Weekend June 10, 2012
This is a special update on the Very Big Picture. Regular readers will recall our contention that the US Economy breaks down into 18 year cycles.
We mare more than half way through the current bear cycle. These periods are marked by both highs three of four series of highs and lows, none of which will surpass the high registered at the start of the cycle. For example. the NASD peaked at 5000 in March 2000 and is a couple thousand points lower than that now, even after three years of rally from 2009.
The Charts suggest that we are on the cusp of another swoon to the downside. Our short term view is that a vigorous rally in stocks, gold, oil lies immediately ahead. This should be a five of Five from March 2009. We would guess the termination is around SPX 1475 making Wave five equal to the 200 points of Wave one this past fall. So here are reasons to be concerned.
The Real Chart of What Paper Money Has Done to the USA
Here you have the result of Greenspan lowering rates to zero and Bernanke throwing money from helicopters. The Dow measured in gold is lower than in 1993. That year the Dow traded at 3,000, yes you read that right. so one can argue that there has not been any rally only a readjustment in stock prices to reflect the increase in the price of gold. In 2000 the Dow was 42x more valuable than gold, today it is just 7.5x more valuable. Gold is gaining on stocks. The bear market will end when the two achieve parity, Dow and Gold 5,000 anyone?
I just returned from a conference in Tampa, FL. What a difference 12 years makes at the airport. Mobile computing is taking over desktop, and how. Everyone had a cell phone which of course now is a camera and mini computer to surf the net as well. Tablets were in evidence as were e book readers. The airports have installed work and re charging stations, and they are all in use. So it seems to me that the NASD 100 which represents the big Techs is a better representation of the US than say the DOW where Chrysler and GM and Kodak and AMR and Delta have all gone bankrupt.
The 2008 Shanghai moment (see next chart) for the US was the dot.com peak in March 2000. Again this is not a log scale. But scan the above chart then the SSEC below. As we say here, all markets do not bottom at the same time. The big question, will the USA and SSEC end up like Japan in the third chart?
Alan Abelson mentioned Shanghai in a recent column. I discarded the log axis in favor of a regular axis. this makes the spike in 2008 oh so obvious. But from 2281 where the SSEC is now to 1500 on the pink uptrend line is a potential 781 points or a potential 34% drop. And if China continues to slow all the Pacific Rim countries leaning up against it will simply crash.
Poor people think about Tuesday all day Tuesday. Rich people think in terms of decades.
Gail Sheehy, Pathfinders
Note this is a log scale chart. RSI tells the story at bottom. Again in these 18 year periods we have three reliable plunges. The third and probably worst lies ahead. RSI is making lower highs and lower lows, the sign of a bear market. If in fact SPX peaks at 1475, it will have made a lower high than in 2007. That suggests a lower low than the sub 700 recorded in March, 2009.
So How Weak (Strong) is the USA Economy? - The Semi Conductor Index SOX
How about 1997 weak? All those cell phones, iPads, etc at the airport run using semi conductor chips. The cost of these has gotten much cheaper with improved production techniques. Which means that each unit produced makes less money for the producer. Hence, it's 1997 all over again.
As bull market peaks have moved around the world, we have a big top in the US first in 2000, then in china in 2007, then in Bombay in Fall 2010. But RSI is collapsing at bottom. India is rife with bureaucracy and still lacking infrastructure. The uptrend line is where the 125 month MA is now, that would be a drop of 6,000 points from the current 16,000 level.
The weakness in the commodity markets has weakened the Brazil index even more than the Bombay. We noted the top in the Brazil and Bombay markets in the Fall of 2010. The bear markets continue in both.
Russia - Still the All Alone Empire
The Russian Empire floats on a sea of oil, all controlled by newly re-installed Czar Putin. Lt. Col. Ralph Peters maintains Putin is the most dangerous man in the world. Puytin has the fabulous riches of Russia and is accountable to no one. He supplies Syria and iraq with weapons. The foreign policyof Russia and China, well displayed at the UN Security Council on Syria lately, is simply to keep the US off blance. With no clear foreign policy on display by the US, they are doinga pretty god job of it. There are already mobs in Moscow opposing Putin's expansion of personal power. This iwll likely not play out well if the RTSI loses 400 points dropping to its uptrend line.
This completes the BRIC analysis. And like SSEC, BVSP, and BSE, the Relative Strength is collapsing for RTSI as well.
Whoops, almost forgot Europe, for fun I have used the International Racing Colors for each country.
Britain, Green (stockcharts shows a red here as well)
This shows Germany and Britain to be the clear leaders. France is back to the depths of 2009 and 2003 as we have noted in past posts. Italy is back to 1994, note it never recovered along with the other markets from 2009.
So there you have it. The bear market progresses all around the world, popping up first in the US and then making appearances in other markets as they experience their peaks.
It seems reasonable to expect these markets to revisit prior lows for this cycle over the next two to three years.