Wednesday, October 31, 2012

Frankenstorm, the Next Harbinger of Climate Change

All eyes have been focused on this year's 100 year storm known as Hurricane Sandy, which peaked at Category 2 strength before making landfall in New Jersey with 80 mph winds. The hurricane has been labelled as "Frankenstorm" by a number of people, seeing the storm as a product of warmer than usual water off the Atlantic coast and man-made global warming that is just now starting to take effect.

The hurricane has already moved inland and the damage from the storm is only just now starting to become apparent. In many areas, the damage is one for the record books:

1 -- The storm left 8.6 million people without power, mostly in New Jersey and New York.

2 -- New York City went dark with the lights out in Manhattan as storm surges reach a record 13.88 feet with many downtown streets flooded before receding.

3 -- Gasoline shortages have come up in New Jersey in the aftermath of the storm.

4 -- Property damage is already estimated to be $20 billion or more with more surveying of the aftermath still taking place. The numbers could be much higher, in the order of $50 billion, once the dust settles. This would make Hurricane Sandy one of the most expensive natural disasters in US history.

5 -- The NYSE and Nasdaq exchanges were closed for 2 days, the first 2 day closure due to weather since 1888. Trading resumed today with markets mostly trading in a narrow range.

The storm was over 1000 miles in diameter at its peak with hurricane force winds as far as 175 miles from the center and tropical force winds as far as 500 miles from the center. Some areas in West Virginia received up to 3 feet of snow, Maryland was hit by a massive blizzard and even the Great Lakes area was affected with winds as high as 60 mph in Chicago with waves over 30 feet high. This is the second year in a row that the northern Atlantic coast was hit with hurricane force winds (see this post about Hurricane Irene and its aftermath last year). Before Hurricane Irene, one would have to go all the way back to 1954 to find a comparable event, when Hurricane Hazel struck the same region of the Atlantic coast. Going even farther back, no comparable event is found until 1888, when the Great Blizzard of 1888 struck.

Having the same area hit by a 100 year storm 2 years in a row can only be due to the effects of man made climate change that is now starting to kick in as a result of the abuse of fossil fuels that has been taking place for many decades. Even with the evidence mounting that man made global warming is for real, there is still evidence that people in the political, business, and corporate world are still in denial (and will be for many more decades):

1 -- The Obama Administration continues pushing forward with the construction of the Keystone XL pipeline, with many protesters arrested. The arrest of people protesting the Keystone XL project was taken to the next level with the arrest of Green Party presidential candidate Jill Stein, who has been critical of both Obama and Romney on energy policy.

2 -- Lobbyists for the coal industry go on a massive ad buying spree advertising the benefits of coal exports with much of the coal slated to enter Chinese markets. The result is greenhouse gases pumped into the atmosphere at an accelerated clip.

3 -- The mainstream media continues to be in denial over the reality of man made climate change, as climate change is not even brought up at all even as news coverage on the storm and its aftermath continue around the clock. The same is true with newspaper coverage in which there is a lot of coverage on the storm, but no mention of climate change.

4 -- Oil companies are in full denial over the reality of climate change as evidenced by an oil capacity construction boom in which efforts are under way to increase oil production capacity to 110 million barrels a day by 2020. The increased oil production capacity is projected to raise the planet's average temperature by as much as 8 degrees Celsius.

 During bull markets (when social mood is trending positive), governments have no problem coming up with the money to rebuild in the aftermath of disaster and helping affected communities get back on their feet. It is another matter when a long term bear market is unfolding. During long term bear markets, governments are constrained by budget cuts, tax revenue drying up, and the general mindset that comes with negative social mood, namely, limits and conservation. It is especially the case when a deflationary collapse is unfolding in full force. We are already getting a taste of the implications of trying to rebuild communities affected by natural disaster during a long term bear market.

Last year, in the aftermath of Hurricane Irene, Rep. Ron Paul was quoted as saying "there is no magic with FEMA" and House Rep. Eric Cantor wanted the cost of disaster relief to be offset with cuts elsewhere. At that point, I had made a forecast concerning FEMA:

It would not at all be farfetched if FEMA were abolished altogether in 2017 during the Bachmann Administration Period under the pretense of balancing the budget.

There is already evidence that this forecast is on track to being fulfilled in 2017. Mitt Romney is now on record for wanting to cut FEMA out of federal spending, sending the responsibility of disaster relief to the states, under the pretense of balancing the budget, having made the plan known during a GOP Primary debate. Mitt Romney labelled spending on disaster relief as "immoral" during the debate, saying that deficit reduction and debt reduction have higher priority. Austerity measures that are set to kick in due to the "fiscal cliff" will also compromise FEMA's ability to respond to natural disasters with a loss of $878 million in annual funding in the pipeline.

The ability of government to respond to natural disasters is an issue that people should be thinking about, considering that one of the implications of "The Great Deflation" is budget cuts at all levels of government. In particular, if a major hurricane were to strike a populated area during the third phase of "The Great Deflation" (Cycle wave y down (2021 - 2042) of Supercycle wave (a) down (2000 - 2042)), the affected areas will very likely be on their own with power remaining shut down for a number of years and rebuilding efforts in the affected areas delayed for years (if not a decade or more) due to austerity measures in play during that time.

On the longer term, Hurricane Sandy is a harbinger of the effects of climate change that will play out during "The Great Tribulation" (Supercycle wave (c) down (2076 - 2118)). The worst of man made global warming is very likely to unfold during that time, possibly with the Atlantic coast hit with hurricanes of Category 5+ on an annual basis. There is already recognition among scientists that man made global warming is for real. It will be a very long time before people in the political, business, and corporate world, along with the mainstream media, finally come to a recognition that man made global warming is for real -- that point should occur when the center of Cycle wave I down (2076 - 2082) of Supercycle wave (c) down (2076 - 2118) is reached and result in the "Global Warming Panic". By then, the full force of the effects of climate change will already be playing out throughout the world.

Sunday, October 28, 2012

Four More Years of Obama

With all three of the presidential debates completed, the election is looking to be a close contest. The closest parallel to the 2012 presidential election is the 2004 presidential election, in which the incumbent of that time, Bush 43, won a second term by a narrow margin.

From the perspective of social mood, bear markets normally result in incumbents getting thrown out of office by a landslide, as was the case with Herbert Hoover in the 1932 presidential election at the low of Supercycle wave (IV) down and Martin Van Buren in 1840 during Supercycle wave (II) down (1835 - 1859).

The 2012 presidential election, however, is taking place in a mixed mood environment, resulting from a very large bear market rally off the March 2009 low. It was the same way in the 2004 presidential election as well, with a 5 year bear market rally, Primary wave [B] up (2002 - 2007) of Cycle wave w down (2000 - 2009) with a mixed mood environment in play.

In a mixed mood environment, the candidate with the best ground game and the highest level of organizational strength will be the one that wins. George W. Bush (Bush 43) won a second term by a narrow margin in 2004. Bush 43 had a stronger ground game than John Kerry did due in part to the Koch-ALEC cabal and the organization of the religious right. In the current presidential election, President Obama is on course to win a second term by a narrow margin. Unlike the 2008 election in which Obama rode a massive wave of voter anger (from the "Panic of 2008") all the way to the White House, the 2012 election will prove to be much harder and will take a great amount of effort to win. President Obama's superior organizational strength is what will allow him to win a second term in the midst of a mixed mood environment.

The bear market rally off the March 2009 low appears to be incomplete and needs one more five wave rally to complete the structure. The rally should unfold through election day and peak about a third of the way into November 2012, as the chart below illustrates:

The chart above shows Minor wave 5 of the 2 year bearish rising wedge, Intermediate wave (C), that started in June 2010. Minor wave 5 is unfolding as a triple zigzag with the last part of the third zigzag still to come. The upside target is 1484 for the S&P 500 and 13750 for the DJIA.

In the midst of the mixed mood environment are undercurrents of bearish social mood, which is most clearly seen in the DJIA / gold ratio. As the chart below shows, the DJIA in terms of real money is in a very clear down-trend with a series of lower lows and lower highs throughout the Obama Administration Period so far:

The decline in the DJIA / gold ratio also explains why Obama's approval rating displayed a long term down-trend. In addition, the most recent polls are painting a mixed picture, with some polls putting Obama ahead and some putting Romney ahead.

Intrade is currently projecting a 62% chance that Obama will win a second term, although some such as Nate Silver is currently projecting a 73% chance that Obama will win. It will be a close election, with Mitt Romney reaching 250+ electoral votes (it could possibly go as high as 260), but California, Oregon, and Washington will put Obama over the 270 electoral votes needed to win once voting is completed in those three states.

The last two cases of a president winning a second term during a bear market rally was Bush 43 in the 2004 election and Richard Nixon winning a second term in 1972 with the mixed mood environment in play as a result of Primary wave [D] up of a Cycle degree triangle, Cycle wave IV (1966 - 1974). Obama is on course to win a second term on November 6, 2012.

It is perhaps instructive to look back and realize that both Bush 43 and Nixon declined in popularity during their second term. Bush 43 saw his approval rating plunge to 25% in the wake of the "Panic of 2008" and Richard Nixon was pressured out of office less than 2 years later due to scandal. If the forecast for a Primary degree decline from 2012 to 2016 is correct, than Obama will face the same fate as Bush 43 with social mood becoming increasingly bearish, culminating in a wave of voter anger that makes conditions ripe for someone like Michele Bachmann or Paul Ryan to rise to power as the next president of the United States in the 2016 election.

President Obama's approval rating will likely plunge soon after the elections taking place. In the midst of all the talk about a "fiscal cliff" in economic policy that has been dubbed "Taxmageddon" and is set to be reached in January 2013, there is another cliff that we are approaching, and that is the end of a 2 year rising bearish wedge in the DJIA, S&P 500, and the Wilshire 5000. The resolution of the wedge pattern is expected to be relatively swift with the full retracement of the wedge expected to be completed in June 2013.

Here is a chart of the wedge and the drop-off that follows:

Labelled on the chart is President Obama's approval rating at important junctures. At the May 2011 high, when the DJIA reached 12876, President Obama's approval rating briefly reached 61% in the aftermath of the assassination of Osama bin Laden. Just 5 months later, at the low of Minor wave 2 down within the larger wedge, the United States was downgraded by Standard and Poors from AAA to AA+, and Obama's approval rating reached a low of 38%. As the peak of the bear market rally approaches, Obama's approval rating has only partially rebounded from the October 2011 low and is currently at 48%.

The expectation is for Obama's approval rating to take a massive plunge downward as the retracement of the rising bearish wedge unfolds. The forecast is for Obama's approval rating to fall to a low of 28% to 32% by June 2013. The sudden decline in social mood starting in mid November 2012 points to a scenario where there is no resolution on the "fiscal cliff" at all due to strife and discord between Obama, John Boehner, Harry Reid, and Mitch McConnell, which could result in another downgrade on the credit rating of the United States.