Re: Mike Alexander's P/R methodology
Actually I think the probability of a drop in the Dow to 3000 on any time scale is near zero.Originally Posted by John J. Xenakis
So what will you believe if three years hence P/E is still above 20?
Re: Mike Alexander's P/R methodology
Dear Mike,
Ummmmmmmmmmmmmmmmm, then how will the P/E ratio index drop to the
single numbers by 2018? You're good at telling me that you don't
believe anything I say, but you still haven't come with anything
approaching a coherent forecast of your own regarding the P/E ratio
index for the next 13 years.
That's like asking me what I'll believe if I keep flipping a coin and
it always comes up heads. I guess I'd have to believe that the Law
of Averages had been repealed. (Actually, I once read a short story
about that. Nobody could figure out why, but everyone decided all at
once to see the same movie, go to the same restaurant, etc., because
the Law of Averages had suddenly stopped working. It was quite
amusing. At the end of the story the Law of Averages started working
again, but the Law of Diminishing Returns stopped working.)
OK, so what would I believe if the P/E index is still above 20 in
2008? Well, let's take a look at a few things.
- North Korea is openly mobilizing for war and has been doing so
since last April. President Kim is becoming more militant and
threatening, and appears to be preparing for a preemptive strike to
reunify Korea under his control.- China is rapidly building up its military assault forces,
including amphibious vehicles for an invasion of Taiwan.- The World Health Organization is warning of an avian flu
pandemic, killing tens of millions of people, possibly this
year.
And that doesn't even mention the Mideast and the Caucasus. Any of
these events could trigger a panic, or a panic could start just out
of the blue.
You see, Mike, I actually believe what I read in The Fourth
Turning.
In my article, "The 6 most dangerous regions of the world,"
http://www.generationaldynamics.com/...i.danger041120
I estimated that, under certain assumptions, the probability of the
next world war starting in each of the next five years as 21%, 22%,
23%, 23%, 23%, respectively. So, under those assumptions, the
probability of a world war starting in the next 3 years is
(.21 + .79*.22 + .79*.78*.23) = .525526 = 53%.
So, if there's no financial crisis and no world war in the next three
years, I guess I'll have to say, "Wait till next year."
Since I don't have any clients, and I don't give advice except
informally, I have no conflict of interest other than a desire to be
right.
Financial advisors have an enormous conflict of interest, because if
they advise their clients to stay out of stocks, then the advisors
make no money whatsoever, and the clients, who are in as much denial
as most of the public is, will go to another advisor.
So there's a kind of "giddiness reinforcement" at work. The sober
analysts and journalists who figure out what's going on are quickly
drummed out and replaced by giddy analysts and journalists who've
never been able to figure out how pyramid schemes work, and why a
bubble is like a pyramid scheme.
As I've said before, there's actually a kind of logical paradox. For
example, if there's going to be a major financial crisis (like a stock
market crash leading to a Great Depression), then it has to be a
surprise to the general public, because if it weren't a surprise, then
the general public would already have panicked, and the financial
crisis would already have begun previously. Therefore, the general
public must be ignorant of the danger until the crisis actually
occurs.
That provides an answer to this question, that you asked before:
The reason they were so bullish is because it's the only way to make
money, even if you know/believe that a crash is coming.
Incidentally, I was hardly alone. Take a look at Warren Buffett's
letter to his Berkshire Hathaway investors, published in March 2003.
http://www.berkshirehathaway.com/2002ar/impnote02.html At that time,
the market was at Dow 8000, and Buffett said that stocks were
significantly overpriced, despite three years of falling prices, and
that "the insanity of valuations reached during The Great Bubble" had
yet to work themselves out.
Warren Buffett is an investment genius, and he could get away with
telling the truth. I can get away with telling the truth because I
have nothing to risk except my honor and credibility. Financial
advisors do have something to risk -- their entire income -- if they
tell the truth. So I think I'm in good company, and I'm doing the
right thing.
------------
Total change of subject: Why did the Nasdaq crash occur in 2000?
There's one major possibility that is rarely discussed (though it was
discussed in 2000). Part of the huge 1990s bubble was the enormous IT
spending on the Y2K problem. That spending vanished overnight at the
end of 1999, and that caused a "false crash" in 2000, which was then
perpetuated by 9/11/2001. So the repeat of the 1929 crash has yet to
appear.
Sincerely,
John
John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Re: Mike Alexander's P/R methodology
That sounds great! Can you remember the story's name?
What makes a 3T-to-4T transition happen? Three things if you're an orthodox saecularist. One, there is the overall dynamic S&H identified. Two, inside of that 3T's are a time when institutional stasis becomes more and more dysfunctional at both the domestic and international levels creating more and more brush and tinder. Three, the generations line up in such a way that a 3T mood is no longer sustainable, and most importantly, near/early-elder first-wave Prophets add a "last act urgency" to their extant impetuosity completely desiccating the aforementioned tinder.
All that's needed is spark that in any other time period might only smolder but in this case can set off a conflagration.
It doesn't take a genius to see what damage this 3T has wrought in terms of rampant individualism and institutional decay (again, national & international). And as we've discussed, my Constellation/Catalyst Index points to the 2004/2005 transition as Ground Zero for a generationally inspired mood shift. Ergo, if by 2008 we cannot identify an obvious 4T opening cascade, then I'm with ya on the "wait til next year".
This makes a lot of sense.
Also makes sense.
I was just contemplating tonight about how the post-9/11 Credit Bubble is simply an extension of the Dot-com Bubble. My reasoning was that government action prolonged the former into the latter but I also like your idea of the Y2K factor creating a "false crash". Interesting!
Americans have had enough of glitz and roar . . Foreboding has deepened, and spiritual currents have darkened . . .
THE FOURTH TURNING IS AT HAND.
See T4T, p. 253.
Re: Mike Alexander's P/R methodology
For P/E to fall, one can have P fall, E rise, or both. You are focusing on just P. So to get P/E to fall to 10 from 40 you need something like a 75% drop in P. But E rises with time. Over an 18-year period E will increase by some 2.5-fold (more if the future is more inflationary than the recent past). With a 2.5-fold increase in E, all that is needed to get a 75% dop in P/E is a 40% drop in P. We already saw more than that in the 2000-2002 bear market and if around 2018 we see a bear market similar to the last one, you will see your single digit P/E then.
There is no need for prices to fall catastrophically for P/E to fall to low levels, given enough time.
You are the one that has been saying that P/E has to fall right away. You were saying this in 2003, but the market went up instead of down. You are saying it now. Eventually it will happen, but by the time it does, the Dow won't have to be below 6000 to get a P/E below 10.
What about going short or put options or a bear fund?The reason they were so bullish is because it's the only way to make money, even if you know/believe that a crash is coming.
Re: Mike Alexander's P/R methodology
Dear Sean,
It may have been something like "The day the law of averages stopped
working" or something like that. It was back in the 50s or 60s, so
my memory is obviously vague about it.
Could you explain this more? And could you tell me why the fact that
we were locking up Muslims in 2002 (like we were locking up Japanese
in WW II) doesn't mean we're in a 4T?
Thanks.
Sincerely,
John
John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Re: Mike Alexander's P/R methodology
Dear Mike,
Absolutely not. No way Jos?.
For E to increase 2.5 fold in 13 years (which I assume you mean
rather than 18 years), that's 7.3% earnings growth per year.
Here are some "real earnings" figures from Shiller's web site:
and here are some average annual earnings increases for differentCode:1890 6.635216725 1990 29.79836735 1991 26.5656838 1992 19.6139244 1993 22.89335203 1994 25.58174391 1995 35.09647372 1996 37.15644404 1997 41.62527366 1998 41.4270297 1999 38.97228646 2000 49.09333333 2001 46.73571673 2002 23.5360512 2003 26.4766098 2004 45.42348452
time periods:
Your 7.3% annual increase is waaaaaaaaaaaaaaaaaaaay out of line. TheCode:1890-1990: 1.51% 1990-2004: 3.06% 1990-1995: 3.33% 1995-2000: 6.94% 2000-2004: -1.92%
best value to use is 1.51% per year, which compounds to a 22%
increase in 13 years, not the 150% increase that you claim.
So what's your theory now, Dr. Alex?
Real men don't eat quiche, and giddy investors don't sell short.
Sincerely,
John
John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Re: Mike Alexander's P/R methodology
I will look for it. It sounds hysterical.Dear Sean,
It may have been something like "The day the law of averages stopped
working" or something like that. It was back in the 50s or 60s, so
my memory is obviously vague about it.
What I explained above is just basic S&H. The institutional order that was founded in the last 4T and built upon in the last 1T is not only falling apart in our 3T, but is in serious dissonance with the new values regime founded in the last 2T and implanting now.Could you explain this more? And could you tell me why the fact that
we were locking up Muslims in 2002 (like we were locking up Japanese
in WW II) doesn't mean we're in a 4T?
And the generations have now completely filled their respective life phases and their leading edges are beginning to spill over into the adjoining stage. That by definition means the saeculum is ripe for a turning change.
As for "locking up Muslims" being a 4T sign, I have two observations. One, what has occurred recently is nowhere near the level of the Japanese internment. Two, our society locked up, deported, and executed foreigners during a "Phony Fourth" type period in the last third turning, specifically 1917-1920 (with serious reverberations beyond).
I have argued throughout this board that our post-9/11 period probably more resembles an intense 3T reaction along those lines than an actual 4T opening phase ("cascade", as I and others might call it). Many things convince me of that. Among them our lack of true, heavy sacrifice and follow-through on the Iraq War and the WOT and the continuing (and INSANE) Bubble Mentality (Overconsumption/Credit Binge) that you have so clearly underscored.
You're welcome. Seriously, those are points that greatly explain how The Binge continues against simple logic and convinces otherwise extremely intelligent people to do crazy things.Thanks.
Americans have had enough of glitz and roar . . Foreboding has deepened, and spiritual currents have darkened . . .
THE FOURTH TURNING IS AT HAND.
See T4T, p. 253.
Re: Mike Alexander's P/R methodology
First of all, the P and E in P/E are expressed in current or nominal dollars. The earnings data you provide are expressed in constant dollars. So you have to add on inflation rate to those values to get the rate at which the E in P/E rises. This means since 1890, once we add 3% inflation we would expect 4.5% earnings growth. This is the case as shown in this figure:
Since WWII, earnings growth has averaged over 6% as shown in the figure. You have only taken a handful of points out of Shillers database. I use the entire set, and have augmented it using quarterly values obtained directly from Standard and Poors publications (and more recently their website).
Secondly, when I said 18 years, I meant 18 years. I was dealing with the change in P/E from 2000 (not today) to 2018. So over 18 years if you use the 6.3% post-war earnings growth figure you get an earnings increase of 3-fold. If you use 4.5% earnings increase you get 2.2-fold increase. My 2.5 assumption is a reasonable compromise between 2.2 and 3.0.
In any case your 1.5% figure is simply wrong for this application. Anyone knowledgeable about markets uses a 6% figure for projected earnings growth. You make a claim that average earnings growth in 1890 has been 1.5% and they will write you off as a crank.
Now I know that you aren't a crank and so I analyzed the data to see where you got this idea and see that you were using constant dollar earnings to estimate a growth rate, but are otherwise working with nominal data in your P/E.
It is true that in real, constant dollar terms, the only way to get a P/E below 10 even in 18 years is for the index to fall a lot in real, constant dollar terms. But let me point out that a Dow of 11000 in 2018 would correspond to something 6200 in today's money. There's your Dow 6000, without any drop in the nominal index (the one reported in the news). If we assume that in a 2018 bear market, the Dow reachs the same 8000 of two years ago--that corresponds to a Dow 4500 in today's money. So yes, in real, constant dollar terms, the direction of the market is down in the long run. But this doesn't mean that you will ever hear on the radio that the Dow has fallen below 6000. It won't, but in terms of today's money, it is likely to happen within 15 years, and when it does, you will also see the low P/E's you are looking for.
Re: Mike Alexander's P/R methodology
Dear Sean,
I understand that, and I've read those books too. But when somebody
lists "three things" that define something, that's like waving a red
flag in front of my face, because I assume that you've studied the
situation and reached some insight that allows you to boil down
a large mass of material to three simple statements, which is always
very useful.
I'm referring, of course, to the following:
Now, this description contains phrases like "institutional stasis
becomes ... dysfunctional" and "add a 'last act urgency' to their
extant imptuosity," phrases that I don't entirely understand, so I'm
trying to drill down and understand what kinds of insights you've
reached.
But my understanding is that the whole "cascade" process implies the
lack of follow-through that you're now describing.
For example, S&H identify the 1773 Boston Tea Party as the start of
the Rev War crisis period. What was the follow-through after that?
Wasn't there quite a bit of equivocation for a couple of years after
that, before war was declared in 1775 and the Declaration of
Independence was signed in 1776?
And what about the crisis period that began with John Brown's actions
at Harper's Ferry? The North didn't do anything after that. And the
South didn't have any intention of doing anything until Abraham
Lincoln was elected. So where is the follow-through that you demand
for a 4T to have begun?
Even after the South fired on Fort Sumter, the Civil War didn't take
off immediately, and there's reason to believe that each side hoped
that the other one would back down. That, I would claim, is the
essence of the "cascade" of "surprises" that define a 4T period. In
other words. the reason that the surprises occur is because neither
side believes that the other side is willing to make heavy
sacrifices. The heavy sacrifices come later in war, and characterize
the climax of the 4T, rather than the beginning of the
4T.
I see the Afghan and Iraq wars as indications of this. The Afghan
war is understandable in 1T, 2T, 3T or 4T terms, given the 2/11
attacks. But the Iraq war is not. You point to lack of
follow-through after the Iraq war as indicating 3T, but I would point
to the Iraq war itself as evidence of 4T. After all, we could have
invaded in 1991 after we ejected them from Kuwait, or we could have
gone back and invaded any time in the 1990s, but we didn't because
that was clear 3T. But the fact that we went in at all in 2003
indicates to me a 4T.
As for follow-through after the war, remember that the Iraq army
collapsed immediately, and that WMDs were never found. Both of
factors served to hold us back.
I would agree with you to the following extent: the period between
the start of the 4T and the start of the crisis war itself is a mixed
period, having both 3T and 4T characteristics. This would describe
the period immediatedly after the Boston Tea Party and John Brown's
raid, up until the beginning of the actual respective wars.
So I agree with you that there are some 3T characteristics in today's
society, but there are also plenty of 4T characteristics -- locking
up Muslims, reversion of gender roles, lack of antiwar movement, etc.
And I also consider it significant that in the 2004 election, there
was absolutely no policy difference at all between Kerry and Bush for
Iraq. Both candidates said that the troops will stay in until the job
is done, which is clearly a 4T attitude, not a 3T attitude, in my
opinion.
It's truly amazing what's happening the world of finance today.
Did you read about the latest speech from Fed Governor Ben Bernanke,
the guy who's most likely to replace Alan Greenspan? He said that
America's skyrocketing debt is the fault of other nations, because
they're creating a "global savings glut."
http://www.federalreserve.gov/boardd...02/default.htm
He was born in 1953. Only a Baby Boomer would be stupid enough to
say something like that.
Sincerely,
John
John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Re: Mike Alexander's P/R methodology
Dear Mike,
Yes, Mike, I am indeed a crank. If I didn't want to be a crank, I'd
just say that the stock market will continue to go up, up, up. That
would put me into the non-crank midstream. But I don't say that, so
I am a full-fledged crank.
And since I've been indirectly referred to as a crank, I feel
especially entitled today to be twice as cranky as my usual cranky
self as I point out some of the many problems with your most recent
posting.
Constant vs Inflated Dollars
We're talking about P/E ratios, and since P/E ratios contain no
monetary units. (I once said that P/E is unitless, but someone
correctly pointed out that it has units of time.) Since P/E contains
no monetary units, it's quite natural to measure it in constant
dollars.
We're talking about a forward projection, and we're estimating
earnings. By throwing in inflation, then you're estimating TWO things
-- earnings and inflation -- and you're complicating the issue. If
you're going to assume 3% inflation per year for both price and
earnings, then you'll end up in the same place, because the 3% will
cancel out.
But why are you even assuming 3% per year? Didn't you once say that
you thought we were in a deflationary period? I thought that was one
of the things we actually agreed about.
Projecting forward 18 years from 2000
Now, this is really nonsense. You want to compute the earnings
growth from 2000 to 2018 by estimating 6% earnings growth per year
for that entire period.
Maybe that would have made sense in 2000, but it makes no sense
today, because, in case you weren't aware of it, WE ALREADY KNOW WHAT
THE EARNINGS GROWTH WAS FOR 2000-2004!!!! Why should we estimate
something we already know?
And of course, it was nowhere near 6%. In fact, it was negative for
a couple of years.
You can't go back and change the earnings growth values for the past
few years. As a friend says, "There's no UNDO button on the keyboard
of life."
So yeah, I'm still a crank, because I'm going to insist that we use
ACTUAL figures when we know them, not inflated MADE UP figures.
Averaging over 1890-1990
I chose the period 1890-1990 as the period over which to average
earnings growth for some very good reasons.
Notice that 1890 and 1990 are roughly similar in "position" within
the P/E ratio curve. The P/E values are approximately equal, and
they're both in an uptrend.
Second, I wanted to average over a long enough period to make sure
the average is valid. In particular, it's important to include the
1930s Depression period when earnings fell. The Depression is as
much a part of the average as the 1950s is. I realize that only a
crank would say that, but it's true anyway.
So, for all those reasons, I averaged from 1890-1990 and came up with
1.51% which, I believe, is the most accurate value for earnings
growth.
I did NOT use inflated dollars. Why should I? Inflation is an
entirely different factor, and if it's used, then you take on the
burden of showing that inflation rates haven't changed. Constant
dollars from 1890-1990 is the best value we have available.
Averaging over 1938-2004
Averaging over the period 1938-2004 is a distortion of the
methodology, because you're distorting the result by starting from
the bottom of a trough and ending at the top of a peak.
That's the same fallacy that's used in the "Dow 36000" hoax that's
going around.
(For anyone else reading this, you can read about the "Dow 36000"
fallacy in my new book at
http://www.generationaldynamics.com/...d=ww2010.book2
Look for it in Chapter 5.)
When you're doing exponential growth averaging, you have to take the
longest interval of time available, and you can't fudge the results
by choosing points to make the final results come out to the values
you want them to.
I'm sorry if using the methodology correctly makes me a crank, but
that's the way it is.
Averaging over 1950-2004
You pointed me to a commentary by John Hussman containing the
following graph:
( http://www.hussman.net/wmc/wmc050307.htm )
Here the problems are more subtle. It's not the obvious fallacy of
going from trough to peak. Going peak to peak is a little better,
but it's still not the best way of doing it. It's better to use
standard best fit exponential curve fitting.
But there's another problem, and it's a problem that almost all
analysts fall to - it only looks at figures since WW II. The whole
point of Generational Dynamics is that the period since 1945 is not
representative of the two crisis war periods that surround it. When
I chose 1890-1990, another reason was that it included the 1930s
financial crisis, so it was a more representative sample.
The problem has to do with the inflation rate, and might be stated
as, "He who lives by the inflation sword must die by the inflation
sword."
Hussman's graph estimates a value containing two components: earnings
growth and CPI. For these values to be considered representative,
both components must be defended. In fact, both components are
suspect.
The earnings component is suspect for the reasons given - it's
computed entirely over a non-crisis period, which tells you nothing
about its behavior during a crisis period (which is now).
The inflation component is also suspect, as the following graph
shows:
The period from 1950 to the present is a period when inflation has
been rising faster than the trend rate. There's no reason to assume
that inflation will continue at the same rate, and indeed my
expectation is that we're entering a deflationary period.
So once again, I come back to 1.51% as the best estimate we have for
earnings growth.
Recomputing
So now I'm going to recompute the figures you posted, using more
reasonable values.
Since you think only a crank would use the 1.51% figure for earnings
growth, then to accommodate you I'll use the 1950-2000 average. But
I'll use the constant dollar figure of 2.17%, computed from Shiller's
figures.
We can add inflation back in at the end of the computation.
And I won't apply it to 18 years from 2000, since we already know
where we are in 2005. So, let's take it from today, and see what
happens.
DJIA on Friday, 3/11: 10774
S&P 500 P/E1 on 3/11: 20
Expected increase in earnings by 2018: (1 + 2.17%)^13 - 1 = 32.2%
Thus, if the P/E is going to be 7.5 in 2018, then the DJIA would have
to be: 7.5/20*1.322*10774 = 5341.
Of course, that's $5341 in 2005 dollars. What are we going to assume
for the inflation rate?
You seem to be claiming that the inflation rate will be 3% for the
next 13 years, so the DJIA would be $5341 * (1.03 ^ 13) = $7843 in
2018 dollars.
But as I said, I think we're in a period of deflation (and don't you
believe the same thing?), and I think that inflation is more likely to
be -3%, so the DJIA would end up at $5341 * (.97 ^13) = $3594 in 2018
dollars.
Finally, from my point of view, the DJIA won't decrease gradually. It
will have a tsunami-like collapse, and 3594 will be a recovery value.
The tsunami-like collapse is likely to be to the 3000 range, or even
lower.
The moral of the story
The moral of the story is that even using your methodology with the
1950-2000 earnings average, you still get a very low DJIA value.
That's because the generational bubble of the 1990s was so huge that
there's no way past it without a 1930s style Great Depression.
But here's another point: Even with all your figures, with the 6%
earnings growth, with the 18 years growth period -- even with all
that fudging, the best that you can come up with is that the DJIA
will remain constant until 2018, with no growth at all.
So even in that case, it's pointless to buy stocks, because you won't
make any money, and you're still taking the risk that comes with
stocks.
Better to purchase 10-year Treasury bills, which will probably yield
4-5%, and possible much, much more if China decides to impose
economic sanctions on America by dumping all its T-bills on the
market.
So whether it's your figures or my figures, the bottom line is the
same: Stay out of stocks, and get into T-bills.
Sincerely,
John
John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Re: Mike Alexander's P/R methodology
I will attempt to clarify further.Dear Sean,
I understand that, and I've read those books too. But when somebody
lists "three things" that define something, that's like waving a red
flag in front of my face, because I assume that you've studied the
situation and reached some insight that allows you to boil down
a large mass of material to three simple statements, which is always
very useful.
I'm referring, of course, to the following:
Now, this description contains phrases like "institutional stasis
becomes ... dysfunctional" and "add a 'last act urgency' to their
extant imptuosity," phrases that I don't entirely understand, so I'm
trying to drill down and understand what kinds of insights you've
reached.
Item one is what it is.
For item two:
An orthodox (saecularist) view would be that the foundations of a new institutional order are founded in a 4T, built upon in the following 1T, crystalized in the 2T, and neglected, if not even undermined, in the 3T. Moreover, by the end of a 3T, the overripe institutional order in question is even maladapted for the new cultural/values regime born of the 2T and 3T, and what's more, built around a values regime itself founded a century earlier. So you have both institutional dilapidation and institutional-cultural dissonance. This makes things ripe for a secular crisis and institutional upheaval.
For item three:
All turning moods are created by 1) specific archetypal generations entering specific life phases, 2) how they react when entering those phases (intragenerational), and 3) how the generations interact with one another as they adjust to each other's roles (intergenerational).
When these generations fill up their respective life phases their leading edges ("first waves") begin to spill into the next phase. Thing is, they cannot take their old roles into these new phases and dissonance begins. Soon the mood is no longer tenable and a new set of life phases transitionings, i.e., a new "turning" more or less by definition, begins. A new turning mood jells. Oftentimes, these transitions latch on to an event, like how H2O molecules in saturated air pounce on a dust particle to form a water droplet. Less often, the transition is smoother. Regardless, it happens.
In the case of a 3T-to-4T transition, the most important component is the leading edge of the Prophet archetype spilling into early elderhood. As S&H themselves say, this invokes a "last act urgency" in a generation already known for it's impulsiveness at the same time said generation is at the peak of it's societal influence. Yikes. No wonder there are usually opening cascades to 4T's, esp. when you add this to what I mentioned above about the institutional problems.
None of these "insights" a really new, but a mixture of my descriptions, other T4Ter's thoughts, and some straight S&H all mixed together.
What happened after each trigger was a relatively rapid fire cascade of rising inflamation rather than what would've come even shortly before. The distance from the Tea Party to Lexington was 16 months, and from the former to the Declaration less than three years. At each stage things got progressively more intense as chip after chip fell.But my understanding is that the whole "cascade" process implies the
lack of follow-through that you're now describing.
For example, S&H identify the 1773 Boston Tea Party as the start of
the Rev War crisis period. What was the follow-through after that?
Wasn't there quite a bit of equivocation for a couple of years after
that, before war was declared in 1775 and the Declaration of
Independence was signed in 1776?
And what about the crisis period that began with John Brown's actions
at Harper's Ferry? The North didn't do anything after that. And the
South didn't have any intention of doing anything until Abraham
Lincoln was elected. So where is the follow-through that you demand
for a 4T to have begun?
Likewise, it's only a year and a half from Harper's Ferry to First Bull Run. And again, pyre after pyre blew off in a cascade of fire as the crisis exponentially exploded in everyone's faces. In each case it took only two or three years for an absolutist mentality to kick in and make "follow through" happen with a vengence.
Yes, but what makes the cascade a cascade is that no-one is in the mood to back down, or in the case of an economic opener, not in the mood to think anything but the worst. I categorically disagree with you that Ft. Sumter to "sacrificial" fighting took a long time. First Bull Run made it clear to everyone we were in for hell and it was only, what?, seven months after South Carolina's actions.
There is no doubt that there was less Silent reserve involved with the second Iraq war versus the first, but it has been three and a half years now since 9/11 (the alleged trigger) and the Iraq War right now in no way resembles a war of totality, high sacrifice, or follow-through. In fact, our society does not show any obvious signs that it is currently ready to do such a thing there or anywhere else for that matter. But I think that is getting ready to change . . .
There is a point there. But to my mind a truly uncompromising, 4Tish, cascade-inducing attitude would have blown right past that and made a big stink about the insurgency and/or about Iran & Syria. Draft boards would've been called to send oogles of soldiers in to the Middle East and called up for reserves to prepare for any other contingenices such as NK or even the Middle Kingdom. Now THAT would have been a cascade!!! Yowza.
Again, I completely disagree that the cascades in those cases took a long time. What's more, each demonstrated exponential crisis expansion, i.e., a cascade. But we can find common ground in that I agree some 3T mood aspects remain for a time as they dissolve or are suppressed.
I am curious, was there any widespread call by Republicans to bring the doughboys home during the 1918 midterm campaign (which was before the Armistice)? I am not so sure that 3T wars need to involve as much of the non-consensual attitude above as you imply. The locking up, deportation, and execution of foreigners was rampant in the 1917-1920 period (and somewhat beyond), and I don't see the (certainly coming) gender role reoganization as having truly come yet.
John, the cascade period (of trigger to regeneracy) took 3.5, 1.66, 3.5, and <3 years in the past 4 saeculae. We are 3.5 years past 9/11. If this indeed has been a transitional period (which I am not absolutely dismissing, just greatly doubting) then it's been a very interesting one.. Mike A. has a theory or two on how it could be this way that I find intriguing and am still mulling over (I have personally found it to be unwise to categorically dimiss Mr. Alexander). But right now, I am not convinced.
John, on that topic, you're preaching to the choir !!!It's truly amazing what's happening the world of finance today.
Did you read about the latest speech from Fed Governor Ben Bernanke,
the guy who's most likely to replace Alan Greenspan? He said that
America's skyrocketing debt is the fault of other nations, because
they're creating a "global savings glut."
http://www.federalreserve.gov/boardd...02/default.htm
He was born in 1953. Only a Baby Boomer would be stupid enough to
say something like that.
Americans have had enough of glitz and roar . . Foreboding has deepened, and spiritual currents have darkened . . .
THE FOURTH TURNING IS AT HAND.
See T4T, p. 253.
Right now we're more 3T than we were in the Reagan '80s, on economic issues anyway; at least there was no serious talk about a national sales tax back then, nor did they even try to do what has just been done to the bankruptcy laws.
The current Social Security debate could be the thing that reverses the trend, if it is rejected and it leads to a backlash in the 2006 Congressional elections. Otherwise, we could be headed pell-mell toward class-based civil war or revolution, with a "treason component" if we happen to be at war when it starts.
Re: Mike Alexander's P/R methodology
Now you understand my point. When you properly take inflation into consideration you can see that a very low P/E of 7.5 can be accomodated by a Dow just under 8000, not below 6000 or 3000. One only needs these low values on the Dow if the low P/E is going to happen soon. For example if the Dow fell to 7000 by the end of 2003 and was on its way to 5000 by the end of 2006, it might be around 6300 now, which would already be a P/E of 12, well on the way to 7.5. You originally forecast something like this. You are still on record with a sub-6000 prediction by the end of next year. My point is the Dow can still be above 10000 by the end of next year and your low P/E forecast still be on track, if you relax the amount of time you allow for it to happen. You yourself have just shown that low P/E can happen without a cratering Dow, if you wait until 2018 for it to occur.
Now as for inflation, I believe that the monetary environment today is still more or less deflationary, but this doesn't mean that prices are going to fall. They won't. The Fed has countered the forces of deflation with a wall of money. The Chinese central bank has done the same by underwriting American demand to keep the Chinese economy from falling into a slump (this is their New Deal). Deflationary forces have been and will continue to be overwhelmed by floods of money. The deflationary forces are still there and have resulted in inflation rates lower than what the amount of stimulation would call for and low interest rates. Overall I expect inflation rates in the next 13 years to be higher than they were in the 1990's, but stimulation will be much higher and interest rates lower than in the 1990's.
Here is how I addessed this issue in a May 2001 article:
Either interpretation suggests that reduced prices should peak soon, very possibly this year. What it does not say is that actual inflation will peak. Although our analysis of the Kondratiev cycle shows that we have a decade or more of downwave left, all this tells us is that reduced price will fall from the levels today to a second trough. What could easily happen is stimulus could sharply increase, like it did in the 1940's. This would result in falling reduced prices even though actual inflation might increase from today's level. The very rapid reduction in the Federal Funds rate and President Bush's much touted tax cut could combine to send stimulation sharply upward in the coming years, producing strong "deflation" in the reduced price measure without the same in actual prices.
Reduced price actually had peaked in Jan 2001; I did not have a source of data for real-time updates of reduced price in 2001 so I didn't know this then. Both CPI and PPI-based reduced price fell for a year. Then PPI-based reduced price went flat and then started to drift upward--reflecting strongly rising commodity prices from soaring Chinese demand. CPI-based reduced price continued to drift lower and then leveled off (see Figure 2). Thus, in CPI-terms reduce price did peak in 2001 and has gone lower since then, but there has been no CPI deflation. What has happened is consumer prices have risen slower than monetary stimulation from low interest rates and deficit spending have risen. I did not foresee the Chinese impact and for while was puzzled by strong commodity prices. I now see it as intervention designed to maintain demand and preserve Chinese growth needed for political stability and growth of Chinese national power. It's analogous to a much stronger New Deal, or a weak WW II in the last Crisis. I discuss this in my most recent article.
Dear Anthony,
I can't find any portion of this posting that can be supported or
even makes sense, or any portion that's logically related to any other
portion.
Sincerely,
John
John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Re: Mike Alexander's P/R methodology
Dear Sean,
I'm second to no one in ascribing visceral, emotional motives to
crisis wars. I've often compared the passion of crisis wars to the
passion of sex, but even in the highest passion of sex, people are
able to stop and say things like "Should we be doing this?" or "Are
we using protection?" or "Is that my husband's car pulling in the
driveway?"
So I can't see a 4T period nearly as mechanistically as you can. I
see all kinds of hesitation and equivocation during all the 4T
periods. In the Civil War, much of the Democratic Party wanted to
let the Confederacy form their own country with slavery legal. When
Japan invaded Manchuria and then China in the 1930s, America led the
League of Nations in imposing economic sanctions, not war. Even at
the 4T climax, both Sherman's March and the WW II firebombing were
greatly debated before they were achieved.
Now, I realize that you can find some alternative interpretation for
each of these items and any other individual item, but to me there
are many items that form a fabric of some indecision, even in 4T
periods.
I would agree that there's such a thing as a transition period
between 3T and 4T, but I see even that a little differently. I see
3T to 4T as a gradual transition, gathering momentum until the
explosive 4T climax, and the "cascade" that you describe as the
milestones along the way of that transition.
In the case of Iraq, the kind of mechanistic massive mobilization
you're talking about would have been a strategic disaster. It would
have alienated all our allies and further infuriated the insurgents.
That's reason enough why it didn't happen. Even in 4T period, people
pursue wars strategically. That means attacking when it makes sense,
and not attacking when it makes sense.
I've found enough variation in crisis era time periods that I
wouldn't trust any of these kinds of numbers. Even if you restrict
yourself to just the six examples in TFT, then you still have wide
variation in the crisis period, from 5 years to 29 years, with no
consistency in the sequence of events.
Sincerely,
John
John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Re: Mike Alexander's P/R methodology
Dear Mike,
While I admire your cleverness in rationalizing your own findings
that P/E ratios will fall into the single numbers, you forget that I
accommodated you in several ways to make my own point. I went along
with post-war earnings values to accommodate you, even though they're
clearly way too high, and I went along with the 3% inflation rate
even though we're in a deflationary period. Without these
accommodating assumptions, my 2018 rate comes out substantially
lower.
But forget all that, because I don't really care if it comes out to
4000 or 8000 in 2018. What's important is that it's going down
significantly. In 2018, the stock market is significantly lower than
it is today.
That's one important fact. The other important fact is that your
methodology gives you absolutely no clue what path the stock market
will take to get to 2018. And unless you have some arrow in your
quiver that I've never seen, then you have absolutely no right to
claim that the market won't fall to Dow 3000 between now and then.
The information you have is as useless as saying in 1929, when the
Dow was at 248, that it would fall to 119 by 1942.
You would have been absolutely correct, but your methodology
COMPLETELY MISSES the crash to below 60 in 1933.
And if the stock market crashes to Dow 3000 next year, then your
methodology has NOTHING to say about it, one way or the other.
What really makes me angry is that I know the kind of games you play
when you're losing an argument, even though you know what you're
doing. It doesn't matter in other cases, but in this case you're
putting your own family and a lot of other people's families at risk,
and that's just wrong.
Sincerely,
John
John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Re: Mike Alexander's P/R methodology
*******
Americans have had enough of glitz and roar . . Foreboding has deepened, and spiritual currents have darkened . . .
THE FOURTH TURNING IS AT HAND.
See T4T, p. 253.
Re: Mike Alexander's P/R methodology
That's fine. I don't disagree. But I'm sure you also agree the degree of risk one is willing to take in a 4T rises dramatically.I'm second to no one in ascribing visceral, emotional motives to
crisis wars. I've often compared the passion of crisis wars to the
passion of sex, but even in the highest passion of sex, people are
able to stop and say things like "Should we be doing this?" or "Are
we using protection?" or "Is that my husband's car pulling in the
driveway?"
I indeed find alternative interpretations. Many, but not all, of the Democrats took the position you mentioned early in the Civil War, but that did not change the fact that a cascade of events erupted from Oct. 1859 to the summer of '61.
America in the early 30's was suffering from a cascade that was economically-related, and quite wrapped up in that collapse, so it is not surprising the US did not act against Japan at that time. Furthermore, Japan had not shielded the majority of China from American commerce nor attacked America. Yet the economic collapse that did occur could be described as a "vertiginous spiral", a term S&H use for 4T openings (what I and some others call the "cascade" phase). A cascade did occur.
As for the WWII fire-bombings, the fact that they were debated is interesting, but not terribly relevant. What is relevant is that unprecedented force was used, and the risk involved in breaking the related taboos (someone could morally do that to us if the tables are ever turned) was taken, and 4T's (esp. climaxes) are when the risks are most likely to be taken.
If you see the 3T to 4T transition as gradual, and don't see any common morphology to the past six 4T's, then you are disagreeing with S&H, because they do not see such transitions as gradual and do find a common morphology between 4T's.I would agree that there's such a thing as a transition period
between 3T and 4T, but I see even that a little differently. I see
3T to 4T as a gradual transition, gathering momentum until the
explosive 4T climax, and the "cascade" that you describe as the
milestones along the way of that transition.
I've found enough variation in crisis era time periods that I
wouldn't trust any of these kinds of numbers. Even if you restrict
yourself to just the six examples in TFT, then you still have wide
variation in the crisis period, from 5 years to 29 years, with no
consistency in the sequence of events.
It's fine if you want to disagree with them. I think almost everyone here disagrees with them on some point or another. I know I do. But many of your disagreements are pretty basic, which is again fine. But let's be clear that that is what you're doing.
It may or may not have been a disaster, but such hard-headed thinking is most likely in a 4T. Many nations have not successfully thought "strategically" in 4T's. Britain selling arms to Germany and Russia helping the same build an air force in the 1930's, each for their own reasons, was crazy. The South taking on the North in the Civil War was crazy. The Japanese taking us on in 1941 was crazy. Hitler's entire war strategy was insane.
Even if a mobilization for a larger war in or beyond Iraq was not the way a fledgling 4T would manifest itself, it would've manifested itself in some way likely reminiscent of previous "catalyst phases" (S&H's most commonly used term for a cascade). S&H themselves point to 1929-1933, 1859-1861, 1773-1776, 1675-1677. The period from 2001 to today just does not resemble the cascading failure of those periods ( -- though as I've said before, Mike A. has come up with one or two interesting reasons why 9/11 was the catalyst, without having to seriously deviate from S&H's basic precepts).
You not being able to see the cascade or 4T morphology is as frustrating to me as my not seing the English Civil War as a 4T is to you. It appears that I am more in agreement with S&H's interpretations on these matters. This does not mean you are not right, it just means that yours is not an orthodox saecularist's view and that I don't agree (for now) with your interpretation(s).
I do, however, agree with you that there is a high likelihood of a major market comeuppance in our not-so-far future and that certain events in the world (NK, China-Taiwan, Iran, an overdue Al Qaeda attack, etc . . .) are all greatly driving up the probabilities of major international FUBAR coming soon to a world near you.
BTW, how does my take on the cycle of institutional decay and rebirth (previous posts above) square with your "old crusty bureaucracy" theory?
Americans have had enough of glitz and roar . . Foreboding has deepened, and spiritual currents have darkened . . .
THE FOURTH TURNING IS AT HAND.
See T4T, p. 253.
Re: Mike Alexander's P/R methodology
This would seem analagous to what is happening today: the wholesale transfer of our manufacturing capability to China, so a few rich American CEOs can pocket still more riches. Does this mean that at the climax of the current/coming 4T that we'll be in a position comparable to that of Europe in WW2, with us losing the war against China and other nations (Britain? Japan? Australia? Canada?) having to come to our rescue? I'm not convinced that the Nation would survive such a smashing blow to our collective ego.
Re: Mike Alexander's P/R methodology
It will probably just make any coming conflict with China that much harder.This would seem analagous to what is happening today: the wholesale transfer of our manufacturing capability to China, so a few rich American CEOs can pocket still more riches. Does this mean that at the climax of the current/coming 4T that we'll be in a position comparable to that of Europe in WW2, with us losing the war against China and other nations (Britain? Japan? Australia? Canada?) having to come to our rescue? I'm not convinced that the Nation would survive such a smashing blow to our collective ego.
Americans have had enough of glitz and roar . . Foreboding has deepened, and spiritual currents have darkened . . .
THE FOURTH TURNING IS AT HAND.
See T4T, p. 253.
Re: Mike Alexander's P/R methodology
Dear Sean,
That's not true. I consider S&H to be the highest authority on
crisis era transitions. Perhaps our disagreement is some simple
semantic confusion, because I assume we're both depending on TFT
pages 256-259.
Page 256 describes a four-step morphology of crisis eras - already
indicating a series of gradual changes. Then there's a series of
sparks, one after another, eventually causing the society to "begin a
process of regeneracy."
Notice we're talking about things happening in sequence over time.
There's a series of sparks -- and that can take years, as we know
today waiting nervously for another terrorist attack on American
soil.
After that, there's a PROCESS of regeneracy - a process is something
that takes time. That's the point where "Instead of downplaying
problems, leaders start exaggerating them. Instead of deferring
solutions, they accelerate them." It's this regeneracy that you're
looking for, but we haven't reached it yet, and won't until
"something else" happens, like a stock market crash or a new major
terrorist attack.
Finally, look at page 258 for what happens approaching the CLIMAX of
the crisis: "Leaders become more inclined to define enemies in moral
terms, to enforce virtue militarily, to refuse all compromise, to
commit large forces in that effort, to impose heavy sacrifices on the
battlefield and home front, to build the most destructive weapons
contemporary minds can imagine, and to deploy those weapons if needed
to obtain an enduring victory."
This is the kind of behavior you say should have happened in Iraq if
this were a 4T, but this paragraph clearly shows that that kind of
behavior only comes at the CLIMAX, not near the beginning, when the
series of sparks is still occurring.
I would also point out the words, "Leaders become more inclined ...
to refuse all compromise" in the above excerpt. This is another point
about gradualism. Even in the climax period, S&H don't make a refusal
of compromise absolute; they merely say that they're MORE INCLINED to
refuse compromise.
Finally, if I could go beyond the TFT text, I would add the
following: The 3T to 4T transition HAS to be somewhat gradual. It's
characterized by a change in leadership from Artists to Prophets, and
that change could easily take five to ten years or more.
Sincerely,
John
John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Re: Mike Alexander's P/R methodology
Yes, it is the spark or series of sparks that, prior to the beginning of the regeneracy, set offs the "vertinginous spiral of Crisis". Please note that in T4T, S&H delineate specific sparks ("catalyst") that trigger the beginning of this spiral and that the "catalyst phase" lasts from that point until the start of the regeneracy:That's not true. I consider S&H to be the highest authority on
crisis era transitions. Perhaps our disagreement is some simple
semantic confusion, because I assume we're both depending on TFT
pages 256-259.
Page 256 describes a four-step morphology of crisis eras - already
indicating a series of gradual changes. Then there's a series of
sparks, one after another, eventually causing the society to "begin a
process of regeneracy."
Notice we're talking about things happening in sequence over time.
There's a series of sparks -- and that can take years, as we know
today waiting nervously for another terrorist attack on American
soil.
- Black Tuesday, Oct. 1929, to FDR's 100 Days, Spring 1933
Harper's Ferry, 1859 (or the 1860 election -- S&H were not clear) to the aftermath of First Bull Run (late Summer, 1861)
Boston Tea Party, Dec. 1773, to the Declaration of Independence, July 1776
Indian Wars, 1675, to the Aftermath of King Phillips War (North)/ Aftermath of Bacon's Rebellion (South), 1677
These are periods designated by S&H as "catalyst phases", what some of us call "cascades", and they have happened at least the past four times there was a 3T-to-4T transition in our particular saecular lineage. They are the periods where S&H's "self-igniting firecrackers" go off.
These periods were tumultuous, and were so in a specific way: Institutional decay and deferred social problems coupled with a new generational dynamic led to an upheaval in the "outer world" -- much as there had been an "inner world" upheaval half a lifetime earlier in each case. And such outer world tumult has not occurred since 9/11. No cascading failure of our old institutional framework has occurred. Not yet.
The regeneracy does not occur without a catalyst phase. We have not had one, unless we've had one that is unlike anything we've seen in our modern saecular line (once again, Mike A. does have some interesting ideas there). Again, the past 3.5 years do not resemble the above cascades. Our "outer world" is certainly strange, but it's not turned upside down.
So Shiloh, Antietam, Fredricksburg, Chancellorsville, Gettysburg, and Sherman's March didn't happen in the years shortly after 4T began? The American Revolution didn't occur in the first third of a 4T?? King Phillips War, the most horrendous per capita war in American history didn't occur even before a regeneracy??
History disagrees with you.
The Iraq War of March 2003 through now does not exhibit any 4T characteristics, but I have agreed earlier in this discussion that perhaps that is not necessary for this to be a 4T, but nothing else is demonstrating the qualities of the above period either. There are definite signs that the generations are spilling over into their next respective phases and that the 3T mood is getting very, very, very "jittery" (a late 3T sign according to S&H). That is because the mood created by the intergenerational dynamic started circa 1983/84 is becoming more and more dysfunctional and maladaptive to the new dynamic forming. The mood cannot last.
S&H are being pretty quiet about all of this, but in a recent radio interview I listened to Bill Strauss said 9/11 was a "precursor event" and spoke of the 4T in future terms. And both of them mentioned something about seeing "strong third turning signs" (IIRC) in the past few years when we had a recent on-line discussion with them. I think they're coming 'round to the idea that 9/11 was not the trigger.
I have already agreed with you on this point, but I took it from the other side. I said it's the time leaders are most likely to take risks. But I now add that sometimes greater risks are taken earlier in the 4T, even if I agree they are more likely later in it. Our society took much greater risks, for example, in the American Revolution than in the Constitutional Crisis that followed a decade later.
Remember, S&H put the climax of that 4T at 1781 (in either Generations or T4T, I can't remember) which is less than halfway through the turning.
I have demonstrated this is not true. Neither S&H or history support this, as I've outlined above. This is not to say that it can't be gradual, maybe this time it will be (and note the 19th century British 4T, among others). But nothing says it must be gradual.
Americans have had enough of glitz and roar . . Foreboding has deepened, and spiritual currents have darkened . . .
THE FOURTH TURNING IS AT HAND.
See T4T, p. 253.
Re: Mike Alexander's P/R methodology
Especially since no one would come to our rescue in that event - most other countries would instead join China, hoping for a piece out of our hide instead. Or else, if anyone did come to our rescue, it would be too little, too late, just as it was when Egypt tried to 'rescue' Assyria from the Medo-Babylonian Alliance in 609 BCE. As for Japan, I suspect that China has some long range plans for that country that, if anything, are even uglier than the ones they have for us (and with pretty @#*$ good reason!).
Re: Mike Alexander's P/R methodology
Of course, but you were able to produce the result, so you know how I make that calculation.
As for the assumptions, you are claiming that the inflation rate over the 2005-2018 period will be substantially lower than that over the 1992-2005 period. I say inflation will be higher in the next 13 years even though it will still be a "deflationary" period--just no deflation--and I already explained why in prevous posts citing some of my articles. This is simply a difference in views. I think you are wrong and you think I am wrong.
You claim that my earnings projection is wrong. You base it on your belief about the right way to make such predictions. I base my views on actual successful predictions:
S&P500 earnings at the beginning of 1995 (the mid year of the decade) were $30.6, quite close to the projected average for the decade.
So here, I am predicting (in Jan 2000) that the average level of earnngs in this decade will be $55. By analogy with the 1990's one might expect that the earnings level at the beginning of 2005 would be about this decade-average value of $55, just as the 1995 value was. The actual value is $58.9.
So here is a real forecast made five years ago that has come true, despite an earnings decline of 54% in between. Also, I was bullish in early 2003. One of the reasons was at 800 the SPX was valued at a P/E of 14.5 based on projected 2005 earnings of $55. Assuming the Fed would hike rates to 3% by 2005, the S&P500 was grossly undervalued at 800 and would almost certainly move up, which it did. The market's actual movement since then has confirmed my view.
Since earnings are cyclical one can extrapolate peak earnings for the 1962-1970, 1970-1975, 1975-1980, 1980-1982, 1982-1990, and 1990-2001 business cycles to obtain projected earning values of 73-89 for peak earnings in this business cycle, assuming an earnings top in 2008-9 (which is when it would be expected based on the Juglar cycle). Assigning the same 20 multiple of today to these earnings yields a top of 1460-1780 in 2008-2009, which is considerably higher than today's ~1200 level. Yet even the highest value is only about 1410 expressed in 2000 dollars, which is lower than the 2000 peak. This keeps with my forecast of a secular bear market beginning in 2000, which means the SPX will remain below the inflation-adjusted peak in 2000 for at least 20 years.
After the peak in this business cycle there will be another "big bad bear" like 2000-2002 that will take the index down to levels not too different from those we saw before--likely a larger percentage drop than in 2000-2002. This is S&H's "Great Devaluation". This time there will be no re-fi boom to ameliorate the economic impact and the recession will be more serious. Why? Because the Kuznets cycle will have peaked, possibly in 2004 (as I forecasted in 2002):
The Kuznets cycle is not aligned with the K-cycle. Although of the same average length, it is not the same as the Kondratiev season as it is in SMECT (see Table 6). The two cycles are not in phase. Thus, although Kondratiev season changes can exert a strong effect on downturn severity, so can the unaligned Kuznets cycle. Hence, the present recession, although "K-cycle equivalent" to 1932, is not as severe as even the mild 1990 recession because it lacks a real-estate (Kuznets) cycle downturn.
One might point out that current strength in real estate reflects the 11 rate cuts made by the Federal Reserve since the beginning of 2001. But these 11 rate cuts have done nothing to prevent the stock market from falling 35% since then. The stock market fell because it had gotten too overvalued, that is, it had reached its peak in the Stock Cycle and thus had to start coming down, regardless of the what the Fed did. On the other hand, real estate valuation has not reached extreme levels as shown by the ratios of price to income in Figure 5. That is, the Kuznets peak has yet to be reached. Thus, rate cuts have supported real estate, just as they did for stocks in 1998. By 2004 we may well have reached a Kuznets peak and then one would expect rate cuts by the Fed to be ineffective in preventing a real estate bust in the next recession. This interpretation suggests that the current downturn is largely stock market driven, being the result of the inevitable downturn following a peak in long-term stock market valuation (P/R). Indeed, current weakness almost entirely comes from weak business investment spending, reflecting the poor business outlook generated by continuing weakness in the stock market. Consumer demand has remained strong.
Thus, if the cycle scheme suggested here is correct, no double-dip recession is to be expected and the stock market may well rally over the next few years, in accordance with P/R valuation.
I don't think I'm losing.What really makes me angry is that I know the kind of games you play when you're losing an argument, even though you know what you're
doing.
Re: Mike Alexander's P/R methodology
Dear Sean,
First, let me apologize for the long delay in responding. I'm trying
to keep my head above water, and a lot of things are suffering.
Second, the old tape drive controllers in my brain have, without my
being consciously aware, been doing linear searches through various
old tapes, looking for anything related to that information you
requested. They found something and have moved it into my brain's primary
storage, and then with a little googling I found the story. It's in
the next message.
I'm having a lot of difficulty with this, Sean, because I keep
getting the feeling that you're taking certain TFT excerpts too
literally, downplaying the importance of other parts, and not
interpreting events flexibly enough.
I would also point out that if S&H are not 100% certain whether this
is a 3T or 4T, then it's not likely that other people are going to
come to a definitive conclusion.
Maybe it's all a matter of "feelings." For some reason, the jailing
of Muslims after 9/11 is enormously important to me and unimportant
to you, while the equivocation in Fallujah is enormously important to
you, but unimportant to me. I don't know why that is, but it's those
feelings that evidently are leading to our opposing conclusions.
All I can tell you, Sean, is that I was overwhelmed by the dramatic
changes in American society following 9/11. I've said these before,
but it's worthwhile to list these again:
- (*) After 9/11, I was absolutely astounded that we were locking
up Muslims without a trial. Such a thing would have been COMPLETELY
IMPOSSIBLE before 9/11. This kind of thing was predicted by S&H, and
was a major factor in convincing me of the validity of TFT.- (*) After 9/11, a number of Senators were expressing outrage that
the FBI and the CIA hadn't been comparing notes. I don't know if you
remember anything about the controversies involving the Church
commission in the 70s, but comparing notes was loudly and screamingly
considered to be anathema by the antiwar people in the 70s, on the
ground that it should be possible for an American to go abroad and
take part in a pro-Communist demonstration, and then come home and
commit a crime, and no one should know that the same person was
involved in both. So, early in 2002, when I heard THE SAME SENATORS
start loudly screaming that the FBI and CIA should have been
comparing notes, it had the effect of (a) further convinced me, if
any further convincing were needed, that politicians are generally
total morons, and less ethical than used car salesmen; and (b) that
society had massively changed in a way predicted by S&H (national
unity over individual rights).- (*) The antiwar movement quickly collapsed. I was shocked when
CNN correspondent Christiane Amanpour, who had always expressed
varying levels of anti-Americanism, suddenly started using the
pronoun "we" instead of "they" when referring to Americans.- (*) The so-called "gender gap" on defense issues reversed sharply
after 9/11. In the 1990s, national security was a very low priority
for women. That's why any military actions that occurred in the 90s
ended quickly, and it's also why the 1991 Gulf War ended without
capturing Saddam. By January, 2002, the gender gap had completely
reversed, and far more women than men said that bolstering national
security was a top priority. Women have changed their minds on other
issues as well: There was the backlash against Janet Jackson in the
Super Bowl; there's the research that says that college educated
women are choosing in droves to stay home with the kids rather than
work. Women are returning to gender-specific roles, as S&H
predicted.
These are all enormous changes, and they're all of the type predicted
by S&H. TFT p. 256 says, "A Crisis era begins with a catalist
-- a startling event (or sequence of events) that produces a sudden
shift in mood."
To me there's no simply no question about it, notwithstanding
Fallujah -- 9/11 was a startling event that produced a sudden shift
in mood. As I said, the shift in mood was sudden and massive.
Does this fit the TFT model? Yes, of course it does. In fact, look
at the description of the approach to the Civil War (TFT 261-262):
The 4T began with John Brown's raid, but "Brown's uprising did not
polarize opinion as much as his aging backers had hoped. Afterward,
the nation settled back into the sullen brooding for which the 1850s
were notorious." That kind of sullen brooding describes America's
mood for the last year or two.
So America since 9/11 fits quite well into the S&H's description of
the Civil War following Brown's raid.
And it's not just America. On my web site I've been documenting
changes predicted by S&H in countries all over the world. Just
yesterday in my web log I did a piece on France passing a law making
it mandatory to learn La Marseillaise in school. The Dutch
exhibited massive changes in mood when Theo van Gogh was
assassinated. Putin is aggregating more and more power to himself.
So is Musharraf. China, North Korea and Taiwan are all becoming
increasingly confrontational. These are all the things that S&H
predicts for 4T periods.
In summary, my position is this:
- (*) The evidence supporting 4T is enormous, and outweighs by an
order of magnitude the evidence (like Fallujah) supporting 3T.- (*) America today fits TFT's 4T model. Nothing in S&H's
description contradicts this.- (*) There has been an enormous change in mood since 9/11, as
described above. So even if you somehow "proved" that this is a 3T,
it's still massively different than America in the 1990s.- (*) The first "spark" in the catalyst was 9/11. If there's
another "spark," especially a major terrorist attack on American
soil, it may well trigger the regeneracy.- (*) There have been "sparks" in other countries as well -- for
the Dutch, the murder of Theo van Gogh; for Spain and France, the
3/11 Madrid subway bombings; for China, Taiwan's election and
re-election of Chen Shui-bian; for Palestinians, the building of the
barrier; for Russia, the three major terrorist acts in ten days,
including the bombing of two airplanes in flight, a subway bombing in
Moscow, and the Beslan school massacre, all masterminded by Shamil
Basayev.
In my opinion, this is overwhelming evidence of a 4T. You can
discount this evidence if you want, but I've been immersed in this
stuff now for 3 years, and I'm totally convinced.
I looked through your last few messages, and I'm not sure what you're
referring to. Could you summarize your position?
Sincerely,
John
John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
