Dear Titus,

Originally Posted by Sabinius Invictus

> Golden Ages are often the byproduct of the 'Universal Empire
> Phase' of a civilization's development, which for America (and the
> West in general) I see as running from roughly 1945-50 to around
> 1965-70. At such a time, it takes only a small nudge (like any one
> of the events of the last 2T) to turn golden ripeness into the
> brown of decay.

How do you come to the date 1970? If it has to do with the Vietnam
war, then it sould be when the war began - the early 1960s - or when
the war ended, 1974. So where did 1970 come from?

It's hard to see why today isn't still America's Golden Age. We're
the only superpower in the world, we have technological firepower
that no one else can match, and we have more political influence than
any other country in the world.

What's your argument that America's Golden Age is already over?

Sincerely,

John

John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com

Originally Posted by John J. Xenakis

Dear Titus,

Originally Posted by Sabinius Invictus

> Golden Ages are often the byproduct of the 'Universal Empire
> Phase' of a civilization's development, which for America (and the
> West in general) I see as running from roughly 1945-50 to around
> 1965-70. At such a time, it takes only a small nudge (like any one
> of the events of the last 2T) to turn golden ripeness into the
> brown of decay.

How do you come to the date 1970? If it has to do with the Vietnam
war, then it sould be when the war began - the early 1960s - or when
the war ended, 1974. So where did 1970 come from?

It's hard to see why today isn't still America's Golden Age. We're
the only superpower in the world, we have technological firepower
that no one else can match, and we have more political influence than
any other country in the world.

What's your argument that America's Golden Age is already over?

Sincerely,

John

John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com

First off, I came up with 1970 by rounding off to the nearest decade, for the ebbing away of America's self-confidence in not just the military, but in many fields. ('Limlts of Growth', 'Small is Beautiful', etc.") Besides, I did actually say 'around 1965-1970, which takes in your suggestion of the earlier 60s, much closer to the start of the Vietnam War. S&H might even wish to narrow it down further, to 22 November 1963. ('Where were you when Kennedy was shot?')

As for why I see America's Golden Age as being in the past, first off, it's not just America I'm speaking of. It's the entirety of Western Civilization, with NATO as said civilization's nearest approximation to a Universal Empire. But as to the why, we're talking ever-worsening economic upheavals, which will one day spawn a depression (or devaluation - some right here on this forum think very soon). Add in ever-worsening conflicts of interest between the various vested interests within the Western World. (I mention the particular nastiness of the last few elections as a political expression of this, not to mention the ever-increasing difficulty of getting all of NATO - our 'Universal Empire' - on the same page.) Mix in ever-declining levels of education, which various vested interests not only whine about, but also advance 'solutions' which would primarily advance their interests, whether or not they actually solve the problem. Also, starting back in the late 60s, there has been a growing delegitimation of every aspect of Western Society amongst an ever-widening circle of people, a continuing proliferation of new religious cults of all sorts, and a steadily growing reluctance to fight for one's country (or civilization), or even to support it by paying one's taxes. These symptoms may affect some parts of the West more than others, or at times may be slowed down or even (temporarily) reversed in their progression, but according to Prof. Quigley's analysis, they would be (and, IMO, are) unmistakable.

As for us still being 'the most powerful', it is entirely possible for a declining empire's primary rival to decline even faster, as happened to the Parthian Regime in late 2nd cent. and early 3rd cent. Persia, which declined a lot faster than Imperial Rome during the same period (thus giving Rome the one-up position on them at the time.). I would say that this was the case with the Soviet Empire, as well. If you then mention the way the Sassanid Dynasty replaced the Parthians, and rejuvenated 'the Persian threat', I would offer the growing might of China as our modern-day parallel.

Originally Posted by John J. Xenakis

Dear Sean,

Originally Posted by Peter Gibbons

> I can see how many of our discussions could be viewed as esoteric
> or worse, but one of the reasons I feel we are here is to discuss
> such matters. So if S&H say Dec. 1773 for the start of a 4T
> "catalyst phase", let's talk about it. Some will agree. Some will
> not.

I'm not against discussing it. I've discussed this stuff in detail.
But I just don't think it matters, and it appears to me that we're
talking about different things. If we're going to discuss it, at
least let's try to get a firm definition of what a 4T is.

I would start with how S&H describe it on pp. 103-04 of T4T, and then add little tidbits from other places.

Originally Posted by John J. Xenakis

Originally Posted by Peter Gibbons

> More generically, it could be described, and is by S&H, as an
> attack on, and change of, value regimes (as opposed to social
> order in a 4T).

OK, let's run it up the flagpole and see who salutes.

Let's see. The recent presidential election, according to pundits,
was a battle over "moral values." So I guess we're in an awakening
now. It probably all started in 1998 with the impeachment of
President Clinton, based on moral values.

Indeed, we can now see that an entire value regime is under attack.
On one side is the "liberal" view, which promotes gay marriage,
monetary support for single mothers, and unfettered abortion rights,
and on the other side is the "conservative" view, strongly supported
by the Christian right, with restrictions on gay marriage, monetary
restrictions on free sex, and a reverence for the life of unborn
babies.

It's pretty clear to me that there's a big attack going on against
the previous values regime, and that things are changing.

So, according to your definition. we're in the middle of an awakening
that began in 1998 (or thereabouts).

The problem is that it's not enough to describe what an awakening
"is"; you also have to tell what an awakening "isn't". Attacks on
value regimes go on all the time, and value regimes change all the
time, to a greater or less extent.

How big an attack does it have to be, in order to be an awakening?
How much does the value regime have to change?

And just what is a "value regime" anyway? Is it a bunch of people?
Politicians? Books?

I struggled for many months trying to get the definition of a "crisis
war" right, suffering under Mike Alexander's relentless grilling,
until I finally got it right. And I consider the attempt to create
an equally rigorous definition of an awakening to be next to
impossible.

And that's the point I'm making. The reason that we can't agree
whether now is a 3T or 4T is because we just don't agree on what a 3T
or 4T is, and we don't have any way to develop a common basis.

In Generational Dynamics, I actually have come up with a definition.
Since I know what I crisis war is, I base everything on that. An
awakening is the period that begins 15-20 years after the end of the
last crisis war, when college-age kids rebel against their parents
over the austere rules and compromises that were imposed after the
crisis war. That's my definition of "awakening"; simple, practical,
easy to measure.

That's the closest thing I've seen to a rigorous definition, and even
it's a little squishy because of the 15-20 years part, and the "rebel
against" part. But it's the best I've seen.

So if you have a better definition, I'm genuinely interested in
hearing about it, but I don't think S&H gave one, and I don't think
anyone else has either.

Now if we move on to the definition of a 3T, and the algorithm for
determining the boundary between a 3T and 4T, I'm frankly going
completely on feelings, and I believe everyone else is as well. (I
don't know what dooziness is, by the way, or why it makes a
difference.)

I really don't have a problem discussing these definitions, but I
note that we've been discussing them in this thread for close to a
year, and in other threads for years before.

I think S&H offer pretty good descriptions (if not definitions) of all the turnings in Chp. 4 of T4T, esp on pp. 99-104. As for your discounting of the "values regime" argument for a 2T vis-a-vis "social order" for 4T's, I would put it like this:

During 4T's the Social Order set in place for decades by the previous cycle is greatly weakened, dysfunctional and comes under attack. The basis (foundation) for a new social order is constructed during the 4T and built upon during the subsequent 1T. By the 1T/2T boundary the social order is no longer all that malleable and finishes crystalizing, no longer able to adapt to new circumstance that well, be they technological, cultural, or what-have-you. The Social Order becomes less well-adapted and more dysfunctional during the course of the 2T and 3T until we find ourselves full circle at the 3T/4T boundary.

The opposite for the "values regime". But here I would agree that there is a crucial difference. After a new Values Regime implants during a 2T, it is further constructed and built upon during a 3T. But there won't be full coherence until the opening of a 4T, when the regime finally consolidates and crystalizes, becoming brittle itself by the 1T/2T boundary. The problem is that on at least one occasion in our past, that consolidation was not unitary leading to a Civil War. Two Values Regimes congealed, and that set the stage for how that 4T and connected Social Order rebirth was going to play out.

When you cite attack on a values regime in 1998, what I would suggest you are looking at is the competing of as yet unsynchronized portions of the new values regime structure. Let's just hope that when a 4T does fully present itself (in the form of a relative collapse of the old Social Order and the urgent need for a new one) that we don't find ourselves again in a situation where two fully irreconcilable Values Regimes result.

Regarding your critique of the term "values regime", S&H use that term and it has been used by many here. I don't have the time to discuss the usefulness of the term or concept, but I'm not against the idea of examining it. I'm just low on bandwidth.

Originally Posted by John J. Xenakis

Originally Posted by Peter Gibbons

> I think it is more like many of us are arguing over the shade of
> orange, and some us are arguing over the type of fruit. I see you
> as more of the latter since your interpretation of cyclical
> history is quite unorthodox from an S&H perspective. Not
> necessarily wrong, mind you. Just different.

I don't look at it that way. Generational Dynamics is build on S&H's
work. S&H's discovery of the generational paradigm was brilliant,
but not complete. They were way too restrictive in believing that it
only applied to a few modern nations.

I know your work is related to S&H's, but as Mike A. has pointed out, you take a very different emphasis. Your based on Crisis Wars and everything else orbits that. S&H have a more bottom up approach with an emphasis on the interrelationship of generations and life phases. This does not make you wrong by any means. But I do think you are significantly different from them in serious ways. But, to my mind, it's good to have different angles and perspectives. Otherwise, one risks intellectual inbreeding.

And I agree that S&H's application may have been to restrictive. I agree with Mike A. that the saecular cycle was likely in play before modernity and agree with you that it is likely in play to some degree or another in most if not all of the world.

Originally Posted by John J. Xenakis

And they made major errors in analyzing the 1600s because they didn't understand that timelines need to be localized. I've overcome these problems by making some corrections and building on their theory so as to extend it to all places and times throughout history. This is really good news for all of us, because it confirms the brilliance of their groundbreaking work.

I am not sure that they were categorically against localizing timelines. They seem perfectly fine believing that the US it currently out of synch with Western Europe, and esp. Japan. They've discussed that with us on this board in the past. I think their work is silent on whether they saw minor discrepancies between cycles in Europe in pervious centuries. You attempts to contextualize differing timelines is quite laudable. I just don't agree with some of your conclusions because I am not in full concurrence with you Crisis War interpretations (e.g., we disagree on the English Civil War). I am still open, however, to your Balkans cycle. I have not been able to rule that out in my own mind.

Originally Posted by John J. Xenakis

However, I have found myself alternating between being upset and bemused that so many people in this forum react to this success by treating me like the devil incarnate.

Dude, who here treats you that way??? I've seen Mike A. go toe-to-toe with you on various issues, but I am not aware of anyone abusing you.

Originally Posted by John J. Xenakis

Actually I'm pretty excited these days. I believe it was Tim Walker
who suggested finding a "unified field theory" for patterns in
history, and I now believe that I've succeeded. In the last few
months I've developed a comprehensive theory that encompasses
generational patterns, Kondratiev cycles, long waves, long cycles,
war cycles and financial cycles. Furthermore, I'm now able to define
precisely what it's possible to predict and what can never be
predicted (and I now have an over 2-year track record on my web
site). My big breakthrough came when I applied the mathematics of
Chaos Theory and Complex Systems Theory. I've created an abstract
model of the world through time, and I've shown how different views
of the model produce different results. A fractal is a graphical
representation of the attractor space of a chaotic complex system,
and it looks the same from every view. But the complex system model
that I've defined exhibits chaos in one view, a generational pattern
in another view, long waves or long cycles in another view, and so
forth. The result is that the abstract model explains everything, and
so is the "unified field theory." I haven't posted anything about
this yet, because I'm still sorting out some details and writing a
lengthy description for my new book, but I'm very excited for obvious
reasons. So, returning to the original point, I don't look at what
I've done as "unorthodox"; I look at it as a derivative of S&H's work
that shows what a remarkable insight they had in the first place, and
S&H have developed the basic foundation for the solution to a problem
that's been puzzling historians for over a century.

Cool.

Originally Posted by John J. Xenakis

Originally Posted by Peter Gibbons

> I think S&H did a pretty good job defining all of these things,
> and that we here have done a good job over the years refining them
> (regardless of whether or not S&H agree or care).

I haven't seen any of those definitions or refinements. All of seen
disagreements. Are there any two people on this forum who agree on
anything?

Yes.

Originally Posted by John J. Xenakis

Originally Posted by Peter Gibbons

> I am not changing the subject. I disagree with you that policies
> are irrelevant. So yes, in that sense "diametrically" is right. I
> don't think the policies or the mood or the conditions yet
> reflect a 4T as S&H define it and as many of us here have refined
> it. But as your postings so frighteningly make clear, that's all
> about to change. Shocked

Can you give me an example of a presidential policy that's made any
difference whatsoever? (If you're going to say the war in Iraq, I
would point out that both parties were committed to the war until
after it was over.)

Bush's tax cuts. And as for Iraq, if Bush had not pushed and outright lied (about "imminent threat" not WMD) and done all sorts of goofy things we would not likely have invaded Iraq, at the very least as soon as we did.

I think you and I will just have a very basic disagreement on the issue of policies being irrelevant.

Dear Sean,

Originally Posted by Peter Gibbons

> I think S&H offer pretty good descriptions (if not definitions) of
> all the turnings in Chp. 4 of T4T, esp on pp. 99-104. As for your
> discounting of the "values regime" argument for a 2T vis-a-vis
> "social order" for 4T's, I would put it like this:

> During 4T's the Social Order set in place for decades by the
> previous cycle is greatly weakened, dysfunctional and comes under
> attack. The basis (foundation) for a new social order is
> constructed during the 4T and built upon during the subsequent 1T.
> By the 1T/2T boundary the social order is no longer all that
> malleable and finishes crystalizing, no longer able to adapt to
> new circumstance that well, be they technological, cultural, or
> what-have-you. The Social Order becomes less well-adapted and more
> dysfunctional during the course of the 2T and 3T until we find
> ourselves full circle at the 3T/4T boundary.

> The opposite for the "values regime". But here I would agree that
> there is a crucial difference. After a new Values Regime implants
> during a 2T, it is further constructed and built upon during a 3T.
> But there won't be full coherence until the opening of a 4T, when
> the regime finally consolidates and crystalizes, becoming brittle
> itself by the 1T/2T boundary. The problem is that on at least one
> occasion in our past, that consolidation was not unitary leading
> to a Civil War. Two Values Regimes congealed, and that set the
> stage for how that 4T and connected Social Order rebirth was going
> to play out.

> When you cite attack on a values regime in 1998, what I would
> suggest you are looking at is the competing of as yet
> unsynchronized portions of the new values regime structure. Let's
> just hope that when a 4T does fully present itself (in the form of
> a relative collapse of the old Social Order and the urgent need
> for a new one) that we don't find ourselves again in a situation
> where two fully irreconcilable Values Regimes result.

> Regarding your critique of the term "values regime", S&H use that
> term and it has been used by many here. I don't have the time to
> discuss the usefulness of the term or concept, but I'm not against
> the idea of examining it. I'm just low on bandwidth.

My problem with all this is that it's not definitive. It's like
defining the ocean as "something that's blue." That definition tells
you something about the ocean, but doesn't help you tell the ocean
apart from a bluebird.

I started from TFT's general descriptions of a crisis period, and
eventually ended up with 20 or so questions that you could ask about
any war, and determine whether or not it's a crisis war. Nothing
like that has been done with awakenings, and I honestly don't think
it's possible to do it.

Originally Posted by Peter Gibbons

> Dude, who here treats you that way??? I've seen Mike A. go
> toe-to-toe with you on various issues, but I am not aware of
> anyone abusing you.

You're absolutely right. Things have really settled down, and it's a
mistake to worry about the past, when there's so much more in the
future to worry about.

Originally Posted by Peter Gibbons

> Bush's tax cuts. And as for Iraq, if Bush had not pushed and
> outright lied (about "imminent threat" not WMD) and done all sorts
> of goofy things we would not likely have invaded Iraq, at the very
> least as soon as we did.

> I think you and I will just have a very basic disagreement on the
> issue of policies being irrelevant.

I was hoping for something farther in the past, so that it could be
more dispassionately evaluated.

It's not necessarily that the things you mention are or aren't
relevant. The Iraq war wasn't Bush's policy. The 2003 Iraq war was
an inevitable consequence of Saddam's invasion of Kuwait in 1990.

Clinton's armed forces were overflying and bombing Iraq from the
first day to the last day of his two terms. The Iraqi war resumed in
full force in December 1998 as Operation Northern Watch. See the
following chronology for more details.
http://www.eucom.mil/Directorates/EC...ronology.htm&2

All major Democratic leaders, including Hillary Clinton, Dick
Gephardt, and Al Gore all fully supported the war. The only major
Democrat to finally oppose the war was Howard Dean, and he was firmly
rejected by his own party. So the war was happening anyway. Similar
arguments apply to the tax cut. The point is that politicians don't
make these policies - large masses of people do, as a result of
generational changes. That's the whole point.

Sincerely,

John

John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com

Originally Posted by John J. Xenakis

Similar
arguments apply to the tax cut. The point is that politicians don't
make these policies - large masses of people do, as a result of
generational changes. That's the whole point.

I think this is true but only to a point. It goes both ways to a certain degree. I wholeheartedly disagree that Al Gore would've pushed through Bush's tax cuts. He may or may not have engaged in some kind of fiscal stimulus in light of the burst bubble, but he would not have engaged in anything that deep or relatively regressive (as he'd see it, anyway). As a result our current budget deficit wouldn't be as bad nor our current account deficit.

But in support of your overall point, the Overconsumption Orgy would surely still be going on and still have a horrible end (which we still have yet to see). It just wouldn't have been quite as bad as it is now. But the same general consequences would apply. So in that sense I can see your concept of inevitability, but to say that Bush's tax cuts were inevitable is not something I see.

I am still not fully convinced that the Iraq War would've happened under Gore. I am, at least intuitively, pretty certain that it at least wouldn't have happened the same way. Gore wouldn't have been as fixated on getting Sadaam, no matter what. Bush had some kind of obsession there.

Dear Sean,

Originally Posted by Peter Gibbons

> I think this is true but only to a point. It goes both ways to a
> certain degree. I wholeheartedly disagree that Al Gore would've
> pushed through Bush's tax cuts. He may or may not have engaged in
> some kind of fiscal stimulus in light of the burst bubble, but he
> would not have engaged in anything that deep or relatively
> regressive (as he'd see it, anyway). As a result our current
> budget deficit wouldn't be as bad nor our current account
> deficit.

> But in support of your overall point, the Overconsumption Orgy
> would surely still be going on and still have a horrible end
> (which we still have yet to see). It just wouldn't have been quite
> as bad as it is now. But the same general consequences would
> apply. So in that sense I can see your concept of inevitability,
> but to say that Bush's tax cuts were inevitable is not something I
> see.

Before responding directly, I think it's worthwhile to pause and make
a point about Al Gore and George Bush. Both of them were the
"anti-Clinton." Bill Clinton was a brilliant politician, especially
in front of an audience, but he also in bed with drug dealers, he
convulsed the nation with his lies, he offended people with his
profligate sexual behavior, and he was credibly charged as a violent
serial rapist.

Both Al Gore and George Bush are the opposite. They're both stiff
and uncomfortable in front of an audience, they're both credible and
honest, and they're both devoted to their families. I see the two of
them as very similar.

Now I get it that you hate George Bush passionately, and you feel the
need to emphasize differences between him and Gore, even when no such
differences exist. But what you're doing is actually a disservice to
Gore. Since I think we can both agree that he's an honest man, then
that means we have to believe what he says. That means that if you
ascribe policies to Gore based on some fuzzy "intuitive" feelings that
you might have, and you can't support those views with Gore's actual
words, then you're actually attacking Gore's credibility. Gore was
and is fully able to speak for himself, and we don't have to depend
on feelings or intuition about what we'd like to believe that he
might have done.

Now, turning to your point, my recollection is that Al Gore proposed
any number of spending programs during the 2000 campaign, and I think
we have to take him at his word about those. You're right that he
wouldn't have pushed through Bush's tax cuts, but he would
have pushed through spending programs for an equal amount of money.

The zeitgeist in 2001 is that there was a lot of money around
to be spent, and that's what politicians do.

Politicians are really very simple-minded, really - as simple-minded
as dogs. If you put a pile of money in front of a politician, it's
like putting a steak in front of a dog -- they'll drool and bark and
whine and get their paws on every bit of it.

So Bush pushed through tax cuts and Gore would have pushed through
spending programs, but from the point of view of the macro economy,
there would have been no difference between them.

Originally Posted by Peter Gibbons

> I am still not fully convinced that the Iraq War would've happened
> under Gore. I am, at least intuitively, pretty certain that it at
> least wouldn't have happened the same way. Gore wouldn't have been
> as fixated on getting Sadaam, no matter what. Bush had some kind
> of obsession there.

Now here there is some difference, but in the opposite
direction than you suggest.

I followed the Iraq issue very closely in 2002. In January,
conservatives were pressuring Bush to invade Iraq, and were
predicting that we would do so in the Spring came. When Spring came,
the conservative pundits were predicting an invasion in the Summer.
In Summer, the predictions were for the Fall, then for the late Fall,
and then finally for early 2003.

In other words, there were several delays in the invasion timeline.
Bush could deal with those delays because the conservatives kept
mostly quiet, and because worldwide debate was mostly opposed to the
invasion, especially in the UN. Bush did achieve a significant
victory in the UN late in 2003, when he got that resolution passed
requiring Iraq to cooperate with the inspectors, but when Chiraq
double-crossed him and Dominique de Villepin stuck a knife in Colin
Powell's back, and Saddam refused to fully cooperate, Bush felt he
could go ahead, and he did, with the overwhelming support of the
Democrats.

Now, imagine the scenario with Al Gore as President.

Gore would have spent 2001 trying to push through his spending
programs. But 9/11 would have been very different for Gore.

Gore would have been fully blamed for 9/11. Bush almost completely
escaped blame, because he was in office only a few months. But Gore
would have been in office almost nine full years. He would have
received far harsher treatment from the Republicans than Bush got
from the Democrats.

Let's assume, for the sake of argument, that Gore would have pursued
the same sort Afghan war that Bush did, and let's move on to the 2002
scenario.

That year would have been a political crisis for Gore. The
Republicans would have been saying to Gore: "You and Clinton have
been disastrous for the country. You and Clinton let 9/11 happen,
exposing the country to the danger of Islamic terrorists. Now we're
facing the threat of WMD's from Iraq. You've been bombing Iraq for
nine years, but you haven't done anything to reduce the WMD threat.
You're a weak leader because you refuse to do anything to protect the
country. Every time you delay, then you put the entire country in
even more danger."

Every attempted delay by Gore would have been met with huge political
turmoil. Gore would not have been able to get away with five or six
delays the way Bush did. Gore would have had to invade in Spring
2003, almost a year earlier than Bush did.

So Gore would have had to be much more militarily aggressive
than Bush was.

And if Gore really tried to do what you "intuitively" claim he
would have done, then that would have been the real analogue to the
Herbert Hoover presidency, and Gore would have been thrown out by a
landslide in 2004.

Speaking of 2004, it's worthwhile mentioning one more point: There
was absolutely no difference in announced policy in Iraq between
Kerry and Bush. And if Kerry had won, then any talk of withdrawal
from Iraq would have led to the same kinds of harsh Republican
attacks that Gore would have received - the accusation that Kerry was
weak, and was putting the country in danger.

So forget about your "intuitive" feelings about Gore and Kerry. If
you can't find actual words or deeds to support your intuition, then
your intuition has no value that I can see.

America today is having its "Next Rendezvous with Destiny," to quote
the TFT front cover. That rendezvous is coming, it's coming soon,
and it will be much worse than the Great Depression and World War II,
and it makes absolutely no difference what politician is in power.

Originally Posted by Leo Tolstoy in War and Peace

> In historic events, the so-called great men are labels
> giving names to events, and like labels they have but the smallest
> connection with the event itself.

That's the way it is. Maybe Bush will be blamed for what happens, or
maybe Bush will be labeled the next great President, following the
sequence Washington, Lincoln and FDR. But either way, Bush will
actually have had but the smallest, most insignificant connection to
the "clash of civilizations" world war, and the same would have been
true of Gore or Kerry, if either of them had been President.

Sincerely,

John

John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com

Originally Posted by John J. Xenakis

Dear Sean,

Originally Posted by Peter Gibbons

> I think this is true but only to a point. It goes both ways to a
> certain degree. I wholeheartedly disagree that Al Gore would've
> pushed through Bush's tax cuts. He may or may not have engaged in
> some kind of fiscal stimulus in light of the burst bubble, but he
> would not have engaged in anything that deep or relatively
> regressive (as he'd see it, anyway). As a result our current
> budget deficit wouldn't be as bad nor our current account
> deficit.

> But in support of your overall point, the Overconsumption Orgy
> would surely still be going on and still have a horrible end
> (which we still have yet to see). It just wouldn't have been quite
> as bad as it is now. But the same general consequences would
> apply. So in that sense I can see your concept of inevitability,
> but to say that Bush's tax cuts were inevitable is not something I
> see.

Before responding directly, I think it's worthwhile to pause and make
a point about Al Gore and George Bush. Both of them were the
"anti-Clinton." Bill Clinton was a brilliant politician, especially
in front of an audience, but he also in bed with drug dealers, he
convulsed the nation with his lies, he offended people with his
profligate sexual behavior, and he was credibly charged as a violent
serial rapist.

Both Al Gore and George Bush are the opposite. They're both stiff
and uncomfortable in front of an audience, they're both credible and
honest, and they're both devoted to their families. I see the two of
them as very similar.

Now I get it that you hate George Bush passionately, and you feel the
need to emphasize differences between him and Gore, even when no such
differences exist. But what you're doing is actually a disservice to
Gore. Since I think we can both agree that he's an honest man, then
that means we have to believe what he says. That means that if you
ascribe policies to Gore based on some fuzzy "intuitive" feelings that
you might have, and you can't support those views with Gore's actual
words, then you're actually attacking Gore's credibility. Gore was
and is fully able to speak for himself, and we don't have to depend
on feelings or intuition about what we'd like to believe that he
might have done.

Now, turning to your point, my recollection is that Al Gore proposed
any number of spending programs during the 2000 campaign, and I think
we have to take him at his word about those. You're right that he
wouldn't have pushed through Bush's tax cuts, but he would
have pushed through spending programs for an equal amount of money.

The zeitgeist in 2001 is that there was a lot of money around
to be spent, and that's what politicians do.

Politicians are really very simple-minded, really - as simple-minded
as dogs. If you put a pile of money in front of a politician, it's
like putting a steak in front of a dog -- they'll drool and bark and
whine and get their paws on every bit of it.

So Bush pushed through tax cuts and Gore would have pushed through
spending programs, but from the point of view of the macro economy,
there would have been no difference between them.

Originally Posted by Peter Gibbons

> I am still not fully convinced that the Iraq War would've happened
> under Gore. I am, at least intuitively, pretty certain that it at
> least wouldn't have happened the same way. Gore wouldn't have been
> as fixated on getting Sadaam, no matter what. Bush had some kind
> of obsession there.

Now here there is some difference, but in the opposite
direction than you suggest.

I followed the Iraq issue very closely in 2002. In January,
conservatives were pressuring Bush to invade Iraq, and were
predicting that we would do so in the Spring came. When Spring came,
the conservative pundits were predicting an invasion in the Summer.
In Summer, the predictions were for the Fall, then for the late Fall,
and then finally for early 2003.

In other words, there were several delays in the invasion timeline.
Bush could deal with those delays because the conservatives kept
mostly quiet, and because worldwide debate was mostly opposed to the
invasion, especially in the UN. Bush did achieve a significant
victory in the UN late in 2003, when he got that resolution passed
requiring Iraq to cooperate with the inspectors, but when Chiraq
double-crossed him and Dominique de Villepin stuck a knife in Colin
Powell's back, and Saddam refused to fully cooperate, Bush felt he
could go ahead, and he did, with the overwhelming support of the
Democrats.

Now, imagine the scenario with Al Gore as President.

Gore would have spent 2001 trying to push through his spending
programs. But 9/11 would have been very different for Gore.

Gore would have been fully blamed for 9/11. Bush almost completely
escaped blame, because he was in office only a few months. But Gore
would have been in office almost nine full years. He would have
received far harsher treatment from the Republicans than Bush got
from the Democrats.

Let's assume, for the sake of argument, that Gore would have pursued
the same sort Afghan war that Bush did, and let's move on to the 2002
scenario.

That year would have been a political crisis for Gore. The
Republicans would have been saying to Gore: "You and Clinton have
been disastrous for the country. You and Clinton let 9/11 happen,
exposing the country to the danger of Islamic terrorists. Now we're
facing the threat of WMD's from Iraq. You've been bombing Iraq for
nine years, but you haven't done anything to reduce the WMD threat.
You're a weak leader because you refuse to do anything to protect the
country. Every time you delay, then you put the entire country in
even more danger."

Every attempted delay by Gore would have been met with huge political
turmoil. Gore would not have been able to get away with five or six
delays the way Bush did. Gore would have had to invade in Spring
2003, almost a year earlier than Bush did.

So Gore would have had to be much more militarily aggressive
than Bush was.

And if Gore really tried to do what you "intuitively" claim he
would have done, then that would have been the real analogue to the
Herbert Hoover presidency, and Gore would have been thrown out by a
landslide in 2004.

Speaking of 2004, it's worthwhile mentioning one more point: There
was absolutely no difference in announced policy in Iraq between
Kerry and Bush. And if Kerry had won, then any talk of withdrawal
from Iraq would have led to the same kinds of harsh Republican
attacks that Gore would have received - the accusation that Kerry was
weak, and was putting the country in danger.

So forget about your "intuitive" feelings about Gore and Kerry. If
you can't find actual words or deeds to support your intuition, then
your intuition has no value that I can see.

America today is having its "Next Rendezvous with Destiny," to quote
the TFT front cover. That rendezvous is coming, it's coming soon,
and it will be much worse than the Great Depression and World War II,
and it makes absolutely no difference what politician is in power.

Originally Posted by Leo Tolstoy in War and Peace

> In historic events, the so-called great men are labels
> giving names to events, and like labels they have but the smallest
> connection with the event itself.

That's the way it is. Maybe Bush will be blamed for what happens, or
maybe Bush will be labeled the next great President, following the
sequence Washington, Lincoln and FDR. But either way, Bush will
actually have had but the smallest, most insignificant connection to
the "clash of civilizations" world war, and the same would have been
true of Gore or Kerry, if either of them had been President.

With respect John, I'd suggest that your analysis is also "intuition" in the sense that it is conjecture based on your take of the issues.

Who is to say that Gore, being the "anti-Clinton" as you say, wouldn't have managed to successfully distance himself from Clinton's alleged mismanagement of Al Qaeda in the days after 9/11? Who is to say Gore and his proxies would not have been successful in throwing GOP criticism back in their faces by stating they were "unpatriotic" for criticizing the President of a nation under attack? (it worked well for Dubya and the mood or Zeitgeist for that kind of patriotism was there)

Who is to say a Gore Administration that was not obsessed with Iraq and was not cajoling it's intelligence community to drumbeat about Hussein's WMD's wouldn't have pursued Iran or NK instead . . . or truly invaded Afghanistan in force and gotten Osama? Who's to say Mr. Earth-in-the-Balance wouldn't started a huge Post-Petroleum Initiative (like Mike A. talks about) in response to all of this?

Sure, things might have gone the way you say, but I object to your insinuation that you have a lock on alternate histories and pooh-pooh other's conjecture and interpretations as "intuition" when yours is just as "intuitive".

I really enjoy your posts, and I greatly respect your intellect, but I am negatively affected by your snippy and demeaning way of responding to those who disagree with you, esp. when they're fans. If I were a regularly hostile poster (to you) or of some political persuasion you find offensive I might understand it. But as such I don't understand it. To my recollection I have not been that way with you. I would've responded in kind by now except that I do respect you.

Dear Sean,

Originally Posted by Peter Gibbons

> With respect John, I'd suggest that your analysis is also
> "intuition" in the sense that it is conjecture based on your take
> of the issues.

Yes, but there's a difference. You were making statements about
Gore's attitudes towards Iraq that were not supported by either his
words or his record. When I made statements about Gore and the
Republicans, they were based on their words and records.

Obviously we're both speculating here, and if you just say "who's to
say X won't happen," then we can put X in for everything. I mean,
who's to say that if we hadn't invaded Iraq, then Saddam wouldn't by
now have used his supply chemical weapons to attack Israel, instead
of having to destroy his supply when America was invading?

All I'm saying is that if we're going to speculate about alternate
histories, then you have to have some basis for your speculation. I
still can't see any possible justification for your statements about
Gore and Iraq except that you want Gore to be different from Bush. If
there's some other justification that I'm missing, please tell me.

Originally Posted by Peter Gibbons

> Who is to say that Gore, being the "anti-Clinton" as you say,
> wouldn't have managed to successfully distance himself from
> Clinton's alleged mismanagement of Al Qaeda in the days after
> 9/11? Who is to say Gore and his proxies would not have been
> successful in throwing GOP criticism back in their faces by
> stating they were "unpatriotic" for criticizing the President of a
> nation under attack? (it worked well for Dubya and the mood or
> Zeitgeist for that kind of patriotism was there)

The country was clearly in the mood for revenge after 9/11, which,
for example, is why the public accepted the jailing of Muslims
without charges. Gore was "anti-Clinton" in personal matters, but
not in policy matters. I know of no justification for the scenario
you're suggesting.

Originally Posted by Peter Gibbons

> Who is to say a Gore Administration that was not obsessed with
> Iraq and was not cajoling it's intelligence community to drumbeat
> about Hussein's WMD's wouldn't have pursued Iran or NK instead . .
> . or truly invaded Afghanistan in force and gotten Osama? Who's to
> say Mr. Earth-in-the-Balance wouldn't started a huge
> Post-Petroleum Initiative (like Mike A. talks about) in response
> to all of this?

It was the same intelligence organization - actually organizations
around the world. What support can you provide for this scenario?
As I recall, even the French believed there were WMDs.

As for capturing Osama, that's a chaotic (random) event. We got
lucky and captured Saddam, but we were unlucky with Osama, so Bush
got 1 out of 2. Maybe Gore would have gotten 0 out of 2, 1 out of 2
or 2 out of 2, but there's no policy that would have triggered.

Originally Posted by Peter Gibbons

> Sure, things might have gone the way you say, but I object to your
> insinuation that you have a lock on alternate histories and
> pooh-pooh other's conjecture and interpretations as "intuition"
> when yours is just as "intuitive".

I don't have any lock, Sean. I'm just guessing, like you. But I do
believe that an alternative view has to have words or deeds to
support it, and that was all I was saying.

Originally Posted by Peter Gibbons

> I really enjoy your posts, and I greatly respect your intellect,
> but I am negatively affected by your snippy and demeaning way of
> responding to those who disagree with you, esp. when they're fans.
> If I were a regularly hostile poster (to you) or of some political
> persuasion you find offensive I might understand it. But as such I
> don't understand it. To my recollection I have not been that way
> with you. I would've responded in kind by now except that I do
> respect you.

Sean, I assure you that I meant no offense, and I apologize if
anything I said appeared to be personally offensive. I was never
saying anything about you personally; I was directly addressing your
arguments only, and I was only specifically addressing the issue of
having words or actions to support alternative scenarios.

John

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

Dear Mike,

If you really believe that price/earnings ratios are going to remain
above 20 until 2018, then your theory really has gone completely off
the rails. There is literally no chance of that happening.

There are several serious problems with your methodology:

• (*) It's far from clear that your "R" (cumulative retained
  earnings) can meaningfully be compared from era to era.
  
  
  
  I've already indicated one possible problem: Your P/R measure drops
  significantly from 1913 to 1921, and you attribute that to inflation.
  However, this is also the period of introduction of the income tax and
  capital gains tax, something that's very likely to have affected
  corporate retained earnings strategies. This is such a remarkable
  coincidence that at least it has to be fully explained.
  
• (*) I gather that "R" is not adjusted for inflation, and it's
  accumulated with no time decay factor. Do I have that right? If so,
  then P/R weights earnings from the 1950s exactly the same as earnings
  from the 1990s. That doesn't make sense.
  
• (*) Even more important is the fact that "R" doesn't take into
  account the form in which the retained earnings are kept. I don't
  actually have any idea how they're kept - perhaps you could explain
  that further. But I assume that they're invested in some way that
  takes advantage of the bubble, which would increase gains/earnings,
  and would presumably create a bubble in retained earnings as well.
  Since you accumulate the bubble retained earnings, your "R" increases
  much more slowly than earnings.
  
  Now I've updated one of your graphs to reflect the two additional
  points you've provided 0.71 in early 2003 and 0.95 in early 2005), we
  get the following:
  
  
  
  You're arguing that the P/R since July, 1999, has already
  followed the path of the 1929 crash. You're saying that the crash
  has already occurred, and we're starting over again. But since your
  "R" in 2003 reflects bubble retained earnings of the late 1990s, P/R
  is going to show a sharper fall that it would otherwise. You could
  argue that this won't matter since we're making an apples to apples
  comparison with the 1930s, but because of the change in tax laws, I
  don't know that.
  
• (*) Taking further the question about the form in which cumulative
  retained earnings are retained, in some cases they'll be held in the
  form of overvalued assets. This is relevant to the whole
  generational point -- that American businesses today are buried in a
  thick crust of bureaucracy and inefficiency, and are unable to
  produce products that young people want at reasonable processes. If
  the businesses are overvalued, then many of their assets are
  overvalued. Once again, this means that "R" is unrealistically high,
  and P/R is unrealistically low.

Now, maybe you can provide a further explanation that responds to
these problems, or maybe you can't. But in a sense it doesn't
matter, because there's no way in hell that P/E is going to remain
above 20 until 1918.

Originally Posted by Mike Alexander '59

> There was no historical support for P/Es to rise above 33. Yet
> they did. You can argue that the late 1990's were a bubble, but so
> were the late 1920's. And the latter was a bigger bubble because
> it burst harder.

The fact that P/E's rose above 33 in the 1990s is an indication that
the 1990s were a bigger bubble, not the 1920s.

But the more cogent region is provided by taking another look at the
following graph:



The green line represents the standard 40-50 year cycle -- your
Kondratieff cycles -- but correctly ignoring the generational
bubbles. The 1920s bubble started from a very low base, while the
1990s bubble started from a very high base. Thus, the 1920s and
1990s bubbles were actually fairly similar, starting from different
places.

This is much clearer from the following graph:



This graph shows how the stock market was bubbling along quite
normally, reaching a cyclic high above the trend line in 1995. The
bubble occurred at what was already a cyclic high, creating a much
higher high than in 1929.

Originally Posted by Mike Alexander '59

> You can argue that Fed rate cuts softened the blow, but do you
> know that the Fed cut rates immediately after the 1929 crash?

Well, I didn't know that, but apparently Alan Greenspan doesn't know
that either.

Originally Posted by Greg Ip in WSJ 18-Nov-04

> In April of that year [1998], the Economist magazine ran an
> editorial titled, "America's bubble economy: The Fed needs to pop
> it, and the sooner the better." That issue's cover featured a
> bubble floating over the Statue of Liberty. The article asserted
> that the 1929 crash and subsequent Depression were caused by a
> similar Fed failure to rein in stock speculation. Mr. Lindsey,
> who had since joined a think tank, visited Mr. Greenspan and the
> two discussed the piece. Mr. Greenspan maintained that the Great
> Depression could have been avoided if the Fed had acted more
> aggressively after the crash, Mr. Lindsey recalls. "1929 didn't
> cause 1932. It depends on what you do in 1930 and 1931," Mr.
> Lindsey recalls Mr. Greenspan saying.

> At an FOMC meeting the following month, the central bank's staff
> warned in a presentation that rising stock prices were creating a
> bubble that threatened to create economic instability. Donald
> Kohn, then a top Fed staffer and now a Fed governor, offered
> several options. The most severe: Raise rates promptly if the
> committee thought the eventual collapse of a stock bubble posed a
> "sufficient threat ... to the health of the economy and the
> financial system."

> Mr. Greenspan told the meeting he didn't want to prick the
> bubble. First, he told the committee members, it was hard to
> second-guess millions of investors on the right value for stock
> prices. Secondly, he said permanently ending a bubble required
> rates so high they'd also wreck the economy.

> The bubble began to deflate by itself in April 2000. When the
> economy weakened, the Fed cut rates sharply, following Mr.
> Greenspan's analysis of what the Fed did wrong in 1929. It cut
> rates twice in January 2001 and five times more through August.
> After the Sept. 11 attacks, it cut four more times, and did so
> again in 2002 after corporate scandals undermined investor
> confidence. In 2003, when the Iraq war and threat of deflation
> hung over the economy, the Fed cut rates again. By June 2003, the
> Fed's key rate was at 1%, the lowest in 45 years.
> online.wsj.com/article/0,,SB110072933456177155,00.html

So yes, I do indeed argue that Fed's rate cuts softened the blow. I
argue a lot more -- that the Fed's rate cuts prevented an immediate
stock market crash to the level of the 1930s.

Originally Posted by Mike Alexander '59

> So why did P/E get so high? I give a possible reason in this
> http://www.safehaven.com/article-73.htm
> article from 2001. These observations are part of the reasons I
> prefer to use P/R instead of P/E as a long-term valuation tool.
> Unlike P/E, P/R gave a useful signal in 1999 that the bull market
> was ending soon. Not only that, but P/R gave a useful signal that
> the market had gone low enough by summer 2002 for a new bull
> market to be imminent. as I described in another
> http://www.safehaven.com/article-84.htm
> article in Oct 2002.

Neither of these articles explains why P/E got so high. In fact,
nobody ever gives an explanation of why the bubble began in 1995,
instead of 1990 or 2000 or some other year. The only possible
explanation is the generational explanation (in the early 1990s, the
generation of risk-aversive "depression babies" all disappeared
(retired or died), all at once as senior financial managers, and were
replaced by risk-seeking "baby boomers.")

John

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

To all:

Alan Greenspan gave a speech in London on Friday, and the press
stories about it have made it seem that he's being pretty optimistic.

However, I actually read the speech, and it turns out that Greenspan
has made a very significant reversal.

One year ago, Greenspan was congratulating himself because "that our
strategy of addressing the bubble's consequences, rather than the
bubble itself, has been successful." He continued to brag about that
months, only beginning to change his tune around October.

In Friday's speech, Greenspan completely reversed himself. He now
says, essentially, that he's been wrong for the last ten years,
because he didn't foresee globalization. He's only one step away now
from saying that a 1930s style crash cannot be avoided.

I put a lengthy discussion of this on my web site. I believe
Greenspan's speech is extremely significant.
http://www.generationaldynamics.com/...reenspan050206

John

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

It isn't likely that any two Crisis eras - let alone consecutive ones - would have a catalyst and/or resolution that turns on essentially the same issue, which is why a 1930s-style depression at the beginning of this 4T is unlikely.

Then again, I've stated my case already for what I believe the basic chronology of this Crisis will be; but in case I might have done it so long ago that it was on the "old" site, this is it, with an appropriate revision to fit 9/11 into the scheme:

9/11 started what will prove to be a steadily-escalating "Twenty Years' War" between Judeo-Christianity and Islam, reminiscent of the 17th-Century "Thirty Years' War" between Europe's Catholics and Protestants. During roughly the period 2013-2019 the fighting will have become so widespread (and the respective religious fronts will have completely hardened) that during those years it will meet the general criteria for being called "World War III;" indeed, future historians will label it as such.

Then, in October of 2019 - a few months after the hostilities have ceased - there will be a global economic crash and ensuing depression, the recovery from which, most likely in the spring of 2023, representing the resolution; the U.S. Presidential election of 2020, contested one year after the crash, will put Clement Atlee-style 13ers into power, and usher in a new era of "national liberalism" similar to that which emerged from the last depression (George W. Bush and his Republican successor[s] who will win the 2008, 2012 and 2016 elections embodying, collectively, a Churchillian-type "Grey Champion").

Originally Posted by John J. Xenakis

If you really believe that price/earnings ratios are going to remain above 20 until 2018, then your theory really has gone completely off the rails.

I didn't say that. I say that P/E's will likely fall into the single digits by 2018. What I AM saying is P/E's don't have to fall to the single digits now.

It's far from clear that your "R" (cumulative retained earnings) can meaningfully be compared from era to era.

How does one tell this? By actual experiment. And I have tested it. In January 1997, P/E reached an all-time high--signalling a sell. P/R reached it all-time high in January 1999, signaling its sell. Which sell worked better? P/R

In summer and fall 2002 P/E was still well above the value it had fell to during the first move down in all previous secular bear markets. The S&P500 would have to fall to the 400's for P/E to have matched it's past performance. P/E was calling for a net short position. In contrast, P/R had already fallen enought to match its past performance in all but one secular bear market (the one after 1929). P/R was called for a net long position. Which was right in 2002: P/E (short) or P/R (long)? Once again, P/R was right and P/E wrong. I explicitly set up this test in my August 25, 2002 post on Longwaves:

Originally Posted by On Aug 25 2002, I

The current market provides a good test of the three valuation methods. Suppose the July 23 low ends up being THE bottom? This would invalidate Shiller's P/E and probably also Tobin's Q as useful valuation tools. Only P/R would have given a valid reading of valuation.

In early October the SPX briefly fell below the July 23 low, reaching a minimum value just 2.5% lower. It quickly rose above the July low. In March 2003, the SPX retested the July low and it's been upward ever since. Only P/R called this bottom, both P/E and Tobin's Q said the market was going much lower. You too were of the opinion in early 2003 that the market had much father down to go. P/E was wrong. Tobin's Q was wrong. You were wrong. P/R was right.

Originally Posted by On Aug 25 2002, I

On the other hand, suppose the S&P500 drops to an ultimate bottom below 550 without a deflationary depression. In this case, P/R valuation would be invalidated. Such a low level of P/R this early in a secular bear market has only occurred once, during the early 1930's. It is inconceivable that it happen again without an accompanying depression. Shiller's P/E says such a development is to be expected, no depression is needed. And Tobin's Q does not rule this out, only P/R does.

This didn't happen so P/R was right to rule it out. Shiller's P/E is specifically invalidated and Tobin's Q was not useful because it did not rule out the decline.

Originally Posted by On Aug 25 2002, I

Suppose a subsequent decline takes the index to an ultimate bottom well below the July 23 close, but above 600? In this case, P/R would not be invalidated, but it would be Tobin's Q that did the best job. Shiller's P/E would still be invalidated.

The market did not decline to an ultimate low well below the July 23 close. P/R worked best for the bottom in 2002, just as it worked best for the previous top.

How can you tell if a valuation methodology (which is what P/R or Shiller's P/E or your exponential curve are) is valid? By whether it works to make predictions that come true. P/R has worked twice where the others have not. By the end of the decade there will be a third test. And we will see if it works a third time.

I gather that "R" is not adjusted for inflation, and it's
accumulated with no time decay factor. Do I have that right? If so,
then P/R weights earnings from the 1950s exactly the same as earnings
from the 1990s. That doesn't make sense.

R is inflation adjusted. For Pete's sake, you have a copy of Stock Cycles. Have you read it? Carefully?

You're arguing that the P/R since July, 1999, has already
followed the path of the 1929 crash.

No. I am saying it is not following the path of the 1929 crash, but rather the paths of the other secular bear markets. If this secular bear market was following the post-1929 path, the S&P500 would have fallen below 400 long ago. If a crash was in the cards the Fed's rate cuts weren't going to be any more effective that the same cuts made in 1929-30:

It didn't happen. Get it out of your mind that 1929-1933 is a good model for today--its not and it never was. When you say things like Greenspan's rate cuts changed the outcome from what happened in 1929 it shows you don't know what the Fed did back then. So how can you make a comparison?

The fact that P/E's rose above 33 in the 1990s is an indication that
the 1990s were a bigger bubble, not the 1920s.

No! The size of a bubble is measured by how far the market falls afterward and by how long it takes to recover its old highs. The market fell much, much more after the 1929 peak than it did after 2000. We are now nearly five years after the peak. By fall 1934, the market was more than two years into a bull market (just like today) the decline was long over. If 1929 was going to repeat it would have done so. It didn't happen. Your graph didn't work.

Neither of these articles explains why P/E got so high.

Yes it did:

Originally Posted by In this [url=http://www.safehaven.com/article-73.htm

article[/url] I]The smoothed E/R plot shows that return from resources declined from about 7% before WW I to a little over 4% after WW I. A given amount of R will produce about 40% less earnings it did a century ago. This implies that for equal peak market valuations (as measured by P/R), peak P/E values of today should be about 50% higher than those of the past. Thus, whereas in the 19th and early 20th century a P/E of 20 would be considered very high, today a P/E of 30 would be considered as equivalently high. This is the reason why P/R gave a closer prediction of the timing of the bull market peak than did 10 year P/E.

Dear Anthony,

Originally Posted by Anthony '58 II

> It isn't likely that any two Crisis eras - let alone consecutive
> ones - would have a catalyst and/or resolution that turns on
> essentially the same issue, which is why a 1930s-style depression
> at the beginning of this 4T is unlikely.

When I first started studying this whole subject, shortly after 9/11,
I actually came at this from the other direction: I felt that the
entire generational paradigm could not be considered credible as long
as the "Great Depression" anomaly was part of it.

I began with America's previous crises, and I found that the Panic of
1857 preceded the civil, and I found that there was a major meltdown
of the English banking system in 1772, resulting in the bankruptcy of
thousands of colonial businesses.

I now believe that a financial crisis is closely tied in with crisis
wars. A financial crisis is often the visceral trigger of a crisis
war, because hatreds are generated when a man can't feed himself or
his family. It takes some such cause for a man to be willing to give
up the comforts of home, pick up a gun, and go out and kill people.

Originally Posted by Anthony '58 II

> Then again, I've stated my case already for what I believe the
> basic chronology of this Crisis will be; but in case I might have
> done it so long ago that it was on the "old" site, this is it,
> with an appropriate revision to fit 9/11 into the scheme:

> 9/11 started what will prove to be a steadily-escalating "Twenty
> Years' War" between Judeo-Christianity and Islam, reminiscent of
> the 17th-Century "Thirty Years' War" between Europe's Catholics
> and Protestants.

The following is adapted from my book:

The Thirty Years' War first began as a civil war in the Habsburg
Empire (Germany and Austria), following the unraveling of the 1555
Peace at Augsburg.

We can identify a big financial crisis component to the Thirty Years'
War, caused by the debasing of coins, and leading to the great
"Tulipomania" bubble that collapsed in 1637.

The financial crisis had, at its base, the price inflation caused by
the precious metals that Spain imported from the New World during the
Golden Age of Spain in the 1500s. After the disastrous destruction of
the Invincible Armada by England, Spain rebuilt its Armada, but was
forced to pull back many of its military adventures, especially as
sources of precious metals in the New World began to peter out.

This led to financial hardship, but it doesn't take long for clever
people to devise sneaky new methods for making money.

The habit of debasing coins had begun around 1600. The value of a
coin was determined by the value of the precious metal in it. Princes
and clergymen started to debase the coins by substituting cheap metal
for good metal, or by reducing their weight. Trading in these coins
became increasingly speculative during the "unraveling" period, since
one could never be sure whether a coin was debased, or how much it was
worth. By 1618, debasement was widespread throughout the Habsburg
Empire, causing widespread financial hardship, and the German civil
wars began.

By the 1630s, the Habsburgs in Spain and Germany were in deepening
financial trouble, and another Habsburg country, the Netherlands, was
in the midst of the Tulipomania bubble. Before it was over, an
exotically colored tulip might cost more than a house! France
entered the war in 1635, and the Tulipomania bubble burst in 1637,
leading to huge financial hardships. The war laid waste to all of
Europe before it was settled in 1648 by the Peace of Westphalia,
called the "Peace of Exhaustion" by its contemporaries.

Originally Posted by Anthony '58 II

> During roughly the period 2013-2019 the fighting will have become
> so widespread (and the respective religious fronts will have
> completely hardened) that during those years it will meet the
> general criteria for being called "World War III;" indeed, future
> historians will label it as such.

> Then, in October of 2019 - a few months after the hostilities have
> ceased - there will be a global economic crash and ensuing
> depression, the recovery from which, most likely in the spring of
> 2023, representing the resolution; the U.S. Presidential election
> of 2020, contested one year after the crash, will put Clement
> Atlee-style 13ers into power, and usher in a new era of "national
> liberalism" similar to that which emerged from the last depression
> (George W. Bush and his Republican successor[s] who will win the
> 2008, 2012 and 2016 elections embodying, collectively, a
> Churchillian-type "Grey Champion").

This prediction depends on waaaaaaaaaaaaay too many chaotic (in the
sense of Chaos Theory) events. My own speculation is that major
hostilities will begin this year or within the next 2-3 years, and
that the war will last until the early 2010s, resulting in billions
of deaths.

Sincerely,

John

John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com

Dear Anthony,

Originally Posted by Anthony '58 II

> It isn't likely that any two Crisis eras - let alone consecutive
> ones - would have a catalyst and/or resolution that turns on
> essentially the same issue, which is why a 1930s-style depression
> at the beginning of this 4T is unlikely.

When I first started studying this whole subject, shortly after 9/11,
I actually came at this from the other direction: I felt that the
entire generational paradigm could not be considered credible as long
as the "Great Depression" anomaly was part of it.

I began with America's previous crises, and I found that the Panic of
1857 preceded the civil, and I found that there was a major meltdown
of the English banking system in 1772, resulting in the bankruptcy of
thousands of colonial businesses.

I now believe that a financial crisis is closely tied in with crisis
wars. A financial crisis is often the visceral trigger of a crisis
war, because hatreds are generated when a man can't feed himself or
his family. It takes some such cause for a man to be willing to give
up the comforts of home, pick up a gun, and go out and kill people.

Originally Posted by Anthony '58 II

> Then again, I've stated my case already for what I believe the
> basic chronology of this Crisis will be; but in case I might have
> done it so long ago that it was on the "old" site, this is it,
> with an appropriate revision to fit 9/11 into the scheme:

> 9/11 started what will prove to be a steadily-escalating "Twenty
> Years' War" between Judeo-Christianity and Islam, reminiscent of
> the 17th-Century "Thirty Years' War" between Europe's Catholics
> and Protestants.

The following is adapted from my book:

The Thirty Years' War first began as a civil war in the Habsburg
Empire (Germany and Austria), following the unraveling of the 1555
Peace at Augsburg.

We can identify a big financial crisis component to the Thirty Years'
War, caused by the debasing of coins, and leading to the great
"Tulipomania" bubble that collapsed in 1637.

The financial crisis had, at its base, the price inflation caused by
the precious metals that Spain imported from the New World during the
Golden Age of Spain in the 1500s. After the disastrous destruction of
the Invincible Armada by England, Spain rebuilt its Armada, but was
forced to pull back many of its military adventures, especially as
sources of precious metals in the New World began to peter out.

This led to financial hardship, but it doesn't take long for clever
people to devise sneaky new methods for making money.

The habit of debasing coins had begun around 1600. The value of a
coin was determined by the value of the precious metal in it. Princes
and clergymen started to debase the coins by substituting cheap metal
for good metal, or by reducing their weight. Trading in these coins
became increasingly speculative during the "unraveling" period, since
one could never be sure whether a coin was debased, or how much it was
worth. By 1618, debasement was widespread throughout the Habsburg
Empire, causing widespread financial hardship, and the German civil
wars began.

By the 1630s, the Habsburgs in Spain and Germany were in deepening
financial trouble, and another Habsburg country, the Netherlands, was
in the midst of the Tulipomania bubble. Before it was over, an
exotically colored tulip might cost more than a house! France
entered the war in 1635, and the Tulipomania bubble burst in 1637,
leading to huge financial hardships. The war laid waste to all of
Europe before it was settled in 1648 by the Peace of Westphalia,
called the "Peace of Exhaustion" by its contemporaries.

Originally Posted by Anthony '58 II

> During roughly the period 2013-2019 the fighting will have become
> so widespread (and the respective religious fronts will have
> completely hardened) that during those years it will meet the
> general criteria for being called "World War III;" indeed, future
> historians will label it as such.

> Then, in October of 2019 - a few months after the hostilities have
> ceased - there will be a global economic crash and ensuing
> depression, the recovery from which, most likely in the spring of
> 2023, representing the resolution; the U.S. Presidential election
> of 2020, contested one year after the crash, will put Clement
> Atlee-style 13ers into power, and usher in a new era of "national
> liberalism" similar to that which emerged from the last depression
> (George W. Bush and his Republican successor[s] who will win the
> 2008, 2012 and 2016 elections embodying, collectively, a
> Churchillian-type "Grey Champion").

This prediction depends on waaaaaaaaaaaaay too many chaotic (in the
sense of Chaos Theory) events. My own speculation is that major
hostilities will begin this year or within the next 2-3 years, and
that the war will last until the early 2010s, resulting in billions
of deaths.

Sincerely,

John

John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com

Dear Mike,

Originally Posted by Mike Alexander '59

> I didn't say that. I say that P/E's will likely fall into the
> single digits by 2018. What I AM saying is P/E's don't have to
> fall to the single digits now.

Well, I didn't say "now" either, but my timeframe is a lot shorter
than yours. P/E ratios have been above 20 since 1995. If they fall
below 10 in 2010, then they'll have to stay below 10 until 2025 to
maintain a long-term average of 14.

When do you expect P/E's to fall below 10?

Originally Posted by Mike Alexander '59

> >>> JohnX said: It's far from clear that your "R" (cumulative
> retained earnings) can meaningfully be compared from era to era.

> How does one tell this? By actual experiment. And I have tested
> it. In January 1997, P/E reached an all-time high--signalling a
> sell. P/R reached it all-time high in January 1999, signaling its
> sell. Which sell worked better? P/R

When I said "from era to era," I was referring to eras that are
decades apart. It's not clear that comparing P/R values in the 2000s
to values in the 1950s or 1920s is meaningful.

I'm really not passing judgment on P/R. It appears that P/R has been
extremely valuable in short-range forecasting the last few years. If
P/R works, that's great.

I'm just saying that P/E is also valid, and it predicts a severe
correction in the short range.

Originally Posted by Mike Alexander '59

> >>> JohnX wrote: I gather that "R" is not adjusted for inflation,
> and it's accumulated with no time decay factor. Do I have that
> right? If so, then P/R weights earnings from the 1950s exactly the
> same as earnings from the 1990s. That doesn't make sense.

> R is inflation adjusted. For Pete's sake, you have a copy of Stock
> Cycles. Have you read it? Carefully?

Yeah, yeah, yeah. OK, let's take an example from your book:

Originally Posted by Stock Cycles, p. 41

> For example, R for the S&P500 in fall 1999 was $950. Of this
> value, $880 represents the sum of rrE for 1999, 1998, 1997 all the
> way back to 1871 (all expressed in 1999 dollars). The remaining
> $70 represents the value of R in 1871 (R0).

What I'm disputing is the idea that summing 130 years of retained
earnings is meaningful. The 1871 figure accounts for $70/$950 = 7.3%
of R in 1999, and you're making the argument that that figure is more
relevant than P/E1 or P/E10 (price/earnings ratios, where earnings
are for preceding year, or averaged over preceding 10 years).

I can see that P/R might be useful for short-term forecasting,
because you're comparing 1998 to 1999, and that $70 essentially
cancels out. But if you're trying to compare the 1990s to the 1950s
or the 1920s, then that $70 plays too large a part to be justified.

Originally Posted by Mike Alexander '59

> It didn't happen. Get it out of your mind that 1929-1933 is a good
> model for today--its not and it never was. When you say things
> like Greenspan's rate cuts changed the outcome from what happened
> in 1929 it shows you don't know what the Fed did back then. So how
> can you make a comparison?

For Pete's sake. You have a copy of my last posting. Didn't you
read it?

When I said that Greenspan's rate cuts changed the outcome from 1929,
I'm quoting Greenspan himself. See?

Having said that, it's hard to see how your graph supports your
point:



First, I have a technical question. What dates correspond to "0" on
the x-axis of this graph? Are they 1-Jan-1930 and 1-Jan-2001,
respectively, or are they some time in mid-year?

Recall that I quoted Alan Greenspan as saying the following:

> Mr. Greenspan maintained that the Great
> Depression could have been avoided if the Fed had acted more
> aggressively after the crash, Mr. Lindsey recalls. "1929 didn't
> cause 1932. It depends on what you do in 1930 and 1931," Mr.
> Lindsey recalls Mr. Greenspan saying.

Your graph seems to support Alan Greenspan's point. If there had
been a sharp 2-point rate increase in 2003, as there was in 1931,
then there might well have been a severe crash at that time.
Instead, the Fed lowered interest rates still further, to historic
lows.

Originally Posted by Mike Alexander '59

> >>> JohnX wrote: The fact that P/E's rose above 33 in the 1990s is
> an indication that the 1990s were a bigger bubble, not the 1920s.

> No! The size of a bubble is measured by how far the market falls
> afterward and by how long it takes to recover its old highs. The
> market fell much, much more after the 1929 peak than it did after
> 2000. We are now nearly five years after the peak. By fall 1934,
> the market was more than two years into a bull market (just like
> today) the decline was long over. If 1929 was going to repeat it
> would have done so. It didn't happen. Your graph didn't work.

This doesn't make any sense for a couple of reasons.

First off, it means that you can't tell you're in a bubble until
after the crash has occurred. In fact, you can tell if you're
in a bubble, just by looking at the price/earnings ratios.

Second, we already know how far the market will fall -- the P/E ratio
will fall to the 5-10 range. So we can already tell whether we're in
a bubble.

And since the P/E ratios have been above 20 since 1995, it's quite
clear we're in a bubble now. I can say that now with absolutely
certainty, without waiting until an actual crash occurs.

Originally Posted by Mike Alexander '59

> In this article I wrote: The smoothed E/R plot shows that return
> from resources declined from about 7% before WW I to a little over
> 4% after WW I. A given amount of R will produce about 40% less
> earnings it did a century ago. This implies that for equal peak
> market valuations (as measured by P/R), peak P/E values of today
> should be about 50% higher than those of the past. Thus, whereas
> in the 19th and early 20th century a P/E of 20 would be considered
> very high, today a P/E of 30 would be considered as equivalently
> high. This is the reason why P/R gave a closer prediction of the
> timing of the bull market peak than did 10 year P/E.

I see nothing in the above paragraph that explains why the bubble
began in 1995, rather than 1990 or 2000. There is one and only one
explanation that makes sense, and that's the generational
explanation. Investors en masse started to make really dumb
investment decisions in 1995at precisely the time the senior managers
who lived through the Great Depression all disappeared (retire or
die), all at the same time.

Sincerely,

John

John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com

Dear Mike,

Originally Posted by Mike Alexander '59

> I didn't say that. I say that P/E's will likely fall into the
> single digits by 2018. What I AM saying is P/E's don't have to
> fall to the single digits now.

Well, I didn't say "now" either, but my timeframe is a lot shorter
than yours. P/E ratios have been above 20 since 1995. If they fall
below 10 in 2010, then they'll have to stay below 10 until 2025 to
maintain a long-term average of 14.

When do you expect P/E's to fall below 10?

Originally Posted by Mike Alexander '59

> >>> JohnX said: It's far from clear that your "R" (cumulative
> retained earnings) can meaningfully be compared from era to era.

> How does one tell this? By actual experiment. And I have tested
> it. In January 1997, P/E reached an all-time high--signalling a
> sell. P/R reached it all-time high in January 1999, signaling its
> sell. Which sell worked better? P/R

When I said "from era to era," I was referring to eras that are
decades apart. It's not clear that comparing P/R values in the 2000s
to values in the 1950s or 1920s is meaningful.

I'm really not passing judgment on P/R. It appears that P/R has been
extremely valuable in short-range forecasting the last few years. If
P/R works, that's great.

I'm just saying that P/E is also valid, and it predicts a severe
correction in the short range.

Originally Posted by Mike Alexander '59

> >>> JohnX wrote: I gather that "R" is not adjusted for inflation,
> and it's accumulated with no time decay factor. Do I have that
> right? If so, then P/R weights earnings from the 1950s exactly the
> same as earnings from the 1990s. That doesn't make sense.

> R is inflation adjusted. For Pete's sake, you have a copy of Stock
> Cycles. Have you read it? Carefully?

Yeah, yeah, yeah. OK, let's take an example from your book:

Originally Posted by Stock Cycles, p. 41

> For example, R for the S&P500 in fall 1999 was $950. Of this
> value, $880 represents the sum of rrE for 1999, 1998, 1997 all the
> way back to 1871 (all expressed in 1999 dollars). The remaining
> $70 represents the value of R in 1871 (R0).

What I'm disputing is the idea that summing 130 years of retained
earnings is meaningful. The 1871 figure accounts for $70/$950 = 7.3%
of R in 1999, and you're making the argument that that figure is more
relevant than P/E1 or P/E10 (price/earnings ratios, where earnings
are for preceding year, or averaged over preceding 10 years).

I can see that P/R might be useful for short-term forecasting,
because you're comparing 1998 to 1999, and that $70 essentially
cancels out. But if you're trying to compare the 1990s to the 1950s
or the 1920s, then that $70 plays too large a part to be justified.

Originally Posted by Mike Alexander '59

> It didn't happen. Get it out of your mind that 1929-1933 is a good
> model for today--its not and it never was. When you say things
> like Greenspan's rate cuts changed the outcome from what happened
> in 1929 it shows you don't know what the Fed did back then. So how
> can you make a comparison?

For Pete's sake. You have a copy of my last posting. Didn't you
read it?

When I said that Greenspan's rate cuts changed the outcome from 1929,
I'm quoting Greenspan himself. See?

Having said that, it's hard to see how your graph supports your
point:



First, I have a technical question. What dates correspond to "0" on
the x-axis of this graph? Are they 1-Jan-1930 and 1-Jan-2001,
respectively, or are they some time in mid-year?

Recall that I quoted Alan Greenspan as saying the following:

> Mr. Greenspan maintained that the Great
> Depression could have been avoided if the Fed had acted more
> aggressively after the crash, Mr. Lindsey recalls. "1929 didn't
> cause 1932. It depends on what you do in 1930 and 1931," Mr.
> Lindsey recalls Mr. Greenspan saying.

Your graph seems to support Alan Greenspan's point. If there had
been a sharp 2-point rate increase in 2003, as there was in 1931,
then there might well have been a severe crash at that time.
Instead, the Fed lowered interest rates still further, to historic
lows.

Originally Posted by Mike Alexander '59

> >>> JohnX wrote: The fact that P/E's rose above 33 in the 1990s is
> an indication that the 1990s were a bigger bubble, not the 1920s.

> No! The size of a bubble is measured by how far the market falls
> afterward and by how long it takes to recover its old highs. The
> market fell much, much more after the 1929 peak than it did after
> 2000. We are now nearly five years after the peak. By fall 1934,
> the market was more than two years into a bull market (just like
> today) the decline was long over. If 1929 was going to repeat it
> would have done so. It didn't happen. Your graph didn't work.

This doesn't make any sense for a couple of reasons.

First off, it means that you can't tell you're in a bubble until
after the crash has occurred. In fact, you can tell if you're
in a bubble, just by looking at the price/earnings ratios.

Second, we already know how far the market will fall -- the P/E ratio
will fall to the 5-10 range. So we can already tell whether we're in
a bubble.

And since the P/E ratios have been above 20 since 1995, it's quite
clear we're in a bubble now. I can say that now with absolutely
certainty, without waiting until an actual crash occurs.

Originally Posted by Mike Alexander '59

> In this article I wrote: The smoothed E/R plot shows that return
> from resources declined from about 7% before WW I to a little over
> 4% after WW I. A given amount of R will produce about 40% less
> earnings it did a century ago. This implies that for equal peak
> market valuations (as measured by P/R), peak P/E values of today
> should be about 50% higher than those of the past. Thus, whereas
> in the 19th and early 20th century a P/E of 20 would be considered
> very high, today a P/E of 30 would be considered as equivalently
> high. This is the reason why P/R gave a closer prediction of the
> timing of the bull market peak than did 10 year P/E.

I see nothing in the above paragraph that explains why the bubble
began in 1995, rather than 1990 or 2000. There is one and only one
explanation that makes sense, and that's the generational
explanation. Investors en masse started to make really dumb
investment decisions in 1995at precisely the time the senior managers
who lived through the Great Depression all disappeared (retire or
die), all at the same time.

Sincerely,

John

John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com

Generational Dynamics for Historians

I'm pleased to announce that I've completed a first draft of my new
book, Generational Dynamics for Historians, and that the draft
can be read online at the following location:

http://www.GenerationalDynamics.com/...d=ww2010.book2

The following text is from the preface:

To begin, I am among those who believe that the world is headed for a
major "clash of civilizations" world war that will be worse than World
War II. The probability of this occurring in the next few years is
close to 100%, and if you count the wars in Afghanistan and Iraq, then
it already began on 9/11. This conclusion comes from analyzing
patterns of generational changes and "world wars" throughout millennia
of history, and extrapolating those patterns forward.

I believe that it's especially important for young people to
understand this conclusion and the reasoning behind it. After all,
they're the ones who will be most affected.

There are many books that attempt to predict the future based on
historical cycles in finance, war or politics. Every book we've
seen, including the most modern and scholarly, makes substantial
methodological errors that we've identified. The two biggest and
most common mistakes are (1) failure to distinguish between chaotic
(in the sense of Chaos Theory) events and ordered (cyclic or growth)
trends; and (2) failure to distinguish between generational and
non-generational trends.

For example, many cyclic trends were identified in the 1920s, in the
aftermath of the Great War (World War I). The best known of these are
the 40-50 year cycles identified by Russian researcher Nikolai
Kondratiev. It was a great theory until its predictions were
contradicted by World War II. The theory of Kondratiev Cycles
(K-cycles) is actually valid, but only if you understand that WW I
was a generational war in Eastern Europe, and WW II was a generational
war in Western Europe.

Probably the most useful accomplishment of Generational Dynamics is
to identify and sort out the different components and data series
that go into establishing historical cycles and trends and technology
growth cycles and trends, and then applying them to the current
times. We believe that this work, which unifies numerous analytical
and forecasting methodologies, almost completely solves the heretofore
unresolved questions about finding patterns in history.

Sincerely,

John

John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com

Generational Dynamics for Historians

I'm pleased to announce that I've completed a first draft of my new
book, Generational Dynamics for Historians, and that the draft
can be read online at the following location:

http://www.GenerationalDynamics.com/...d=ww2010.book2

The following text is from the preface:

To begin, I am among those who believe that the world is headed for a
major "clash of civilizations" world war that will be worse than World
War II. The probability of this occurring in the next few years is
close to 100%, and if you count the wars in Afghanistan and Iraq, then
it already began on 9/11. This conclusion comes from analyzing
patterns of generational changes and "world wars" throughout millennia
of history, and extrapolating those patterns forward.

I believe that it's especially important for young people to
understand this conclusion and the reasoning behind it. After all,
they're the ones who will be most affected.

There are many books that attempt to predict the future based on
historical cycles in finance, war or politics. Every book we've
seen, including the most modern and scholarly, makes substantial
methodological errors that we've identified. The two biggest and
most common mistakes are (1) failure to distinguish between chaotic
(in the sense of Chaos Theory) events and ordered (cyclic or growth)
trends; and (2) failure to distinguish between generational and
non-generational trends.

For example, many cyclic trends were identified in the 1920s, in the
aftermath of the Great War (World War I). The best known of these are
the 40-50 year cycles identified by Russian researcher Nikolai
Kondratiev. It was a great theory until its predictions were
contradicted by World War II. The theory of Kondratiev Cycles
(K-cycles) is actually valid, but only if you understand that WW I
was a generational war in Eastern Europe, and WW II was a generational
war in Western Europe.

Probably the most useful accomplishment of Generational Dynamics is
to identify and sort out the different components and data series
that go into establishing historical cycles and trends and technology
growth cycles and trends, and then applying them to the current
times. We believe that this work, which unifies numerous analytical
and forecasting methodologies, almost completely solves the heretofore
unresolved questions about finding patterns in history.

Sincerely,

John

John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com

Originally Posted by John J. Xenakis

When do you expect P/E's to fall below 10?

In about 13 years.

When I said "from era to era," I was referring to eras that are
decades apart. It's not clear that comparing P/R values in the 2000s
to values in the 1950s or 1920s is meaningful.

Yes it is clear because it still works while P/E doesn't. The whole idea of using history is that it repeats.

The values of P/E reached at the market peak in 2000 AND the market bottom in 2002 were so much higher than anything that had ever been seen before that those historical values simply don't apply anymore. It was impossible for the market to go as high as it did in 2000 and P/E to be valid. It was impossible for P/E to be so high at the bottom in 2002 and P/E be still valid. You yourself predicted much lower lows, because you were correctly using P/E. You were wrong, not because you applied the tool (P/E) wrong, but because the tool doesn't work anymore.

I'm just saying that P/E is also valid, and it predicts a severe
correction in the short range.

Which isn't going to happen because P/E isn't valid.

What I'm disputing is the idea that summing 130 years of retained
earnings is meaningful.

Summed retained earnings are book values. P/R is an inflation-adjusted price to book value. Price to book (P/B) is another common valuation tool, just like P/E. 100 years ago P/B was the principal valuation tool as book value is a direct measure of what a stock should be worth, it is the equity in the stock. After the 1930's when sustained inflation became the norm, P/B stopped working and it fell out of favor. It was replaced with P/E. E, being a current measure rises with inflation, while B, reflecting mostly past retained earnings doesn't. R, like E, rises with inflation, eliminating this problem.

First, I have a technical question. What dates correspond to "0" on
the x-axis of this graph? Are they 1-Jan-1930 and 1-Jan-2001,
respectively, or are they some time in mid-year?

Zero is Oct 1929 and Dec 2000. The next month (Nov 1929 and Jan 2001) shows lower short term rates because of Fed ease right after the 1929 crash and the first ease in the current cycle in early Jan 2001.

Your graph seems to support Alan Greenspan's point. If there had
been a sharp 2-point rate increase in 2003, as there was in 1931,
then there might well have been a severe crash at that time.
Instead, the Fed lowered interest rates still further, to historic
lows.

Yes the 1931 hike is what Greenspan is referriing to. But the recent decline was already over in 2002. The momentum was present to 2002 to drive stock prices into the toilet, but it didn't happen. At that point, there had been no difference in interest rate policy between the Fed in 1929-1930 and the Fed in 2001-2002. The market was already recovering this time when the time of the hike last time came. Greenspan is talking about the economy, not the market. The market could have eaily fallen a lot lower than it did with exactly the sanme economic conditions. Earnings collapsed after 2000. Stock fell LESS than earnings did. Why were investors so BULLISH in 2002 that they bid up P/E's to the highest levels in in history? Investors were willing to pay what they did in 2002 because in 2003 stocks went up a lot and those who bought in summer/fall 2002 were very happy. The market anticipates the future, the recession had ended the previous year and investors knew earnings would recover.

First off, it means that you can't tell you're in a bubble until
after the crash has occurred.

This is correct, as Greenspan repeatedly said in the late 1990's.

In fact, you can tell if you're in a bubble, just by looking at the price/earnings ratios.

No you can't. You thought in early 2003 that we were in a bubble and that stocks would go down a lot. It didn't happen. Based on your measure you say we entered a bubble in 1995 and ten years later we are still in it. How How do you know we won't still be in it 10 years from now? Every previous bubble popped in much less than 10 years, so we are in new terrority of longevity here. If this bubble can last an unprecedented 10 years why can't it last a just as unprecedented 20 years?

Cautions about bubbles are useless if you can't get the timing at least approximately correct. Somebody who bailed out of stocks in 1995 because Dow 4000 was a bubble is going to look pretty silly unless the Dow goes below 4000. It's been 10 years, this hasn't happned and the Dow is at 10000.

I see nothing in the above paragraph that explains why the bubble
began in 1995, rather than 1990 or 2000. There is one and only one
explanation that makes sense, and that's the generational
explanation.

It doesn't explain the timing. The generational explanation works for that. It explains the level. Look that last time investors got giddy, in the 1920's 3T they bid up stocks over 20 P/E and shortly afterward, stocks fell.

If generational factors can explain the level then you should have seen P/E's in 1929 like those in 2000. You didn't.

The reason is a given amount real (true) equity produces 2/3's of the earnings today than it did back then. So the ratio of true equity to earnings is going to be 50% higher today. When you buy a stock you are buying equity. Thus, the price of a stock is the market's assessment of the true equity. If the ratio of true equity to earnings is 50% higher today, then the ratio of price to earnings ought to be 50% higher today--and it is.

Originally Posted by John J. Xenakis

When do you expect P/E's to fall below 10?

In about 13 years.

When I said "from era to era," I was referring to eras that are
decades apart. It's not clear that comparing P/R values in the 2000s
to values in the 1950s or 1920s is meaningful.

Yes it is clear because it still works while P/E doesn't. The whole idea of using history is that it repeats.

The values of P/E reached at the market peak in 2000 AND the market bottom in 2002 were so much higher than anything that had ever been seen before that those historical values simply don't apply anymore. It was impossible for the market to go as high as it did in 2000 and P/E to be valid. It was impossible for P/E to be so high at the bottom in 2002 and P/E be still valid. You yourself predicted much lower lows, because you were correctly using P/E. You were wrong, not because you applied the tool (P/E) wrong, but because the tool doesn't work anymore.

I'm just saying that P/E is also valid, and it predicts a severe
correction in the short range.

Which isn't going to happen because P/E isn't valid.

What I'm disputing is the idea that summing 130 years of retained
earnings is meaningful.

Summed retained earnings are book values. P/R is an inflation-adjusted price to book value. Price to book (P/B) is another common valuation tool, just like P/E. 100 years ago P/B was the principal valuation tool as book value is a direct measure of what a stock should be worth, it is the equity in the stock. After the 1930's when sustained inflation became the norm, P/B stopped working and it fell out of favor. It was replaced with P/E. E, being a current measure rises with inflation, while B, reflecting mostly past retained earnings doesn't. R, like E, rises with inflation, eliminating this problem.

First, I have a technical question. What dates correspond to "0" on
the x-axis of this graph? Are they 1-Jan-1930 and 1-Jan-2001,
respectively, or are they some time in mid-year?

Zero is Oct 1929 and Dec 2000. The next month (Nov 1929 and Jan 2001) shows lower short term rates because of Fed ease right after the 1929 crash and the first ease in the current cycle in early Jan 2001.

Your graph seems to support Alan Greenspan's point. If there had
been a sharp 2-point rate increase in 2003, as there was in 1931,
then there might well have been a severe crash at that time.
Instead, the Fed lowered interest rates still further, to historic
lows.

Yes the 1931 hike is what Greenspan is referriing to. But the recent decline was already over in 2002. The momentum was present to 2002 to drive stock prices into the toilet, but it didn't happen. At that point, there had been no difference in interest rate policy between the Fed in 1929-1930 and the Fed in 2001-2002. The market was already recovering this time when the time of the hike last time came. Greenspan is talking about the economy, not the market. The market could have eaily fallen a lot lower than it did with exactly the sanme economic conditions. Earnings collapsed after 2000. Stock fell LESS than earnings did. Why were investors so BULLISH in 2002 that they bid up P/E's to the highest levels in in history? Investors were willing to pay what they did in 2002 because in 2003 stocks went up a lot and those who bought in summer/fall 2002 were very happy. The market anticipates the future, the recession had ended the previous year and investors knew earnings would recover.

First off, it means that you can't tell you're in a bubble until
after the crash has occurred.

This is correct, as Greenspan repeatedly said in the late 1990's.

In fact, you can tell if you're in a bubble, just by looking at the price/earnings ratios.

No you can't. You thought in early 2003 that we were in a bubble and that stocks would go down a lot. It didn't happen. Based on your measure you say we entered a bubble in 1995 and ten years later we are still in it. How How do you know we won't still be in it 10 years from now? Every previous bubble popped in much less than 10 years, so we are in new terrority of longevity here. If this bubble can last an unprecedented 10 years why can't it last a just as unprecedented 20 years?

Cautions about bubbles are useless if you can't get the timing at least approximately correct. Somebody who bailed out of stocks in 1995 because Dow 4000 was a bubble is going to look pretty silly unless the Dow goes below 4000. It's been 10 years, this hasn't happned and the Dow is at 10000.

I see nothing in the above paragraph that explains why the bubble
began in 1995, rather than 1990 or 2000. There is one and only one
explanation that makes sense, and that's the generational
explanation.

It doesn't explain the timing. The generational explanation works for that. It explains the level. Look that last time investors got giddy, in the 1920's 3T they bid up stocks over 20 P/E and shortly afterward, stocks fell.

If generational factors can explain the level then you should have seen P/E's in 1929 like those in 2000. You didn't.

The reason is a given amount real (true) equity produces 2/3's of the earnings today than it did back then. So the ratio of true equity to earnings is going to be 50% higher today. When you buy a stock you are buying equity. Thus, the price of a stock is the market's assessment of the true equity. If the ratio of true equity to earnings is 50% higher today, then the ratio of price to earnings ought to be 50% higher today--and it is.

Originally Posted by Mike Alexander '59

Originally Posted by John J. Xenakis

Originally Posted by Mike Alexander '59

The next month (Nov 1929 and Jan 2001) shows lower short term rates because of Fed ease right after the 1929 crash and the first ease in the current cycle in early Jan 2001.

If there had
been a sharp 2-point rate increase in 2003, as there was in 1931,
then there might well have been a severe crash at that time.
Instead, the Fed lowered interest rates still further, to historic
lows.

Yes the 1931 hike is what Greenspan is referriing to.

Interesting, it appears a stingy money supply can strongly contribute to a prolonged recession/depression, and vice versa. I wonder if this will be the new policy under whoever replaces "easy Al"?

Originally Posted by Mike Alexander '59

Originally Posted by John J. Xenakis

Originally Posted by Mike Alexander '59

The next month (Nov 1929 and Jan 2001) shows lower short term rates because of Fed ease right after the 1929 crash and the first ease in the current cycle in early Jan 2001.

If there had
been a sharp 2-point rate increase in 2003, as there was in 1931,
then there might well have been a severe crash at that time.
Instead, the Fed lowered interest rates still further, to historic
lows.

Yes the 1931 hike is what Greenspan is referriing to.

Interesting, it appears a stingy money supply can strongly contribute to a prolonged recession/depression, and vice versa. I wonder if this will be the new policy under whoever replaces "easy Al"?

Dear Mike,

Originally Posted by Mike Alexander '59

> Yes it is clear because it still works while P/E doesn't. The
> whole idea of using history is that it repeats.

> The values of P/E reached at the market peak in 2000 AND the
> market bottom in 2002 were so much higher than anything that had
> ever been seen before that those historical values simply don't
> apply anymore. It was impossible for the market to go as high as
> it did in 2000 and P/E to be valid. It was impossible for P/E to
> be so high at the bottom in 2002 and P/E be still valid. You
> yourself predicted much lower lows, because you were correctly
> using P/E. You were wrong, not because you applied the tool (P/E)
> wrong, but because the tool doesn't work anymore.

You're getting farther and farther from reality. You say that P/E
ratios will fall below 10 by 2018, but you can't give a coherent
explanation of how they'll get there.

Now you say that P/E ratios don't apply anymore, because they haven't
worked since 2000. Boy, that's really looking at the long range,
isn't it?

When you're saying that P/E ratios don't work any more, you're saying
that no one cares about the relationship between earnings and prices.
That's silly. Analysts talk about "valuations" and "price/earnings
ratios" all the time, although they distort the conclusions by
talking about "forward earnings" -- computing P/E by dividing the
current stock price by next year's "earnings" - which shows how
stupid some of these journalists and analysts are. But you're a
minority of one who thinks that P/E ratios are irrelevant, while
something that includes a component measuring retained earnings in
1871 is relevant.

Look, if P/R works for short term forecasting then that's fine, and
if it worked in 1999, then that's even better. But to jump from
there to say that P/E ratios are irrelevant is ridiculous.

And you keep saying that I "was wrong," but you choose to
mischaracterize the change of thinking that I've had, as I stated on
my web site and also in a January posting in this very forum.
http://fourthturning.com/forums/view...=119489#119489

In 2002-3, I had expected that stocks would continue to trend
downward, falling to the Dow 3000-4000 range by 2007. I did not
expect stocks to rally to nearly the Dow 11000 range.

But that doesn't change the fundamentals. Generational Dynamics
tells you what your destination is, but doesn't tell you how you'll
get there. The destination is the same -- a stock market collapse to
the Dow 3000-4000 range.

My change of thinking that I described in January is that the
collapse will be more like a tsunami, in that it will overwhelm
investors, especially the many investors who know that the stock
market is having problems, but fantasize that they'll be able to see
the danger in time and get out before the collapse.

However, there was no error in the basic trend.

Incidentally, I view the runup in stock prices to be extremely
ominous, because it means that stocks have much farther to fall,
which means that the financial crisis will be much worse than it
might have been.

Originally Posted by Mike Alexander '59

> Why were investors so BULLISH in 2002 that they bid up P/E's to
> the highest levels in in history? Investors were willing to pay
> what they did in 2002 because in 2003 stocks went up a lot and
> those who bought in summer/fall 2002 were very happy. The market
> anticipates the future, the recession had ended the previous year
> and investors knew earnings would recover.

Those are great questions, Mike. How about substituting 1929 for
2003 and answering the same questions?

Originally Posted by Mike Alexander '59

> >>> JohnX said: In fact, you can tell if you're in a bubble, just
> by looking at the price/earnings ratios.

> No you can't. You thought in early 2003 that we were in a bubble
> and that stocks would go down a lot. It didn't happen. Based on
> your measure you say we entered a bubble in 1995 and ten years
> later we are still in it. How How do you know we won't still be in
> it 10 years from now? Every previous bubble popped in much less
> than 10 years, so we are in new terrority of longevity here. If
> this bubble can last an unprecedented 10 years why can't it last a
> just as unprecedented 20 years?

Well now, Mike, I'm totally confused. Are you or are you not
claiming that the P/E ratio index will remain above 20 for the next
ten years or not? You keep flapping around on this subject. How
about nailing it down.



When the bubble began in 1995, the P/E ratio was already high, as
part of the normal technology cycle (K-cycle). If it hadn't been for
the bubble, the P/E ratio would have started falling then, reaching a
bottom around 2018, which is why you keep quoting that date. That
date and your analysis would be right if it weren't for the bubble,
which is asynchronous to your analysis.

Originally Posted by Mike Alexander '59

> Yes the 1931 hike is what Greenspan is referriing to. But the
> recent decline was already over in 2002. The momentum was present
> to 2002 to drive stock prices into the toilet, but it didn't
> happen. At that point, there had been no difference in interest
> rate policy between the Fed in 1929-1930 and the Fed in 2001-2002.
> The market was already recovering this time when the time of the
> hike last time came. Greenspan is talking about the economy, not
> the market. The market could have eaily fallen a lot lower than it
> did with exactly the sanme economic conditions. Earnings collapsed
> after 2000. Stock fell LESS than earnings did. Why were investors
> so BULLISH in 2002 that they bid up P/E's to the highest levels in
> in history? Investors were willing to pay what they did in 2002
> because in 2003 stocks went up a lot and those who bought in
> summer/fall 2002 were very happy. The market anticipates the
> future, the recession had ended the previous year and investors
> knew earnings would recover.

You're making a lot of claims here that you can't support. The
reason that the market didn't collapse in 2002 is because the Fed was
flooding the market with money at near-zero interest rates. You're
right that investors have bid up P/Es to the highest levels in
history, but they've also bid up public debt to the highest levels in
history:



With investors able to borrow money at 2-4%, they could borrow a
great deal of money and invest it in the stock market. That's the
reason that the bubble got extended.

Originally Posted by Mike Alexander '59

> The reason is a given amount real (true) equity produces 2/3's of
> the earnings today than it did back then. So the ratio of true
> equity to earnings is going to be 50% higher today. When you buy a
> stock you are buying equity. Thus, the price of a stock is the
> market's assessment of the true equity. If the ratio of true
> equity to earnings is 50% higher today, then the ratio of price to
> earnings ought to be 50% higher today--and it is.

That doesn't make sense. You're saying that the value of something
to an investor is its manufacturing cost. That might be true of
consumer goods, but it's not true of investments. The acronym ROI
stands for "return on investment," and return means earnings, which
is irrelevant to the value of the company in 1871.

Originally Posted by Mike Alexander '59

> Cautions about bubbles are useless if you can't get the timing at
> least approximately correct. Somebody who bailed out of stocks in
> 1995 because Dow 4000 was a bubble is going to look pretty silly
> unless the Dow goes below 4000. It's been 10 years, this hasn't
> happned and the Dow is at 10000.

I agree with you that investors have a problem at the beginning of a
bubble -- how long should someone stay in to take advantage of the
bubble, but not get caught by the crash. To that extent, your
reasoning is right. But it doesn't change the fact that the bubble
will burst.

People who stay in the market this year are taking an enormous risk.
Yes, stocks may rise above Dow 11000, but they may also fall to Dow
3000. The downside risk is much higher than the potential gain.

Originally Posted by Mike Alexander '59

> It doesn't explain the timing. The generational explanation works
> for that. It explains the level. Look that last time investors got
> giddy, in the 1920's 3T they bid up stocks over 20 P/E and shortly
> afterward, stocks fell.

Investors are giddy today.

Originally Posted by Mike Alexander '59

> If generational factors can explain the level then you should have
> seen P/E's in 1929 like those in 2000. You didn't.

No, and that's the point. Generational factors explain a bubble, but
the 1921 bubble began at a P/E low and the 1995 bubble began at a P/E
high. What makes it a generational bubble is that investors get
giddy and pay no attention to p/e ratios and other indicators that
relate the stock price to something real. Investors don't pay
attention to P/E ratios in a bubble, because they're in a state of
denial and believe that company earnings are competely irrelevant to
stock prices. (Yes, I mean you too.) Investors ignore P/E ratios,
so they continue to go up from wherever they were when the bubble
started. That's what makes a bubble so emotional and irrational.
It's as if someone were dumb enough to sell his house and use the
money to buy a tulip. Who'd be dumb enough to do that? In fact, as I
commented a long, long time ago when we began this discussion, your
p/r ratios also indicate that we're in a bubble.

At that time, you said that the 1930s was an anomaly. Recently, I
stumbled across the following graph:



( http://www.safehaven.com/showarticle.cfm?id=1399 )

Your graph dramatically shows the point that I've been making over
and over -- that the 1920s bubble and its aftermath are asynchronous
to your analysis, and that you have to separate K-cycles from
generational cycles. It's obvious from your graph that you've
reached exactly the same conclusion. I would accuse you of stealing
the idea from me if it weren't for the fact that you evidently thought
of it first.

The only thing you won't accept is that the current stock market is
in another bubble which is completely asynchronous to your analysis,
just like the graph above for the last one. When you refer to a
massive, genocidal civil war in which a significant percentage of the
population is slaughtered as an "awakening," I can attribute that to
human perversity (or maybe nomadic perversity). But when you stick to
a position that's contradicted by your own findings and, in doing so,
you put your own assets and the assets of your readers at risk, that's
nuts. My mother had a phrase for that when I was a teenager and did
something dumb and impetuous. She said, "You're cutting off your
nose to spite your face."

Sincerely,

John

John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com

Originally Posted by John J. Xenakis

And you keep saying that I "was wrong," but you choose to mischaracterize the change of thinking that I've had..

From your website:

More specifically, the forecast is as follows: Sometime before 2007, the Dow Jones Industrial Average (in the 8000s at this writing) will drop below 6000, and will not exceed 6000 again until well after 2010, possibly not until 2020.

Your market view in Feb 2003 was bearish, you were predicting lower prices with an eventual bottom below 6000 before 2007. This was hardly an over-the-top prediction back then. The Dow had already fallen 3500 points, what's another 2000? You were not alone in forecasting lower prices.

Based on this forecast, a financial advisor who was using your services would advise clients not to buy stock in February 2003 and stay out of stocks until the market bottoms below 6000 even if you have to wait until 2007. Did you advise any family or friends not to buy or even to sell in early 2003? Do they think it was good advice?

What I am saying is if you had clients you would have lost them with a call like that.

Originally Posted by Mike Alexander '59

Originally Posted by John J. Xenakis

And you keep saying that I "was wrong," but you choose to mischaracterize the change of thinking that I've had..

From your website:

More specifically, the forecast is as follows: Sometime before 2007, the Dow Jones Industrial Average (in the 8000s at this writing) will drop below 6000, and will not exceed 6000 again until well after 2010, possibly not until 2020.

Your market view in Feb 2003 was bearish, you were predicting lower prices with an eventual bottom below 6000 before 2007. This was hardly an over-the-top prediction back then. The Dow had already fallen 3500 points, what's another 2000? You were not alone in forecasting lower prices.

Based on this forecast, a financial advisor who was using your services would advise clients not to buy stock in February 2003 and stay out of stocks until the market bottoms below 6000 even if you have to wait until 2007. Did you advise any family or friends not to buy or even to sell in early 2003? Do they think it was good advice?

What I am saying is if you had clients you would have lost them with a call like that.

Mike - I haven't yet disavowed the forecast you're quoting, although
I wouldn't state the time frame so definitely today. Nonetheless,
with the P/E ratios above 20 for over 10 years now, the probability of
a fall to the Dow 3000 range in the next 2-3 years is extremely high.
I think you must know that.

John