 years ago. This is yet another indication that global warming is for real, a small taste of what is yet to come during "The Great Tribulation".

There is a reason for a socionomic perspective on hurricanes and their aftermath. The reason is that hurricanes that make landfall inflict massive property damage, requiring the government to step in to help rebuild. In times of strong economic growth, the government has no problem throwing in enough funds to help affected cities and counties clean up the wreckage and rebuild. It's another matter, however, to contemplate what happens when a hurricane causes massive property damage during a time that taxpayer dollars effectively dry up, rendering the government unable to respond to the disaster.

We are already seeing warning signs of a coming scenario where the government will be rendered unable to respond to disasters caused by hurricanes. Rep. Ron Paul made a comment that "there is no magic about FEMA" yesterday, arguing that the government's role in disaster relief should be reduced. On the same day, Rep Eric Cantor argued that funding for disaster relief should be offset by cuts elsewhere. We are already seeing the effect of austerity measures on disaster relief, an effect caused by declining tax revenue.

As "The Great Deflation" continues to unfold with increasing momentum, expect the government's ability to respond to disasters caused by hurricanes to become increasingly compromised as tax revenue dries up at a rapid clip. By 2017, the government will be unable to respond to disasters caused by hurricanes, leaving affected communities completely on their own. It's hard to imagine what would happen if a Category 5 hurricane were to hit a major city during the Bachmann Administration Period (2017 - 2021) -- the consequences would be truly horrendous with unprecedented property damage, multi-year blackouts (several years before the power gets restored), full scale anarchy, and possibly a full scale social breakdown.

Preparation is of utmost importance, especially with the worst of "The Great Deflation" yet to unfold. The American people will be increasingly on their own in dealing with the aftermath of disaster caused by hurricanes as the government's ability to respond is diminished in the years ahead. With austerity on the rise, it is not at all farfetched for FEMA to be abolished altogether in 2017 during the Bachmann Administration Period under the pretense of balancing the federal budget.

Hurricane Irene (2011) making landfall in New York City is another warning that man-made global warming is for real. While the worst of man-made global warming is over 30 years in the future, we are already starting to reap the consequences of abuse of fossil fuels now as greenhouse gases continue to be pumped into the atmosphere.

Tuesday, August 23, 2011

Job Market Collapse Sparks Protests

The collapse of the job market is in progress, and there is increasing awareness of the issue. Even though we are yet to see a monthly job report that indicates that layoffs have resumed, layoffs continue to accelerate as more and more companies and businesses throw people out of work.

We are now seeing an outbreak of protests over the job market issue. A large number of protests have erupted in the last two weeks as outlined in the Daily Kos article on the many instances of constituents displaying their frustration at GOP town halls.

Here is a partial list of articles showing the large number of job market related protests that have erupted throughout the United States:

1 -- Ordinary Americans Continue to Deliver Progressive Messages at Republican Town Hall Meetings.

2 -- Members of Congress face job protests.

3 -- Invisible Town Hall Revolution Continues to Roll, with real impact on GOP.

4 -- Republicans at home face protests from liberal, labor groups.

5 -- Unemployed protest outside Fitzpatrick's office.

It isn't just Republicans that are getting the blame for the collapsing job market. People are blaming Obama as well, as evidenced by the latest gallop poll that indicates that Obama's approval rating on the economy dropped to a new low of 26%. Obama's overall approval rating is down to 39%, another new low. Even now, Obama is facing a great deal of criticism from unions and labor groups on the jobs issue as well as the debt ceiling deal.

It doesn't help that President Obama's proposals for creating jobs involves a substantial amount of magical thinking, as the proposal mostly revolves around creating more free trade agreements and extending tax credits to businesses and corporations.

The Obama Administration will attempt to pass a "jobs bill" after Labor Day. People in the mainstream media are optimistic that a jobs bill can be passed, but the optimism is mostly a product of optimistic social mood associated with a big wave 2 in a bear market. There is no chance of any type of jobs bill getting passed as polarization in politics will continue to increase with the GOP accelerating farther to the right over time, making compromise impossible.

As Primary wave [3] down (2011 - 2016) continues to unfold, expect protests to increase in size, extent, duration, and assertiveness. The protests at town halls are numbering from dozens to a few hundred now, but as social mood continues to become more and more bearish, the protests will increase in size, reaching 20,000 or more by early 2016 as more and more people take to the streets.

Friday, August 19, 2011

The Rise of Farmers Markets

One of the implications of "The Great Deflation" in the coming years is an economy that becomes increasingly local. With Primary wave [3] down (2011 - 2016) in progress and picking up momentum, a massive cascade of debt defaults will reverberate through the economy, which means corporations and businesses close their doors forever.

The bear market will bring back family and community farms while wiping out all the corporate owned factory farms (they too are leveraged to the hilt with credit and debt, which means they shatter like glass when their debt burdens become too heavy to bear). We have been trending in that direction since the Grand Supercycle degree bear market started, as the number of farmers markets in the United States has increased from 2863 in 2000 to 7175 today.

The final blow to corporate owned factory farms will likely come from a deflationary collapse in Crude Oil, in which both OPEC and Big Oil dramatically cut back oil production to protect their profits. An oil supply crash (most likely to take place in 2017, the first year of the Bachmann Administration Period) will make it virtually impossible for corporate farms to transport food long distances, which will cause their revenue to crash and eventually result in defaulting on their debt.

It's not just corporate factory farms that will close their doors forever. Corporate food manufacturers (such as Sara Lee), large grocery store chains (such as Safeway), and even fast food chains (such as Burger King and McDonald's) will also shatter like glass due to a massive cascade of debt defaults. The bear market will effectively purge all of them off the map within the next 5 - 7 years.

This is all part of the larger picture in which major depressions result in 90% of corporations and businesses to implode and close their doors forever due to a debt default, all during the A wave of the bear market.

Expect the growth of farmers markets to accelerate in the coming years. As the oil supply crash unfolds, it will no longer be possible to transport food long distances. The result is that farms become increasingly local. Being able to buy and sell food local is going to be crucial for survival through the worst part of "The Great Deflation".

Monday, August 15, 2011

Point of Recognition Aftermath -- Day 11

Optimism has started to make a return after reaching a Minor degree "point of recognition" that resulted in a small panic. It's been 11 days since the "point of recognition" but we are still seeing a lot of fallout. The stock market has moved off its lows after going into a trading range for most of last week.

Here is an updated chart of the DJIA.

We are still on track to complete Minor wave 1 down by October 2011. However, Minute wave [iii] has taken the markets down too far and too fast, so some volatile sideways movement is expected. The most likely scenario is a triangle for Minute wave [iv] after the rest of Minute wave [iii] is completed, then a downward thrust for Minute wave [v] to complete Minor wave 1 down with a target of around 9950 on the DJIA and 1040 on the S&P 500.

Fallout related to the "point of recognition" is still evident. While optimism is starting to return with some calls for more bull market and economic recovery surfacing, there is still some pessimism as well. Expect calls for more bull market and economic recovery to intensify in the coming days. At the same time, expect the short term and intermediate term fallout to continue as well.

1 -- The Verizon strike continues with no end in sight. This strike is already larger than any labor standoff that occurred around the time that Primary wave [1] down completed in March 2009. The standoff has taken an ugly turn for the worse as Verizon recently resorted to litigation to end the strikes. Expect this standoff to last at least several months as neither the striking workers or the company is budging.

From a larger picture perspective, the Verizon strike is comparable to the 1934 West Coast waterfront strike, the 1934 Toledo Auto-Lite strike, and the Minneapolis Teamsters strike of 1934 in terms of magnitude and duration. This says a lot about the magnitude of the bear market that is unfolding. The big strikes that unfolded in 1934 occurred in the immediate aftermath of the Great Depression. The Verizon strike, however, is unfolding in the early part of the larger Grand Supercycle bear market.

As Primary wave [3] down continues unfolding, expect more and more standoffs like the Verizon strike that is unfolding now, with some of the standoffs having the potential of crippling corporations and businesses.

2 -- The Syrian government stepped up its crackdown, utilizing gunboats to put down uprisings for the first time. Authoritarianism has been escalating in many parts of the planet since the start of the year. Expect this trend to continue unfolding. A few days ago, BART closed down cell phone reception to stop a possible protest from unfolding.

There is a new trouble spot in Italy as unions are threatening to go on strike in protest against an austerity package that was recently passed by the government that is aimed at balancing the budget by 2013 to avert economic collapse. A volatile social mood is likely to result in large scale labor strikes lasting for several weeks, if not several months.

Another potential trouble spot to keep an eye on is the Wake County Public School system. This area flared up in November 2009 and has the potential to flare up again in October 2011 with another school board election set to take place. This area has become a battleground between the Koch brothers and their Tea Party allies on one side and the other side are parents, students, and community leaders. If the November 2009 school board elections are any indication, the Wake County Public School system is likely to turn into a massive conflagration of protests with the possibility of large scale teacher strikes (with the support of parents and community) that further cripple the educational system as schools remain shut down for many months during the coming school year. The Wake County standoff has the potential to dwarf the Verizon standoff that is currently unfolding.

Tuesday, August 9, 2011

Point of Recognition Aftermath -- Day 5

We continue to see a high level of volatility in the aftermath of a Minor degree "point of recognition" that was reached last Thursday. The VIX continued rising, reaching the upper 40s, a level comparable with the aftermath of the "Flash Crash of 2010". Social mood has been deteriorating at a very fast clip in the last several days.

We are still on track to complete Minor wave 1 down by early October 2011. Yesterday, the DJIA plunged again, down 633 points to end the day at 10809. In addition, the RSI is now indicating that Primary wave [3] down will unfold as an extended third wave. This has serious implications for civilization in 2013 and beyond (more on that later).

Here is a chart of the DJIA. Notice the bearish divergence that is indicating that the March 2009 low is going to break down.

We continue to see a volatile social mood at work in many areas of the planet. Earlier developments in the aftermath of the "point of recognition" are in the previous blog entry. More trouble spots have erupted in the last few days. Here are some of the latest developments:

1 -- The G-7 is making a desperate attempt to stabilize markets and promote economic growth. This development started shortly after the downgrade on US debt.

2 -- The European Central Bank is buying Italian and Spanish bonds in a desperate effort to keep interest rates from rising out of control. Italy and Spain are both facing a debilitating debt crisis and both of those fault lines are on the verge of going critical. The result of Italy defaulting on its debt is a global ripple effect that reverberates through every nation on the planet. Both Italy and Spain are "too big to bail out".

3 -- The U.S. Postal Service is on the verge of default and is bleeding money at a fast clip.

Existing trouble spots have escalated in the last few days.

1 -- Riots in the UK have spread to 7 cities and a larger portion of London is affected by riots. This is already the worst social unrest in the UK since 1980, and yet the bear market is still in its infancy. This was started by a police shooting several days ago, and has turned into a massive conflagration of anger over austerity measures in the process of implementation.

2 -- 45000 Verizon workers are on strike with no end in sight for the standoff. Expect this standoff to possible continue for several months as discord, anger, and protectionism increase. This is playing out like the debt ceiling standoff that ended earlier. In the aftermath of the "point of recognition", workers are realizing that corporate elites have been giving them the shaft on wages and benefits. Expect more labor strikes of this type as the Grand Supercycle degree bear market continues to unfold.

3 -- We continue to see a lot of vitriol in the political arena, especially in the aftermath of the downgrade of the debt rating. Mitt Romney hits Obama on the downgrade, Tim Pawlenty jabs Obama on the economy, and Tim Geithner accuses S&P of poor judgement.

4 -- A ground swell of anger continues to build in Wisconsin as a very high voter turnout is expected for the recall elections. With a volatile social mood in play, expect one or more Republican state senators to get thrown out of office by voters.

Here is a potential trouble spot to keep an eye on.

1 -- The Earth could possibly be hit by coronal mass ejections (CMEs) around August 10, 2011. This creates the potential for blackouts if a hit occurs. Given the volatile social mood, any population affected by a blackout will be affected by extreme social unrest. This will continue to be an issue for the next couple of years as the Sun approaches its solar max. The worst case scenario here is a large CME hitting Earth during the central portion of Primary wave [3] down in the second half of 2013 -- the potential for panic is immense if it occurs.

We are in a period of high volatility. Expect the volatility in the stock market to continue throughout this week. This is a smaller version of the "Panic of 2008".

Sunday, August 7, 2011

Point of Recognition and the Aftermath

In the aftermath of reaching a Minor degree "point of recognition", the center of Minor wave 1 down, we have been seeing a lot of volatility as evidenced by large price swings in the stock market and the VIX. Last Friday, the DJIA traced out over 500 points of movement for the day. This is playing out like a smaller version of the "Panic of 2008" in which volatility and fear dominated the markets after the center of Primary wave [1] down was reached in October 2008.

The events that have taken place since the "point of recognition" are just a warm-up to what will happen when the big one hits in October 2013 (the center of Primary wave [3] of Cycle wave c down). Here is a sample of events that have unfolded since the "point of recognition".

1 -- The United States lost its prized AAA credit rating as S&P cut the debt rating from AAA to AA+. A short time after the downgrade occurred, Michele Bachmann, Mitt Romney, and John Huntsman all blasted Obama in reaction to the downgrade. The Obama Administration, of course, blasted S&P for an alleged math error. A day later, China blasted the United States government for the debt rating downgrade. Towards the end of Saturday, S&P issued warnings that more downgrades could take place in the near future.

2 -- Riots erupted in London after a police shooting that killed a civilian. Hundreds of people gathered on the streets of Tottenham. Many of the people that took to the streets are demanding justice for the shooting.

3 -- Protests unfold in Israel as 250,000 people take to the streets, demonstrating against an excessively high cost of living. The protests started out small three weeks ago, but rapidly swelled to massive numbers after the "point of recognition" was reached on Thursday.

4 -- 45,000 unionized workers go on strike against Verizon after realizing that corporate elites have been giving them the shaft on wages and benefits. This is one of the largest labor strikes to unfold since the Grand Supercycle bear market started to unfold in 2000.

There is more volatility ahead for the markets and for civilization in general. The next five trading days (August 8 - 12, 2011) are expected to be the most volatile period since the period following the Flash Crash of 2010. We are still on track to complete Minor wave 1 down by early October 2011. Here is an updated chart of the DJIA.

We completed Minuette wave (iii) of Minute wave [iii] down on Friday. The next few trading days will be volatile as Minuette wave (iv) unfolds as a running flat with rapid amplitude fluctuations, followed by a fast downward impulse, Minuette wave (v) to complete Minute wave [iii] down. Volatility should return to normal when Minute wave [iv] starts unfolding.

On the socionomic front, there are several areas to keep an eye on, as they are potential hot spots:

1 -- The recall elections in Wisconsin. Alberta Darling and Luther Olsen are two of the Republican state senators that are facing a recall election during the period of high volatility in social mood. Expect a strong voter turnout with at least one, if not both, thrown out of office by voters.

2 -- There is potential for more protests and demonstrations. France is a possible hot spot (look at the CAC-40, which has been in a rapid decline).

3 -- There is the issue of a coronal mass ejection (CME) hitting the Earth around August 10, 2011. A large CME has the potential of causing blackouts. Given the volatile social mood that is in play, a blackout could easily turn an affected population into an explosive powderkeg of social unrest.

We are going through a period of high volatility following a Minor degree "point of recognition". Expect the volatility to continue until the middle of August 2011.

Thursday, August 4, 2011

Flash Crash, the Sequel

Today, we got another flash crash in the stock market. The DJIA plunged 512 points, the S&P 500 plunged over 60 points, and the Nasdaq plunged 136 points. The one thing that we also notice is the absence of positive news and positive spin on the stock market, the economy, and the job market. We have reached a "point of recognition" today. The decline was broad and carried a lot of momentum, which is what we would expect to see in a "third of a third".

The "point of recognition" that we reached today was a relatively small one, as it is the center of Minor wave 1 down. The big one is still over 2 years in the future, to be reached around October 2013.

There is now a lot of clarity in terms of where the stock market is going in the weeks and months ahead. Here is a chart of the DJIA with the projection of how the rest of Minor wave 1 down will unfold, and how Minor wave 2 up will unfold afterwards.

The bear market rally appears to be putting in a head and shoulders top, with the left shoulder peak in April 2010, the top of the head in May 2011, and the right shoulder is likely to peak around March 2012. Minor wave 1 down is taking the stock market back down to the neckline of the head and shoulders pattern.
The peak of Minor wave 2 up will form the right shoulder peak.

The head and shoulders pattern projects a downside target of around 7200 for the end of Intermediate wave (1) of Primary wave [3] down, with the low point to be reached around September 2012.

Once Minor wave 2 up starts unfolding, optimism should return, along with continued calls for economic recovery and a bull market. However, optimism is not likely to achieve the levels that were achieved in May 2011.

Another significant event is that the DJIA / Gold ratio has breached the March 2009 low. This has significant implications in the months and years ahead, and is yet more evidence that Primary wave [3] down is in progress. Here is a chart of the  DJIA / Gold ratio from 2008 to 2011.

Expect the DJIA (and the S&P 500 and the Nasdaq as well) to continue falling faster than gold as "The Great Deflation" continues to unfold with increasing momentum.

Wednesday, August 3, 2011

Current State of the Economy

The latest GDP numbers came out last Friday, and they point to the start of the next leg down in nominal terms. Although the initial estimate for the second quarter of 2011 came in at 1.3 percent as far as the nominal GDP is concerned, earlier quarters were revised downward. The nominal GDP growth for the first quarter of 2011 was revised downward from 1.9% to 0.4%. The GDP number for the second quarter of 2011 is virtually guaranteed to be revised downward in the coming months which would likely put it below zero. The US economy is now declining in nominal terms, not just real terms.

The nominal GDP does not tell the full story, and the rising GDP numbers since 2000 reflects the relentless devaluation of the dollar rather than economic growth. We must get the Real GDP, which is GDP after adjusting for inflation. We turn to Shadow Government Statistics to get the actual inflation numbers, which would then allow the Real GDP to be evaluated.

The government has changed the formula for evaluating the inflation rate and the unemployment rate a number of times, often for political reasons. There has recently been talk of the Obama Administration putting lipstick on the pig known as inflation with the chained CPI. This is the reason why we go to to get the actual numbers.

Here is a chart of the Real GDP of the United States economy.

As the chart shows, the US economy has been steadily declining since 2000. So far, the US economy has erased 18 years of growth, and now produces the same amount of goods and services as it did in 1983. The chart clearly shows that we are in a major depression. The decline from the peak so far is almost as large as the decline that took place during the Great Depression, and yet, we are still seeing calls for a recovery, such as this one.

The US economy is still sliding down the Slope of Hope. As we get closer to the "point of recognition", we start to see signs of the coming event. People are starting to recognize the true magnitude of the bear market that we are in, as evidenced by this poll, which indicates that 39% of people think that the economy is in permanent decline.

The "point of recognition" should take place around October 2013, and it will be known as "The Great Panic of 2013". This would also be when economists and analysts start to recognize that a major depression is in progress. This would be the center of Cycle wave c (2007 - 2021).

It is also worth mentioning that the chasm between the rich and the working class is still growing larger, which is consistent with a bear market rally, rather than a real economic recovery.  In a real economic recovery, the working class would be gaining ground relative to the rich over time -- this did not happen in 2002 - 2007 and it is not happening now.

Here is a chart of the DJIA from 1974, showing the fraction of nominal GDP growth that went to corporate profits and wages. Notice the progressively weaker breadth after 2000.

The information on the chart comes from a study of the so-called "jobless recovery" following the 2009 low. Just 1 percent of the nominal GDP growth went to wages as of the fourth quarter of 2010. Virtually all of the nominal GDP growth went to corporate profits. In the first quarter of 2011, the fraction of nominal GDP growth that went to wages was actually negative. By comparison, 25% - 35% of nominal GDP growth went to wages in the economic recovery following the recessions that ended in 1982 and 1991, and following the major recession that ended in 1974.

Here is a chart relating "wave personality" to the economy and job market.

As I indicated in an earlier post on job market fundamentals, the weakening breadth that has been unfolding since the 2009 low in the DJIA is not consistent with a real economic recovery. A real economic recovery is associated with the start of a new bull market.

As I predicted, we are seeing a lot of talk about a "double dip recession". Expect this to continue until October 2013, when the "Great Panic of 2013" takes place. Expect President Obama to continue playing the "bump in the road" card even as the layoffs accelerate in the job market until October 2013.