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« Weekend Bits | Main | Beware Extrapolating from One Data Point »

Sunday, July 25, 2010


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Excellent work Duncan.
You best effort yet!


Why not just cut EVERY line item in the budget by X%? If your program has a budget, it gets cut. Period. No debates or special pleading.

That way, no one can cry that they were unfairly singled out for cuts and they are equally-spread amongst EVERYONE'S pork-barrel spending?


DG, why not a cross the board X% cut? Years ago I did restructuring consulting for major US companies. Simple lesson: you have to take the work out, not the people or costs. If the activity is still being done, costs creep back up. We saw companies which looked like serial dieters: cut costs, then saw them creep up via contractors to an even higher level than before. Hence:
- simply stop certain wars, not scale back
- cut out whole programs, especially in departments like Education
- eradicate Depression era holdovers, like farm subsidies and Fannie/Freddie
- erase corporate giveaways and tax breaks with a vast simplification of the tax code

Besides this program I favor an idea I call The Repeal Acts: simply excise a bunch of bad laws over the past 30 years, such as:
- the repeal of glass-steagall
- sarbanes-oxley
- obamacare
- finreg



Fair enough, but then you have companies that have written into their budgeting rules that departments only get increased funds to cover expenses at a certain level, e.g. by however much last year's revenues grew. Can't meet those constraints? Your fired.

Anyway, that's a private sector solution to the issue. For the public sector, I favor growing the government only in line with GDP growth over time. It does make sense that as the economy grows, the government sector grows with it, but you can't have the government sector growing at greater than the pace of the private sector and expect good things to happen over the long run.

Also, in terms of long-run policies, I like the work of Edward Prescott, who's emphasized the need for rules-based over discretion-based monetary policy. I favor the same for fiscal policy. Give the Barney Franks of the world a small proportion of the overall budget to screw around with (5% ought to do it) but make most of the budgeting process so simple that you plug in a couple of numbers in an Excel spreadsheet and a laptop can spit out the budget allocation for each line item in the Federal government.


Bonnie and Clyde were the real heros of the depression. "We rob banks!"


Quoted from the last article:
"When George Bush took office in 2000 the annual Defense (funny name) Budget was $380 billion. Since that date CPI has increased 25%. On an inflation adjusted basis, the Defense Budget should be $475 billion today. Essentially we are paying an additional $420 billion PER YEAR to fight the phantom WAR ON TERROR. This is nothing but a fraud perpetrated by the neo-cons and now the neo-liberals. My plan is to declare victory in the War on Terror. No one knows what victory means anyway. Withdraw ALL the troops from the Middle East, Germany, Japan and Korea. Let them blow themselves up if they want. Not our problem. Germany, Korea and Japan can pay for their own defense. Tell the Pentagon they have $475 billion to allocate and not a dime more for the next 10 years. SAVINGS = $420 billion"

There is one big bubble I'd like to see popped and that is the Homeland Security Bubble. Let's end the phoney war on terror.

Wave Rust

splendid job sir.

fwi, Rep. Paul Ryan's "Roadmap for America" is on streaming video here:

It would work, imo. But it needs leadership which has yet to emerge.

you said- ""I wonder if FinReg will go down in the revisionist history of the future as the equivalent blunder in its effect to Smoot-Hawley in the 1930s: the tipping point to a disastrous contraction ""
,,,, add your list of 'Repeal Acts' and you have the cumulative effect of an overloaded camel ,,,, now, we await the final straw, which only needs to be announced, by Obama, Reid or Pelosi, that Congress will take up the Cap and Trade proposals after the Labor Day recess. maybe they will wait until after the November election and all the Lame Duck Dems fall on their swords in exchange for a cushy Washington job.

How's that for a tipping point ,,,, just the hint of cap'n trade might be enough. Congress never lets any tax die. It just gets sent back to committee, and later snuck into some sympathy funding bill for widows and orphans/unemployment/war fighter pay, etc.

if the '37 road for the market is followed, it will be much uglier than '37, since stock markets around the globe will follow, at a faster pace and to deeper depths. 'Shiver me timbers' everyday.

wave rust

Wave Rust

dsquare for president ,,,, of the ACLUnacy!

you would match up well with Pres. Woody Wilson and his peace at any cost. "Hitler seems like a nice guy." "bin Laden seems like a nice guy."

yep. perfect match.

not to worry though, dsquare, our guys and gals are over there taking it to your "ghosts-of-terrorist-past". So, sleep well. Unless, of course, you are a terrorist ,,,, then you shouldn't sleep well at all.

wave rust


Wave Rust,
Yeah, Fatherland Security would probably say so. As Bush said: if you're not with us, you're a terrorist! That pretty well includes a whole bunch of people you didn't like Bush's policies. Obviously you do.


What is clear is that the New Deal did not get us out of the Depression. Unemployment was still above 12% in 1937, and got back to 19% in 1938.

Too bad FDR didn't come up with "created or saved" BS stats. He could have said that unemployment would have been 30% without the New Deal.

On the other hand, I think those who want to keep the Bush tax cuts could adopt the same statistical sleight-of-hand and say that the tax cuts "saved or created" such and such a number of jobs during his tenure as President.

Or, everyone could grow up and deal with reality as it it, not as their political ideology would prefer it be.

I'm not holding my breath for the latter option.

Wave Rust


I'll be very concerned that '37 redux is on, if spx and dow do a 78.6 (1170; 10,900 respectively) by august 26th. The rally in '37 looks almost identical to the rally from this year's Feb lows ,,,, this one is starting the same way.

if it does, then the time intervals between then and now will be nearly identical.

06/17/37 intraday low 163.31
08/16/37 intraday high 189.94 41 days

38 days till 26 august 2010. close enough for horseshoes and Patriot missiles.

which reminds me, whatever happened to the vow to repeal that evil Patriot Act? ? ,,, and those evil tax cuts ,,,, Hmmm. I'm sure Barry is busy right now ,,,, probably trying to get a kill switch for the evil internet.

sleep tight, cuz the rally is on and going parabolic, like Patriot missile!!

wave rust


DG, as to stats, lies and governments, the 12% number excludes around 5-6% that were in WPA and other make-work positions. Today we just pay unemployment; then they got some productivity out of them. It turns out that U6 today and the effective rate in 1937 both were running around 17%. Sadly, when it ran to 19% in 1938, the U6 equivalent would have been closer to 25% again, as in 1933.

Now consider this: what did the unemployment rate get down to in 1906 or thereabouts, when we were under a hard gold standard and had absorbed a huge influx if immigrants? Under 1%.

Krugman likes to call the period from 1873-96 as the long depression to somehow compare it to the period from 1929-42, but that period marked the growth of the US faster than China; hardily a depression. We had a downturn in 1873-77 that was called a depression, and because production moved from the mill towns around Boston to the foundries in the midwest, the Eastern press kept wringing their hands over their local conditions, but it was no depression nationally. The 1880s were a huge expansion. That led to a 2d RR bubble, and combined with a monetary blunder (we had a bi-metal standard that mispriced gold and silver, and the crafty Europeans turned in Silver to buy Gold and drained the Treasury) we had the Panic of 1893 and a second depression, the worst until 1933. It was over quickly, as was the 1873 one and the 1837 one.

Point: it seems a normal depression that follows a credit bubble runs hot for about 3-4 years and ends. The oddity of the 1930s is how long it was. The distinguishing feature of the 1930s was how interventionist the US government was. The current-day interventionists need to muddy prior history to avoid being blamed for screwing up the '30s and now the '00s.

Put differently, it may be the 1929-33 depression ran a normal time, and FDR reflated things into 1937 and caused a secondary depression. Similarly the 2000-03 drop ran a normal time but was softened due to massive liquidity and reflation, which caused a second and even bigger bubble about on the same timing (8 years after 2000) that we saw in the '30s (8 years after 1929). The interesting implication is that the economy can heal itself in 3-4 years but the government can create a second bubble if it massively intervenes. We do not know how long it takes to cure the second bubble, since WW2 came around the 4 year mark after 1937.

Sadly, we may find out that the continued attempts at reflation turn a robust and self-healing economy into a terminal patient like Japan.


wave, your math would suggest 1175 by end of August, which fits the Big Tease wave count in level.

BTW I should have added the Patriot Act and other infringements on civil liberties in the Repeal Acts. That list seems to grow with every conversation I have ...


"whatever happened to the vow to repeal that evil Patriot Act?"
Agree, Obama=Bush 3.

Wave Rust

"Sadly, we may find out that the continued attempts at reflation turn a robust and self-healing economy into a terminal patient like Japan."

so obviously true but ignored. Left alone, the economy would be actually recovering instead of preparing to dive into the abyss.

But, we elect idiots. Why should we expect common sense?

wave rust


Yelnick, well researched & well written. Thank you


wave - "The problem with socialism is that eventually you run out of other people's money" - Margaret Thatcher


The SPX gained a lot of ground last week with 330 stocks over the 50 day moving average, a gain of 168 for the week.

Wave Rust

yeah, 1175 is it, but,,, that 1937 79% retrace filled a gap that was opened 6 days after the March '37 high ,,,,

and, (koff koff) the spx 1202 gap and the dow gap at 11,151 (both also opened 6 days after the April high) may get a spike intraday high gap filler.

That would be a 94% retrace for dow. very doable, imo.

TYX should get back to about 3.85 for some cushion for the Fed.

Come to think of it ,,,,,

what the economy really needs is political gridlock for about 3 years of healing. we may just get it this fall.

who would you want to get rid of most: Pelosi or Reid?

for me, it's Pelosi.

Although ,,,, Harry Reid is the genius who came out of the October '08 meeting with Bernanke and Paulson and uttered the now infamous and immortal words, "Nobody knows what to do."

that was the meeting when Paulson got on his knees and begged Pelosi to believe him that the economy was going into the toilet from illiquidity. Congress diddled for weeks and illiquidity became insolvency. TARP was little more than ace bandage after that.

wave rust

words nobody will ever say, "what America and its economy needs is a good community organizer."

Wave Rust

I miss Lady Maggie and her buddy Ron.

they both knew what to do.

wave rust


This week Ron Paul questioned economist Allan Metlzer("Capitalism without failure is like religion without sin. It doesn't work.") re more quantative easing. His response:


Possibly your best post EVER! Fantastic!


A bit off topic but bigger than the Pentagon Papers: the Afghanistan War logs


Great work but this comment threw me off a little:

"We are in effect in a wartime economy in terms of stimulus, without the war. "

Tell that to those kids in Killraq and Afshitnistan - just saying. I concede that those are a walk in the park compared with WW1 or WW2, but still. War profiteering is live and well in the 21st century.

Mr. Panic

Full moon tonight. First full moon following the solar/lunar eclipse combo. The markets topped on the summer solstice on June 21st. July 23 is 90 degrees from April 23 closing high. July 26===April 26 turn date high???? July 26 is also 55 trading days from May 6 flash crash.
The extreme tick readings the last few days indicate that the market is exhausted. Russell 2000 tends to go to extremes in both directions put in one of those classic hockey stick/ horn tops on the 60 min chart and MACD lines are at the upper extreme of its range. Those horn tops appear at every decent turn on the 60min chart going back to the April high.
Plenty more cycles around this time but since ridicule has been directed at these cycles, I'll keep them to myself until well after the fact.

Mr. Panic

Oh I forgot to mention, July 26 is also opening day for the Grand Cardinal Climax with first pitch due around 10-36am PST.


Chanced upon a Fractal in Shanghai.

Take your time to study the two charts. What do you see? Could we be looking at a similar rally?


If this is 1937!

That means one HELL OF A NICE BULL MARKET repeat IS AHEAD!!!

1942-2000 here we come!!!!!!!


Now consider this: what did the unemployment rate get down to in 1906 or thereabouts, when we were under a hard gold standard and had absorbed a huge influx if immigrants? Under 1%.

I think we've discussed this a bit before, but one of the main differences between now and earlier days is that labor is being displaced by capital at a faster rate than labor dies off.

Anyway, my point earlier was that the same "logic" of "created or saved" jobs could be applied as a rationale for keeping the Bush tax cuts. If we hadn't had the tax cuts, unemployment during the Bush years would have been much higher. Ergo, the tax cuts "created or saved" millions of jobs. It's just as valid an argument as the "stimulus".

In fact, I recall that before signing on with the Obama Administration, Christine Romer found that tax cuts had a higher "multiplier" than spending increases in the post-WWII era.

Of course, tax cuts = less bureaucratic control over everyday life, so they don't sound appealing prima facie to those for whom control over everyday life is a primary goal.

I also think there is intellectual hubris involved in not wanting tax cuts to let people "keep more of their own money" because the people keeping their own money won't spend it as wisely as bureaucrats will, so, regardless of whether or not tax cuts will cause the economy to grow faster, they won't cause the economy to grow "wisely" so therefore they are the wrong policy.

What a mess.


You can talk all you want about taxes, socialism, etc,etc, but the fact remains that the super rich people in this country continue to own more and more of the pie, while the middle class drops into the poor category. What made this country great and different from most countries was the huge middle class that owned a majority of the pie. This is changing rapidly and not for the good of this country. Paying Michael, the CEO of Disney, 200 million a year, is insane, as well as paying 100 million for someone to put a basketball through a hoop. It is utter insanity. Nobody ever said America was sane!
As the middle class disappears, who are you going to tax if not the super wealthy?
The problem with capitalism, is the extremes that eventually occur, and we are there now, and it will be our downfall. The super wealthy own most of corporations, stock markets, and in general most assets. More important though is that they own the politicians, and lawmakers. You are not living in the USA you think you are, or a government for and by the people.

Mamma Boom Boom

>Any predictions for the open tomorrow, Hank?

Posted by: Mamma Boom Boom | Sunday, July 25, 2010 at 10:06 AM<

I guess not!

I think I'll run a free week in September.

I'll call it 'Mammas Bling-Bling Service'.

It'll be a back-to-school edition and will feature a video showing adolescent girls the proper way to stuff a bra.


"How's that for a tipping point ,,,, just the hint of cap'n trade might be enough. Congress never lets any tax die." - Wave Rust

You obviously could use a civics lesson on how our Government works... Cap & Trade is DEAD. The Senate is nowhere near getting 60 votes to pass it.


"Germany, Korea and Japan can pay for their own defense." -dSquare

I would AGREE with Barney Frank on this.
For example, we have 50,000 American Troops in Japan.
Let everyone else start paying for their OWN defense!

Trader 123


Where's the CRASH buddy???

Things are so bad out there in the Economy that Fed-Ex just guided higher and started up their 401k matching program again.



Duncan, your post is great. My question, from a Gann or EWT or cycles point of view, and maybe this is a question for Hank in his fractals work, is why 1937? Why is there a synchronicity to that specific moment in history?


We've spent $300 BILLION on Afghanistan, and yet the Taliban have never been stronger . . .

philippine fred

For example, we have 50,000 American Troops in Japan.
Let everyone else start paying for their OWN defense!

if you havent noticed the japs have been campaigning to get you out of there for 10 years but somehow you refuse to take a hint of marching thousands of people.... i think it is the same at most of the rest of your off shore bases

just seen on mfglobal that they offer an ewi package thrown in if you put 5k in lolz, the 5k may last a week or 2!

Wave Rust

cap'n tax may be dead but it's still on the roster.

when it's bottom of the 9th, 2 outs, down a run (this december, crude at 100 and gas at pump is 4.00), that's when you bring out the suicidal Congressmen and Senators who were unelected or one reelection. They will do what they are told.

Pass or fail, cap 'n tax is still in play. How many funerals did healthcare reform have before it passed? How many times was it renamed?

cap 'n tax has a new name, "a comprehensive energy policy". It will be filled with pork for the one or two senators needed.

Stay tuned. That's how the government works, any government.

wave rust

William Stockwell

Yelnick: Another powerful article! Very impressive.


On Afghanistan.. Pretend we have a time machine, and send 30,000 men into 1150 Palestine to make peace between Crusaders and Muslims of the land. How long do you think we would be able to keep them from killing each other? I say until they figure out how to use M-16, until M-16 would all malfunction, or we run out of ammo.
You can't teach democracy to tribal cultures.

Mamma Boom Boom

>You can't teach democracy to tribal cultures.<

WOW! A man with a head on his shoulders.


Arch Crawford nails the biggest crash ever!

I mean... no. Doesn't seem to be happening.

Makes me wonder if this celestial planetary stuff is helpful.


Bird, on synchronisity between 1937 and 2010 - the precision of some cycles is likely an illusion based on selective calling of key dates, but we do have the odd rhythm of the panics of 1819-1857-1893-1929 (very close to 36 years apart) and then of 1801-1837-1873-1907 which are also close to 36 years apart. Even more curious is the proper timing of 1907, in 1909, would have pointed to the Depression of 1946 which didn't happen. 

Instead I think we are seeing the Long Wave, also called the Kondratieff Wave, which is a framework for a larger growth cycle of innovation in the US. The long wave has four seasons and two peaks, which we can see from recent experience as: 1949 started a new wave and the first 20 years were great; then we fell as inflation heated up and had to be dealt with; that led to Morning in America and the Great Moderation, a credit-fueled false prosperity which peaked in 2000, leading to the bad patch that we are still in. This pattern is seen in earlier periods, although the timing of the two peaks is different. It shows a propensity not a prediction of economic and political fortunes. 

The careful choice of dates in the K-Wave can lead to a seemingly precise pattern based on 54 years (+/- 1 yr):  the waves are counted as starting in 1789 - 1842 - 1896 - 1949 and then a fifth wave was expected in 2004. The end of each wave was marked by panics due to credit bubbles: 1837 - 1873/1893 (a double dip crash!) - 1929 and 2000. Bronson has argued that the 54 year cycle was based on a 3.3 yr business cycle (well known) that has now shifted to a 4 yr cycle due to the intervention of government in the US economy, timed to re-elect Presidents every four years. Thus the fourth wave since 1949 has extended to a 64 year cycle whose bottom is timed to 2014 +/- a few years. 

More on that in my Themes post on the Kondratieff Long Wave. 

Some have compared the panics to the K-wave and found a 56 year pattern (again, +/- a few years). More on this theme here:

Wave Rust

over a few decades of market analysis, imo, the least reliable, lowest precision and nearly useless study is that of market cycles ,,,, especially the 56 yr long wave, or the long "wait".

the worst part is falsely crediting Kondratiev with some credible theory. nobody does their homework and I'm not going to do it for them.

trying to master the obvious isn't esoteric enough for the brainy wanna-be elitists (like bronson). what is so obvious? well, it's sitting right on the long term charts. start with alternating 20 year cycles and that's about all you need.

wave rust


One thing that is certain, either the bears, or the bulls will look like complete idiots in the near future. I wouldn't dear to predict which one will be correct as I don't have a crystal ball like most of those who post here. The line of greater fools will start to get very long( Tony C. scenario)as there never was a credit bubble in the first place, and the fact that everyone's broke is actually very bullish. Good luck with that Tony C., but I'm not going to say you're wrong about the direction of the market.
Or the bears will be correct and the line of greater fools gets very short.
Maybe the best thing to do is load up on way out of the money LEAPS going both long and short?


Bears = pwnt

nesting wave 2's = pwned
death cross = pwned
magic T = pwned
arch crawford = pwned

Wave Rust

have to like BP's Dudley and his claim to fame ,,,,

"banned from Moscow"
now that's a resume builder to be envied.

frikin Commie mafia

wave rust


and all the other chicken little prechterites who say the sky is falling = pwned


fast forward to 7:20

story doesnt end well for the bears


special guest appearance by Prechter at 7:10 mark

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