Wednesday, January 25, 2012

The Fall of Mitt Romney

In the last few days, potential voters have been souring on Mitt Romney as evidenced by new polls that are showing that Newt Gingrich is surging in Florida in the aftermath of a strong performance in South Carolina. As usual, journalists in the mainstream media attempt to explain Mitt Romney's fall from grace and attribute the fall to his status as a wealthy elite. Even Jon Stewart has gotten in the act, mocking Mitt Romney for trying to justify making more money in a day than most people make in a year.

Less than a week ago, journalists in the mainstream media were talking about the inevitability of Mitt Romney as the GOP nominee as the large number of articles exemplify:

1 -- KKTV.com -- Sense of inevitability grows around Romney candidacy.

2 -- Daily Kos (Nov 2011) -- Why it is going to be Mitt Romney.

3 -- Intrade -- Mitt Romney's chances of winning the nomination rose as high as 91% on the Intrade site several days ago before a sharp fall started to unfold.

4 -- New York Times -- The Inevitable nominee

Since the fall from grace, many people in the mainstream media attribute Mitt Romney's fall from grace to his status as a wealthy elite. There is just one problem with the supposed connection between the fall from grace and his wealth -- Mitt Romney's status as a wealthy elite has been well known to the American people at least as far back as 2007. The key to the reason for the fall is why now.

Mitt Romney's fall from grace was completely foreseeable using the socionomic model. Consider the forecast of the GOP Primary that I made back in early December 2011, which included the forecast for Mitt Romney's fall from grace. There are a couple of important points to the forecast:

While Minor wave 2 up is unfolding, Mitt Romney will have the wind at his back.

Once Minor wave 3 down starts unfolding, success becomes increasingly difficult for Mitt Romney as the bearish social mood brings out the voter tendency to pick increasingly radical candidates.

Social Mood is the reason why Mitt Romney is on the decline. Even after Newt Gingrich won big in South Carolina, the mainstream media was still convinced that Mitt Romney would ultimately win the nomination. Social mood is getting increasingly bearish again. Even though Minor wave 2 up is still unfolding in the nominal DJIA, the peak of Minor wave 2 up is already in for the DJIA / gold ratio (see this chart). The DJIA / gold ratio has proven to be a very strong indicator of where the approval rating of politicians is going in the future. Minor wave 3 down is already in progress for the DJIA / gold ratio.

Mitt Romney has peaked and has nowhere to go but down. With social mood becoming increasingly bearish as seen in the DJIA / gold ratio, voters will have a stronger tendency to pick increasingly radical candidates. Once Minor wave 3 down in the nominal DJIA starts unfolding in earnest, Mitt Romney's candidacy will collapse, which will make either Newt Gingrich or Ron Paul the GOP nominee.

Saturday, January 21, 2012

Reprieve Period Goes Into Overtime

The reprieve period known as Minor wave 2 up has persisted longer than expected, as well as a deeper than expected retracement unfolding. Nothing important has changed as the May 2011 high has not been taken out yet, although the DJIA is going to get very close to doing so. The reason is that market fundamentals continued to weaken over time even as the reprieve period stretched out longer than expected.

In spite of the rally losing momentum, people continue to get more and more bullish. Virtually everyone is bullish on the stock market, economy, and the job market. If there is ever a time for bears to capitulate and give up en masse, it is now. The VIX has also fallen below 20 as well, fulfilling another expectation for the character of the peak of Minor wave 2 up.

For example, volume on the weekly chart has been on a steady downtrend throughout the reprieve period, indicating that the rally from early October 2011 still displays characteristics consistent with the right shoulder in the larger head and shoulders top.

Here is the weekly chart of the DJIA, which is showing that volume has been falling as the market rallied:




The reprieve period could stretch out for a few more weeks, possibly going into early February 2012. Here is a chart of the last part of Minor wave 2 up with Minuette wave (c) of Minute wave [y] of Minor wave 2 up in focus:


The projected upside target is 12825. The DJIA is going to get very close to hitting the May 2011 high, but is expected to ultimately fall a hair short of the benchmark. It is important to recognize that the reprieve period is now running on borrowed time. The call for Minor wave 3 down unfolding as a waterfall decline still stands. The longer the rally stretches out with weakening momentum, the more vulnerable the market will be to a sharp decline when the rally is over. A very nasty "bleeder wave" is in the forecast.

Here is a chart showing all of Minor wave 2 up in the DJIA:


Here is a chart of the DJIA / gold ratio:


Notice that the DJIA / gold ratio peaked in late December 2011. This is yet another indication that the current rally is on borrowed time. When markets rise in nominal terms, but not in terms of real money, the rally is on borrowed time. In a bull market, the stock market rallies in both nominal terms and in terms of real money. The bear market rally from the March 2009 low lasted until May 2011 in nominal terms, but peaked in October 2009 in terms of real money (DJIA / gold). In August 2011, the DJIA breached the March 2009 low in terms of real money, but stayed above the July 2010 low in nominal terms.

The reprieve period should stretch out for a few more weeks. As the last of the current rally from the October 2011 low unfolds, the market internals will continue to weaken, which will ultimately make the markets vulnerable to a sharp decline once the rally exhausts itself. Just before the peak is reached, the last of the bears will almost certainly capitulate and give up -- even the bears that held firm in their bearish outlook in May 2011 will face a very strong temptation to throw in the towel and give up. If there is ever a time for bears to capitulate, it is now.

Tuesday, January 17, 2012

European Debt Contagion Infecting the Core

The European sovereign debt crisis continues to unfold with the contagion starting to affect even the core European Union nations. The GDP of the European Union is now falling again even in nominal terms. Several days ago, the latest GDP numbers for Germany were released, showing that the nation's GDP declined even in nominal terms, along with Spain, Slovenia, and the UK.  The European Union is also bleeding jobs again with rapidly rising unemployment in most of the peripheral nations in Europe, as well as a decline in manufacturing and factory orders even in Germany.

In the latest series of developments, Standard and Poors downgraded the credit rating of France and eight other European nations. A short time later, the Euro Zone bailout fund was downgraded from AAA to AA+. This is a very clear indication that the sovereign debt crisis in Europe is now infecting the core European Union nations.

Portugal is now following Greece on the road to an eventual default on its debt after having its credit rating downgraded to junk status by all three credit rating agencies, with Spain following close behind. Even as a Greek default looms in the intermediate-term horizon, economists and analysts remain steadfast on their optimistic outlook on the European economy, most dramatically demonstrated by the interview involving the Greek Prime Minister on CNBC.

There are a number of other developments in Europe showing the effects of a spreading debt contagion with even the core nations affected:

1 -- The latest poll is showing that 65% of people in Italy have an unfavorable view of the euro with a substantial portion of the population preferring a return to the lira. This underscores a social trend associated with bear markets, namely the tendency for people to identify with smaller social units.

2 -- The austerity trend in Europe is unfolding in full force even in France and Germany as their governments move to tighten their belts with higher taxes and spending cuts. The social trend of increasing conservatism has continued to increase in Europe, with Greece and Portugal the first nations to implement austerity measures (as they were the first to be affected by the debt crisis) with Spain, Ireland, and Italy following suit. This underscores another bear market trait, namely, increasing conservatism as bearish social mood increases.

3 -- Europe's $39 trillion pension bomb is on the verge of going critical, if it hasn't done so already.

In the western world, the effects of "The Great Deflation" are stronger in Europe than they are in the United States and Canada. In many ways, the developments in the western world are a parallel of the 1930s when Germany defaulting on its debt in 1930 marked the beginning of the third phase of the Great Depression. We are on that path again, and at the present time, the United States is the only developed nation on the planet that is still creating jobs. As with the 1930s, Europe is poised to lead the way into the heart of the abyss with the United States and Canada following suit a few weeks to a few months later as the worst part of "the Great Deflation" unfolds.

Social mood is also deteriorating faster in Europe than it is in the United States as the updated charts of the DAX, FTSE, and the CAC-40 illustrate. The DJIA and the S&P 500 have exceeded the late October 2011 highs, but the DAX, CAC-40, and the FTSE are still below the October 2011 highs, setting up an intra-market bearish divergence.

FTSE:



CAC-40:


DAX:


Social mood in France and Germany has been deteriorating faster than expected -- both indexes are tracing out a truncated C wave within a zigzag in the form of an ending diagonal. If the wave counts for the DAX and CAC-40 are correct, it is a very bearish development as C waves within zigzags almost never truncate, and it is a harbinger of a third wave unfolding as a very fast decline. This is something to really keep an eye on in light of all the economic and political events unfolding in Europe.

Wednesday, January 11, 2012

A Tale of Two Movements

As the peaking process of Minor wave 2 up continues (Minor wave 3 down is either under way now or it will be very shortly), it has become obvious that Occupy Wall Street has indeed followed the same pattern as the Tea Party. The Tea Party - Occupy Wall Street parallel is only obvious when it is looked at from the perspective of the socionomic model.

Both the Tea Party and Occupy Wall Street were motivated by anger. The Tea Party was motivated by anger over taxes, Occupy Wall Street was motivated by anger over excessive corporate control over politics and the large gap between the top 1% and the 99%. It is important to realize that anger is one of the signature characteristics of bear markets, which is why mass protests only unfold in bear markets of Cycle degree and above.

Here are charts of the DJIA with significant events for both the Tea Party and Occupy Wall Street:

DJIA with significant Tea Party events labelled:



DJIA with significant Occupy Wall Street events labelled:


Detailed information on Wikipedia can be found for both the Tea Party and Occupy Wall Street. Notice that both movements exhibited identical patterns with social mood being the primary driver of both movements from start to end.

The Tea Party :

1 -- The Tea Party formed during Intermediate wave (5) of Primary wave [1] down.
2 -- Upon inception, Glenn Beck of FOX News was the only journalist providing news coverage of the Tea Party protests.
3 -- After forming, the Tea Party rapidly expanded with protests spreading to more and more areas of the United States.
4 -- The Tea Party protests peak just after Primary wave [1] down ended. Virtually everyone in the mainstream media was providing extensive news coverage on the Tea Party with all the journalists convinced that the Tea Party will continue expanding and impact the course of the nation.
5 -- As Intermediate waves (A) and (B) of Primary wave [2] up unfolded, Tea Party protests continued to take place across the nation. The Tea Party was losing steam over time with protests getting smaller as social mood became increasingly bullish.
6 -- Half way through Intermediate wave (C) of Primary wave [2] up, Tea Party protests and rallies stopped, but still had enough juice to win a number of seats in Congress. Christine O'Donnell, Sharron Angle, Joe Miller, Rand Paul and many others won Republican primaries, with some going on to win in November 2010.
7 -- During the last part of Intermediate wave (C), Tea Party protests stopped altogether. By the peak of Primary wave [2] up, the mainstream media became convinced that the Tea Party is a "spent force".

Occupy Wall Street:

1 -- Occupy Wall Street formed during Minute wave [v] of Minor wave 1 down.
2 -- Upon inception, Keith Olbermann of Current was the only journalist providing news coverage of the Occupy Wall Street protests.
3 -- After forming, Occupy Wall Street rapidly expended with protests expanding to more and more areas of the United States (and eventually went global).
4 -- Occupy Wall Street protests peak just after Minor wave 1 down ended. Virtually everyone in the mainstream media was providing news coverage on Occupy Wall Street with people in the mainstream media and even the academic world convinced that the protests will continue to expand and change the course of the nation.
5 -- As Minute waves [w] and [x] of Minor wave 2 up unfolded, Occupy Wall street protests continued to take place across the nation. Occupy Wall Street was losing steam with protests getting smaller and taking place in fewer cities as social mood became increasingly bullish.
6 -- Half way through Minute wave [y] of Minor wave 2 up, Occupy Wall Street protests mostly stopped, but still had enough juice left to block a number of ports on the US west coast on December 12, 2011.
7 -- During the last part of Minute wave [y], Occupy Wall Street protests stopped altogether. By the peak of Minor wave 2 up, New York City authorities became convinced that Occupy Wall street is a "spent force" as the barricades blocking Zircotti Park were removed.


Here are the Google Trends charts for both the Tea Party and Occupy Wall Street:

Tea Party :


Occupy Wall Street:


Notice that the Tea Party and Occupy Wall Street exhibit nearly identical patterns, which tell of waning interest as social mood became increasingly bullish over time.

As Minor wave 3 down is either in progress now or will be very shortly, both of the movements should be re-ignited shortly after the "Panic of 2012" takes place as the center of Minor wave 3 down is reached.


Wednesday, January 4, 2012

Social Trends For 2012

With the arrival of the new year comes an extremely optimistic outlook that comes with the topping process associated with Minor wave 2 up with Minor wave 3 down just around the corner. As expected (back in late September 2011), market analysts are invoking the "January Effect" as a reason to be bullish for the new year.

We are expected to go through increasingly hard times in 2012 as "The Great Deflation" starts unfolding in full force, bringing about social trends associated with an increasingly bearish social mood. Here are some social trends expected to unfold in 2012:

1 -- The trend of increasing authoritarianism is expected to accelerate in 2012. Many governments throughout the world increased their control over their own people in 2011. Even in the United States, there was a rapid rise in state level authoritarianism with people such as Wisconsin Gov. Scott Walker, Michigan Gov. Rick Snyder, Ohio Gov. John Kasich, Florida Gov. Rick Scott, and New Jersey Gov. Chris Christie leading the charge with laws aimed at union busting, voter suppression, curbs to immigration, and curbs to abortion. Look for this trend to continue in 2012 with even more state and national governments increasing their control over people.

2 -- Increasing strife and discord in the political arena throughout the western world in 2012 -- expect more political gridlock with government shutdowns in the United States lasting several months and individual nations within the European Union continuing to throw a monkey wrench into attempts by the European Union to prop up their economic infrastructure with some nations refusing to accept money from the IMF and the European Central Bank.

3 -- "The Panic of 2012" -- A panic is expected to unfold in March / April 2012 upon reaching the center of Minor wave 3 down as an Intermediate degree "point of recognition" is reached. The point of recognition is expected to trigger limited bank runs throughout the western world with up to 5% of the population attempting to pull their money out of the banks. There is a substantial chance that the bank run could result in governments declaring a bank holiday in one or more nations throughout the western world.

4 -- TARP 2 -- The center of Minor wave 3 down is expected to be characterized by another financial meltdown as AIG, Freddie Mac, Fannie Mae and many banks start imploding in large numbers. The Obama Administration is expected to respond to the crisis by launching TARP 2 to bail out the banks. As with the original, TARP 2 will get bi-partisan support and get pushed through Congress very quickly. Many of the "too big to fail" banks have already been hit with numerous downgrades from Moody's, Standard and Poors, and Fitch last year, indicating that the banks are in worse shape now than they were in 2008.

5 -- Stocks, commodities, the economy, and the job market are expected to rapidly decline throughout the western world in 2012 as the larger bear market trend regains the upper hand early in the year with around 7 million people losing their jobs in the United States alone for the year.

6 -- Social unrest is expected to increase in 2012 throughout the world with the Middle East and the peripheral European nations leading the way. There is ongoing social unrest in Syria, Russia, Greece, Spain, Libya, and Egypt.

7 -- Phase 2 of Occupy Wall Street -- the second phase of Occupy Wall Street is expected to start shortly after the "Panic of 2012" occurs with people expected to take to the streets again after TARP 2 is launched to bail out the banks. The protests are expected to slowly increase in number and extent until the center of Minor wave 5 of Intermediate wave (1) down is reached (around August 2012) which will then bring about a rapid increase in people taking to the streets throughout the western world with around 300,000 people taking to the streets in the United States alone by October 2012. The OWS protests will be met with an increasingly repressive response from law enforcement with tear gas, water cannons, rubber bullets, and even LRADs extensively used on peaceful protesters. There are already signs that governments are preparing for the second phase of Occupy Wall Street with President Obama recently signing the NDAA into law, allowing for indefinite detention of US citizens without a trial or charge, the government of Argentina adopting a wide definition of terrorism, allowing prison terms of 15 years for protesters, and the city of London police within the UK declaring Occupy Wall Street to be a terrorist organization.

8 -- Christians are expected to continue the trend of embracing the doctrine that the world is coming to an end on December 21, 2012, the alleged end of the Mayan calendar. As social mood becomes increasingly bearish, Christians will become increasingly assertive about the so-called end of the world with increasingly dark themes. Many Christians have already jumped on the bandwagon.


We will face increasingly hard times in 2012. However, the world will not come to an end on December 21, 2012. There is a large difference between hard times and end times. The world will still be around in 2013 in spite of all the people calling for the end of the world this year.