A Historical Context

"I wanted to put our current predicament into historical context, and to demonstrate that the situation we find ourselves in is not novel. It differs quantitatively, but not qualitatively, from what has gone before - many times before in fact. Great cycles of expansion and contraction are part of the human condition, and there are patterns of boom and bust that continually repeat themselves, as they are throroughly grounded in human nature.  Collective human optimism and pessimism are extremely powerful drivers, acting over very long time scales. They are powerful enough to drive tremendous cycles of socioeconomic expansion and contraction. As population grows and optimism increases during a long expansion phase, pressure emerges that can only be relieved by increasing the elasticity of the money supply, often in spite of existing rules intended to prevent this very dynamic in the name of maintaining sound money."
Nicole Foss, The Automatic Earth

Fear, Uncertainty, and Doubt

"Fear, uncertainty and doubt will remain as long as consumers and executives lack confidence in the economic outlook of the United States. The psychological affect of the FUD factor remains a major hurdle to overcome. So far, everyone fears the worst, is uncertain about the future and doubts much can be done to make the situation better. We are in for a slow growth economy for some time. As investors we need to adjust our sails to deal with these difficult conditions."
Hans Wagner, CEO, Trading Online Markets LLC

Mass Social Mood Model

You've Seen "Plus Size" Before

It sounds like the fashion industry understands the nature of cycles. I love the phrase "impeccable regularity". The "Fourth Turning" explains the phrase below "you've seen it all before" in beautiful detail.

(CNN) -- "Nearly everything in fashion is cyclical: the clothing, the hair, the accessories, and yes, even the people come in and out of style with impeccable regularity. It's no wonder, then, that plus-size models and their agents are accepting the latest clamor to place larger models in high-fashion editorial spreads -- the first appearing in Glamour magazine in November, the second in V magazine's size issue, on stands Thursday -- with a shrug and a smile. They're hopeful, but if you've been in the business long enough, you've seen it all before."
Entire article: http://edition.cnn.com/2010/SHOWBIZ/01/14/plus.size.models/

DJIA/Gold Ratio: An Update

This is the 6th post in a series regarding the Dow Jones Industrial Average/Gold Ratio (DJIA/Gold). The charts below are from http://www.chartingstocks.net/ and present an excellent update on the ratio and comparison to other key parameters.

The top chart below of the DJIA/Gold Ratio defines very clearly the most recent cycle that commenced in 1982. The expansion phase came to an abrupt ending, as it always does, in mid-1999 (while we were all jacked up on dotcom stocks!). The bottom chart, the Dow Jones Industrial Average (DJIA), presents a very interesting contrast. For several years while the ratio begins to collapse, the DJIA recovers from the Dotcom crash and regains it's upward trend. This, my friends, illustrates the power of the Federal Reserve and aggressive "money printing". The patient is dying on the table, and doctors Greenspan and Bernanke keep it alive for a little bit longer. How long do we really want the patient on life support? If death is inevitable, lets make peace with the patient and let nature takes its course.

As we all know, the patient begin to have convulsions and seizures in late 2007, a major heart attack in 2008, and here we are in early 2009 with the doctors attempting a heart transplant. The medical team has been expanded with the addition of Paulson, Bush, Obama, Dodd, Pelosi, Frank, and Geither.


The chart below presents a short term detailed representation of the ratio over the past three years. Capitulation is in full force.

The most significant aspect of this attempt of financial manipulation is that the U.S. dollar is being destroyed. The chart below illustrates the divergence in the advancement of the DJIA in comparison to the destruction of the dollar. The Fed is attempting to create some short term gain by artificially stimulating the DJIA, but the damage will be the long term destruction of our currency. This will lead to massive hyperinflation which will last for a long time.

In summary, the DJIA/Gold Ratio presents an excellent short and long term tool for modelling the asset classes in one's portfolio. The ratio presented a signficant inflection point in mid-1999, and the contraction phase is playing out. Most importantly, it is NOT TOO LATE to re-model your portfolio. Remember, some jumped in lifeboats off of the Titantic. Some boarded early and some late, but those that did, saved their lives.

Source:
http://www.chartingstocks.net/2009/03/dowgold-ratio-hits-7-a-new-multi-decade-low/

The Requirement of a Hangover

We've all had a good "night on the town". After the party, the inevitable hangover arrives. With the fun comes the pain. The U.S. economy has been partying since 1982. In 2000, I believe that we started a long hangover. The booze of the expansion era must now be purged during the contraction or hangover. Like a hangover, there are many theories on how to cure it. It is my belief that the Fed will only increase the headache.

The natural cure for the hangover.
http://www.youtube.com/watch?v=sMdF1CiQAkA&feature=related