4-Dec-10 News -- South Korea threatens military action again

[John]

4-Dec-10 News -- South Korea threatens military action against North Korea

Jobs shock fails to dampen investors' bubbly holiday spirit

** 4-Dec-10 News -- South Korea threatens military action against North Korea
** http://www.generationaldynamics.com/cgi ... 04#e101204

Contents:
"South Korea threatens military action against North Korea"
"Jobs shock fails to dampen investors' bubbly holiday spirit"
"Additional links"
S&P warns Greece of further bond downgrades
Israeli Jews are increasing xenophobic toward Israeli Arabs
Atrocities on both sides of the 1948 Arab/Israeli war
UN climate talks in Cancun may collapse
Asia in a tailspin over China's aggressive hostility

[mannfm11]

The ECB is nothing but an organized crime outfit. There is no rule of equity or law that would permit them to make a superior claim to the debt of Greece. The other bond holders should sue them and at least make a hypocrisy out of the situation.

[Higgenbotham]

This amazes me because it's just like 2006 and 2007. At that time, I was writing that the stock market was in a huge and growing bubble, and I kept expressing astonishment that it could keep going up when price/earnings ratios were so high, and are still high. (See "Updating the 'real value' of the stock market.") The Law of Mean Reversion still applies today, just as it did with the

Is it all going to happen again? Will the Dow Industrials index reach 14,000 before it collapses again?

My answer to that is no. The cycles and pattern that the stock market has been making in this recovery are similar to that of 1930 except the pattern is 2.6 times larger (2.618 is a fibonacci ratio). I usually don't post my research but will post some specific things in this instance so everyone can see the pattern and the recent deviation due to QE2.

http://oi54.tinypic.com/2litv92.jpg

This links to a full size image illustrating the 1930 and current market. The thick green lines that connect the low points are the common cycles. Above those you can see small red and green segments that show even the subcycles are similar.

The thick red line on the 1930 graph shows where the 1930 market may have headed if a program similar to QE2 had been introduced at that time. The thick blue line on the graph of the present market shows where the market would be now had QE2 not been introduced and the market had followed the same trajectory as it did in 1930.

I've been stating for over a year that there is crash potential under this market due to the size and scope of previous manipulations. There is now tremendous immediate and future crash potential under this market due to the QE manipulation and it's failure to engender any improvement in the economy. The short term crash potential is an immediate move to 730 or so on the S&P, followed by a longer term move to the equivalent of the 1932 lows PLUS a potential overshoot far below the trendline due to the damage the QE manipulation has done to the economy. I'd guess that the Dow Jones Industrials falling to some of the wild values being thrown out on the low side is not outside the realm of possibility.

As can be seen, Bernanke is well aware of the fact that his policies have failed and the stock market was in danger of falling off a cliff in September. After all, he is an expert on the Great Depression. It's not enough to be an expert on the Great Depression, though. Competence cannot be established through narrow studies and not only is Bernanke incompetent outside his narrow field of study, his incompetence has shown him to be increasingly desperate with the statement that stock prices can be manipulated to get the economy going again. It's easy for me to sit here and Monday morning quarterback. The basic idea, though, is that there is absolutely nothing that can be done to avoid a Depression, the Generational Cycle, the Long Wave, or whatever anyone wants to call it. Anyone who spends their life trying is engaging in folly at best and destructive action at worst.

There are many other nuances in this chart that can be seen upon further examination. One can see some lines drawn in that represent the cyclical aspects of previous waves and, if this wave follows previous wave patterns, it is at an imminent conclusion.

However, having said all that, it's not a done deal that the market will crash now or at all. Hyperinflation could begin to take hold, but it probably needs to happen now in order for the market to overcome the cyclical forces. In my opinion, based on all my studies, the economy is at a critical juncture and potential turning point.

I guess at this point, since I am being specific here, I should state that I am fully short this market via futures. That could change at any time. I'm not a financial advisor and am not trying to give financial advice. But I am trying to educate people (especially at this time) on what I exactly see is really happening in this market and then people can make their own conclusions. There's a lot more that could be specifically written on this topic, but this is a start anyway.

[John]

Dear Higgie,

There's something that you may have overlooked. Here's what
Niall Ferguson said on CNN on Sunday:

> ZAKARIA: No, no. I understand. But, I mean -- so play this out for
> me. You have these -- you have -- what is happening right now is
> this is becoming much more expensive for the Irish, for the
> Spaniards to borrow. What happens? If the Germans refuse to write
> these new checks, does the euro collapse?

> FERGUSON: But it doesn't even need to be the Germans. Remember,
> you have to get collective agreement on -- on a bailout. We saw
> that in the case of Greece, and it's quite possible to imagine
> that more than one country would balk at the idea of another great
> big commitment. All these governments, after all, have rather
> large deficits to start with, so making it even larger is not very
> appealing.

> So what's the alternative? If there isn't going to be another
> super large bailout, much larger than the Irish one, it eventually
> boils down to this -- does the European Central Bank turn on the
> printing press and engage in its own version of quantitative
> easing, too? In other words, does it go head to head with the Fed
> in trying to print its way out of the problem?

> Now, if that can't happen and there can't be a kind of classic
> bailout by taxpayers, then there really is no other European
> solution in view. It therefore requires either the United States,
> once again, to step up as it did in the teeth of the crisis.

> Or let's not forget our friends in Beijing because there's a
> wonderful opportunity here for China to diversify its vast
> international reserve at rather a good price. And I'm looking
> closely to see whether there's going to be a deus ex machine from
> China to try to bail out the Europeans when it becomes clear that
> the Europeans can't bail themselves out.

In "Bubble that broke the world," I said that China might bail out the
United States to try to save itself, just as the U.S. bailed out
Germany to try to save itself in 1932. I guess I should have
suggested that China might actually bail out Europe.

John

[Higgenbotham]

In "Bubble that broke the world," I said that China might bail out the
United States to try to save itself, just as the U.S. bailed out
Germany to try to save itself in 1932. I guess I should have
suggested that China might actually bail out Europe.

John

You're right that I didn't catch the discussion around that topic.

The Chinese are eyeing the US gold hoard. As in the 1930's, my opinion is there will be a grab for the gold.

(Edit - The US has about 8100 tons of gold unaudited. The Euro zone has about 10,600 tons. Most of that is held by Germany, Italy and France. These 3 countries combined have just a bit more gold than the US. These hoards are worth roughly $400 billion at today's prices.)

In my opinion, China isn't going to bail anyone out unless: a) The Fed stops doing QE, or b) The transfer of a significant percentage of the US gold hoard is part of the deal.

Last week, I heard a brief mention of a Chinese official (actually, an advisor to the Chinese Central Bank) saying the US should sell half their gold or something like that. So your post reminds me that I need to look at that again and see if there are any updates.

It's been my opinion that the US is not going to let go of any of its gold. We were bleeding gold in the 1930s and I don't think that will be allowed again. It's sort of like the idea that Germany is not going to allow another Weimar.

So I think we're at a standoff until the next collapse begins. Say the stock market drops 20% and we start to get a repeat of 2008. Then maybe the US will come to the table.

PS Here's the People's Daily reference link.
http://english.peopledaily.com.cn/90001 ... 11695.html

Another article with the same idea from a different source.
http://www.bloomberg.com/news/2010-12-0 ... -yuan.html