1937 All Over Again

It's deja vu all over again - Yogi Berra

Bernanke's comments last week elevated to public view a debate over the Bush tax cuts expiring next year. Most of the rate cuts affect people below $250,000 in earnings, so letting it lapse as is would breach one of Obama's core campaign promises. The Sunday NYT headlines a big fight brewing over this. The problem of letting it lapse, however, is much more economic than political, and affects the future path of the stock market.

The Original Double-Dip

The lapse of the cuts amounts to a large tax increase in the middle of a recession, a lesson we should have learned not to do. Back in 1937 FDR tried to return to normalcy after his re-election in 1936, and instead threw the economy back down in a large W shaped recovery - the original double-dip recession. (See chart from WSJ.) 

The cluster of mistakes:

• new social security tax ('37)
• "soak the rich" tax ('36)
• surtax on undistributed profits ('36) 
• increased bank reserve requirements ('37)
• letting a bonus to veterans lapse ('37)

Of these mistakes, three were tax increases. 

The Potential Impact of Tax Increases

Christina Romer made her economics reputation on the impact of taxes on growth, and she "cringes" at the thought of repeating the mistakes of 1937. She became Obama's head of economic advisors, and her policy brief on the 1937 problem can be downloaded here. It is an interesting read since she suggests that fiscal stimulus has a modest impact, while monetary and tax policy have a much bigger impact; and yet the current policies of the administration are the opposite: heavy on fiscal stimulus, sanguine about the coming tax increase, and nearing the end of monetary stimulus. Her reputation-making conclusion on taxes is that each 1% increase in taxes causes a 2-3% decrease in GDP - a huge negative multipler of around 3x (download her paper here):

My purpose is not to rehash the debate over the mistakes of 1937 - there is plenty of that going around. It is useful to appreciate, however, that what passes for conventional wisdom - the Keynesian view of the 1930s as one of a hapless Hoover and a stimulative Roosevelt - is itself revisionist history: Hoover had ramped up Federal spending to deficits of 4.5% of GDP, and FDR kept that relatively constant, averaging 5.1% in the first three years of the New Deal. The economy swung in much broader strokes between 1932 and 1936 than such a minor difference would indicate. 

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. Also, government spending did not decrease in 1937, although the deficit did shrink (see chart). The degree to which we fell back down after modest changes in policy throws into question the New Deal narrative, and how effective its fiscal stimulus really was. Certainly it has an impact; but it may not fix things. 

This seeming failure to explain the swings in the '30s by fiscal stimulus alone has led many revisionists (beginning with Milton Friedman) to consider the contraction in credit (monetary policy) as a much bigger driver of the 1937 double-dip than any slackening of fiscal stimulus. Yet one of the most troubling analogies to 1937 and today is the dearth of business and consumer lending. Keynes of course called this the Liquidity Trap. Even if the Fed's low interest rate and QE policies of today are theoretically expansive, the monetary fix is not working, and the fiscal stimulus did not work to get us past the Liquidity Trap either. Worse, the recent FinReg bull already has tightened credit even more - for example, the criminalization of rating agencies (a little plum slipped into the bill at the last moment) has caused Ford to have to pull a bond offering as the agencies have stopped rating instruments pending clarity on the new rules. 

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. 

Despite the revisionists, Romer's view that to withdraw stimulus now would repeat the mistakes of 1937 represents the conventional economic wisdom.

The Diminishing Impact of Fiscal Stimulus

In some respects our current environment is very much like 1937:

• Back then, the banks sat on high reserves rather than lending - as now
• Back then, the interventions and meddling of the New Deal (so-called Regime Uncertainty) froze corporations from investing, and they sat on huge stocks of cash - as now
• Back then, the low rates of return made it dis-economical to invest in new plant - as now

In other respects, however, we stand in a very different place:

• In the first wave down from 1929-1933, the over-capacity built by the bubble in the 1920s was worked off, and both production and capacity were in better alignment in 1937 than today
• Growth from 1933-36 was double-digit (above 10%), whereas our growth off the bottom has been in the low single-digits, and we still have very poor capacity utilization
• Although Hoover and FDR ran 5% deficits, the overall size of the Federal spending and debt (as a percent of GDP) were lower then than now

Perhaps most profoundly, back then the economy had not been on continual fiscal and monetary stimulus for decades as we have now. Back then we may truly have had a "multiplier effect", where incremental spending from borrowing led to 1.6x returns; whereas now, as I have analyzed recently in the Peak Debt post, we may be approaching a point where incremental fiscal spending has very little impact on growth. We borrow $1 for each dime of growth so to speak, digging a deeper grave. (See chart, courtesy The Economist.)(For more on multipliers, read this.)

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

And it is not working very well. The political opposition to more stimulus is mounting, just as it did back then (see cartoon). Given an ebbing of stimulus, a tax increase with its 3x de-multiplier would likely push us into another double-dip, especially with Bernanke running out of monetary weapons. 

 

The Impact on Stocks

The WSJ updated their take on 1937 with a discussion of how closely the stock market has tracked the 1937 market (see chart). (This link works without WSJ subscription.) In the two weeks since this chart, the market has continued very close to the 1937 market, and seems poised for the Summer Rally seen in August 1937. Interesting is the timing has shifted right by three months, so adherence to this pattern would see a rally into the November elections:

While the market is a fractal, a one-time event like 1937 should not be considered a precise roadmap to 2010, but at least it shows how a market reacted in a somewhat similar situation. If policy mistakes drive us into the double-dip, the crushing drop after the summer rally is very likely to repeat itself: another 50% drop from the summer high, which I guesstimate at Sp1150 +/- 20 pts. That targets below Sp600, which means below the Mar09 lows. Ouch.

Compare 1937 to 1929 (next chart), and you see the mismatch to 1929. After the crash of '29, we bottomed in November and had a five month rally that went back 50%, then began the sickening slide to the 1932 bottom. After the crash of 2008, we bottomed in November and had a five week rally, then fell to a deeper low in March. Off that low we had a 50% rally, but it took much longer, almost 15 months.

 

Doug Short has run a constant series of charts comparing various crashes, and even if you line up the bottoms in 1929 and 2009, the 1929 analogy breaks:

 

This time delta between the 1930 bounce and the Hope Rally has caused the Elliott Wave Theorist to opine that we are unfolding in the same way, just at 1/3 speed. This points to an ultimate bottom in 2016, 3x the time of the drop from '30 to '32. Curiously, the Kondratieff Wave 'false plateau" that preceded the credit bubble in 1929 took 8 years, whereas our recent Great Moderation took 25 years - also a 3x. 

While an interesting speculation, this simplistic approach does not really fit Fractal Finance. The 1937 analogy seems to fit better, although imperfectly.

The Road to Recovery

We are left with a troubling question: what policy moves can we count on to get us back to normal? Until we get on that path, the stock market cannot be expected to return to a secular bull market. What policies "work"?

To borrow a phrase from Clinton, it depends upon what the meaning of "work" is. 

It is loosely said that the Great Depression ended in 1942 with World War II. Most of the 7M unemployed were absorbed by the military, which grew to 8.6M. The draft ended unemployment, but was not a recovery. GNP rose, but not for the private economy: consumer spending declined, goods were in short supply, civilians were essentially forced to save, and business investment fell. To think it "works" to "fix" the economy by borrowing huge amounts to produce lead & steel that are wasted in the jungles of the Pacific or the beaches of Normandy is abject nonsense. 

Even worse are those who wonder where the war is that will get us out this time. Economic debacles tend to end in war, but is not something to be sought just because it might "work".

Many of the justifications for massive stimulus in peacetime claim they "work" as long as we avoid a slide back down. But what if this is not sustainable? It does us little good to try to bridge across a GDP chasm with government life-support if we plunge back down when the life-support is withdrawn. The scary part of 1937 was that the changes in stimulus were modest, and the plunge was huge. At best we end up like Japan, a terminal patient: 20 years of an L-shaped recovery, ever increasing debt, taxes soon less than interest on the debt, and a day of reckoning that is not much further off.  Japan seems beyond the point of no return.  A good slide presentation on this point can be downloaded here. 

 

Now compare the Japan chart to the next chart, which shows the CBO's forward projection of US debt, and comes with dire warnings over the US's unsustainable path of increased deficits ... we are turning Japanese if we continue on this course. It does not "work" to put us on a path of terminal life support. 

 

The common sense conclusion is a policy bundle "works" if we return to a sustainable path of recovery in the private sector. It doesn't work if we just kick the can down the road. If we slide into a double dip this time too, the Keynesian solutions will have failed again. We will have to find a different set of historical analogies to help us out than the New Deal. 

The 1946 Solution

The one analogy year which has so far been overlooked is the remarkable turnaround in 1946. There was grave fear of a return to the Depression after the war. Keynesians and central planners gave dire warnings of the "Depression of 1946" - the one you have never heard about - and urged a continuation of New Deal policies and central management of the economy. These suggestions were completely rejected, and the Depression of 1946 never happened. Instead, the US ended the New Deal: it stopped meddling in the economy, slashed spending by 2/3, canceled war contracts, and ran a budget surplus to begin paying back the huge war debt - the exact opposite of the current convention wisdom. The speed with which government controls over the economy were removed validated the confidence of the private sector and emboldened investors. Rather than return to double digit levels, unemployment among the huge influx of veterans remained under 4.5%. Unshackled from the New Deal, the private economy roared back. 

The 1946 story has been recently popularized by Jason Taylor and Richard Vedder in a Cato Institute paper called  Stimulus by Spending Cuts: Lessons From 1946 that has run around the blogosphere. The 1946 "Shock of Peace" (a Shock of "De-Stimulus") worked quickly. 

While economists, including Nobel winners, are picking up on the policies of 1946 if not the meme itself, and debating the merits of the 1946 analogy, it has not yet emerged into the political debate today about what "works" except as some sort of latter-day Reaganism.

Perhaps the reason is the prescription seems too extreme. Given how heavily the US budget is stuck on entitlements, how would it get cut by as much as 2/3 as we saw in 1946? It may be inevitable that we have to do this, given the unsustainable direction we are currently pursuing, but it would entail more "Change" than the current political leadership could envision (consider for example this speech from James Galbraith). Hence the politicians would rather believe in "Hope", kick the can down the road, and wait for the patient (the US economy) to die before tackling the disease. 

There is a plan floating around to make these big changes, and it starts with tackling the big four expenditures (see chart): defense, social security, medicare and medicaid. Without any endorsement of the particulars of it, it at least is an exemplar of how we could do today what they did in 1946, making deep cuts in spending while maintaining the safety net, freeing the economy to grow again. 

The initial post on the plan is here. 

Comments

[Michael]

Excellent work Duncan.
You best effort yet!

[DG]

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?

[yelnick]

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:
- CRA
- the repeal of glass-steagall
- sarbanes-oxley
- obamacare
- finreg

[DG]

Yelnick,

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.

[Dsquare]

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

[Dsquare]

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:

http://www.roadmap.republicans.budget.house.gov/

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

[Dsquare]

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.

[DG]

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]

duncan,

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

[yelnick]

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.

[yelnick]

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 ...

[Dsquare]

"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

[trendlines]

Yelnick, well researched & well written. Thank you

[yelnick]

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

[Dsquare]

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.

http://stockcharts.com/h-sc/ui?s=%24spxa50

[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

[Dsquare]

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:
http://www.youtube.com/watch?v=fGIPdvFVVfw&feature=player_embedded

[Shanky]

Possibly your best post EVER! Fantastic!

[Dsquare]

A bit off topic but bigger than the Pentagon Papers: the Afghanistan War logs
http://www.guardian.co.uk/world/video/2010/jul/25/julian-assange-wikileaks-interview-warlogs

[molecool]

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.

[trendlines]

Chanced upon a Fractal in Shanghai.

http://trendlines618.blogspot.com/2010/07/chanced-upon-fractal-in-shanghai.html

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

[Sam]

If this is 1937!

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

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

[DG]

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.

[MHD]

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.

[JT]

"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.

[JT]

"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]

Roger,

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.

LOL!!!

[Bird]

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?

[Michael]

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

http://www.nytimes.com/2010/07/26/world/asia/26warlogs.html?no_interstitial

[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]

JT
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.

[-Anikitos]

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.

[Chris]

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.

[yelnick]

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: http://www.davidmcminn.com/pages/fcnum56.htm

[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

[MHD]

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?

[drt]

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

[drt]

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

http://www.youtube.com/watch?v=Vnp4kj5lLOU

[drt]

fast forward to 7:20

http://www.youtube.com/watch?v=Vnp4kj5lLOU

story doesnt end well for the bears

[drt]

special guest appearance by Prechter at 7:10 mark