Saturday, December 13th, 2008.
‘C’ the three minute trailer:
It was Jules Verne who wrote “Twenty Thousand Leagues Under the Sea,” which inspired Irwin Allen’s “Voyage to the Bottom of the Sea,” for which I unabashedly spoof. However, this is no laughing matter and we’re not talking about the bottom of the ocean here, we’re talking about the ocean that is our economy and our markets. You don’t want to be at the bottom of the saltwater sea (improperly equipped), and once you know what’s coming, you won’t want to be at the bottom of the market ‘C’, either.
According to Elliot Wave theory, bear markets unfold in an A-B-C manner. Wave A goes down, wave B goes up/sideways, and then wave C declines into the eventual bottom. Do I need to draw a picture with my crayon? Okay, it’s worth knowing because every bear market in the history of the United States has unfolded in such a manner.
A very basic picture of Elliott Wave structure:
Each wave is made up of progressively smaller waves that can be counted in a similar manner. I would contend that not only do bear markets unfold in this manner, but the backsides of all parabolic curves unfold in a similar manner. Thus, we are all on a voyage to the bottom of the ‘C’. This voyage is a fantasy spectacular, invented by central bankers who turned THEIR game of money into OUR voyage. The game is being played by children, but it has gotten WAY, WAY out of hand.
In my house, when the children’s play gets out of hand, I go over and end the game. That’s what ADULTS do, especially if the children are playing with matches that threaten to burn the house down.
In my latest Cut the Crap article, “When the Math No Longer Works…,” which can be found here; http://economicedge.blogspot.com/2008/12/when-math-no-longer-works.html, I bring in several true experts’ opinions on where we are in the progress of this bear market. They all agree that wave A has either just completed or is near completion and that we have entered “the eye of the storm,” wave B. That means that wave C follows. They also agree that the REAL DAMAGE of a bear market is done in wave C, not in wave A. They contend that this wave is of a “grand supercycle degree.” That’s of the highest degree, a higher degree than the wave that created The Great Depression. They conclude that the damage is going “to change the world as we know it.”
Just look at the devastation found in wave A already: The entire investment banking industry wiped out, the automobile industry in ruins, hundreds of thousands unemployed, trillions lost in the real estate and stock markets, retirements in ruin, and people’s futures in question. While I write in fun and provided a pretty Elliott wave diagram, it does not reflect the devastation on REAL PEOPLE and their lives. If wave A can do all this, think about the real consequences of arriving at the bottom of the ‘C’.
My own research shows that similar credit contractions that are on the next LOWER DEGREE take approximately two and a half years to run their course in the equity markets as seen by the length of time from the top to the bottom during the Great Depression, the crash of the Nikkei index in Japan beginning in 1990, and the crash of our own NASDAQ in the year 2000. This voyage’s Wave A began in October 2007 and ended this November, slightly more than a year. The experts believe Wave B should last two to four months, then comes Wave C. If symmetry prevails, Wave C will be of similar duration to wave A. That puts the bottom of C right in the same 2.5 year relationship which would be approximately April, 2010.
And that’s just equities. Real estate will take longer, and remember that this is a grand supercycle correction that may take longer still. The children are debating weather this voyage ends in a “V”, a “U”, or an “L” shaped bottom. Yes, we can HOPE for a “V”, but my opinion is that IF the game continues in its present form, the best we can hope for is an “L” whose bottom is measured in years, if not decades.
Now, if you are a “child,” this probably doesn’t concern you, ignore it. It’s just doom & gloom talk and serves no useful purpose, right? After all, “dad” has come in and said that he’ll do anything to keep the game going!
Well, from my perspective, the “dad” in reference are all figures who are also living a fantasy. They are all children playing a game while the house is on fire. The smoke detectors are blaring yet NO ONE has yet to get on the phone and dial 9-1-1. Not in the real world anyway.
The real world is where adults understand the rules of math, physics, and economics. In the real world if an adult has a teenager who is spending money on credit without sufficient income, they cut the credit off and tell the teenager to get a job. In the fantasy world, they tell the teenager to spend, spend, spend, and don’t worry, you can work later. And that’s exactly why we’re all on the voyage to the bottom of ‘C’!
Like it, or not, you’re along for the ride. Want it to end? It’s simply, really, if you can think like an adult.
You see, like all games, the game of money was invented by people. People can choose not to play the game. They could also choose to change the rules to the game, OR they might try to invent a different, better, longer lasting game. Those are the choices. Do you see another, or are you a child who believes that this game can continue even though the math says it can’t? Well, sorry, it can’t: http://economicedge.blogspot.com/2008_11_23_archive.html.
Wave B, RIGHT NOW, is the time to have a rational, adult conversation about the game of money. Wave A culminated in FEAR and HIGH EMOTION which is now subsiding. Oh, we’re going there again, but that’s NOT the time to hold discussions. If we wait until the climax of fear to begin REAL DISCUSSIONS about the roots of the problems (the GAME), then the game masters (central bankers) will use that fear and occasion to spring their NEW GAME upon the children. And we all know what kind of decisions EMOTIONAL CHILDREN can make! I contend that any new game presented by central bankers will be similar in manner to the old game in which a piece of every transaction, made in any manner, goes to them.
Why would the PEOPLE want a money system where a piece of the fruits of their labors always goes to the central bankers? Is that what our founders envisioned? I say not: http://economicedge.blogspot.com/2008/12/my-money-tis-to-me-sweet-land-of_02.html. When you and I decide to exchange the fruits of our labors, the money transaction should be neutral. This country’s money BELONGS TO THE PEOPLE, not the central bankers.
Everyone I see is still talking about the trees… The adults want to CUT THE CRAP. They want the bailouts to end and they want transparency forced upon the banks. That’s great, but the reason transparency is not being forced upon the banks is that the MATH NO LONGER WORKS. This act would immediately kill almost all the big banks (and much, much more) as they have leveraged themselves up to the end of the parabolic curve. That’s why the current “adult” conversations are falling upon deaf ears. The politicians belong to the central bankers and our entire nation has become by the corporation, for the corporation. We can no longer talk about the trees in the forest because all the roots are rotten.
The roots are the fundamentals. When I was still flying all over the globe, on occasion a landing didn’t go as perfectly as I would have liked. In such (very, very rare) instances, the customary saying “goodbye” to disembarking passengers would inevitably lead to at least one passenger reminding me that I had forgotten my fundamentals, “Nice landingssssss, Captain!”
That’s when I knew it was time to revisit my “fundamentals.” I taught people how to fly during my entire 26+ year flying career... I have run training and evaluation programs and from that experience I have learned that viewing a mistake is easy, understanding the root cause or the fundamental reason why the mistake was made to begin with is much more difficult. Being a trained accident investigator taught me that identifying the root causes is important so that the accident will not be repeated. In the case of a poor landing, I remind myself to lift my eyes and look dowwwwn the runway, not at the asphalt or concrete rushing up to meet my wheels!
Yes, it is the SOFT LANDING that we all are looking for, yet we now know that was just hope, it did not happen. Thus a return to the fundamentals is warranted.
It is time to have a conversation about beginning a new game – a new voyage. From my perspective, any new game must be by the people for the people. I have some pretty good ideas that will be the focus of my upcoming articles which you will be able to find here: http://economicedge.blogspot.com/
I don’t have all the answers, but I believe that we can assemble enough ADULTS to come up with a workable solution for our collective futures (an “adult,” as used here, is someone who understands the root causes of the problems, can face the problems, and would like to take action to develop a better way forward). If you are an adult who would like to participate in developing the new game, or if you have game changing ideas or can provide help to organize those who do, please contact me at the following email address which was just created for this purpose:
Let’s face facts... The math no longer works; we are on the voyage to the bottom of the ‘C’ and at this point it cannot be stopped. While you are told to spend and spend, our government goes deeper and deeper into debt. The actions of piling more debt upon debt actually speeds the destruction, the exact opposite result you are told to expect.
At the bottom of ‘C’ is an opportunity for change. That change can be dictated by the central bankers or it can come from the people, you and me. The central bankers are making up new rules to the game now – while the children play. It’s time to Cut the Crap! Ignore what’s coming if you like, or you can ask yourself, “When will you care to take action… at the bottom of the ‘C’?”