Historical Relationships and 1/3, 2/3's

"This will in turn then put the market at great risk of a far more devastating decline than most anyone anticipates. The bottom line is that the Phase II decline is lurking and there is analysis and there are tools to help understand how the setup is unfolding. Just as I warned about the decline into 2002, the extended 4-year cycle into the 2007 top and even the 2008 top in commodities, few listened but later wished they had. You have been warned!"
Tim Wood, CPA - June 25, 2010

Source: Financial Sense Online, Tim Wood, CPA
Ever since the rally out of the March 2009 low began, I have maintained that it has been a bear market rally. All the while, the politicians think that their printing spree, bailout plans and stimulus packages have put a bottom in the economy. I continue to hear the talking heads on "CNBS" cheering on the public, and in their eyes all they can see is the so-called "double dip" recession. I’m sorry folks, but this is not a double dip recession. According to my analysis we have entered a global debt crisis in association with K-wave winter. Besides the purging of debt from the system, a by-product of K-wave winter is that we have also entered global bear markets in stocks and commodities. Based on my analysis, the rallies that began in early 2009 have not been associated with a recovery, but rather a reprieve of the ongoing deflationary forces of K-wave winter.

In accordance with Dow theory, bull and bear markets are divided into three phases with each of these phases separated by important counter-trend moves. The counter-trend moves separating these phases are very deceiving because people perceive them as being a resumption of the previously established longer term move rather than a counter-trend move within the newly established trend.

In the current case, most people perceive the 2009 low as THE bottom and the advance that has followed the March 2009 low as being a resumption of the advance that carried the markets into the 2007 highs. Based on the ongoing evidence associated with my analysis, this is not true. According to my analysis, 2007 marked the top of the 33 year longer-term bull market that ran between 1974 and 2007. Also according to my research the rally that has followed the 2009 low has been the deceitful counter-trend move that will ultimately prove to separate Phase I from Phase II of the much longer-term secular bear market. Historically, Phase II declines are the most devastating and I see no evidence that this time will be any different. I have discovered a very specific "DNA Marker" that has been associated with every major stock market top since the inception of the Dow Jones Industrial Average in 1896. When all of the pieces of this DNA Marker are in place, the market will be at great risk of the resumption of the ongoing secular bear market and the decline into the Phase II low. Virtually no one understands the destruction that will follow in the wake of the Phase II decline. It is the reckoning of the seriousness of the situation associated with Phase II declines that make them so devastating.

As was seen during the Phase I decline, everyone will again turn to the government to "fix" the problem. Funny thing is, the government was instrumental in causing the problem in the first place. Furthermore, the appearance that the government created the bottom in 2009 is an elusion. The government does not know any more about fixing the economy than they do about fixing the oil leak in the Gulf. All the government can do is spend more money and create more red tape. The best thing that could happen would be for the government to stand back and let the free markets do what they will eventually do anyway. Based on the historical relationships between long-term secular bull and bear markets, the bear markets tend to run about one third the duration of the preceding bull market. Thus, with us less than 3 years from the 2007 high, this secular bear market has much further to run. Based on the historical relationships a bottom is not likely due until late in the current decade. For more on historical bull and bear market relationships please refer to the April 30th Market Observation.

From a Dow theory perspective, the bullish primary trend change associated with the bear market rally still remains intact. According to Dow theory, confirmation of a primary trend change requires a joint move above or below a previous secondary high or low point. This has not yet occurred. But, when it does and if the DNA Marker that I have identified at every major top since 1896 is also confirmed, then at that time the DNA Marker will serve to validate Dow theory. This will in turn then put the market at great risk of a far more devastating decline than most anyone anticipates. The bottom line is that the Phase II decline is lurking and there is analysis and there are tools to help understand how the setup is unfolding. Just as I warned about the decline into 2002, the extended 4-year cycle into the 2007 top and even the 2008 top in commodities, few listened but later wished they had. You have been warned!

The Emerging Shift

More from the interview with Long Wave master, David Knox Barker:


"Human psychology drives the cycles and there are trends in psychology. For instance, if you look at the 1970s to early ‘80s and the force that brought Ronald Reagan into office, it was a seasonal change in the long wave. It was a shift from the Roosevelt era of the 1930s of “The government should go out and save me from the economic forces” to “Let the free market take care of itself.” Then with Obama we saw a shift back to the idea that the government needs to step in and control the markets. A lot of the psychology you see is manifested in political trends. In the 1930s we gave the New Deal a chance. I talked in about that in the 1995 edition of my book, that fact that we’d probably see a global version of the New Deal proposed during the present crisis. And sure enough that’s exactly what was proposed [during the credit crisis of 2008]. The fact that people are even talking about a global New Deal is a sign that the psychology has radically changed. The socialists are excited because they think we’re headed in that direction, but I think they’re in for a major disappointment. I think we’re heading for a shift [in psychology] to a degree larger than the previous shift in political psychology. I sincerely believe the Tea Party movement is an early manifestation of this emerging shift, which I believe will be toward the Great Republic."

Read the entire interview:
http://financialsense.com/editorials/droke/2010/0415.html

The Great Republic

An interview with Long Wave master, David Knox Barker:

Q: The book chapter with the most frightening implications was the one entitled, “A Redistributive World Empire.” Please tell us more about it and what are the chances that the U.S. enters into this type of political system in the years ahead?

Barker: I picked up that term from, Redistributive World Empire, from Immanuel Wallerstein. There’s an interesting group called World Systems Analysis that studies the advance of civilizations, cultures, etc. Wallerstein has said that in the past he has said that any world economy has ultimately evolved into a redistributive world empire. Rome is the classic example of this type of empire, where the bread and circuses were required to pacify the masses and the Roman Senate was completely corrupt and of course the Caesars became corrupt and ultimately Rome collapsed. What’s interesting is that Wallerstein’s work has always seen that progression from a world economy to what he calls a redistributive world empire. This time around, however, he’s proposing that each long wave is a kind of birth pang of global socialism. Incidentally, Wallerstein has very left-leaning socialist inclinations. He believes that instead of going toward a redistributive world empire we’re going to go toward global socialism. Of course if you look at what has happened in the last year and the way we responded to the global financial crisis, you have to say, “Oh my goodness, Wallerstein may be right after all.” But if you look closer, what really has transpired is what looks more like a Redistributive World Empire where the middle class is taxed really for the interest of an elite class of political and business managers. I guess another term of Redistributive World Empire would be crony state capitalism. And state capitalism isn’t the same as international free market capitalism.

So basically in the book I present three scenarios. Scenario one is what Wallerstein says, namely that each long wave leads to a bigger crisis of capitalism with the birth of global socialism. I don’t think that’s where we’re headed. Then I examine the observation that in the past a crisis in the world economy always produced a redistributive world empire. You’d have to say that’s the most likely outcome where we’re headed based on the evidence. My proposal is the Great Republic, and I truly believe there is a great chance to go in the direction of true international free market capitalism as a result of the crisis that we’re sailing into. I think as you look around and see the austerity in Ireland and see the Germans preaching austerity to the Greeks, it’s important to realize that austerity is not a redistributive world empire. I actually believe that a sovereign debt collapse would be the ultimate mother of invention leading to the necessity of a Great Republic. There’s definitely the potential for such a collapse to produce change towards the Great Republic.

Read the entire interview:
http://financialsense.com/editorials/droke/2010/0415.html