Urban Survival - George Ure's weekly market update -- NEWS ONLY

Replaying 1929 ?

From the Week ending: September 7, 2001

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Markets Fall: Hoover II Speaks! You know something is up when the President has to speak out on the markets. The presidential remarks left me cold. He said something to the effect that "We're concerned about these unemployment numbers - and we're going to do something about it." But what? "Any American out of work is too many American's out of work", said II. He also was quick to point out that the recession did not start on his watch. Agreed, but it didn't start on Hoover's either.

You might get a kick out of reading the Urban Survival Annual Forecast, which was titled Bush II as Hoover II in Depression II at http://www.urbansurvival.com/y2001.htm . We keep seeing that "rhyming" with the 1930's. Bush's role is just the tip of the iceberg. Massive oversupply and a lack of pricing power in nearly all sectors of business is the root of the problem, and as Ehor Mazurok & I have shown, reducing rates is not the silver bullet.

Still, despite what the MUC shows, the Fed is likely to enact another emergency rate decrease next week next week if the market slides again. Look for a rate cut to come during market hours because, in accordance with the MUC, the rate cuts are having less and less impact. Therefore, to get the maximum bang for the (quickly printed) buck, they will do it at the best possible moment. Still, any relief rally on this "surprise" rate cut won't help. Just read the history of the Federal Reserve and how bankers failed in the 1930's. Same mentality - this time just a different timeline and a small variance from the last historical meltdown.

9,000 is a critical level for the Dow to preserve. Below that, confidence will be horribly shaken and the bottom of the pit out of sight.

ON the premium service, we'll be getting into analysis of things like how the graying population of "almost ready to retire" people will have as the slide continues into the future.

Meantime, if you're interested in getting on the list for our $30 per year expanded premium service - that will track a lot more than just financial markets and give you hints and tips that make sense, click here to send us a note. Looks like the premium service will go "live" around November 1 and will be a weekly letter. We've got our mailing address in San Diego now and I will put that up here as time permits.

BULLETIN: Is the PPT out of Business?

As I write this special update, the Dow is down more than 200 points, the NASDAQ has been in a freefall despite the "noise" around the Microsoft announcement this morning, and the broader S&P cash is down more than 25.

With these declines, the AGGREGATE INDEX has down dropped below the April levels, and if we close below the low April readings, the market will be perfectly set for a freefall faster than anyone could imagine. The low point for the Aggregate was 7679 for the April lows, and if the market closes near or on its lows today, it could be around 7650 - or lower. If we take out April's 7679, the next Aggregate target is 6430. That means:

A 16% drop in the Dow, SPC and NASDAQ 100. To put values to it, and using today's levels around 9876 (on a bounce upward) that would give us a Dow around 8200 within a month... But it doesn't stop there. If the Aggregate is correct, from its all-time high of 11,722.98 (on a weekly print basis week ending 1/14/00) the Dow should finish the descent around 2953 as early as six months from now, but more likely +/- one month from the think tank's predicted bottom date of Nov. 8, 2002.

We should see a bounce to about 11 AM (Pacific) and then the selling should resume in the afternoon - if the Aggregate is right.

Why is the PPT out of business? The think tank checked in this morning with word that to lower the Dow by one point only requires about $875,000 of stock sales. However, to raise the Dow one point requires nearly 8-times that amount, or just under $8-million in stock purchases. They have run out numbers and they show that next week, it will take only about $600-thousand to lower the Dow a point, but $12.5-million to raise the Dow a point. The following week - and hang on to your hat here - it will only take $500-thousand of sales to drop the Dow one point and it will take $18-million to raise a point. Put simply, once the downside momentum begins developing the exponential effects take over during the coming weeks, the PPT will not have enough money (or bullets) to keep the sellers at bay.

As this happens, watch the price of gold. Also worth noting: growth of M3 has stopped dead and now it looks like M2 is being pumped. But as things work closer to pumping M1, the odds of inflation to counter pending deflation becomes the game to watch.

Think Tank Update: The think tank folks proudly point to their tipping point model and the work we jointly put on the site back in July - when the Dow was around 10,538. At that time, I put on this site their call for a 1,000-point (or greater) drop by the end of September. Well, with the Dow down in a major way today, they're saying that downside momentum is likely to keep building, although they are looking for a 2-billion share day on the NYSE which should herald a major "news" event that will really grip the public mind and result in panic. That "event" should come between 2 and 3 weeks after we see the NYSE 2-billion share down day.

Site Fees Update: Elaine & I would like to thank the hundreds of people who have indicated they would sign up for the Urban Survival "inside report". We have made the decision to expand this web site to include a "subscription service" that will cost $30 per year, and will cover the "daily living" kinds of issues that are about to emerge in the developing Second Depression. If you are not a frequent reader of this site, I advise you to click over to the index of this site where you will see the public reports I've done. I think there's a lot of value to reading all of them - and look at the dates as you do - because we could very well end up going where no one ever thought we would go again.

I haven't got time to answer everyone individually, but I will give you a first shot at the subscription announcement. Click here and send me a note if you want to be on the email list to be advised when the subscription service comes up. Frankly, it's overwhelming the number of people who want more than just the numbers - they want to figure out how to deal with living if (or should we say when) the Dow drops to below 5,000. That subscription service will be updated about once or twice a month, and will include things outside of markets.

Meantime, I'm actively seeking work in the San Diego area - putting some miles between me and ground zero (Seattle and San Francisco, which are likely to be hardest hit by the economic decline. I would not be surprised to see unemployment of 20% in the Bay area within a year or two. If you know of anything, or have any ideas to pass along, my cell phone number is 650-892-0575. Maybe there is a small (honest) brokerage firm in the San Diego area that would like to sponsor this site? We're cleaning house and getting the boat ready for its trip down the coast.

BIG Picture Stuff Getting a Grip

Few buyers! Light volume! A turnaround "just ahead"! Sounds like the early 1930's to me.

With continued weakness in the markets, and a retest (and break down) from the April market lows now nearly at hand, you can Imagine how pleased I was when I opened the email last week and found this note:

Hey George,

Love most of your stuff, except when you get way out there, but with all due respect your off on this long-wave. I've wanted to take the time to write. I'm supposed to know, I wrote the book, The K Wave, 1995, Irwin Professional, now McGraw Hill, - and Jubilee on Wall Street - 1987 (I was 23 and pretty green when I wrote that one) - both great for curing insomnia. I'm always open to being wrong, but I think it is clear that this long-wave started in 1949, look at any inflation adjusted, Dow. http://www.dogsofthedow.com/dow1925cpilog.htm (Thanks dogs of the Dow). Look closely and you can count the Kitchin cycles. 1949 to 1966 was a K Wave spring, 1966 to 1980 a long hot K Wave summer of inflation and corporate inefficiency, 1980 to 1994 was this K Wave fall season of efficiency (falling wholesale and rising retail prices that deliver profits and bubbles - with the help of the Fed). We are now in winter, headed for an ending in 2009. The late 1800s saw the U.S. market peak in the second 42 month Kitchin cycle of winter - the late 1880s. That K Wave bottomed in 1896. Every one of the four K Wave season has 4 Kitchin cycles of ideally 42 months (16 Kitchin trade cycles to a K Wave). Believe it or not, we are in the second Kitchin cycle of a long-wave winter. Just look at the charts, Japan is mapping out the U.S. last time around - deflation, debt defaults, crashing markets, you name it - text book long-wave deflationary winter season. They topped right where we did last time around. In 1929 we were in the 3rd 42-month trade cycle of a K Wave fall season - just like Japan in 1989 - bingo. The last K Wave ended in 1949. Step back and take a look. I trust your judgment enough for you to see it for yourself. Schumpter mixed me up for years with his 18 Kitchin cycles per K Wave. There are 16. I got my hands full these days running one of the few profitable dotcoms. Please don't publish this email address. I'm off to my reading. I'm re-reading Schumpeter lately - great stuff - except where he's wrong. Don't get too crazy on us. Chow...

David Knox Barker

Naturally, any time I get a note from someone of David’s caliber, and having read his book K Wave I’m anxious to pick his brain. So I sent him the following note which he replied to (his responses are in blue)

(see: http://s1.amazon.com/exec/varzea/ts/exchange-glance/Y01Y5812379Y2244056/qid=998762381/sr=1-1/ref=aps_sr_z_1_1/103-6961406-3087051)

David,

Thank you for your nice note - and your work, "The K Wave" is one of the books I've read in my studies of this beast - and it was an excellent work! I've taken the liberty of cc'ing your note to the inside list (the think tank folks, Howard Hill, and Ehor Mazurok)..

Your read of "the wave" closely parallel's Ehor's work (2014). While I admit there's a good chance (>50-50) that I'm wrong, part of the purpose of the site in general - and the Aggregate Index in particular - is to develop a perspective that works for trading the market. In other words, while I would agree that 1949 was the K wave low, a close repeat of the previous event, with perhaps Japan playing the role of the U.S. last time around, and the U.S. replaying Great Britain's role, certainly makes some sense - and if I recall correctly, it was placed in terms of the cycle "moving west" this time around in your book (although it's been several years since I read it - and I sometimes get parts of your work confused with (Bernice?) Cohen's book.

There are several difficulties and implications of a low in 2009 that bear some thought - and I would love to get a contributed article for the site (it's an all volunteer, no-pay effort, BTW)- addressing these issues.

George thanks for the probing response. My note to you was the first K Wave input I've offered on the Internet. I've begun work on a new book it must have put me in the mood to put in my two cents. I've been studying cycles for over 20 years now, and I'm getting closer to thinking I might have something to contribute on the subject. I've learned a lot since my first two books. The K Wave, in 1995, was really a rewrite of JWS, 1987, written 1985. I've not change by basic view of the long-wave or where the global economy is in it at all since my first introduction in 1981. My first intro to K Waves was a speech by Julian Snyder in 1981 to the New York Society of Security Analyst - I was 19 years old. I immediately got it, and realize we had just passed the half waypoint, and that Snyder, calling for a crash and a depression at that time was wrong. We had just topped in interest rates, which is the mark that the tide has now turned and is now going out in the long-wave, but the tide going out creates huge financial shifts from a production driven economy anchored in basic commodities, to a financial market driven economy. But don't let me fool you; my research has increasingly become technical as opposed to fundamental. Anyway, here are my short version responses.

1. If 2009 is the low, then the trough-to-trough cycle length is 60 years. Given this, the U.S. peak (and crash) should have happened around 1989 (was 1987 IT?). But it appears from the Aggregate Index work that the peak was in April 2000 or so. This means the peak-to-peak period was [2000-1929] = 71 years. This is a difficulty for me. The "George view" is that if the peak-to-peak value is 71 years, then the low (measured by secular indicators like market valuations against incomes) should come around when, 1938 or so? And 71 years from this point would yield your 2009. But if 1949 was the low, then the ultimate low would come in 2020 - somewhat past Ehor's predicted 2014 value. Still, is the "crash" as indicated by the Aggregate Index an accurate placement, given the long wringing out that lies ahead? The previous event saw a wring out from 1929 to 1949 - 20 years...and a wring out from 1987 to 2009 would be close to fitting the bill...or would it?

A. The true peak to peak in this long-wave in terms of equities is in fact 60 yrs. 1929 to 1989. Japan was the leader in speculation in this long wave this time around. We are in an international economy now like at no other time. Real estate in Tokyo was valued at more than the entire U.S. Even the Internet bubble can't touch that. You can't pick just equities, you have to step back and look at the whole cycles. Japan since 1989 is text book long-wave decline; overproduction, debt, equities, interest rates, you name it. I've come to believe that the ideal K Wave is 56 years. Schumpeter was right on this. But any and all cycles can fluctuate from their ideals - typically by a Fibonacci ratio to the ideal. Interest rates are more important than equities in determining where we are in the overall long wave. Equities are just more exciting. The long wave provides great insight into trends, but for any sort of actual equities trading system the smaller cycles are key - and not the long wave.

2. In either event, the next question has to do with when real estate collapses, along the line of Gray Cardiff's work ("The Retirement Myth"). His view is that once the swing down becomes widely visible, it will accelerate quickly. I think this is the kind of thing that the think tank's work is pointing to as they look at the Fed /central banking "entity" sort of dissolving in their model over time after November 2002. So one of the questions that comes to mind is the impact of a potential derivatives lock-up (Herstatt event) on the downside. Doesn't the global connectivity and interlocking markets lead to exacerbated effects as information propagates more quickly? Or, do you hold to the view that connectivity will reduce volatility (and hence reduce derivative lock-up risk) due to a leveler information playing field resulting in less disparate expectations in what's really a multi-million-agent simulation. I've seen it argued both ways and would be very interested in your views.

I can't believe there is not more interest in what is going on in Japan. Real estate, residential and commercial, is off 90% in some areas - it is truly remarkable long-wave fodder. Sure it is coming here. A massive wave of deflation is building. What goes up must come down - equities and real estate. Every action demands a reaction. Yeah, it will be tougher to retire. That's sad for a lot of hard working people. The good news is that we are closer to the next inflation, after 2009-2010.

With all due respect, I don't share the think tanks views on the Fed. The Fed isn't going anywhere. Maybe Greenspan is going to retire in 2002. He should, he looks tired. I hope to do more fishing at this age. Remember, the Fed is a lot of hard working bright folks that are just trying to do their jobs and put food on the table. Cycles aren't caused by bad people trying to screw up our lives. Cycles are the sum of human action. You and I and everyone. It is not them - it is us. Cycles are much bigger than the Federal Reserve. The Fed doesn't lead the market - they follow it. Winter happens, its nature. There were stock crashes and depressions long before the Fed. Bad policy and fractional reserve banking might make things worse in the long run, even better in the short run, but they are not the cause of anything. I don't adhere to the Austrian monetary theory of the trade cycle. There is no good evidence. Caesar, Pharaoh nor the Chinese Dynasties didn't come and go because of central banks. Markets crashed long before units of currency were fractionally reserved. Who are they kidding? Would cycles be less severe without central banks, probably, but they would be much less interesting to study.

3. Then there's the question of when the trough war occurs and the implications of that. As we know, the common thread of K wave lows is a war. What's your present expected timing, location (if any insights) and magnitude? Using 1968 as a beginning, 1970 as a mid-point, and 1973 as end dates, such a trough war should develop a 1/2 (K wave) cycle. If we use a peak-to-peak value of [71/2] we get 35.5 years, or 30 years using the 60 year low-to-low value, we should see a war with either:

35.5 year 1/2 cycle: 2003.5 start date, 2005.5 mid-point, and roughly 2009 as an end date (basis mid 1973 Vietnam War end).

30 year 1/2 cycle: 1998 start, 2001 mid-point, 2003 end date.

Does the Middle East situation fit either of these, or is something else brewing in your view.

A. I've got kids now. War stinks. Wars happen most in long-wave up swings when markets need to be secured for growth and scare commodities. We got more commodities now than we know what to do with. Oil lately is an exception. It will come down with everything else. The Middle East has been the same for years - "Wars and rumors of wars." In a down swing nations are introspective and dealing with domestic issues. Call it the long-wave decline silver lining. After 2010? - maybe I'll be in Switzerland.

4. Last, there's the question of waveform. If we agree that the cycle length depends on measurement points (e.g. peak-to-peak or low-to-low), the inference may be that the K wave is a distorted sine wave. To what extent can we define the variance from sine as a trading tool, and to what extent can the waveform be distorted by manipulation of the fractional reserve monetary system?

A. Wave forms are much more deeply imbedded in collective human action than fractional reserve money. Sure stocks would have topped earlier in this long wave without the Fed. Say in 42 month Kitchin 3 (Japan) or 4 of the K Wave fall, or Kitchin 1 of winter. But no, they can't change long-waves, Kitchins, or the 20 week Wall cycles (after my pal P.Q. Wall) that are the fingerprints of time. We may have bottomed in a 20 week cycle today (20 weeks from April 4th). We are due right in here if July 11th wasn't it - could be a few days off. It is hard to catch a falling knife. Should provide for a good multi-week run.

Thanks again for the questions. It was a true pleasure.

Don't look for anyone to blame for the mess we may find ourselves in. Life is too short. Just go out on the boat, look at the stars, and thank God for the chance to participate.

David

Naturally, I was anxious to share this with various contributors to this site, so I sent out this:

To: Urban Survival Inside Group:

A lunch minute follow up to my note this morning on the K-Wave from David Knox Barker and my reply:

The think tank weighs in with the notion (detailed below) that we're seeing the K Wave supplanted by an emerging a global wave - G-Wave - and that what is afoot in markets now is the turbulence associated with the evolution of this new wave. (I'll put up some charts on my site next week depicting the turbulence of melding non-synchronized sine waves.)

Clearly, understanding relative positions of countries in their own culturally constrained K Wave (modified sine wave) position, such as China not entering K Wave winter, while western economies are entering winter, allows a certain level of international market prediction to be achieved.

However, short-term arbitrage opportunities aside, the non-monetary work out of such turbulence could be quite dangerous. Is the Weimar Germany event that preceded the US crash by 7 (or more) years and example of cultural K Wave differentials working out? If Germany entered spring first, then Germany's "head start" [which a mad man happened to get hold of] allowed it a certain arrogance leading ultimately to WWII. If China, or other countries are in fact "ahead of the curve", the implications of the G Wave become even more interesting, as K Wave differentials (perhaps even small ones) may lead to high states of belligerency.

-George

George,

The reason(s) that we no longer think that the

K-Wave is applicable come down to three basic

issues with present time.

First, Nikolai Kondratieff was aware of, and

prefaced his work, with the primary

presumption that the long wave commodities

cycles were valid only if the participants in the

markets were acting in their own, narrow and

immediate, self interest. That is, no

participants within the market would act to

influence the cycle itself. He allowed for the

presumption of business cycle and monetary

cycle adjustments, but these were predicated

on the initiators reacting to local and recent

events (such as the response of the Fed to

adjust monetary policy to meet the immediate

circumstances that we are facing). However,

active attempts to alter the K Wave cycle place

that K Wave in a state of uncertain reliability as

a forward indicator. Even Schumpeter

acknowledges that the pace of innovation and

the ‘clumping’ effect seen in innovation are

likely only indicators in absence of knowledge

of the K Wave cycles. _

Of course, we know that dear Chairman Al

wanted to be big dog when the K Wave hit

winter. His intent was to flood the cycle into

oblivion with liquidity and

commodity/resource market control. [Still

trying to find Al’s quote about wanting to face

the K Wave as chairman.]

In any event, the other presumption that

Kondratieff allowed his work was that his

wave cycles were postulated on N European

bases sets. He acknowledges that

‘temperment’ differences exist with

economies which may make some cycles

longer in some countries than the same cycle

in others. Specific conditions such as

temperature means throughout the year, the

agricultural cycle base (and whether or not it

was biannual and flooding based) affected the

length of the seasons of the cycle and thus the

cycle as a whole.

Now, Kondratieff's work was developed in

absence of a coordinated effort toward

globalism, and thus could not have anticipated

the crafting and manipulation of individual

country/market cycles into grander, global

ones. Nor could he have reconciled the actions

of a very powerful group, able to direct and

wield global power, actively working to defeat

the K Wave itself (e.g. Greenspan, PPT, BIS,

IMF, et al). And a third and more impacting

issue is the rise in the last few years of a

completely new threat to K Wave integrity, the

Global Impacting Events (GIE). An example

of such an event is global warming and the

planetary market reaction to it. GIEs would

also include weather as well as pollution

affecting on a planetary scale. We have already

encountered such events in the form of recent

el Nino’s and the cross-continent pollution of

the SE Asian forest fires of 3 years ago. These

as well as the rise in other, less obvious

impacts of globalism such as disease spread in

both human and agricultural populations, will

negate the use of K Waves as formulistic views

of any national or even regional economy.

It is our belief here at the lab that the planet

stepped outside of strict K Wave or long wave

interpretation some time in early 1980s with

the rise of the Volker/Regan tampering with

global economics. At that point K Wave

concepts were first integrated into our

economy as tools with the clear intent to

manipulate the cycles for our own purposes

(i.e. bankrupting the evil empire of Soviet

Bloc). Also at that time we saw the last of the

restrictions lifted on the rise of globalism as a

directed program of specific power brokers

(abstraction of financial instruments including

debt formulas first realized as an industry).

These and many other signs led us to postulate

that the reasoned approach of Kondratieff

started slipping at that time into the more

volatile world of complex systems driven by

chaos math.

Having worked with our model for the last

few years, we are quite comfortable in

suggesting that K or Long wave approaches

which do not take into account the new state

of global linkage and active cycle-resistance

are immature and will yield spurious results. It

was precisely because we model the cycle as

an entity within its own model, thus

establishing a self regulating feedback loop for

our values, that we continue to have faith in

the concepts of the forces for which the

K Wave is an indicator. That is to say, we do

not believe the K Wave to be dead, merely

restrained. This restraint is the issue. As it is

an active and dynamic component of the

economy, it must, as a necessity, impact the

duration of the individual seasons which it

interrupts.

We do not yet have enough material to predict

whether the restraint of the K Wave does away

with the months of the seasons’ affected, or

whether it merely holds them off until later,

thus delaying but not shortening the cycle, or

if instead, the restraint amplifies or distorts to

some new form.

We do have evidence that the blending,

deliberate and circumstantially conjoined, of

the various economies of the globe into one

vast market is affecting the current wave

development in each of the participating

countries. At this point a detailed, country by

country examination for even the largest of the

economies is too costly, but the effects are

measurable. And, it also does appear that those

forces favoring a controlled globalization of

markets are encountering their own K Wave

issues. If they are successful, will a world

K Wave be born? Or is it a case of the forces

propelling the long waves are far too deep to

be manipulated more than temporarily and at a

surface depth, and thus will overwhelm the

feeble machinations of man eventually?

At the moment, it appears the latter will

prevail.

Then my colleague Ehor Mazurok weighed in with some thoughts on the implications of our work on the Debtberg and the Mazurok-Ure Correlation and how it relates to the points raised by David:

George,

Thought out quite well. However, I can't help feeling your think tank is

barking up the wrong tree. Every seems to write epitaphs on the K Wave,

because they expected a 57 year cycle. The 57 year K Wave is not dead, just

that it got prolonged. Kondratieff did not take innovation into account at

all, all he did was track commodity prices. When I obtained commodity

prices back to the 17th Century, the remarkable consistency of the K Wave was

there until 1972, the year gold was abandoned as a monetary anchor. I still

maintain, the K Wave is nothing but a debt wave. All the innovations since

the 17th Century really did not change debt, its still the same as it was

since the beginning of time. After 1972 when gold was removed as a monetary

anchor, debt swelled to levels unimaginable 30 years ago! Greater debt,

meant a more powerful K Wave, which mathematically translates to a longer

one. Its that simple!!!

Ehor

Naturally, I sent along these replies to David Knox Barker...who replied...

George,

I couldn't resist this one.

Kondratieff may have disavowed the international nature of the wave, but his

charts more often than not lined up. Economies were linked far more so than

they all economic/financial evidence indicated. Certainly global markets are

now more linked than ever. As a world empire emerges the K Wave is far more

relevant to international affairs, but then so is the emergence of a world

empire. What came first? It is my contention that long waves and the smaller

cycles are indeed international - and are far deeper than financial and

economic events we can chart. This raises their deeper meaning. It belongs

in a philosophical discussion and not economic/financial. Are cycles

economic events, or are economic events over time, particularly stock

charts, merely the evidence of deep links in the field of human action. I'd

bet on the later.

I may not have time to respond in the future. I'm buried. I hope to have my

next book out next year.

Until then. David

Next comes two views of where China is relative to the K Wave. Note that the comments with the > in front are David's (Blue) and the comments in Red are from the think tank folks... The focus of this part is whether China is ahead of the rest of the world in experiencing a K-Wave spring...

To: Urban Survival Inside Group:

Attached are two important snips of things to think about (read below) and then a question about what you guys can do with the prolog engine...

What would happen if we feed in a set of "known rules" to the system. Would it give us any useful output? Not being the predicate calculus whiz you guys are...I'm trying to figure a way to go after the "grand unified theory of economics" as it relates to the "invisible hand" that David Knox Barker references.

The real difficulty of using the MUC for close predictions is that at some point on the "backside" o f the K Wave (see attached graphic I whipped up) things go non-linear downward.

Ehor? What's your take on the 'crash zone" because even if 2014 is the low, does Knox Barker's argument 2009 or your vote for 2014 mean we could still have one more all time high before the crash...or is the grinding down just going to be a long affair that's really underway now?

----snip----

From Ehor...

Saw CNBC news item where some comments from Fed meeting were aired. Fed

said the last rate cut did nothing to stimulate economy. No surprise here.

Recall my email to you of June 30/01 with some liquidity calculations based

on MUC. Conclusion was,

>The last drop of 25 basis points shows liquidity actually decreased from

what >was generated in the previous rate reduction. It went from 2.705158

to only >1.55095. These are relative numbers, but they indicate the 25

basis points >brought in less liquidity than the last round.

-----snip----

A bit later, Ehor added...

George,

Last kick at it before I hit the road. My take on 2014 is, it will be the

beginning of a depression just like 1929 was the start of the last one.

However, that is where the similarity ends. I don't see any all time high

coming, and your take on it, "the grinding down is just going to be a long

affair..", in my opinion, is right on the money.

Until 2014, I believe you are going to see the same thing in the economy, as

you see in the market, up and down swings, where the average value slowly

grinds down. The period to and around 1929, was a hands-off affair,

however, after 1982, it has become a PPT affair. It will continue to be a

PPT affair as long as there is some 'bang for the buck left.' However, as

our MUC shows, PPT should start running out of steam.

Have a look at the attached graphic. Periodically I have sent you updates,

since my February 28, prediction where the NDX was going. The method used

to make that prediction is the same one I used in 1992 to predict the 1997

turning point, and the 2014 depression. As the current graphic shows, the

NDX is moving along the forecast trend. As soon as the NDX crosses the next

decline, that is where it will go. The NDX has to bottom out, before there

is any hope of an all time high. The bottoming out figure will be close to

the NDX floor level shown in the February 28, forecast.

Why I believe there will be no all time high is based on the experience I

had with the Vancouver Exchange. A stock with lots of false bottoms or

starts, brings in new money as old money conveniently bails out. It is only

after old money gets out, the stock starts going for the bottom. As the

stock heads for the bottom, the new money gets a lesson in fear, and it

becomes scared money. As soon as the stock tries to recover, and it gets to

what looks like a reasonable level, scared money gets out and depresses the

price of stock. It becomes a long hard battle for the stock to clear out

the scared money, which has to be done, before the stock can recover. Of

course, this is all fiction, and never happens in the real world.

As you said in many of your posts, if you want to see where the US is

heading, look at Japan! They tried everything, and nothing works. Did they

have all time highs after they went over the peak? They didn't, then why

should it be different in the US.

You see, most people have the mistaken notion the government can get us out

of recessions/depressions. Well, they can't. Government does not produce

anything. It is people in the economy that make things work. Government

only confiscates through regulation what people make. So if you have a

failing economy, how can you fix it through more confiscation? You can't.

Ehor

So I sent this all along to David Knox Barker for comment:

David

As you might have seen on my site, Ehor Mazurok & I have this thing called

the Mazurok-Ure Correlation that says, in effect, that once you pass the

tipping point of the K Wave, and things begin to roll over, traditional

economic "levers" tend to work backwards. One of the papers we've done on

this is at http://www.urbansurvival.com/muc.htm if you want to look at it.

But more to the point, Ehor's comments below (which I very much agree with)

gets back to the notion that it's not some deeply inbred part of human

nature that drives cycle length, but rather a simple three generation

accumulation of debt. As we've written in the MUC work (which we really

ought to publish for peer review one of these days), the K Wave is the

result of the linear supply/demand equation running into the exponential

debt accumulation curve.

The principal drivers of this view are, in approximate order of importance:

1.         The prevailing interest rates on a cumulative basis and amount of

cumulative borrowing.

2.         The changes in purchasing power of the underlying currency, which changes

the constant value purchasing power and debt service expectations of the

currency.

3.         The life expectancy and consumption patterns of the three generational

cohorts that spend, use, and eventually pay for the accumulated debt (which

we call the Debtberg).

It's against this backdrop that the international picture plays out, and

what seems like a K Wave spring or summer in terms of China's economy, for

example, is nothing more than an example of how a country with relatively

low per capita debt can experience growth relative to other countries with

extremely high levels of per capita debt, such as the U.S. and Japan.

All of which is not to say the K Wave is not pertinent, but despite

Kondratieff's excellent work, what Ehor & I have tried to see (and define)

is how underlying debt cycles are more likely causative. We might even go so

far as to suggest that what Kondratieff's work did was quantify the effect.

In most recent times, its' been the debt load collapses (whether railroads

in the late 1800's, the auto's in the late 1920's, or the techs in the past

couple of years) associated with over or mal-investment that results in

excess capacity, which causes a loss of pricing power, that results in the

inability to service debt.

Some much for thinking this morning, time to jump into the pile of real work

on my desk...

Best regards,

George

From David Knox Barker...

George,

Debt is a driver of the K Wave, but not "the" driver. There is something

deeper. Debt is the result of human action, not the cause of it. The

Japanese are not avoiding debt right now because it is not available - rates

are zero and there is plenty of money to lend. No one is touching it. What

is interesting about debt is not its level at any given time in a K Wave,

but the willingness of human participants to take it on at one time and the

wholesale avoidance at another. In the Year of Jubilee debt was to be

forgiven every fifty years. The fact is you couldn't get a 30 year note 10

years before Jubilee. Debt would have always been declining. We have

reversed it. God know our weaknesses. You are right that debt is an absolute

key piece of the K Wave, and therefore interest rates are key (the price of

debt). Interest rates are merely the search for equilibrium of supply and

demand for money. The Fed is following the market for money down right now -

not leading. Debt is increasingly a product no one will buy. This K Wave

will be around 60-62 years 1949-2009/11 - with sixteen 42 month Kitchin

cycles plain to see on an inflation adjusted chart or with fast stochastics.

Stocks will like bottom in the Kitchin low before the K Wave low.

Let me also clarify that my view is not that cycles are a manifestation of

"deeply inbred human nature". I prefer to refer to Adam Smith's "invisible

hand". My study of cycles is more aptly a search for the "invisible hand".

Cycles are not internal at all. They are likely external. The modern

physicist cannot explain the fields that guide the movements of physical

atoms in fields or fractal patterns. The quantum physicist would suggest

that such "fields" are external to the atoms in action. I would suggest the

same for cycles - only the action is human will and decision making and not

atoms in motion.

China: I have to differ on this one George. China is not in a K Wave

spring - not even close. China has been riding a wave of western consumer

demand and liquidity driven by core capitalist economies. China is now

driven by old economy multinationals in search of margins for old economy

products. It is fascinating to watch. Cheap labor and raw materials make for

margins back home that have driven PE's crazy in a liquidity driven frenzy -

margins that are now dying with the consumers willingness to buy. TV sets,

plastics and toasters - or even PCs - will not be the drivers of the next K

Wave. The Chinese economy is now being driven by the production of products

we produced the last 10-30 years. This is not the stuff of a K Wave spring.

Your readers need to get this. Mal-invested capital searches for margins in a

K Wave fall season and into the winter - and in the Indian summer boom of

the 1990s. That is where China is right now - being used by multi-nationals

for margins in an old K Wave economy. Wait until 2010 to 2025 to see a K

Wave spring in China. It will be astounding - and will scare the West to

death - and truly be frightful. It will be the most important international

development of my generation and my children's. It will make the Chinese

economy of today look like a piker. Wait until they are racing us to space

or start looking for cheap energy sources to feed the engine of a real

Chinese K Wave spring.

You can publish my comments, but remind your readers that no editor is

coming behind me to clean up my mess….

Buy low and sell high. That's it for now.

To which Cliff, at the think tank, added some further comments about China's "K Wave" position...

> The Chinese economy is now being driven by the production of products

> we produced the last 10-30 years.

I agree with this above.

>This is not the stuff of a K Wave spring.

This above is not the case. As I see it , the statement reflects the

viewing China from our platform. For a recently (hybrid)

agri economy, our 10-30 year old post industrial production may

well represent their first spring.

> Your readers need to get this. Mal-invested capital searches for margins in a

> K Wave fall season and into the winter - and in the Indian summer boom of

> the 1990s. That is where China is right now - being used by multi-nationals

> for margins in an old K Wave economy.

Again, viewing China from our perspective this is true, but from an

internal Chinese view this is NOT their driving force although they

are being used.

>Wait until 2010 to 2025 to see a K

> Wave spring in China.

Perhaps, but doubtful based on the social climate of the country.

They are right now entering their '60's and '70s. They are right now

leaving their staid 'solidification of institutional power' phase and

starting the charge into the 'challenges' phase. In every case I can

find, this fundamental social change period corresponds to late

K Wave spring. It only occurs then, and it requires several key social

elements to be in position which is where china is at present. So I

was basing my comments about China not on viewing their

economy from our US perspective, but rather from the current and

evolving social milieu. Remember that our model views things from

the social-psychological profile, which includes economic values,

not the other way round.

From our reports from within China we discount the following:_

declared shooting war with us any time soon (next 40 years),

rise in Chinese economic global domination and we do see the real probability of:

Chinese civil war - developing now to hear it from the insiders of the

central committee;

ecological disaster (est. of over 40 millions industrially poisoned

currently) which will devastate significant millions (in a short term);

health care disaster (aids, smoking, lax controls on Chinese bio-

war-commercial activities will lead to a 'leak' which will affect a

large population segment)

Chinese - regional war (probably over the Spratleys to judge by

China's naval build up)

anyway, more to do.

And as I said, I think K Wave is limited usefulness with the

active-counter-wave-people, and the rise of global grand-poobah-

K Wave. This latter is scary both as it is centralized and elite

directed (top down), rather than a self-organizing kind of

association of nations (bottom up). In this case I do not know that

such an attempt will create a legitimate global economy (with its

own periodicity) or if it will be a constant battle against the timings of

the individual participants.

All of this learned discussion doesn’t necessarily drive one to a certain conclusion. However, it did lead me to clarifying my personal perspective on events, even if the timing is still somewhat up in the air.

In the following diagram, for example, I was able to place the Kondratieff Long Wave against the backdrop of the collision of the linear supply & demand curve (the green line) and the resulting “Debtberg” development (red line) that Ehor & I looked at as we developed the Mazurok-Ure Correlation (MUC). In this drawing, the MUC Zone is where you get the presently inverted results from traditional economic controls such as interest rate changes:

I think clearly, the economy headed into a nosedive once we got past the center axis of the K Wave in about 1982 – 1985. Now, it’s a matter of seeing how quickly the markets will work out the inevitable down swing. As long as the Fed is pushing money out the door at double-digit rates, while cutting rates, we postpone the drop. However, as the MUC work showed, lowering rates is precisely the wrong thing to be doing in here, unless of course, you think you can time your exit in such a manner as to avoid being the one with no chair to sit in - as the music stops.

All of this would be a lot easier to ascertain if the government figures used for reporting economic developments were based more on sampling than estimates. However, as the Q2 GDP numbers out today (8/29) showed, as long as the feedback mechanisms are in place that lead people to disavow reality, then the myth of "no recession" can be preached. Even so, the anecdotal evidence continues to mount that the country is in a recession: things like the number of cars and houses for sale, although higher in the West, rising layoffs and unemployment figures give one little comfort. Although again, it's important to note that the aggregate of the individual state figures are way off the official figures the Federal government panders.

With September upon us, and "crash season" at hand, and holding in mind that this site doesn't offer financial advise, it seems to Elaine & I like a fine time to be in cash.

From the Tuesday August 28 Update: Well, here we are to Tuesday already, and I haven't gotten the site updated - and I am on my way out the door after going blind pushing my mouse around for 10-hours. On deadline for a new company brochure, so in addition to sales manager skills, I'm wearing my graphic designer hat and doing artwork in Corel 10 and PageMaker. That's good news from my employers standpoint. So lemme give you the quickie: With the Gateway announcement that they are laying of another gob of people, and with the latest from Warren Buffet that we are beginning a (listen closely...)

MULTI-YEAR SLUMP!

(Thanks to reader Dr. Bill Z for spotting this - and see, there are good Dr. Bills!)

It's slightly reassuring that the notions posted here are being picked up on elsewhere.

Elaine & I are going sailing for 5 days after work Wednesday night..

Speaking of our travels, we went to Carmel-by-the-Sea last weekend and had a great time. Dropped by Clint Eastwood's place (no, not the house, the Hog's Breath Inn which is, as you would expect, in the Eastwood building) and had a Dirty Harry Burger, which was neither dirty, nor hairy. Pretty good, actually.. .that and a couple of rums. Thus fortified, we ended up in one of those dangerous Carmel designer dress places and I watched Elaine shop.

After a few minutes, an attendant came over to correct me saying something like, "No sir, that's not shaved beaver, that's called sheared beaver." Oh yeah...(blush). Guess there's a difference there, huh?

A few minutes later, the same attendant came over and informed Elaine that the skirt was only $3,500 and the knitted beaver (as opposed to I guess what must be a naughty beaver?) top was only $3700. "But all items are priced separately, of course", she helpfully added.

"How much for just the hanger?" I asked.

Mere moments later Elaine was gently directing me toward the exit...

On to the Weekly Charts...

Reader's Rights

A couple of very thought provoking notes this week in emails - one from a reader, and one from the CEO of the company I work for. The both speak to the emergence of behaviors that are frighteningly similar to the 1930's. Let's start off with the CEO's note:

On May 23rd 2001 the Taliban authorities in Afghanistan
confirmed that all Hindus will be required to wear a strip of yellow
cloth sewn onto a shirt pocket in order to identify themselves.
They claim that the measure is for their "protection". The
world has faced this before, in 1939 the world was required, at great
cost, to rid itself of Hitler's tyranny, it is not hard to spot
his child. Those who fail to learn from history are condemned to relive
it.

The Taliban's record on respecting other religions gives great cause
for concern that their ultimate aim, upon which they are intent,
is "religious cleansing". They have already demonstrated their distain
and intolerance for other religions and traditions by the desecration
and destruction of the ancient Buddhist statues, our collective heritage,
within the Afghanistan. Whatever your religion, or even if you have
none, we hope that you will agree that this fundamentally wrong.
Remember," All
it takes for evil to triumph is for good men to do nothing". Please
do not do nothing, add your voice.

DIRECTIONS:
>PLEASE COPY this email on to a new message,
>add your name and those of your household who wish to participate to
the bottom and forward it to everyone on your distribution list. If you
receive this petition and you find that you will be the 251st name on
it, please e-mail a copy of it to: alastair@om-int.com . It will then
be forwarded to the UN.

Even if you decide not to sign, please be considerate and
do not kill the petition as you will be denying your friends, and
theirs, their legitimate voice. Instead return it to
alastair@om-int.com <alastair@om-int.com

To The Secretary General, Security Council and General Assembly of the
United Nations.

We the undersigned are appalled by the decision of the Taliban government
of Afghanistan to require all Hindus to wear a piece of yellow cloth
sewn onto a shirt pocket in order to identify themselves. An individual's
communion with God, however they find him, is a matter of personal
conscience
and must not be the subject of intimidation or persecution. The right
of everyone to worship as they wish is fundamental and inalienable. The
United Nations was founded in order to defeat Hitler and his henchmen
who required the same from another religion with all it's horrific
consequences.
It is completely unacceptable that nearly 60 years later history is
repeating
itself. We ask the following:
1. That the Taliban government is made aware in the
strongest possible terms that the world will not countenance this
perversion
of human rights.
2. That prior to the United Nations and/or it's constituent members
granting recognition of the Taliban government this obscene policy is
reversed.
3. That the United Nations widen the terms of the trade
sanctions currently in force.
1. Alastair Mitton - London UK
>2. Robert Mitton - London UK
>3. Paulette Budd - London UK
>4. Andrew Peake - London UK
>5. Pippa Howell - London UK
>6. Cecile Kusters - Arnhem, the Netherlands
>7. Sarah Malpas - London UK
>8. Susan Donnelly - Newcastle UK
>9. Paul Donnelly - London UK
>10. Pauline Bartholomew - London UK
>11. Is0bel McMillan London UK
>12. Fiona Adamson
>13. Minka Emina Kulenovic La Jolla, US
>14. Cath Dolan, London, England
>15. Liz Murphy, Murcia, Spain
>16. William M. Rueter, Wisconsin, US
>17. Jaclyn A. Knapper, Tennessee, US
>18. Louise Morris, Tennessee, US
>19. Joe Stoud, Matsuyama, Japan
>20. Keiko Stroud, Matsuyama, Japan
>21. Larry Asher, Nepal
>22. Phyl Asher, Nepal
>23. Reiny de Wit, Nepal
>24. Helen Johnston, Nepal
>25. Isaac Thompson, Northern Ireland
>26. Anne Thompson, Northern Ireland
>27. Paul Carter, Vancouver, Canada
>28. Lois Carter, Vancouver, Canada
>29. Bronwyn Short, Vancouver, Canada
>30. David Short, Vancouver, Canada
>31. Mark Calder, Sydney, Australia
>32. Graham Wintle, Surbiton, UK
>33. Geoff Chivers, Surbiton, UK
>34. Derek Nathan New Malden UK
>35. Mary Nathan New Malden UK
>36 Rosalind Preston, London UK
>37 Marlena Schmool, UK
>38 Ephraim Borowski, Glasgow, UK
>39. Ruth Warrens, London, UK
>40. Anthony Warrens, London, UK
>41. Ian Goodman, London, UK
>42. Liz Lightstone, London, UK
>43 Elizabeth Simpson, London UK
>44. Dimitris Kioussis
>45. John_Griffin
>46. Hermann Bujard, Heidelberg, Germany
>47. Regine Bujard, Heidelberg, Germany
>48. Konrad Beyreuther, Heidelberg, Germany
>49. Ursula Beyreuther, Heidelberg, Germany
>50. Horst Simon, Heidelberg, Germany
>51. Michael Brand, Dresden
>52. Dorothea Brand, Dresden
>53. Christoph Lorra, Dresden
>54. Martin Stocker, London, UK
>55. Walter Stühmer, Göttingen, Germany
>56. Michael Hans, Bonn, Germany
>57. Wolfgang Mueller, Berlin, Germany
>58. Claude Wasterlain, Los Angeles, USA
59. Jerome Engel, Jr., Los Angeles, USA
60. Paul Mullin, Los Angeles, USA
61. Heinz Gregor Wieser, Zurich, Switzerland
62. Myrta Huber Gygax, Ennetbaden, Switzerland
63. Linda Carlson, Berkeley, USA
64. Jack McGregor, Alameda, USA
65. Paul Rerucha, Seattle, USA

And lest you think this is an isolated kind of behavior, there's this from a reader named Tim:

Hi,

If your readers need confirmation of a bear market they should look to the "edge of the world" Recently the stories coming out of Zimbabwe bear an unsettling and even horrifying resemblance to the events in Nazi Germany in 1938. Robert Mugabe wants the whites out and his increasingly strident comments seem to indicate that he doesn't care if they leave on airliners in coffins. Like with Hitler blaming the Jews he blames whites in Zimbabwe for all of that nations problems.

Inside the country the stories of the whites, many of whom are senior citizens, have that same sense of incredulity as the writings of those Jews in Germany who didn't believe that the Holocaust would happen.

There is already a major war going on in the Congo and other parts of Africa are simply falling apart. My advice to any whites in Zimbabwe, who might read this is: get out now. The UN did nothing in Rawanda or in Somalia and now that the UN is mostly gone, the fighting has resumed. In Zimbabwe the government is clearly aiding and abetting confiscation of property and has suspended any form of human rights for those who are not part of the government.

The social effects of the bear market are being felt in the weakest countries first. History shows that they will spread out from there.

Tim

Write when you get rich..

George

William Gann's trading rules

The page is a day late this week because I wanted to dig out and write down for you (paraphrased) William Gann's 24 rules for trading from his 1930 classic "The Wall Street Stock Selector". Run (don't just walk) to Amazon or Barnes & Noble and buy this book if you don't have it!

Never risk more than 1/10th of your capital in one speculation. (*)

Use Stop Loss orders

Don't overtrade.(*)

Never let a profit run to a loss.

Don't buck the trend.

When in doubt, get out.

Trade only in active stocks. (*)

Spread risk among 4-5 issues - not just one.

Never fix your price, trade at market. (*)

Don't close positions without a good reason.

Build an emergency fund.

Never buy to get a dividend.

Never average a loss.

Never get out because you've lost patience with a position.

Avoid taking small profits and big losses.

Never cancel a stop order once you make a trade.

Avoid getting in and out too often.

Be just as willing to go short as long.

Never buy because a price is low, or sell because a price is high.

Be careful about pyramiding at the wrong time.

Select stocks with a small volume of shares outstanding to pyramid on the buying side, and the ones with the largest volume of stock outstanding to sell short.

Never Hedge. Get out instead.

Never change a position without a good reason.

Avoid increasing your trading after a period of good trades.

(*) These are areas where I have violated Gann's rules and have lost money as a result.

Long Waves:

Here's how to join the Long Waves group. It’s simple - and free:

Send at email t listproc@csf.colorado.edu

Under subject box write: subscribe

In the body of the text write: subscribe longwaves yourmail@address

Enjoy the group.

Be sure to Visit:

Treasury's Office of the Public Debt (Click here to get there): These folks in Treasury are one of the last bastions of candor in the federal government!

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