Face The Music Videos

From the last Great Depression, we bring you an updated Pennies From Heaven (courtesy SlopeofHope). To top it off, from the last Great Recession (the '70s) here is Bohemian Bankruptcy.  Enjoy.

 

Comments

[Hockthefarm]

Yelnick:

Wow, Bohemian Bankrupcy....excellent job! Leave it to the Brits.

Got me all nostalgic. Here is the original that it was spoofed from:

http://tinyurl.com/7xtwk8

Thanks,
H

[cloudslicer]

I was looking at the inflation adjusted dow this weekend. I think you had mentioned that you are using this for your long wave count:

http://www.crossingwallstreet.com/archives/2009/03/43_years_of_no.html

This chart is based on the 'official' CPI which we know to be questionable at best. Even with this generous inflation indicator we almost had a wave overlap on March 9, 2009. Using alternative CPI measurements we should have overlapped the wave from 1996.

This opens the door to question a basic assumption regarding the Grand Super Cycle wave. What if it is not an impulse? We just assume that it is either a 1,3 or 5. If we look at human institutions of the past thinking the stock market will last forever is a fatally flawed assumption. Governments, religions, institutions have a life cycle. They eventually die and are replaced by something (hopefully) better. In this case the stock market while a great human invention is far from perfect.

So what if the Grand Super Cycle is a B wave, then it goes into a terminal wave C down to zero.

Of course this is just a rant. But the inflation adjusted dow makes one consider that all the stock market is a gigantic sine wave with no real trend.

[cloudslicer]

I made a typo: "we should have overlapped the wave from 1996" it should have been 1966 not 1996.

[rzero]

Deflation measured in dollars is not in the cards. Asset deflation, fundamentally, does not cause cpi deflation. The two can occur at the same time, but asset deflation and cpi inflation can also occur at the same time. Which scenario occurs depends on how trade imbalances have build up over the long term, and secondarily how the central bank reacts to the crisis. When the US cycle of trade deficits funded by asset inflation comes to and end (which it will), it will cause strong downward pressure on the dollar, driving up commodity prices and cpi, and very possibly nominal prices of assets, excluding bonds. The amount the Fed will have to raise interest rates to prevent this from happening may be beyond possibility, for political and practical reasons.

[yelnick]

Cloud, a very good question. The rise from 1784-1966 could be a wave I. It can count in 5 waves. Use 1929 as the end of 3 and 1949 as the end of 4, a triangle. Then since 1966 we are in a big irregular flat, with A a double zigzag to 1982, B a huge "3" that counts A to 1987, B to 1994 (a rising triangle), and C to 2000.  

Neely counts the period from 1859-1929 as a wave II, a corrective pattern even though it is upwards sloping. I suppose one could also construct an upwards sloping corrective pattern since 1949, 1942 or 1932; and maybe a lot farther back.

Where I think a lot of this speculation gets off track is that at a Millennial level, we can see the following pattern:

Rise of classical civilization from 500 BC to 500AD = big ICollapse into the Dark Ages until the Renaissance = big IIRise in the Age of Discovery = 1 of big IIILong war betwixt France and England = 2 of big IIIIndustrial Revolution & USA = 3 of big III

Hard to view the Industrial Revolution as anything but a huge Impulse wave across all of society. It is clearly not finished, as over half the Planet needs to come on board (via globalization).  In this light the BRIC nations are a great achievement, extending the glories of the first wave countries (Europe out of the Renaissance) to half the world. Maybe after that we have a big war with Islam, much worse than now; and out of that we either fall or they join Industrial Society and leave their somewhat Medieval views behind. Perhaps that transition is wave 4 of III, and them joining or not is wave 5. 

The implication of this observation is we have more to go in wave 3 of big III, the industrialization of the world. 

In a smaller time frame, the Constant-Dollar Dow shows us that we have not made much progress since the 1920s, maybe a double at best. Most of the shallowness of the growth comes from after the Great Inflation from 1966-1982. The move off gold had the result of a more rapid debasement of the USD, and a lot of the wealth is therefore a monetary illusion. Hence a view that 1966-2007 is really a corrective wave captures that.

At the same time, we have made huge progress across many fronts since 1966, not just in the Euro/US realm, but across great swaths of the world. I think what nags at the back of the mind is how much of the last 25 years has been the US cashing in on the huge wealth advantage from the 1949-1966 period? In other words, once into a fiat currency, we have used seniorage privilege to borrow more than we earn. At a simple level, the "wealth" of a nation is in its productive (earnings) power. Borrowing ahead of it, and putting that excess into non-liquidating debt (ie debt that does not earn back its cost via productive activities), is cashing in on the past.

I put to you that most of the excess just happened in the past decade. Once Greenspan began the reflation in 2003, debt in Dollar terms doubled from $25T to $52T, while GDP (cumulative) only grew about $10T. That $17T or so excess is what we cashed in from the past, and either we have to earn our way out of it or write it off. Instead, we seem committed to trying to borrow our way out of the mess. 

Bernanke can kick the can a little further down the road - Greenspan kicked it for 20 years - but at some point we hit the Day of Reckoning. On my site I give a metric for estimating when that happens - when each additional Dollar borrowed causes no increase in GDP at all. Japan seems to have past that point, They may be unable to earn their way out of the debt they have incurred. We may have until 2014-2017 before this happens to us. Not that far away,

After that we will need to readjust to live within our earnings power. 

And once we figure how to do that, the seeds of the next Impulse up will have been sown.

This is why I call the period from 2000 - 2014/17 a wave 4 with a pretty rip roarin' 5 to follow.  And why the count should be:

depression ended in 1949wave 1 up to 1966wave 2 down to 1982 (the Great Inflation)wave 3 up to 2000 (the Great Moderation)wave 4 from 2000 to somewhere between 2011 and 2020wave 5 to follow up into 2027-2036 (depending when it starts)

[Gustavo]

AAaaaaahhhhhhhh!!!!!!!!!!jajajajajaja!!!
Thank you!!!!!!!!!!!!!

[cloudslicer]

Yelnick,

Thanks for your comments. I am interested to see just how powerful this dollar carry trade truly is. This is one of those bizarre situations were up is actually bearish and down is bullish for the markets longer term. If the carry trade bubble is allowed to gain teeth you can label 03/09 as count complete for wave 4 and we are now in a blow off top wave for the 5th.

Of course, the consequences of this carry trade bubble will be catastrophic. That is why I think C5 up is more bearish than even P3 down.