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In This Issue
CRACK UP BOOM series intro
Significant "GLOBAL" stock market action signals explosive bull markets ahead!
This week we are beginning a "new series" of commentaries and mental exercises centered on the concepts of a "Crack-up Boom" by Ludvig Von Mises. As you all know who read me regularly, I will be using history as a yardstick to the future. There are fascinating thoughts which explain many of the things we see unfolding in many, many markets (art, stocks, real estate, etc) worldwide.
Just what is a "Crack-up Boom"? It is a period when the value of the currency you hold your wealth in becomes "suspect" and you wish to exchange it for something you have more "faith" in, to hold its value. In previous episodes of Fiat money and credit creation the offending country was an isolated outlier, while the majority of their peers continued to pursue more fudiciarily sound monetary practices.
For example, Argentina, the Weimar republic and Zimbabwe, could destroy their own currencies, while the countries around them continued to practice good banking and currency policies. So there was always a place to run to for safety, but in this episode of irresponsibility it is global in nature. As outlined by Ludvig: In a Crack-up Boom the purchased asset becomes an "INDIRECT EXCHANGE" in the Anticipation of Expected Changes in Purchasing Power. In the case I am about to outline, it represents Global Dollar Holders discounting the current and future action of Public Servants and financial authorities in Washington DC. So they are entering the stock markets worldwide in order to preserve the value of their holdings by exchanging them for a unit of production. Another cause of the unfolding market moves is a result of the Dubai Ports World and UNOCAL demagoguery. As foreign holders of dollars have been prevented from spending their dollars in one manner, they are simply choosing another avenue of exit. This is also known as Repatriation.
It's only just begun, and will play out as outlined in "Fingers of Instability" (see Tedbits archives, www.TraderView.com). As incredible as the last 25 years have been, technology, communication, transportation and the democratization of education have changed the world we live in. This next phase is upon us and it will be an inflationary boom; first it will be people getting out of the dollar, it will then rotate to other currencies which are now repeating what Alan Greenspan did for the USA, in their own countries. But he did it in a country that was in constant deficit and theirs are in constant surplus, so the result will be DIFFERENT.
I am of the belief we are entering a time period that will be written about for hundreds of years. A period where empires "RISE AND FALL", a result of government hubris, incompetence, and lack of knowledge of history and economics, as regional politicians mishandle the policies necessary to deal with the issues of a NEW emerging global economic order, aka "GLOBALIZATION". (Author's note: I have been asked to co-author a book on this subject entitled, "Myths, Madness and Markets", by and with Clyde Harrison and have accepted; it will explain everything, dispel the illusions, and show how to play it).
Significant "GLOBAL" stock market action signals explosive bull markets ahead!
The stock markets are signaling a significant boom in markets worldwide and in the economies in which they reside. Although some of the action is a direct result of repatriation of dollars, as dollar holders begin to move at the margin into another store of value. That store of value is called a share of stock and a unit of production that can be bought and sold without interference from the Mandarins in Washington, Brussels, Mumbai, or Beijing for that matter.
Many people are calling for a top at this time, NOT ME! The market is very overbought at this point, and I am getting signals that a VICIOUS decline could begin sometime in the July/August timeframe and may pull back hard (15 to 30%) at any point. But if you look closely, they are signaling a "global economic boom of epic proportions". The fuel for the growth is "ALREADY" in place and sitting in the capitals of the emerging world, and is unencumbered by DEBT. The difference between the money supply creation in China and the emerging world is their money creation is a result of "sterilization" of dollar flows rather than the creation of debt as has been done in the G8 (this subject will be a Tedbit very soon). So their fuel for future growth is FAR MORE virtuous to their futures while the G8's is a noose that will always be tightening.
The economies of the suppliers of the goods, labor and raw materials necessary for it to unfold will also grow and thrive. The G8 will be pulled along for the ride but for the most part will be on the outside looking in, as they have pooped on their own plates (and where they eat) and the character flaws and social trends that are entrenched in their leaders/constituents (see "Misery spread widely" at www.TraderView.com) hold the keys to their ever-expanding misery during this upcoming global economic feast.
One need look no further than this week's G8 summit in Germany to see "the developed world politicians" preparing another attack on the most productive parts of their societies and citizens in the name of "GLOBAL WARMING", preparing their citizens for another fleecing by the taxman in disguise, as these PUBLIC SERVANTS claim to save the future by puncturing our pocketbooks and hamstringing the Developed World in this emerging global economic dogfight. And who do they want in charge of this project? The UN, that paragon of virtue that has brought us the scourge of "Oil for Food", the World Bank, IMF, OECD, and numerous NGOs (non governmental organizations), instruments of Socialism, High Taxes, and Fiat money and credit creation. With friends and leaders like these, who needs enemies?
On monthly charts of stock sectors and markets spanning the globe, one need only look closely to see confirmed signals of economic strength. It doesn't matter where you look: United States, Germany, Japan, Hong Kong, South Korea, India, Russia, Brazil, Australia, etc, they are on their highs and confirming each other with regularity. The internal components, "the tape", are confirming the price highs as well. Not diverging as new highs are made.
Richard Russell recently had the catharsis from bear to bull that I came to earlier this year. Bravo Richard! As the facts changed so did your analysis; this is essential to thriving as an investor in markets, as economies have the ability to "CHANGE THEIR COLORS" as a chameleon does. So many market analysts talk about their books (what they are invested in) or opinions and ignore what the new information is now telling them. It is dangerous if you can't recognize one type of analyst from another.
Nothing upsets me more than when one politician says to another during a campaign that "You said this in 1984, or whenever, and now you are saying something different." Well, I would hope that as the facts change or new information becomes available, that anybody is allowed to change their opinions in response to the new information. It is why failed government programs never die; the government is still following policies which were designed to address a problem or market conditions that existed 50 years ago and are totally irrelevant in light of where we have evolved to. One would expect this from a group of lawyers as law in the courtroom is frequently set by PRECEDENT in prior court cases. So they likewise freeze previous regulatory precedents forever into the future.
US Securities and Commodities laws are a prime example of this; designed during the depths of the depression, they are a totally inappropriate basis for regulating modern markets. This is why London, Hong Kong, Dubai, and emerging capital markets around the world are thriving and the US is failing in the competition for capital markets. Those markets have evolved and are evolving into a modern form as the G8 has descended into chaos, as millions of words of regulations written 20, 30, 40, 50 and 60 years ago and piled one on top of another, have created an incomprehensible and ineffective mess. How can you comply with the laws if they are a spaghetti bowl of contradictions? How do you structure an investment product with the millions of weasel words the regulations now consist of?
They are full of liability as clarity has been lost, the clarity that is essential to adhering to the law in a proper manner (this is another story for a later date). And the locusts that we call the legal profession have been allowed to descend on the participants by our public servants. This mess is called the "Full Employment Act" for the legal profession, as we constantly have to hire more and more lawyers just to try and understand what it all means, so tens of thousands of lawyers are trained yearly to deal with this ever-increasing miasma creating 10s if not 100s of billions of dollars of cost on the productive parts of the US. Since over 90% of our public servants are from this same profession it makes sense, they are sending home kisses to their constituents (in exchange for campaign support now). And to themselves after they retire...
Let's take a look at several stock markets and sectors from around the world and see what the chorus of tea leaves are saying. First let's look at the long term monthly chart of the S&P 500 as it has just signaled a move of 50% or more over the next several years, just as the Dow and the Dow Theory did in late April:
Every ocillator is confirming the new price action, fibonacci retracements in time and price going back to the 1987 lows. ADX (Average Directional Index) trend gauge at 28. Look closely at the RSI (Relative Strength Index), the last time we saw this type of momentum was in the 1996-97 time frame. The market continued to advance for 4 more years! And look closely at the On Balance Volume (OBV), it's doing a moonshot since M3 (money supply) was hidden from us. Now let's look at the Transports and Utilities:
A nice little triangle and cup and saucer breakout over the last year, price highs confirmed several times in the last several years. ADX solidly in a confirmed trend range, with lots of room on the upside. RSI never pulling back to the neutral point of 50 since 2003 when the last bottom was made off the 2000 highs. This is the picture of a healthy bull market with room to run. On to the Utilities:
Basically the same picture as the Dow. The trend is a little more mature, but this is very healthy action. Absolutely NO signs of a top. The same cup and handle we see in the first two charts over the last year. Vicious pulbacks will represent buying opportunities! Now lets take a look at the S&P 500:
This truly is a beautiful picture. Look at the huge momentum in the RSI, and MACD (Moving Average Convergence/Divergence); the ADX trend gauge is just entering the sweet spot at the thirty area. On Balance Volume could not be a prettier picture. And the real tip-off is the new highs on the last monthly bar. Truly a magnificent breakout! Could we pull back from here? Absolutely. But a pullback to the 20-month moving average at 1373 would just be a healthy event and a buying opportunity. It's overbought now, but this is not the picture of a final top. Now let's go across the pond to the Dax 30 in Germany:
Same picture as the Dow and S&P 500. The last time the RSI was this level was in 1997, and look where the market went to over the next 3 years. The ADX trend gauge is getting a little overdone, but the On Balance Volume is very healthy. Pullbacks are to be bought. Let's head to Spain:
The last time momentum was this high was again in 1996-97. It's broken out on the upside of the trendline, going back to the lows in 2002. This is a very healthy chart. Let's head to the Pacific Rim and Hong Kong:
Basically this was sideways action in 1996-97, just before the ASIAN CONTAGION and the 1998 debt crisis, but definitely poised for an upside move. The ADX trend gauge is showing an emerging trend action; a poke above thirty and it could be off to the races. Let's go to Tokyo:
This is a quarterly chart. The monthly chart was not a clear picture, but this one is. Two trendline breaks to the upside, as Tokyo becomes one of the primary suppliers to the emerging giant that is China. Trends are emerging on the ADX, and the On Balance Volume is moving higher. And one great big plus: people who hold dollars can buy in this market cheaply as the Dollar is quite strong against the Yen. So dollar holders can buy these productive assets CHEAP and get more for their money.
(Authors note; looking for assistance in creating portfolio diversification that can survive and thrive in what I am outlining? In fingers of instability? If so contact me through www.TraderView.com. Subscriptions to this newsletter are also free at this address; send it to a friend, Thank you)
Richard Russell reports that "Last week the D-J Industrials and the Transports showed new record highs. So did the D-J Composite, the S&P 400, 500, and 600, the NYSE Composite, and the broad Wilshire 5000, the Amex and the Value line along with new highs in the Russell 1000, 2000, and 3000. That's quite a list, and in view of this extensive list of new highs, it's hard to believe that this market is heading anywhere but higher". He also reported Friday that Lowery's buying pressure crossed over the selling pressure, giving a solid buy signal for the first time in YEARS. All monthly and quarterly charts are screaming and confirming each other. A big pullback as reported by many analysts in years ending in 7 could provide some excitement on the downside in the fall. The market is extremely overbought, we had a HISTORIC string of up to down days in the April/May time period, so a 15 to 20% fall could happen at any time.
Flash: As we go to press Morgan Stanley is issuing a massive sell signal on the markets WORLDWIDE take a look at this report from today's London daily telegraph:
Morgan Stanley issues triple sell warning on equities
By Ambrose Evans-PritchardMorgan Stanley has advised clients to slash exposure to the stock market after its three key warning indicators began flashing a "Full House" sell signal for the first time since the dotcom bust.
Teun Draaisma, chief of European equities strategist for the US investment bank, said the triple warning was a "very powerful" signal that had been triggered just five times since 1980.
"Interest rates are rising and reaching critical levels. This matters more than growth for equities, so we think the mid-cycle rally is over. Our model is forecasting a 14pc correction over the next six months, but it could be more serious," he said. Mr Draaisma said the MSCI index of 600 European and British equities had dropped by an average of 15.2pc over six months after each "Full House" signal, with falls of 25.2pc after September 1987 and 26.2pc after April 2002. "We prefer to be on the right side of these odds," he said.
The first of the three signals Morgan Stanley monitors is a "composite valuation indicator" that divides the price/earnings ratio on stocks by bond yields. It measures "median" share prices that capture the froth of the merger boom, rather than relying on a handful of big companies on the major indexes.
"If you look at all shares, the p/e ratio is at an all-time high of 20," he said.
The other two gauges measure fundamentals such as growth and inflation, as well as risk appetite. "Investors are taking far too much comfort from global liquidity. Markets always return to fundamental value, so people could be in for a rude awakening. This is the greater fool theory," he said. "The trigger may be rate rises by the Bank of Japan, or a widening of credit spreads. There are lots of little triggers."
Morgan Stanley is not predicting a recession, believing bond yields will fall during a correction and act as an "automatic stabiliser" for the world economy. Once the market shakes off the latest excesses, it's back to the races. Thank you daily Telegraph..
But in my estimation, it is only going to provide a buying opportunity as these markets back and fill towards their long term moving averages and work off the overbought conditions. The big global liquidity steps into this giant "finger of instability" (see Tedbits archives at www.Traderview.com), buys it to get out of enormous amounts of ever eroding dollars during the "fire sale" and off we go. This will be a stock market event like 1987, not an economic event like the depression.
I could show you India but I think you get the idea. Russia is in its seasonal pullback and Brazil is quite healthy. Thank you. Ditto Australia. Just look at the long term charts of crude, the CRB (Commodity Research Bureau) index of commodities, energy, raw materials, grains, etc. There is only one message, and it is a chorus. BOOM TIMES ahead! And it is going to be powered by one thing!
GETTING OUT OF THE DOLLAR. The writing is on the wall; the smart money is voting with its feet in a manner that is not sending the dollar lower. They are purchasing assets, not moving into other currencies. The widespread creation of governmental investment corporations are signaling the path of choice for people that want no more of them. They will hold what they currently have, but accumulate NO MORE of them. This will be a long term trend lasting until the US trade and budget deficits are signicantly reduced and the prospect of infinite dollar creation to pay off existing and future unfunded liabilities is not on the horizon in infinite quantities. Until that time look for the emerging "CRACK-UP BOOM" to send global stock markets and emerging market economies to the moon.
In conclusion: The solid technical underpinnings and healthy internals WORLDWIDE are signaling a long bull market ahead in many countries and economies. It is being powered at this point by an ESCAPE from the dollar. This escape route doesn't destroy the purchasing power of the dollar as quickly, as the route is OUT is not into another currency. Notice how the global central banks are slowly de-pegging from the dollar, most recently Kuwait, and Syria with others in the region quietly considering the move. This is the path most rational big money will take. They don't need to add to the demise of the dollar; the Mandarins and Public Servants in Washington DC will see to it themselves. So it will be a slow bleed.
Worldwide money and credit creation are going gangbusters. Nothing bad can happen for long in conditions like these; the problems emerge when it stops. In the United States we are at the end of the rope, but somehow I believe they will keep it up. Most recent reconstructed M3 figures show it growing at 14%. WOW! The difference between our money printing and most others is that theirs is a result of sterilization of cubic dollar EXPORTS by the United States. And the United States and Central Europe money printing is all debt based. One is a BIG net positive the other a BIG net negative.
The Emerging worlds central banks getting healthier and healthier while the US and Europe's disintegrates slowly with ever increasing momentum. The financial authorities and public servants in Washington and Central Europe are on a reckless collision course with history. Creeping Socialism and destruction of wealth creation. The money Central Europe and the United States spend is on CONSUMPTION. Not production, savings and investment as is being done in in the emerging world. While the emerging world has receeding socialism and ever increasing wealth creation. (see Sea Change, the wealth of the world is rotating in the Tedbit archives at www.TraderView.com). Who do you think is in a better position when they borrow - a person who uses it to go on a vacation, or the one who uses it to build a factory? The investment themes here are self-evident: assets and raw materials to the moon, inflationary expansions worldwide. Which are "AREADY" underway! Position yourself accordingly or for absolute return alternative investment portfolio diversification opportunities contact me at www.TraderView.com and I will show you some top quality techniques to tackle the opportunities as they emerge. Don't miss the next edition of the "CRACK UP BOOM" series!
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