actually mike, in a bear market, generally if you maintain investments in gold stocks, high dividend stocks, and traditional graham and dodd below net current asset value stocks you will do better than the market and usually better than money market returns. this is what i did in october of 2000 that kept me ahead until this past year when i overweighted the technology stocks. but that is only if you just ignore the ability to sell short or take advantage of funds, like rydex ursa, that allow you to profit from a falling market.

actually i have found that the best hedge against a falling stock market, other than selling short, is crude oil. for the last 20 years or so when the broad stock market has been rising, in general, crude oil prices have been falling or stagnant. when the broad stock market has been declining crude prices have been rising or steady. i have found this time and again with the models that i use to manage the funds that i run that, invariably, when they are bullish on stocks they are bearish or neutral on crude oil and vice versa.

regarding what you said about the '87 crash, all i can say is that you must not have lived through it or i don't think you would so blithely say that you would have just ridden it out. you have to remember that this was the largest one day percentage decline in the history of the u.s. stock market on october 19. The crisis that the world financial markets were facing at the time was much greater than than 1997, 1998 and 2000. banks all across the U.S. were literally on the verge of having to close their doors. i know this for a fact because i was a consultant to one of the largest at the time. the only kind of financial panic that is even remotely comparable since then is probably 1998 or the first couple of days after 911.

its only easy to say that you would have ridden out the 1987 crash in hindsight. i can tell you that as someone who lived through it, very few people actually did that. it may only look like a "blip" now in hindsight, but i can assure you, it was far more significant than that.

other than that, my suggestion to you is to just fasten your seat belt and close your eyes in 2004 because there are likely to be some fairly wild gyrations, but other than that..."enjoy the ride!" :wink:

Dear Enjolras,

Originally Posted by enjolras

> where is your "crisis war"? 9-11 was not a crisis war event.
> neither is this current conflict in iraq. we are due for another
> conflict in the early part of the next decade but that would be a
> mid-cycle conflict for me. and S&H's theories would call for the
> "crisis war" to occur in the 2020s which i concur with.

I'll answer this question in detail, but first I'll summarize.

First, the fact that today we aren't following the exactly script
that we followed in the 1930s and 40s doesn't mean we aren't in a
crisis period. I've studied dozens, perhaps hundreds, of crisis events
in the past (many of them described in my book), and I can say
without hesitation that if I were to see a time when there was a
major terrorist attack that shocked and surprised a society, and the
society responded by starting TWO wars, the second one clearly and
admittedly PREEMPTIVE, then I would consider that society VERY LIKELY
to have entered a crisis period. Add in the Nasdaq crash of 2000,
then I would say that the crisis period began in early 2000.

Since you're a student of French history, I'll use the Napoleonic
wars as an example. When did that crisis period start? The country
went through a financial unraveling in the 1780s, went completely
bankrupt in 1789, had the reign of terror in 1793-94, but then
Napoleon's coup didn't occur until 1799, after which he launched the
European wars. To me, the beginning of the crisis period was clearly
1789, when the financial crisis began.

So even if the major "clash of civilizations" war doesn't begin in
earnest until the 2010s, I would still say that the crisis period
began in 2000. In fact, the original title of my book was going to
be WW2010, standing for "World War 2010."

Secondly, I'm not sure where your 2020s date comes from, but The
Fourth Turning (written in the mid 1990s) predicted that the crisis
would begin around 2005. According to the USA Today article that S&H
wrote on Oct 29 2001 (see
http://www.lcourse.com/media/commentary/011029.html ), they evidently
believe that the 9/11 was indeed the start of the crisis period,
although they reserve final judgment. So if you're counting on S&H
to support your view that I'm "dead wrong," I think you'll find that
they consider your 2020 date to be dead wrong.

Now I'll try to give a more general answer.

There are three markers that determine a crisis period. The most
basic one is a massive change of public opinion away from individual
rights towards a willingness to sacrifice individual rights in order
to preserve the society and its way of life. The second marker is a
financial crisis, and the third marker is a crisis war.

These three markers interplay as follows: The change in public
opinion creates a mood of "justice and retribution," rather than
"compromise and containment." When something happens, the public
looks for retribution (jailing CEOs after the Nasdaq crash, invading
Afghanistan after 9/11). The financial crisis enhances the desire
for retribution as people lose their jobs and homes. It makes the
military more desirable, since it's a guaranteed job. As the war
progresses, the war economy creates more of a financial crisis, and
so the war crisis and the financial crisis feed on each other and
make each other worse.

When studying historical events, it's usually impossible to determine
changes in public opinion, and it's often difficult to determine
financial crises. On the other hand, it's usually easiest to
determine wars, and so the problem is to distinguish mid-cycle wars
from crisis wars, a subject which I develop extensively in my book.

However, today we can examine all three markers in the context of
American society.

(1) The first marker is a massive change in public opinion, and in
fact public opinion has truly massively changed in the last five
years.

(1A) The first thing that really shocked me was the public acceptance
of locking up Muslims that haven't even been accused of a crime. We
haven't done anything like that since we locked up the Japanese
during World War II. This would have been absolutely impossible in
the 1990s. In fact, when the World Trade Center was bombed in 1993,
causing over 1000 casualties, no one would ever have condoned locking
up Muslims.

(1B) I was also shocked by the insistence that CIA and FBI files be
merged. Keeping their files separate was a touchstone of "individual
rights" politics for decades, and I really had to laugh at how some
of the same people who criticized the CIA and FBI after 9/11 for not
merging their files had demanded a brick wall between the two during
the 70s.

(1C) I predicted early in 2002 that the antiwar movement would
fizzle, and it has fizzled. Every now and then we have some
eruption, but it dies down within a few days, leaving the organizers
looking foolish. This is in sharp contrast to the 60s and 70s, with
massive marches on Washington, the Summer of Love, students shutting
down university administration buildings, and so forth.

(1D) The shifting of the gender wars. I've been writing about gender
issues and fathers' rights for 15 years, so this is something I've
been following. One brief example: Last year, the old groping
allegations against Arnold Schwarzenegger, heavily publicized by the
LA Times, caused a backlash against the LA Times. Ten years ago,
similar charges against Bob Packwood brought only a backlash against
Packwood, forcing him to resign as Senator. One more example: Ten
years ago, rape charges against a Kobe Bryant would have caused
universal condemnation of Kobe Bryant; today, society is divided
between condemning Bryant and condemning Kate Faber, his accuser.

There are many more examples of a big shift in public opinion; the
above is a list of some of them.

(2) The second marker is a financial crisis.

I predicted in mid-2002 that we're in the beginning of a new great
depression, and I've seen little to change my mind, as I've discussed
earlier.

(3) The third marker is war.

Here there's a clear trend line, with increasingly belligerency in
both the Western world, especially America and the UK, and in the
Muslim world.

This ties back into the issue of the antiwar movement. In late 2001,
the antiwar people were talking about a quagmire in Afghanistan, and
how it would create a new antiwar movement. Then we heard, "as soon
as the body bags start coming back, then the war will be increasingly
unpopular." But it hasn't happened.

This is a sharp contrast to the 90s. When there were a few deaths in
Somalia, we pulled out. When we drove the Iraqis out of Kuwait, we
stopped there, rather than risk American lives pursuing Saddam
Hussein. In the 2000s, we PREEMPTIVELY invade Iraq, and with body
bags coming back every day, we still see no antiwar movement - no
college students conducting campus riots, no massive marches on
Washington, and so forth.

The American public is very much on edge today. What do you think
will happen if there's a terrorist attack on American soil? Just a
suicide bomber in a shopping mall would cause a major reaction today.

There's no way to "prove," in some mathematical sense, that we're in
a crisis period today, but based on my study of dozens of historical
periods, there's really little doubt in my mind that we are.

> you have not even been able to see one real time event actually
> take place yet that conforms to your outlook while i have been
> fortunate enough to see several already

Not true. I've made several predictions that have come true:

(*) I predicted that the anti-war movement would fizzle, and it has.

(*) I predicted, on the day it was announced, that the Mideast
Roadmap would fail, and it has.

(*) I predicted in 2002 that there would NOT be a massive civil war
in Iraq if we invaded (since Iraq is entering an awakening period
following the 1980s Iran/Iraq war), and I've been right, in the face
of repeated and continuing warnings to the contrary by numerous
analysts.

In fact, I've come up with a long term prediction for America in the
next 30 years:

- 2000-2015: Massive war and financial crisis, with WMDs and
widespread disease, resulting in tens of millions of American deaths,
hundreds of millions of deaths worldwide, going possibly as high as
1-2 billion.

- 2015-2030: A time of peace and great properity, with everything
from computerized plumbers and drivers to instant communications.
But it will also be a time of greatly diminished privacy, with all
kinds of gadgets keeping track of everyone, in order to prevent
terrorism.

- After 2030: Impossible to predict, because computers will be more
intelligent than humans, and will rapidly become even far more
intelligent, making human intelligence much less relevant.

These predictions haven't yet been confirmed, however.

> until we have the unpopular war stage, we will have only mild
> inflation. i thought that was pretty clear?

The unpopular war stage has already ended. If this is what you're
counting on, then you're definitely off base.

> you say that my saying that the tech boom beginning after the gulf
> war does not make "any common sense." well, it may not make any
> commons sense to you but it is a fact at least as far as equity
> prices are concerned. the tech sector had been largely languishing
> until the end of the gulf war and then off to the races it went.
> the rest is history.

I don't know what tech sector you're talking about, but prior to 1990
I would assume you're talking about the old-line mainframe and
midrange computer companies, like Data General, Digital Equipment,
Wang, Prime Computer, CDC, Univac (Unisys), and so forth. Those
companies did indeed languish during the 1980s.

But that's not where the action was. On the hardware side, we had
the IBM PC, Osborne and Compaq in the early 80s; by the mid-80s,
there were dozens of "PC compatible vendors" competiting with one
another. A corporation would buy several thousand desktop computers
at a shot for a single division.

On the system software side, we started with Digital Research, which
gave way to Microsoft. There were hundreds of new companies that
competed on the side - Borland, Norton Utilities, etc., etc. Data
base products were important -- from Ashton-Tate on the low end to
Oracle on the high end. In addition, there were many companies
entering the networking market, to provide local and wide area file
sharing and communications.

On the application software side, there were literally millions of
people developing software in their garages to do accounting and
business support the local restaurant, the local beauty salon, the
local lawyer's office, and so forth.

When you talk about the tech sector, these companies weren't on the
radar screen in the 1980s, even though there were tens of millions of
these businesses. By the 1990s, consolidations and mergers were
setting in, and the companies that succeeded, like Microsoft and
Compaq, were large enough to be considered part of your "tech
sector."

Furthermore, don't just look at the tech sector -- look at the stock
market as a whole which, as you know, took off like a rocket around
1981. There are good reasons for that. Desktop PCs had enormous
impact on corporations across the board in the 1980s. Comparing 1990
to 1980, the management structure of most companies had become
substantially flattened, from 7 or 8 layers of management to 4 or 5
layers, as entire categories of jobs (secretaries, departmental
financial analysts, for example) were almost entirely eliminated.

So I'm saying again, to claim that the tech boom began in 1990 defies
common sense. That is absolutely untrue. The tech boom clearly and
unequivocally began ten years earlier, and it had absolutely nothing
to do with the Gulf War. (The Gulf War caused the tech boom???? Are
you kidding?)

> japan is not the dominant economic or military power in the world
> so i discount what happens there. if anything, china is on the
> verge of overtaking japan in the next few decades as being the
> predominant power in the east. by that reasoning, why not look at
> brazil or argentina too? the u.s. is the dominant economic and
> military power in the world and has been since the early part of
> the 20th century when it took the baton from Great Britain.

If you're claiming that your methodology applies only to the USA (or
to the leading world economy at one time), that's fine, but it
doesn't absolve you from explaining why the same reasoning doesn't
apply to other countries. If you claim that "The causes of X in
America are Y and Z," then if Y and Z don't cause X in Japan, then
you still have to explain the difference. If you can't explain the
difference, then we have to assume that there's another factor that
you're overlooking.

As for China, making that prediction is a tricky business. China
appears to be in an unraveling period, and looks likely to be on the
verge of a secular internal rebellion which, if history is any guide
(and it is), will result in the deaths of tens or hundreds of
millions of people.

The USSR was a dominant economic and military power until 1990. How
does your theory apply to the USSR?

> actually, 50-60 year cycles have been identified globally in all
> types of financial markets and commodity markets for as far back
> as data is available. exactly why such cycles are present is
> anyone's guess. my only interest is that they do exist and how can
> i attempt to profit from them.

I'm not disagreeing with this, but I'm pointing out that they're
technology cycles. (See again my graph with the wavy green curve.)

Sincerely,

John

John J. Xenakis
john@GenerationalDynamics.com
http://www.GenerationalDynamics.com

eom

if i remember what S&H said about crisis periods it is that they begin with a catalyst but often take about 20 years or so to resolve themselves. i believe i posted on here before that i did think that 9-11 was the trigger for the beginning of such a crisis period but only the beginning. it was only a foreshadowing of what is to come and was a similar event to the cuban missile crisis, pancho villa's raids across the border, and john brown's raids before the civil war, etc. 911 was certainly larger in scope than those events but it still occurred in the same general point within the cycle as most of them.

i don't really have any major disagreement with you that a "crisis" period may well have begin in 2001.

the 2020s date comes from the 80 year crisis cycle that S&H talk about in their book which also coincides with an 84 year crisis cycle which i have monitored since i first became aware if it back in the 80s. 1607, 1691,1775, 1859, 1943...do those years look familiar? I would hope so. and simply add 84 years to 1943 and you get 2027 which is when the next major crisis war is most likely to occur, give or take a couple of years.

i can appreciate the work you have done in identifying "markers" but personally i prefer specific events that serve as signposts to tell me where i am within the cycle rather than relying on my interpretation of public opinion, etc. which may or not be influenced by my own personal views and/or prejudices.

each of the stages that i outline in my model must have certain events that precede them which must occur in a certain way and must also have certain events immediately follow them which must occur in a certain way. a monetary expansion that occurs after a liquidation must be followed by a popular war. the popular war must be followed by a long, technology fueled expansion of roughly 20 years in length, the expansion must be followed by an unpopular war, the unpopular war must be followed by an inflation stage, the inflation stage must be followed by a monetary contraction, the monetary contraction must then be followed by a speculative period which must then be followed by a liquidation phase that affects ALL aspects of the economy and financial markets from a broad based perspective and is not primarily limited to one market like the heavily tech laden nasdaq index.

the tests you mentioned are not the kind i was referring to. show me where your model has correctly predicted the course of the stock market, bond market, commodity markets? i would suggest that the "predictions" that you mentioned are things that anyone with a decent knowledge of world affairs could have predicted. i mean, no anti-war protests have been that successful since vietnam. no mid-east peace plan has EVER been successful to date. why would anyone expect a massive civil war in iraq since they were being liberated from a brutal tyrant who virtually everyone that lived there wanted to see go? show me where your theory has actually predicted something unexpected that has actually happened? my theories have already passed that test, and done so quite profitably, and i have been waiting for 18 years now for an event that successfully disproves it!

where was the unpopular war? afghanistan was not an unpopular war. i don't believe you can call iraq an unpopular war. i did consider this possibility when the iraq war broke out, that perhaps the boom period has been truncated. but subsequent action in the financial markets just does not support that and, even though commodity prices have rallied smartly over the last couple of years, they are still coming off extremely depressed levels and are not causing any serious inflation. nor does it seem likely that the end of the iraq war will precipitate any serious inflation for the foreseeable future.

when i talk about the tech sector i am talking about the actual, real life, market prices in the early 90s. i remember that time well as much of the computer technology that was widely available was still extremely crude at best. bill gates and larry ellison were not household names like they are now (well, at least in some households! :lol: ) what you are referring to is the foundation that was being laid for the real boom period that occurred in tech stocks in the financial markets over the course of the 90s AFTER the Gulf war was over.

the tech move you are referring to was the beginning of the upswing in that it occurred immediately after the liquidation and monetary expansion phase. yes, there is an upswing that occurs leading into the stage 2 popular war but it is nowhere near as large in size and scope as what you get AFTER that stage 2 war is over.

of course the Gulf war did not cause the tech boom!! but what it was was a signpost that indicated that the next major event would be a long boom period that would be led by small cap stocks focusing on innovations in technology and primarily in the areas of communication, automation and transportation.

i would also like to know when in heaven's name that the USSR was ever a dominant economic power? military power? sure. but economic power? now YOU have to be kidding!

hmm..well if the 54 year cycles are "technology" cycles then explain why they are found primarily in agricultural data even going back to periods where "technology" was crude at best?

look, i have heard this same sort of end of the world, gloom and doom scenario since i started trading back in the mid 70s. first it was howard ruff and doug casey with "how to prosper during the coming bad years" and "crisis investing." then joe granville took up the mantle and was looking for the big crash/devaluation in 1982-1983. then more came out in 1987 with the 1929 analogs. then bob prechter started calling for the end of everything as we know it in the 90s. and they were ALL wrong!!!! or rather, way too early. And that is why I tell you, that based on my experience and what I have seen and learned from extensive study and practice over the last 20+ years of being intimately involved with financial markets, you are dead wrong FOR NOW.

much of what you are predicting is indeed likely to occur, unfortunately. but like all the others who have taken a similar approach that I have seen in the past i respectfully suggest that you are at least a decade or more early.

Originally Posted by enjolras

its only easy to say that you would have ridden out the 1987 crash in hindsight:

No, I can say that. I was heavily invested in small cap value and margined in summer 1998. Recall that I believed that the secular bull market wasn't going to end until 1999 at the earliest and I thought I still had at least a year left. Well the bull ended in 1998 for the small caps and by October, I was down 70%. I raised 90K of cash quick to address margin calls and rode it out. By fall 1999, I was out of debt and 100K in cash, Recall that I got out of stocks in my 401(k) at what I thought was the end of the bull market in summer 1999. I went short in the fall in my taxable acount and got crushed again. I recovered from that only to see 200K (in my taxable account) go up in smoke due to bad accounting in early 2000. A portion of my remaining taxable account remained fully invested through the entire 2000-2002 crash. Part of that portion will never recover from the crash, the rest has. I still have the bad positions, I already have plenty of realized loses from 1999-2000, I won't need these unrealized 2001-2002 losses for many years, if ever. So yes, I am quite sure that I could quite comfortably ride out the 1987 bear fully invested in index funds. Wouldn't phase me in the least--just a hiccup after what I've been through.

I managed to avoid destruction from the 2000-2002 debacle in our 401(k) accounts only. I didn't mess around with the 401(k)s. I have employed a passive mechanical strategy--no thinking involved, since Sept 1999. I could not know that my model was right in 1999, but I was prepared to stay in the income fund for the rest of my life if I was wrong and the market continued up to Dow 36,000 or whatever. In my taxable account I continued to play in 2000 and after, against the possibility that I was wrong about secular market trends and that the bull market would continue past 2000 for another decade.

I have not made any move at all in our 401(k)s since July 2002 and have made only 8 allocation changes since Sept 1999. So I do very little manipulation with our 401(k)s. I can execute an unthinking, mechanical strategy without getting into trouble and I intend to avoid trouble in our sacrosanct 401(k)s. I can't afford to play investor games with our 401(k), we need that money.

I played the investing game with our taxable account and lost in 1998. I lost in 1999. I lost in 2000. I got more careful and have had more successes since 2000, but I still have losers too. I have gradually lost interest in investing. I still buy and sell in my taxable account, of course. I have to since surplus funds flow into it (we both contribute the max to our 401(k)s but there's lots left over). I try to buy in the taxable account when I am doing the same in the 401(k). The 401(k) buying decisions are made mechanically, so there is no emotional component. If I think about what I am doing, I'm afraid I will mess up. I emotionally cannot even contemplate doing what you do.

Originally Posted by enjolras

each of the stages that i outline in my model must have certain events that precede them which must occur in a certain way and must also have certain events immediately follow them which must occur in a certain way. a monetary expansion that occurs after a liquidation must be followed by a popular war. the popular war must be followed by a long, technology fueled expansion of roughly 20 years in length, the expansion must be followed by an unpopular war, the unpopular war must be followed by an inflation stage, the inflation stage must be followed by a monetary contraction, the monetary contraction must then be followed by a speculative period which must then be followed by a liquidation phase that affects ALL aspects of the economy and financial markets from a broad based perspective and is not primarily limited to one market like the heavily tech laden nasdaq index.

If I understand your model correctly you have 1987 as the liquidation, which should then be followed by a monetary expansion. Here is a plot of M3. Where is the monetary expansion after 1987? I see rising M3 before 1987 and rising M3 afterward. If anything money rose more slowly after 1987 than before.

mike,

my approach has always been to look at the stage analysis as a way to make money. after the liquidation phase i immediately start looking at the bond and short term interest rate market (usually t-bill and/or eurodollar futures) for signs that they are about to enter a bull market.

they rallied for several years after that just as the model would have anticipated.

Originally Posted by Mike Alexander '59

Originally Posted by enjolras

its only easy to say that you would have ridden out the 1987 crash in hindsight:

No, I can say that. I was heavily invested in small cap value and margined in summer 1998. Recall that I believed that the secular bull market wasn't going to end until 1999 at the earliest and I thought I still had at least a year left. Well the bull ended in 1998 for the small caps and by October, I was down 70%. I raised 90K of cash quick to address margin calls and rode it out. By fall 1999, I was out of debt and 100K in cash, Recall that I got out of stocks in my 401(k) at what I thought was the end of the bull market in summer 1999. I went short in the fall in my taxable acount and got crushed again. I recovered from that only to see 200K (in my taxable account) go up in smoke due to bad accounting in early 2000. A portion of my remaining taxable account remained fully invested through the entire 2000-2002 crash. Part of that portion will never recover from the crash, the rest has. I still have the bad positions, I already have plenty of realized loses from 1999-2000, I won't need these unrealized 2001-2002 losses for many years, if ever. So yes, I am quite sure that I could quite comfortably ride out the 1987 bear fully invested in index funds. Wouldn't phase me in the least--just a hiccup after what I've been through.

I managed to avoid destruction from the 2000-2002 debacle in our 401(k) accounts only. I didn't mess around with the 401(k)s. I have employed a passive mechanical strategy--no thinking involved, since Sept 1999. I could not know that my model was right in 1999, but I was prepared to stay in the income fund for the rest of my life if I was wrong and the market continued up to Dow 36,000 or whatever. In my taxable account I continued to play in 2000 and after, against the possibility that I was wrong about secular market trends and that the bull market would continue past 2000 for another decade.

I have not made any move at all in our 401(k)s since July 2002 and have made only 8 allocation changes since Sept 1999. So I do very little manipulation with our 401(k)s. I can execute an unthinking, mechanical strategy without getting into trouble and I intend to avoid trouble in our sacrosanct 401(k)s. I can't afford to play investor games with our 401(k), we need that money.

I played the investing game with our taxable account and lost in 1998. I lost in 1999. I lost in 2000. I got more careful and have had more successes since 2000, but I still have losers too. I have gradually lost interest in investing. I still buy and sell in my taxable account, of course. I have to since surplus funds flow into it (we both contribute the max to our 401(k)s but there's lots left over). I try to buy in the taxable account when I am doing the same in the 401(k). The 401(k) buying decisions are made mechanically, so there is no emotional component. If I think about what I am doing, I'm afraid I will mess up. I emotionally cannot even contemplate doing what you do.

mike, i will say one thing for you...i may not always agree with you but you do have my respect (and i have read your book to, by the way).

unlike many would be forecasters you actually put your own money behind your views which, i have found, is quite rare and you are honest enough to talk about your successes AND your failures. for that reason alone i will always pay attention to your views whether i agree with them or not.

Originally Posted by enjolras

mike,

my approach has always been to look at the stage analysis as a way to make money. after the liquidation phase i immediately start looking at the bond and short term interest rate market (usually t-bill and/or eurodollar futures) for signs that they are about to enter a bull market.

they rallied for several years after that just as the model would have anticipated.

I'm not understanding you. A bond rally implies falling interest rates. But interest rates did not fall for a couple of years after October 1987. They did start falling after 1990.



I'm not questioning that you made money. I am questioning the existence of a cycle of the nature you have described. If such a cycle exists then this phenomenon of crash followed by monetary expansion happened in the past and should be identifiable from historical data. I have been unable to see anything resembling a monetary expansion following the 1987 crash either in monetary aggregates or interest rates.

How was this phenomenon manifest in cycles before 1987, what data did you look at?

treasury bond futures prices bottomed in october of 1987(with a secondary low in august of 1988) and rallied into august of 1989, corrected to higher lows in september of 1990 and then proceeded to rally further into september of 1993 before they entered into the big bond bear market of 1994.

short term rates, or eurodollar futures prices, did not bottom until march of 1989 whereupon they entered into a bull market that peaked in october of 1992.

what i was looking for, based on my model, was a low in the bond market that would lead to a substantial rally leading into the stage 2 popular war period. i got what i was looking for.

after a liquidation phase in financial prices, it simply makes intuitive sense, if nothing else, to look for higher prices in fixed income instruments. they are the primary safe haven of choice since the public has been so recently rattled by losses in equity prices and are looking for safety. as i recall, you should find bond rallies in the aftermath of the '29 crash, the liquidation of 1893, 1837, etc. the key to the stage analysis is if the liquidation phase and bond rally/monetary expansion stage is followed by a popular war, etc.

Originally Posted by enjolras

treasury bond futures prices bottomed in october of 1987(with a secondary low in august of 1988) and rallied into august of 1989, corrected to higher lows in september of 1990 and then proceeded to rally further into september of 1993 before they entered into the big bond bear market of 1994.

short term rates, or eurodollar futures prices, did not bottom until march of 1989 whereupon they entered into a bull market that peaked in october of 1992.

what i was looking for, based on my model, was a low in the bond market that would lead to a substantial rally leading into the stage 2 popular war period. i got what i was looking for.

The interest rate figures I posted show this same story, but the rally you refer to was not very large. They are many movements of simlar or larger magnitude around that period. Other bear markets were followed by bond rallies. For example, there were bigger rallies after the 1990 bear, after the 1994 bear and after the 2000 bear. 1987 isn't special in this way.

And to bring in wars, well the 2000 bear was followed by a big bond rally and then a war.

There are lots of panics and crashes. If you pick a year at random, it will be preceded by a panic or major bear market within 1-5 years because of this frequency. The bears will be accompanied by some sort of a bond rally for the "flight to quality" reasons you mentioned. Thus any random year will necessarily be preceded by a crash and monetary expansion by your definition. Since this is a property of all years, it necessarily will be true for all years ion which popular wars occurred, and in years in which unpopular wars occurred or years in which no war at all occurred.

What I am saying is there is nothing special about the series crash-monetary expansion-popular war. It will happen with the frequency of the least frequent component, the popular war.

Originally Posted by Mike Alexander '59

Originally Posted by enjolras

treasury bond futures prices bottomed in october of 1987(with a secondary low in august of 1988) and rallied into august of 1989, corrected to higher lows in september of 1990 and then proceeded to rally further into september of 1993 before they entered into the big bond bear market of 1994.

short term rates, or eurodollar futures prices, did not bottom until march of 1989 whereupon they entered into a bull market that peaked in october of 1992.

what i was looking for, based on my model, was a low in the bond market that would lead to a substantial rally leading into the stage 2 popular war period. i got what i was looking for.

The interest rate figures I posted show this same story, but the rally you refer to was not very large. They are many movements of simlar or larger magnitude around that period. Other bear markets were followed by bond rallies. For example, there were bigger rallies after the 1990 bear, after the 1994 bear and after the 2000 bear. 1987 isn't special in this way.

And to bring in wars, well the 2000 bear was followed by a big bond rally and then a war.

There are lots of panics and crashes. If you pick a year at random, it will be preceded by a panic or major bear market within 1-5 years because of this frequency. The bears will be accompanied by some sort of a bond rally for the "flight to quality" reasons you mentioned. Thus any random year will necessarily be preceded by a crash and monetary expansion by your definition. Since this is a property of all years, it necessarily will be true for all years ion which popular wars occurred, and in years in which unpopular wars occurred or years in which no war at all occurred.

What I am saying is there is nothing special about the series crash-monetary expansion-popular war. It will happen with the frequency of the least frequent component, the popular war.

the first part of what you say is true, mike. there were larger bond market rallies in subsequent periods. but it is not the magnitude that is important as much as the sequence of events.

the 2000 bear occurred at the mid point, or 10 year mark, after the stage 2 popular war that was the gulf war. this was where it was supposed to have occurred. was i looking for a bond market rally here? very much so. but the more important piece of information is to know that this is most likely only a lull in a long term bull that should re-assert itself once this intervening bear market is completed, that the intervening economic recession is likely to be relatively mild (which has been the case.). the war which you refer to in this instance, the iraq war i presume, was not preceded by the proper sequence of events.

certainly there was a speculative period preceding the would be "liquidation" phase that you might call the 2000 bear market but there was no inflation stage before that, which is also a necessary component.

everything must occur in its proper sequence for the model to be valid. a stage can be shortened perhaps or be very short, but it cannot be skipped.

Can you give the historical examples of this sequence from which you have obtained your timing?

For example, you mention the Panic of 1893 as a crash followed by a monetary expansion and then a popular war in 1898, which was then followed by a 10 year stock boom. This boom ended in 1906, there was no lull and continuation of the boom. The 1906-1921 period was an inflationary-type secular bear market analogous to 1966-1982.

Now this example doesn't fit your pattern exactly because 1893 was not preceded by an inflationary era. The two decades prior to 1893 were a period of deflation. And the stock boom after the crash did not last 20 years but only 10.

1987 was also not preceded by an inflationary era, but rather a disinflationary era. Inflation fell for six years after 1980, reached about a little over 1% in 1986. This is not an inflationary era. The bull market in small caps from 1975 to 1983 was an inflationary boom, not the large cap bull from 1982-1987. The 1987 crash was followed by a popular war 3-4 years later and then there was a 10-year stock boom. You claim the post 2000 bear is simply a lull. On what past example do you base this insight?

You haven't given a more recent example than 1893 and that one doesn't fit your lull concept. The 1837 panic which was followed by a popular war a decade later was also followed by a ten year stock boom from 19843-53. This boom did not "follow" the popular war, rather the popular war occurred in the middle of it. But there was no "lull" in 1853 and then a continuation. No, over 1853-57 the market cratered in the second biggest slump in 200 years. By early 1861 the market was still in the toilet. The entire 1853-61 period is considered a secular bear market, not a mere "lull".

Where has this "lull" occurred. Which historical example are you considering? I am not trying to bust your chops. This is a site about historical cycles. If such cycles exist they should be detectable in the historical data, which I have, because I study these things. I cannot find even one historical example of the sequence you discuss that actually shows up in the data. You have presented no data that illustrates this sequence.

Instead you point out that you have "used" this idea and been successful, so it must be right. But I will point out that I have talked with many successful traders and investors. And they often have completely contradictory world views. They all can't be right because they contradict. Yet all have been successful. But we all know that success in trading and investing does NOT require having an accurate worldview. Warren Buffet insists that he does not have any sort of world view that he uses for investing, and I believe him.

I have talked with many traders and some of them have outlined their methods. Many of them are sound and should work--but as far as I can tell they don't require having a particular view. This doesn't mean that traders don't have a macroview. They do, but they are so different. One guy whose TA was impressing me was more bearish in summer and fall 2002 than I was, he sounds like John X, but hell he was making coin on his short-term trades. Other guys are bullish--YOU were bullish in early 2002--yet you were short.

It seems that successful traders and investors don't let their macroviews interfere with making them money. But another way to look at this is these investors and traders don't need an accurate macroview to make money. And they don't. Your macroview can be completely wrong and you still will make money. After all, some of these guys with wildly divergent macroviews HAVE to be wrong and they are making money.

Dear Enjolras,

Originally Posted by enjolras

> i don't really have any major disagreement with you that a
> "crisis" period may well have begin in 2001.

Oh, really? Well so, which is it then? In an earlier message you
say,

> 8. the mid cycle war is indeed what is due in the early part of
> the next decade. the real crisis war is not due until sometime in
> the 2020s, most likely in or around 2027 after the liquidation
> and monetary expansion stages.

Well, let's see. If the crisis period begins in 2001 and stretches
out for over 30 years with a crisis war at the very end (a highly
exceptional situation), then you can't have a mid-cycle war next
decade. A mid-cycle war can't occur in the middle of a crisis period.
You keep changing your facts to whatever is convenient to support your
theory.

So your whole theory depends on an unpopular mid-cycle war next
decade, in the middle of a crisis period, which is impossible, so I
assume that your whole theory blows apart.

> when i talk about the tech sector i am talking about the actual,
> real life, market prices in the early 90s. i remember that time
> well as much of the computer technology that was widely available
> was still extremely crude at best. bill gates and larry ellison
> were not household names like they are now (well, at least in some
> households! ) what you are referring to is the foundation that
> was being laid for the real boom period that occurred in tech
> stocks in the financial markets over the course of the 90s AFTER
> the Gulf war was over.

Oh, really? It seems that whenever you talk about a "tech boom," you
talk about whatever is convenient to set up your screwy schedule. And
if you think there was no tech boom in the 1980s, then I would
respectfully suggest that you REALLY have no idea what you're talking
about.

You define earlier tech booms in terms of products -- the spinning
wheel, railroads, the automobile, etc. -- and frankly it looks like
you cherry picked products to fit whatever dates your model required.

But when you need a tech boom to start in 1990 to make your model
work, you conveniently forget the huge tech boom of the 1980s, and
use some ill-defined "tech sector" market prices as a guide, rather
than products. Whatever is convenient.

And incidentally, the 1990 Gulf War was NOT a popular war. There was
a great deal of opposition to it in Congress and in the public, and a
growing antiwar movement which was nipped in the bud because the war
only lasted a few weeks. Why don't you mention the wars in Somalia,
Haiti, Bosnia and Kosovo? Do they just happen not to fit your model?

> i would also like to know when in heaven's name that the USSR was
> ever a dominant economic power? military power? sure. but economic
> power? now YOU have to be kidding!

I was trying to find some other country that you claim that your
"model" applies to. Japan doesn't count because it's not a military
power. The USSR doesn't count because it's not an economic power. If
you really had a valid model, then it would apply to more than one
country. Instead, all you have are plenty of excuses for everything.

> the 2020s date comes from the 80 year crisis cycle that S&H talk
> about in their book which also coincides with an 84 year crisis
> cycle which i have monitored since i first became aware if it back
> in the 80s. 1607, 1691,1775, 1859, 1943...do those years look
> familiar? I would hope so.

Oh, really? Some of those dates look familiar some don't. As a
group, they don't make any sense to me at all. Why don't you explain
it to me? I live to learn.

> the tests you mentioned are not the kind i was referring to. show
> me where your model has correctly predicted the course of the
> stock market, bond market, commodity markets? i would suggest that
> the "predictions" that you mentioned are things that anyone with a
> decent knowledge of world affairs could have predicted. i mean, no
> anti-war protests have been that successful since vietnam. no
> mid-east peace plan has EVER been successful to date. why would
> anyone expect a massive civil war in iraq since they were being
> liberated from a brutal tyrant who virtually everyone that lived
> there wanted to see go?

It's very easy to make those claims now, but it wasn't in 2002. I
wasn't claiming to have made specific stock market predictions.
Zbignew Brzinkski expressed concern about a national liberation
struggle in Iraq just last Sunday. Do you have any idea what's going
on with the Sunnis and Shi'ites? News analysts talk wistfully about
an antiwar movement all the time.

You have a hell of a lot of nerve slamming other people's work that
you don't even understand when you can't even get your own
contradictory facts straight and you change your "model" every time
you post a new message.

I'm glad for you that went through an epiphany in 1987, and I'm glad
that it appears to have made you happy, but it's no big deal. My
recollection of that time is that there were one or two people who
were making the doom and gloom predictions that you're talking about
-- evidently you were very gullible and fell under the spell of one
of them -- but the vast majority of analysts at the time, as I
recall, were saying that they were shocked by the sudden fall, but
felt that the market fundamentals were solid and that everything would
be OK. So you agreed with the majority opinion at the time and you've
made one or two good guesses since then, but that hardly makes you
into some sort of guru.

> my theories have already passed that test, and done so quite
> profitably, and i have been waiting for 18 years now for an event
> that successfully disproves it!

Now what exactly are you claiming here? Are you claiming to have
made no mistakes in 18 years? Are you claiming to have gotten it
right every time? I've never heard of ANY analyst who can make that
claim. Are you claiming to be smarter than every other analyst in
the marketplace? Are you claiming to be smarter than Warren Buffett
who said last March, when the stock market was at 7800, that the
stock market was still overpriced?

Can you substantiate any of your claims, or are they all hot air?
Can you point to a web site somewhere that provides some backup to
your claims about yourself?

We all know that there are a lot of phony people on the internet.
I've been online for almost 20 years (since 1984) and you fit many of
the criteria. You don't say what your name is or anything about you,
you make extravagant claims that can't possibly be true, you base
your claims on a model whose facts contradict each other, you change
your facts and your model on an almost hourly basis as the
contradictions are pointed out, and you slam other people's work that
you don't even understand. As far as I know, you could be a high
school sophomore who was doing her book report on "the fourth
turning" and joined this forum to see how many people she could punk.

So let's hear it, "enjolras." Give us some names and web sites, and
let's see the backup for your claims. I sit at the feet of the
master, waiting to learn and be impressed.

John

John J. Xenakis
john@GenerationalDynamics.com
http://www.GenerationalDynamics.com

enjolras:

The only way to actually test macroviews is to make specific predictions with specific market levels that either come true or not. The last time you were here I did get you to make a fairly specific prediction that turned out to be wrong, at least so far. Similarly John X made a specific forecast based on his macroview which is diametrically in opposition to yours. His forecast didn't come true either--at least not so far.

My specific predictions are implied by my actions in my 401(k) which I documented as we went along in articles at safehaven:

http://www.safehaven.com/showarticle.cfm?id=75
http://www.safehaven.com/showarticle.cfm?id=77
http://www.safehaven.com/showarticle.cfm?id=82
http://www.safehaven.com/showarticle.cfm?id=83

Because stocks have a higher return over the long run than bonds, for a middle-aged investor I would consider a 60:40 stock:income fund allocation as neutral. Stock allocations higher than 60% are bullish, the higher the more bullish. Income fund allocations higher than 40% are bearish, the higher the more bearish.

Based on this you can see that I became mildly bearish at the end of 1998 (50:50 allocation) and extremely bearish in Sept 1999 (0:100 allocation). This extreme bearishness is underlined by my taking a short position on the market in fall 1999. I was early, just like all the bears, and was killed by my short position. But I was not too early in my 401(k); my bearish predilection was not completely without merit.

I lessened by bearishness slightly in late 2000, when I thought that the sizable NASDAQ correction might have been enough for now, but I certainly was not bullish yet. In March 2001 I reached a 50:50 allocation implying mild bearishness (this is just under the 60:40 "neutral" stance), but much less bearish than I had been in late 1999.

In Sept 2001 I reached the 60:40 "neutral" position. This is where we had our earlier discussion. I acknowledged the possibility that a new bull market could have begun in Sept 2001, in fact I hoped it was true. I also noted that we could still go lower. These views underline my essentially agnostic view on the markets at that time which was reflected by neutral 60:40 position. The possibility that we could go lower was reflected in the 40% still in the income fund. The possibility that we had started the new bull was reflected in by the 60% stock allocation. By July 2002 we HAD gone lower and now I was outright bullish as shown by my 80:20 allocation. I was not totally bullish, I still had 20% of buying power left. On October 9 2002 my method called for a move to 90:10 that I missed due to personal reasons. Nevertheless, my model would have me buy that day implying almost total (but not complete) bullishness on my part. This bullishness shows up in the tone of my article on safehaven in October 2002. October 9, 2002 turned out to be the bottom. We never saw 780 on the S&P500 again and I never was able pull the trigger or feel the bullishness of a 90:10 allocation. I was hoping we would push into the 780 region last March and I could pull the trigger, but that didn't happen. So close, yet so far (sigh). And now I never will

Another prediction implied by what I actually did in my 401(k) is the "critical" S&P500 level of 700, at which I would go to 100% stock alloaction. One cannot get more bullish than 100% stock in a 401(k) that does not permit the use of margin. This means that I thought that the market could not go significantly below 700 when I developed my strategy in May 2000. I never changed my view on this 700 level after May 2000. And we never did get to 700, so my view was correct. Here is where I differed from the permabears, who thought the market could and would go below 700. It didn't. The 700 level held. According to Tobin's Q or Shiller's P/E it should have gone lower than 700--only my valuation measure (P/R) indicated that an ultimate bottom higher than 700 was possible.

Now these predictions are specific enough to be wrong. That is, my model is falsifiable. I can cite specific index levels and dates that will invalidate my model. For example, if the the S&P500 surpasses 2100 by or before 2010, it invalidates my model. This 2100 level by 2010 is only a 11% annualized gain in the S&P from here, which is hardly an extreme performance. But there is more, this level is also excluded by my 1999 forecast :

"If this trend continues we can reasonably expect the total return (after inflation) on an S&P500 index fund to be slightly negative over the next fifteen years from now. If we assume 2% dividend yield and 3% inflation over the next 15 years, the best guess for the level of the S&P500 in about 15 years would be about where it is now. " (the level was around 1350-1400 at this time).

Reaching 2100 by 2010 is a trajectory that is simply too high for this 1999 forecast to be correct. This is how I can exclude it. If it happens then it essentially invalidates the model on which the 1999 forecast was made. But I will point out that today one-third of this 15 year period has already passed. The movement so far has not ruled out this 1999 forecast. What HAS been ruled out was the Dow 36,000 forecast by Glassman and Hasset.
We are well on our way to ruling out Harry Dent's Dow 35,000 in the 2007-2010 period. Back in 1998 when Dent's forecast was made, all that was necessary for it to happen would be if the 15-year bull trend in stocks simply continued for another 10 years. Today an annualized return of over 20% would be necessary to do it, which is unprecedented. As the 2007-2010 date draws near and we are still short of Dent's prediction this one will likely fail too.

On the bearish side we have Pretcher's call for sub 4000 on the Dow in mid-2002. As time goes on, this call will become more and more unlikely until it too passes out of the realm of reasonable possibility.

Can you come up with a market trajectory that will invalidate your model?

ah, there is nothing quite so marvelous as to be in southern california in the middle of winter! :lol:

oh well, now on to responding,

1. First you must take into account what type of cycle that you are in, whether it is high inflation or low inflation. Then you must take into account whether you are in the first or second half of that high or low inflation cycle.

2. First stage 1 : late 1780s, early 1790s with the government bailout plan engineered by alexander hamilton

Second stage 1: the election of james k. polk in 1844 and the expansionary policies he enacted.

Third stage 1: the sherman silver purchase act of 1890. (i have the liquidation stage as 1884 and was mistaken in assigning it to 1893 in my earlier post)

Fourth stage 1: election of franklin roosevelt and his policies and his request to the Fed to expand the money supply.

Fifth stage 1: Greenspan's reversal of overly restrictive fed policy after the 1987 market crash.

First stage 2: French Revolution

Second stage 2: Mexican War

Third stage 2: Spanish-American War

Fourth stage 2: World War II

Fifth stage 2: the Gulf War

84 year crises: 1691, the time of the Glorious Revolution in England and significant turmoil in the american colinies which, Woodrow Wilson later referred to as the "first american revolution." 1775, the American Revolution; 1859, the eve of the American Civil War; 1943, World War II; 2027 the next major crisis conflict.

The respective stage 3's for each cycle are outlined in the previously posted article along with their mid cycle "lulls" or bear markets, (1800-1801, mid 1850s, 1907, late 1950s to 1962, and most recently 2001-2002)

First stage 4: Napoleonic Wars or the War of 1812

Second stage 4: American Civil war and the Crimean war

Third stage 4: World War I

Fourth stage 4: Vietnam

Fifth stage 4: due most likely in the early part of 2010.

First stage 5: after the war of 1812 commodity prices surged to unsustainable levels before the Second Bank of the U.S. engineered a stop to it.

Second Stage 5: a commodity price high was reached after the civil war in the early 1870s before financial markets precipitated a correction in the panic of 1873.

Third Stage 5: commodity prices and inflation were spiking for their time after world war I. on May 17, 1920 the senate adopted a resolution advising the Fed to take corrective measures, which it did by raising the discount rate to then record levels and contracting the money supply.

Fourth Stage 5: the inflation of the 1970s whicb Paul Volcker brought to an end.

First Stage 6: 1818 contraction by the Second Bank of the United States

Second Stage 6: Market forces did the contracting, more so than any government policy, due to this being a low inflation long term cycle.

Third Stage 6: The same as above applies for this stage as well.

Fourth Stage 6: the 1919 congressional resolution instructing the Fed to contract the money supply.

Fifth Stage 6: Paul Volcker and his policies of getting inflation under control.

First Stage 7: the 1827-1836 period, characterized by railroad speculation

Second Stage 7: 1876-1884 and more rail speculation.

Third Stage 7: 1922-1929

Fourth Stage 7: 1982-1987

First Stage 8: the panic of 1837

Second Stage 8: the panic of 1884. the panics of 1873 and 1893 do possess many of the same characteristics of the panic of 1884 but with some key differences. the panic of 1873 occurred when we would normally be expecting a severe post war recession after an unpopular war. the panic of 1893 occurred due to the controversy over the temporary repeal of the stimulative sherman silver repurchase act but the markets quickly recovered after the act was put back into place and had the necessary stimulative effect on the economy.

Third Stage 8: the crash of 1929

Fourth Stage 8: the 1987 crash.


3. when i mentioned the panic of 1893 in my previous post it was an error on my part. i should have said the panic of 1884 for reasons that i have outlined above. 1893 was not valid because it was a reaction to the repeal of the stimulative sherman silver repurchase act.

4. the period from roughly 1837 through the 1920s was a low inflation cycle period so inflationary periods are not supposed to be that severe when compared to high inflation cycles.

5. you are quite correct that good traders can make money no matter what their macro view of the economy or the world is. in fact, most successful investors i know are either perennial bears or perennial bulls. the long term investors are, by and large, perennial bulls while the traders are virtually always perennial bears (you tend to make money faster in a good bear market when you are short than you do when you are long in a bull market). but i have also used this approach in private consultations i have conducted over the last 15-20 years with large financial instiutions, both here and abroad, large businesses and wealthy individuals who are not able to shift their focus or policies on a dime like individuals can and most of them still come to me for advice after all this time because my record with them has been good in advising them of what to expect on a long term basis and how to prepare for it.

that is basically, all i have been trying to do on this site, to share on here the same basic advice that i give to the large corporations and wealthy invididuals that i manage money for and consult with on a regular basis . i do not have a book to promote, i do not give seminars for a fee, i do not hawk a newsletter touting my opinions. i do manage money in a hedge fund but i am not accepting any new funds and i am not taking on any new consulting clients. my sole purpose in being on here is to engage in some interesting and lively discussion from time to time, so, for that I thank you mr. alexander! :wink:

john, your responses are getting really shrill. as i seem to recall reading you say in another post "these discussion boards are supposed to be fun." so let us dispense with the personal attacks, ok?


1. how is a mid-cycle unpopular war "impossible" within the context of a crisis period? was there some divine rule written about this one day when i was out? S&H clearly point out in their books the 80 year crisis cycle which corresponds with the same 80+ year cycle that i had been watching before i even read their books. but you are correct in that if an unpopular stage 4 war does not occur in the next decade ( i give a time frame of 2009-2013 as a rough guess) then my model will indeed blow up and i will have to attribute the successes that i have had with it to random chance.

2. "ill defined tech sector prices" :lol: :lol: :lol: ok, that was a good one. i suggest you have a talk with S&P and Dow Jones about how they are not properly defining their tech indices. those items that you mention as "products" were the technological innovations of their times and i did not cherry pick them. i actually took those lists from descriptions given in other books of the major technological innovations made during those particular periods.

3. my use of the terms "unpopular" and "popular" in reference to wars perhaps should be more "peak" and "trough" cycle wars. they are popular in the sense that they "go well" and unpopular in the sense that they don't. and their definition of where they fit within the cycle depens precisely upone what events occur before and after them and in what order. Somolia, Haiti, Kosovo, etc. do not fit because they are not preceded by the appropriate events nor are the followed by the appropriate events.

4. the model can apply to different countries just at different points in time depending on who is the dominant economic and military power in the world at the time. as i said before, in the past the same approach can be used for Great Britain, France, Spain, etc. depending on when they were the dominant economic and military power in the world.

5. i have made plenty of mistakes in my life. i was a tad early in looking for a market low in 2001, but i quickly recovered from that. i was too stubborn in resisting the big bull market in bonds in 1986. and there are others primarily due to my getting too stubborn or emotional at times, but that is normal. oh, and i had one of my clients take a look at your comment about "one or two good guesses" because i thought that was a really good one! :lol: i think he is still laughing.

6. as I said to Mike in my previous post, i have nothing to gain by posting on here. i do not have a book to promote, i do not give seminars for a fee or even speak at them, i do not have a website or newsletter to hawk my opinions for a price. i do manage a hedge fund but i am not taking on any additional clients or new money and i no longer take on any new consulting clients. all i am doing is sharing with anyone who will listen on here the exact same thing i tell to my clients who are primarily large corporations and very wealthy individuals. what you do with it, if anything, is totally up to you.

Let us return
to my original question: "What is it like, being a success?"

Do you see
yourself as a success? If not, why not?

By most people?s
standards, you are a success.

What are
you lacking that separates you from your view of success?

Maybe
it?s only your poor definition of success.

Is it education?
Then read more. Pick up a yellow highlighter and mark up your
books. They?re yours, after all. Re-read old books that you learned
from but have forgotten.

Is it money?
Then pay closer attention to your job. Improve your job skills.
Figure out what it is that you supply that final consumers are
willing to pay for. Concentrate on increasing your efficiency
in producing these items.

Is it lack
of time? Then read a book on time-management. Buy a Day-Timer
or low-cost equivalent. Start budgeting your time. It?s your only
irreplaceable resource.

Is it your
confusion about priorities? This is probably the toughest nut
to crack. This, you must spend some quality time to overcome.
The lack of a "game plan," which is no game, is probably
the number-one hindrance to personal success.
Is it a lack

of capital? Which kind of capital? Find out how to get more. Even

better, find out how to convert forms of capital that you already
possess into marketable output. Wasted time is usually the first
place to start looking.

Capital is
a tool. The day it becomes your final goal, you have climbed onto
the treadmill.

$UCCE$$ Without Misery

mike,

i just don't use the model in that way by trying to predict a market trajectory. what i am looking for are trends and what is likely to be the next trend and what are its characteristics likely to be. i have never found the exercise of trying to predict price levels, particularly on a basis as long term as this, to be profitable in the least. if my not doing that invalidates what i am endeavoring to do in your eyes, then so be it.

as i said before, i do have the utmost respect for what you are doing in putting your own money behind your views. it is immensely admirable and, in my opinion, very difficult in the way that you are doing it. but you have to admire someone for having the courage of their convictions to the point that they are willing to put something on the line to back it up.

i wish you much success.

Originally Posted by enjolras

john, your responses are getting really shrill.
as i seem to recall reading you say in another post "these discussion
boards are supposed to be fun." so let us dispense with the personal
attacks, ok?

I agree, this is much too good of stuff (among too many learned posters)
to get personal about it.

Otherwise, by all means, let passionate positioning continue...
I'm enjoying the discussion. :P

:lol:

thanks for chiming in Marc.

you will have to excuse me though. my dad want to use the computer and i have a science project to work on for school anyway before my boyfriend comes over to pick me up to take me to see Cold mountain! that Jude Law is soooo dreamy!!! :lol: :lol: :lol:

Responses in bold

Originally Posted by enjolras

2. First stage 1 : late 1780s, early 1790s with the government bailout plan engineered by alexander hamilton

Second stage 1: the election of james k. polk in 1844 and the expansionary policies he enacted.

Third stage 1: the sherman silver purchase act of 1890. (i have the liquidation stage as 1884 and was mistaken in assigning it to 1893 in my earlier post)

Fourth stage 1: election of franklin roosevelt and his policies and his request to the Fed to expand the money supply.

Fifth stage 1: Greenspan's reversal of overly restrictive fed policy after the 1987 market crash.
**************************************
Stage 1's appear to be price troughs. Specific dates based on US commodity prices are 1787/89, 1843, 1894/96, 1932. After 1933 they no longer occur. The 1987 date is not based on any actual data. Yes Greenspan eased immediately after the crash, but he was hiking again in two years to head off inflation.

First stage 2: French Revolution

Second stage 2: Mexican War

Third stage 2: Spanish-American War

Fourth stage 2: World War II

These are often considered to be "trough wars"

Fifth stage 2: the Gulf War
This is considered a trough war by Goldsteins's timing.
************************************************
So far this is fairly orthodox K-cycle stuff using 50-year timing.

The respective stage 3's for each cycle are outlined in the previously posted article along with their mid cycle "lulls" or bear markets, (1800-1801, mid 1850s, 1907, late 1950s to 1962, and most recently 2001-2002)

These dates are close to Kondratiev spring/summer transitions: the actual dates are 1802, 1853, 1907, 1966. The first three of these dates agree precisely with your first three dates. I have monthly stock index data from 1802, these three dates are the beginnings of secular bear markets--they are not short lulls in an ongoing bull market. The only date you give that is an actual lull is the late 1950's to 1962 one. I suspect you don't have actual data for the earlier ones, or you would know this.

First stage 4: Napoleonic Wars or the War of 1812

Second stage 4: American Civil War

Third stage 4: World War I

Fourth stage 4: Vietnam

The first three are Kondratiev peak wars. The fourth is often given as a peak war by orthodox Kondratiev theorists.

First stage 5: after the war of 1812 commodity prices surged to unsustainable levels before the Second Bank of the U.S. engineered a stop to it.

Second Stage 5: a commodity price high was reached after the civil war in the early 1870s before financial markets precipitated a correction in the panic of 1873.

Third Stage 5: commodity prices and inflation were spiking for their time after world war I. on May 17, 1920 the senate adopted a resolution advising the Fed to take corrective measures, which it did by raising the discount rate to then record levels and contracting the money supply.

Fourth Stage 5: the inflation of the 1970s whicb Paul Volcker brought to an end.

Here is where you have a problem. Commodity prices peaked in 1814. They fell after the war as usually happens for peak wars. No "engineering" is usually necessary. Similarly the US commodity peak was in 1864, not the early 1870's. You have confused the British peak in 1873 with the US peak in 1864. Prices fell after 1864, just as they normally do following a peak war. You have the 1920 peak correct, it followed WW I, another peak war. Prices peaked after the war ended because the nation did not demobilize immediately after the armistice, government spending was still very high in 1919. There was not direct action by the Fed needed to bring about deflation: postwar declines in government spending was sufficient. Deflation after major wars was normal for centuries--it did not need to be forced by a central bank.

The late 1970's situation was anomalous. This time the Fed did deliberately stop inflation by hiking interest rates to stratospheric levels, "engineering" a Kondratiev peak. Orthodox Kondratiev theorists who denote Vietnam war as a peak war tend to downplay the post 1974 inflation or imply that similar "engineering" had been necessary in the past. It had not been. This is why economists were surprised by "stagflation" in the late 1970's. Something like this hadn't happened before, but then the world had gone completely off the gold standard in 1971 and it was a whole new ballgame.

You reflect this thinking by your statement that there was inflation after previous peak wars (1812, Civil War, WW I) that had to be "fought" by the central bank. There was not.

I suspect what has happened is you have read written descriptions of these things rather than look at the raw data yourself. The cycle you describe is a pretty standard Kondratiev cycle with orthodox timing. The problem is that when it was orginally described, the Kondratiev cycle showed up clearly in raw comodity price data and interest rates. Every 50-60 years there was a peak in commodty prices that corresponding to a war that was called the peak war. War Cycle theorists compiled data on war casualties as a measure of war severity and showed clear-cut 50-year cycles that correspond with the K-cycle.

This clean Kondratiev/War cycle abruptly ended with WW I. After 1920 the clean markers that were used to identify the cycle vanished. Various workers have hypothesized that the cycle continued after 1920, but that is is obscured and can no longer be directly visualized. As a result they have had to use other markers. This is what you are doing with your cycle. You are attempting to trace the progress of the K-cycle using concepts like popular war, unpopular war, crashes, tech booms and such. It's pretty close to the cycle traced out by orthodox theorists. But without the data markers such as the price peaks one can get divergences. Hence there are a whole range of views that are similar to what you have up to the early 1930's but then diverge after.

For example, Korea can be fourth stage 2 as well. It would follow the 1946 crash and the monetary expansion afterward. It also began a big stock boom. This is the version with the K-trough in the late 1940's instead of 1932.

Mike,

I agree with you that the stages that I look for are pretty orthodox K-Wave analysis. Where I contend people went wrong in this application is failing to see what the lifting of the gold/monetary standard did to prices and how they subsequently affected the depth of some of the various stages.

If you look at a chart of the inflation rate since 1932 it is virtually a vertical line higher. And this surge in inflation coincided precisely with Roosevelt's taking us off the gold standard and accelerated even further in 1971 when Nixon closed the gold window entirely. Interestingly enough, it also coincided with DeGersdorff's identification of the beginning of a new long term inflation cycle, the mid point of which was due to occur in the mid 1980s. The difference with this inflation cycle, though, was that for the first time in history a new inflation cycle began with NO monetary standard whatsoever and the velocity of the subsequent price inflation was greater than anything ever seen before.

In my work with markets I have seen price action that displays this kind of vertical action upwards before and, very often, when cyclical analysis is applied to a trend that is this strong, when a cyclical low point is called for it causes only the briefest pause in price action and then re-accelerates later. This is what I have contended happened with the K-Wave in 1987. This is why the liquidation stage was so short and shallow and why there was no deep economic calamity. It was this lack of a monetary standard that held the economy up this time around by providing a kind of inflationary cushion. And, even though there was no definable downmove in price data the normal stages of the orthodox K-wave began to reassert themselves anyway with the Gulf War as a trough war, followed by the tech boom, etc. etc.

This is why I say that, as we are now still in the relatively early stages of the second half of the long term high inflation cycle, that when the next inflation stage of the orthodox K-wave approaches, probably sometime in the next decade, that inflation is likely to be greater than anything we have ever seen before.

In other words, I am contending that the normal stages of the orthodox K-Wave are still in force but that the inflation cycle is so strong this time around, due to the lack of a monetary standard, that the last K-Wave ending does not even show up in price data that you are looking at.

But this long term inflation cycle is due to end sometime around 2040 or so and the impact of that, I think, will be quite profound and very easily discernible in the price data.

Originally Posted by enjolras

Mike,

I agree with you that the stages that I look for are pretty orthodox K-Wave analysis. Where I contend people went wrong in this application is failing to see what the lifting of the gold/monetary standard did to prices and how they subsequently affected the depth of some of the various stages. If you look at a chart of the inflation rate since 1932 it is virtually a vertical line higher. And this surge in inflation coincided precisely with Roosevelt's taking us off the gold standard and accelerated even further in 1971 when Nixon closed the gold window entirely.

I direct you to my work on reduced price, which addresses this phenomenon. http://www.safehaven.com/showarticle.cfm?id=74

It is this indicator that I will rely on to tell me which macroview is correct (mine, yours or Marc Lamb's). I will not need to make a choice of macroview until the S&P500 reaches 1700 or 2008, whichever comes first. Until then we are all on th esame page and it doesn't matter what our macroviews say. I will point out than in early 2002, both you and Marc were more bullish than I, based on your macroviews, and that bullishness was misplaced.

Interestingly enough, it also coincided with DeGersdorff's identification of the beginning of a new long term inflation cycle, the mid point of which was due to occur in the mid 1980s.

I pointed out last time that DeGersdorff's long cycles don't match the price data for the first few centuries of the period he considers. Basically his cycle matches for only two complete cycles, which is too short to establish that such a cycle even exists. He must have used the Phelps Brown and Hopkins series, its the only one that covers 700 years.

It is available from global financial data: http://www.globalfindata.com

One cannot effectively do financial cycle work without working with the data series directly. If you rely on someone else's cycle findings you will get translation errors and develop an incorrect picture of what happened. An example of this is your statement about the central bank acting to stop inflation after the War of 1812. There was no inflation to stop, deflation had already begun after 1814. All you have to do is simply plot out US commodity prices over the relevant period and you will see this. A serious student of inflationary cycles should have the relevant data series

In my work with markets I have seen price action that displays this kind of vertical action upwards before and, very often, when cyclical analysis is applied to a trend that is this strong, when a cyclical low point is called for it causes only the briefest pause in price action and then re-accelerates later. This is what I have contended happened with the K-Wave in 1987. This is why the liquidation stage was so short and shallow and why there was no deep economic calamity. It was this lack of a monetary standard that held the economy up this time around by providing a kind of inflationary cushion. And, even though there was no definable downmove in price data the normal stages of the orthodox K-wave began to reassert themselves anyway with the Gulf War as a trough war, followed by the tech boom, etc. etc.
But you are simply guessing here. There are analytical tools that one can use to obtain a clearer picture. It also is critical to have centuries of data to work on, so you can test the effectiveness of the tools.

In other words, I am contending that the normal stages of the orthodox K-Wave are still in force but that the inflation cycle is so strong this time around, due to the lack of a monetary standard, that the last K-Wave ending does not even show up in price data that you are looking at.
Yes this is the orthodox view

In the final analysis one cannot be certain. This is why making specific predictions using market levels and dates that can then be checked against what happens and be right or wrong is necessary. Each prediction serves as an experiment. The prediction either comes true or not. Either way it increases your knowledge. If you don't make specific predictions, then you can never improve your understanding of the thing you are studying. This is the scientific method in action. If you don't do it, then what are are practicing isn't scientific, but rather a predictive art akin to astrology.

For example, you predicted that the Sept 2001 bottom was the bottom. I submit that if the 2000 bear is simply a lull (and not the start of a secular bear market) then your prediction should have been correct. The 2001 bottom could have been the bottom, I don't have a crystal ball, I can't KNOW the future. I could be wrong. THAT's why I was 60% in stocks in fall 2001. That's why I started buying again in late 2000. I didn't expect the early 2000 rally (obviously since I was short in late 1999). Maybe I was wrong. Maybe there is no such thing as a Stock Cycle. I don't KNOW for sure.

So my growing long positions as the market declined were a hedge against the possibility that I was wrong. And my residual positions in the income fund were a hedge against the possiblity that I was right.

The fact that what you predicted using your macroview did not happen means something. It is a piece of experimental data that is very hard to obtain in this field. It shouldn't be ignored.

Mike,

the turn to the upside in the stock market that i thought was coming in late 2001-early 2002 has not yet been shown to be incorrect. in fact, if you take the opening price on the S&P for the month of October 2001 they are higher as of right now that we were then. not by much, i grant you, but this is an event that should take several years to complete and if prices should come back down and take out the lows that were made in march of 2003, particularly at this juncture, then i will have to do some serious re-evaluation.

it is a fact, though, that the decline in indexes such as the dow jones and the S&P has been shallow to normal compared to what has occurred in the nasdaq which, i have always contended, is not a good index to watch for these purposes since it is so heavily weighted to one sector of the market.

the point i am trying to make is that, while this specific prediction is still up for grabs for now, previous events were not. just by using the orthodox k-wave view, and assuming that DeGersdorff's theories about high inflation and low inflation cycles was correct and taking into account the current lack of a monetary standard and its likely stimulative affect on prices, we could make the following prediction pre-1987:

1. that the aftermath of the 1987 crash would probably not produce depression like characteristics in the economy.

2. that after a market rally in stocks and bonds a war would likely break out that would probably go well and would likely offer profit opportunties in oil and precious metals.

3. that after the normal post-war recession that a long boom period would occur that would probably last about 20 years and would be dominated by advances in technology and speculation in technology related stocks, particularly small capitalization stocks.

the mid boom "lull" periods are something that most traders are aware of because markets in these types of boom periods, or long term bull markets, seem to peter out for some reason after approximately 10 years and require a rest of a year or two before resuming their climb. the unusual thing about this most recent bear market was that it lasted for more than 2 consecutive years. perhaps, this was my error , though, in how i looked at this since the actual market high occurred in 2000. perhaps the correct interpretation of this particular phenomenon is that the market should not correct for more than 2 consecutive years in the years immediately following the year in which the actual high was made.

either way, what unfolds in the next few years will tell the tale on that.

but the approach i have outlined has successfully predicted those previous events simply by assuming that the normal pattern of events that unfold during the the K-wave are still in force and that a new wave began shortly after the 1987 market crash.