Tuesday, November 08, 2011

Update On The Morgan Stanley Cyclical Index - Could Equity Prices Return To 1982 Levels?

2011-10-17_1034

Over the last month or so global financial markets have attempted to stabilize.   Hedge funds and proprietary trading desks at financial institutions have again taken on massive leverage, China reported an uptick in growth (possibly short-lived with the release of more recent data), Europe has solved their problems at least three or four times in the last few months and all is good with the world again. 

Back six years ago when I first started this blog, I wrote that we were headed for an alignment of economic waves that could lead to substantial devastation.  And that all of the global wealth that has been created in the last decade could easily be wiped away; a position that I don’t think anyone else considered at the time.  This was when the global economy was stronger than it had ever been.  Ever.  And those who perceived there was a problem were focused on a subprime U.S. housing bubble.   So much for subprime.  And so much for a housing bubble.  This is neither and now those who think with their eyes are finally realizing it.   But because they think with their eyes, many will be as wrong again as they were six years ago.  

This is the end of times for the economic and financial idols that are worshipped as pillars of gold today.    We shall find out soon enough they are nothing more than pillars of salt.  That doesn’t have to translate into endless suffering or decades of high unemployment or cuts in much-needed social programs or austerity to protect the banking gangsters, elites and their bought-and-paid-for political toadies.  But, if the status quo and linear thinkers get their way, that is exactly what will happen.   The good news is that assuredly ain’t gonna happen.  All of those linear thinkers are now being met with endless unexpected possibilities in their quantitative models as volatility in countless forms takes shape around the globe.  Volatility we uniquely said was going to happen when world leaders, lawyers, lobbyists and banking criminals were busy admiring the Frankenstein they had created.

Since we don’t know how much longer Morgan Stanley is going to be around to calculate the Morgan Stanley Cyclical Index, or CYC,  let’s take a another look at the index.   (By the way, Morgan Stanley isn’t just exposed to Europe’s mess.  There are countless examples of its systemic incompetenceAnother is this incredibly asinine account.  Remember, we have consistently said we are heading for an agriculture bust as well.  The fact that hedge funds and banks are speculating in and even buying massive amounts of farm land at bubble prices is consistent with our theme that the investor class losing all of their marbles and eventually all of their money.)  

Anyway, to remove some of the short term bias of our last look at the CYC, let’s take a longer term look going back to the start of the multi-decade bull market that started in 1982.   And, at some point in time, we’ll open the aperture further with an even longer view.  One that has the potential to be even more disturbing for what is yet to come.  

We can see from the rising red trend line that essentially the CYC stayed above that trend since Reagan’s war-state and trickle-down economics-initiated bull market started in 1982.  The index threatened to break that trend line in the post 2000 equity market collapse (another Wall Street con game) but recovered to make a new blow-off high.  The index then completely imploding in the 2008-2009 collapse by decisively breaking a three decade-old trend line.  Not good news for trend traders. (rearview mirror analysis or linear thinking)

The index made a massive Federal Reserve-stoked rally over the last few years to challenge its 2008 pre-collapse high.   We see the index also flirted with breaking back above the thirty year trend line in both 2010 and then again in 2011.  It ultimately failed and has fallen substantially below that trend line in the past few months.  In other words, this trend line once acted as price support for nearly thirty years and is now acting as price resistance.   This is consistent with fundamentals that have also fallen well below thirty year trends and are also reflecting a more ominous and new economic reality.  That is, there is no return to trend and rearview mirror economics no longer works.

Before the 2008 collapse we talked about the 1995 price pivot a handful of times on here.  I never explained what the significance of that date was but it provided our downside target for equities.   During the latter stages of the crash, we amended that downside target even lower to include a downside range of 200-450 on the S&P 500.   As we wrote at the time of that amendment, we said the downside overshoot we were now factoring in to new price targets was an attempt to create a fudge factor for the new messes that politicians and corporate leaders were creating by propping up a failed and corrupt economic model.  2008 was likely their last opportunity to fix this mess and all they have done is make it worse.  But much of that worse for the rest of the world rather than worse for the United States.  Remember, another position we have uniquely written about since this blog’s inception is that the rest of the world is going to suffer a much more severe outcome to this crisis.   For those who think with their eyes, that position is now starting to reveal itself to them.  None of the economic crises around he world today caught us off guard.  We wrote of all of them well before they were recognized.    Similarly, it is going to get much worse for emerging markets and BRIC countries as we have said since well before the 2008 collapse.  Much, much worse.  

There is a substantial alignment of fundamental analysis with time analysis that leads to 1995 price pivot being an important date.   I’d have to kill you if I divulged the what and why of this analysis but here is what I will tell you regarding time analysis.   Don’t allow your ego to reject, out of fear or self-delusion, anything you do not understand.  ie, If we cannot confirm it with our senses and the associated image of the world our senses have created, potential knowledge is often dismissed by the deluded mind.  There is obviously a substantial time element to the actions of financial markets, well, and life in general.  This is a factor that humanity simply does not understand.  Time is essentially a hidden variable that science is unable to explain.  Is time linear?  Is it cyclical?  Is it spherical?  Is time’s speed a constant?  Is time repeated on some level?  The reality may be that the only place time is linear or even real is in our mind.  

I have joked on here about the quickening and one of our long term themes on here is volatility.  If time is indeed spherical or nonlinear, ever-increasing volatility and ever-shortening periods between volatility could be explained quite easily using this as a basis.  And, mind you, since the beginning of humanity, we are witnessing ever-increasing volatility and ever-shortening periods between volatility.  You may want to consider the ramifications of nonlinearity or even what the lack of time constancy might mean in terms of volatility and how it ties into our theme of volatility on here.  :)   You don’t expect me to just blurt everything out do you?  The human mind loves being lazy and you might actually have even more refined theories than I do if you put your mind to work. 

Anyway, if you are interested in doing your own research, I most often use time symmetry, the outright removal of time as a variable, some derivation of the Golden Mean and planetary astrology more than any other elements in some attempt to anticipate key future dates.   Obviously, the shorter the time involved, the more esoteric and involved that analysis becomes.    It’s not an easy exercise but it is sometimes possible to achieve some level of artistic and mathematical elegance. 

But before your ego deludes you into thinking you understand the world around you and any such efforts are mumbo jumbo, the concept of time symmetry plays a key role in modern physics and was first documented thousands of years ago, planetary astrology is nothing more than a cyclical representation of extraterrestrial energy impacting life on earth and has contributed substantially to science and the Golden Mean plays a substantial role in defining the universe and it may similarly play a role in the nonlinearity of time.  And, that 1995 pivot that was derived using a fair amount of this voodoo?  (And supported by fundamentals.)  Well, both the Banking Index and the Morgan Stanley Cyclical Index dropped exactly to the 1995 price pivot in the 2008 crash.  Did you see Alan Greenspan, Ben Bernanke or any economists telling you where prices were headed before they actually got there?   I didn’t see anyone else talking about this before the collapse.   Or even after.  Surely not those educated in the halls of Harvard and Yale or other great institutions of “learning”.    Have you yet considered how much of what you believe or learned throughout your life is actually real?

So, back to the CYC chart.   The longer term chart contained in this post shows a potential second downside target beyond the 1995 pivot.  This second downside target is based on the projection of the double top pattern the CYC is now exhibiting.   That downside target just so happens to elegantly align with an entire retracement of the bull market that started in 1982.  In other words, equity markets would give back all gains since 1982 before hitting a bottom.    And when do I expect that to happen?  Well, here we go with the esoteric analysis.  All I do know is that 2013 is a date that I have been watching for a long time.   But then so is 2016, 2022 and a few other dates in between.  In fact, let me throw out a bizarre remark just about now for grins and giggles.    I expect there is a high probably the U.S. will either default on much of its foreign debt or write off much of its debt in 2013.  There is an analysis in that date but all I am sharing is the particular date.  For that to happen, we can likely conclude equity markets won’t be doing too well.  What course is specifically taken with our debt would depend on the political environment of the time; as we have remarked numerous times, default would be an act of belligerence and writing off the debt would involve printing the money necessary to make investors whole.   (Think about our many remarks about China’s coming volatility  written years before anyone else was writing about their coming doom.)   

Now, I don’t believe 1982 prices are where we are going but I also don’t discount it.  I don’t discount it for many reasons.  One, what I believe is irrelevant.  What I believe exists no where else but in my mind and I cannot refute any such possibility with incontrovertible fact, incontrovertible science or incontrovertible reason.  Two, do you remember that incarceration or prison population chart I showed a few months ago?  Do you think it is just a coincidence that it lines up perfectly with Reagan’s supply-side economics chart of spend-your-way-to-prosperity debt-driven-government-spending-binge based on trickle down economics?  ie, The long term U.S. debt data from the Federal Reserve that can find anywhere. 

Remember, Reagan’s war-state, neoliberal, statist deficit-spending dwarfed Obama’s deficit spending by a factor of more than ten.  I didn’t see any Republicans bitching about Reagan.  By the way, Obama is doing a good job of maintaining Reagan’s trickle-down policies so if the Republicans don’t like it, then I guess they need to rewrite their belief system and accept Reagan was one of the worst presidents in our history or Obama is one of the greatest.   Or they need to accept that some of Obama’s proposed spending on infrastructure has merit but will not solve this crisis. (Politicians are at least consistent in their stupidity and corruption regardless of particular ideology or party.)  Three, since 1982 very little economic activity in the United States has created any wealth or is geared toward wealth production.   Instead, most economic activity simply results in shifting wealth from entity A to entity B.  (Mostly from the have-nots to the haves.  Something we would clearly expect with economic policies that embrace Social Darwinism.  ie, Massive elitist and corporate-driven trickle-down corruption.)  Four, if one of our long time theses is that U.S. economic activity peaked around 1980, are you willing to possibly consider that any asset gains since were simply a result of too much money chasing too few assets rather than any fundamental increase in wealth over the last thirty years?  And, therefore, when that scheme of inflating away the debt and assets needed to keep this massively corrupt economic model going no longer yields its desired results, prices will give back all of their gains and return to a level where fundamental supply and demand actually meet in the market?  - Thus refudiating all of the junk science embraced as false idols over the last thirty years?  Would that cause the status quo’s belief system to be entirely expunged from our social, democratic and economic lexicon?   Well, if I am right about 1980 being the peak of economic activity in the U.S., then it is completely plausible to consider many prices may return to those levels without transformational change to our economic model.   Remember, plausible does not mean we will see 1982 prices. 

But if you aren’t willing to at least consider 1980-ish was the peak of economic activity in the U.S., and there are many economic data points to confirm it, then, your mind is in denial.  Denial is simply the ego’s attempt at control.  And control is driven by fear.  And, if this possibility exists, the mind has much to fear.   So, most people will reject it out of hand.  Not because it isn’t possible but because the fear and uncertainty this instills in their mind is too great to consider.

Most Americans are completely broke.  They fight amongst themselves, brother against brother, public servant against private sector, race against race, straight against gay, left against right, religion against religion, for fewer and fewer crumbs left over from the hedonistic self-glorification of neoliberal economics created by a criminal class.    If the squabbling of brother against brother encouraged by our masters could ever be put to rest and replaced by reason and truth, most Americans are not emotionally or financially invested in the current ecosystem.  They have no assets to lose if equity prices or any of the investor class trading schemes did completely collapse.   But those who benefited over the last twenty-plus years have much to lose.  Not just their investments but their positions of authority, their employment and their standing in society.  (The top 1% as determined by wealth are also the largest  ideological buyers of gold; a false safe haven and a false belief system.  They worship a false god or false sense of security that exists only within their mind .)  

There are countless people who were not overtly complicit in the corruption that took place in our society starting with Reagan’s presidency.  But they benefited from this environment nonetheless.  They too have much to lose.  I am one of them.  So, on that note,  is ignorance, narcissism or being consumed with the self over the greater good a viable defense as to why one  may have averted their eyes to the ever-increasing poverty and suffering in this country or around the world?  Suffering caused by corruption?   Didn’t a wise man once say you must lose your life in order to find it?   Must those responsible for this crisis lose everything, including who they are as human beings, to find themselves?  To break the megalomaniacal grip their ego has on their mind? 

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.  -- The United States Constitution

By averting our eyes from the ever increasing pain and suffering of people denied domestic Tranquility,  common defence, general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, did we form a more perfect union?  Have we as a nation acted as our brother’s keeper?  Have we upheld the ideals of our founding?

The ego or the self is the source of all evil in this world.   Evil only exists within the mind.  And what has been glorified and exalted under economic neoliberalism and its effects of Social Darwinism?  The self.  The ego.  The Me.   The arrogance and self-centeredness  of those who created this train wreck with absolutely no boundaries of that egomaniacal self-centeredness and seemingly little, if any, concern for anyone else.   Is it really a surprise that fundamentalism and religion have gained so much over the last few decades?  For every action, there is an equal but opposite reaction.  Could the rise of religious fundamentalism around the world simply be the response of people seeking an escape from the glorification of the self by politicians, corporate leaders and bankers?  A search for meaning and community in an immoral and godless world that exalts the most uncentered acts of an unstable human mind?

In the moment when I am able to subsume the self, I realize I am my brother’s keeper - first community and then individual responsibility for what one is able to share or give within community.   And we all have something to share.  Some through the gift of randomness may have more or less to share than others.   But regardless of our many gifts, we are all equally capable  of sharing one thing.  Selflessness.  Community.    

Talent is God given. Be humble. Fame is man-given. Be grateful. Conceit is self-given. Be careful.   -- John Wooden

See much selflessness in positions of authority within this country?  Corporations? Politicians?  Bankers?  Lobbyists?  Lawyers?  Fundamentalists?  Within the European Union?  Elsewhere?   These are self-granted positions of authority might I add.    There are no positions of authority within a democracy.  There are only positions of public service that the ego of those seeking power have turned into positions of authority for their own  self-service, gluttony and avarice.   Public service is virtuous.  Authority takes what it is not legitimately granted through force; no man ever has a legitimate reason to hold dominion over another human being.   As Mandela, King, Schweitzer and other selfless leaders understand, each man is born free of the control of another human being. 

Karma is really nothing more than a self-correcting or stasis-driven state of consciousness.   It is effectively the dynamic of Newton’s third law – for every action there is an equal but opposite reaction.  Those who are oblivious to the suffering around them, who would go so far as to pretend it doesn’t exist or even support ego-driven policies that create it, will always see the world around them eventually correct against such arrogance, self-centeredness, evil and delusion - karma.   Just something to consider when questioning whether a return to 1982 equity prices is indeed a possibility. 

If you truly loved yourself, you could never hurt another.  -- the Buddha

Truly I say to you, to the extent that you did it to one of these brothers of Mine, even the least of them, you did it to Me. – Jesus of Nazareth

The ego’s perception of the separateness and the subsequent self-glorification of the self is indeed man’s original sin and the foundation of all evil in this world.  Karma truly is a bitch.

posted by TimingLogic at 2:12 PM

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