Urban Survival’s Inside Report # 29 May 5, 2002
NOTICE: All contents © 2002 by George A. Ure, MBA except other authors as noted. This document is intended for the sole use of subscribers and may not be transmitted, reproduced, or in other way used without the written prior express consent of the author. This publication is by subscription: $30/year for web browser accessed delivery to a password protected site (price effective until February 20, 2002). To subscribe, send a check to: George A. Ure, 2726 Shelter Island Drive, #322, San Diego, CA 92106. You may also subscribe using PayPal. Your username and password are both your email address, in all lower case to access the protected web site, so don't forget to include it! Address comments and correspondence to: george@ure.net. Read the disclaimer: http://www.urbansurvival.com/disclaim.htm This report is based on sources believed reliable and makes no specific investment advice. Before you invest in anything, seek professional advice and remember, you can only spend it once, unless you are a member of the Fed, in which case you can spend it as fast as you make it.
Some Seriously Weird Stuff:
Sun Spots: Investment Danger?
There's something hugely out of kilter with either my reading skills, or something really weird is going on with the sun that hasn't come to the public's attention just yet, but the implications if correct are mind-boggling. Here's the deal: Go to the NASA www.spaceweather.com site and look at the charts of what should be going on with the number of sunspots right now.
If you look at the charts on the NASA site, we should be in the range of 150 to 175. But today we are at 271 - and every time I have checked recently, I've been seeing 200+ numbers. Very strange - and of strategic importance to investors.
Remember, we are into 2002 and we should see massively declining sunspot numbers. But no, we are not. We are seeing huge numbers that seem to indicate that something else may be going on. One of the reasons that ham radio is so much fun (details below) is that the HF radio bands, which rely (largely) on F2 layer propagation) are going great guns, but in fact they should be "cooling down". What gives?
The Think Tank passes on some anecdotal stuff from the web bots: Sweden's temperatures are warmer than most of Italy and Switzerland. The bots have been picking up occurrences of odd electronic phenomena that are taking down Scandinavian cell phone systems for 4-5 hours at a time then dissipating. All kinds of weird stuff. But the weather is also going a little nuts.
In the Pacific Northwest they note that it has been snowing down as low as the 2,000 foot level in the Washington passes. So low in fact that someone was killed skiing last weekend (when the season is usually over!) because they were blinded by poor visibility in heavy snow.
Oh it gets better: Last weekend there was that $100 million dollar damage from the Maryland tornado. "Not that unusual" says the NOAA site. Maryland???
As I write this, it's 6:30 in the evening and the temperature in the shade here is 88 degrees, after hitting a shade high of 93 in my back yard. There's a joke that in South Florida, there are only two temperatures: Summer and Hell. But all the locals are talking about the "strangely early arrival of summer" here.
The National Weather Service sees some drought conditions somewhere in the country almost every year. But if you look at this year's latest map, things don't feel good for agriculture...
I draw your attention to this map and the NOAA site ( http://www.drought.unl.edu/dm/monitor.html ) as one of those resources that you might want to peak at once in a while because as goes the weather, so goes agriculture. And, because a big piece of our balance of trade goods that we actually export come from the agricultural sector (not to offend Boeing workers or anything) this is an area to keep a keen eye on.
Oh yeah..one more thing to think about: What IF this is the leading edge of a periodic massive solar storm series...something like a Solar Typhoon? That could sure account for a lot of oddities in archeological history - and if you want to read something that will give you "cause to pause" you'll see what I mean about the potential impact of a "Solar Typhoon". http://www.dmpub.com/solartyphoon/index.htm
OK, enough doom and gloom. Let's get on to this week's next item:
From the Think Tank.
Another Smirnov, please...
Here's the latest from the Think Tank...where the web bot project watch hatched almost a year ago...
Stanilslav Smirnov's percolation theory is a mathematical proof of
the life of complex systems which is useful in predicting the
behavior of many real world examples such as forest fires, disease
pan- and epidemic spread. Speaking of diseases, I recently applied
the proof to financial crises, recursion tested it against the last 14
years, and it applies here as well.
Smirnov's work relates to the basic idea that many complex
systems will never converge to a continuum. That is to say, that the
'openness' of the system allows the studied behavior to develop in
any and all directions with only the ubiquitous constraints of the
environment of the system as a whole affecting its growth.
In other words, in a 100 hectare vineyard the growth of a grapevine
disease is is only stopped when it runs out of further grapevines at
any and all of the edges. It also bears noting that in a finite
complex system such as a crop, eventually all possible grapevines
would become infected as the disease behavior 'bounced' against
the constraints of the vineyard as a whole and 'went back' or
recursed the field seeking new avenues of expansion. With this
behavior we can observe the natural progression of complex
system behavior waves to develop from zero, progress to infinity
(occupying all possible resources within the system) and then once
again fall back to zero.
Smirnov's work allows for relatively small samples to be used to
extrapolate likely behavior patterns and their progression at any
stage of the zero loop.
When I applied the Smirnov's proof to our recent financial systems,
starting in 1960, I noted that as the USA financial complex system
model was allowed to 'colonize' the globe it became more and
more like any other behavior wave seeking infinity of resource
consumption within the constraints of the complex system. So in
that regard, our 'corporate culture' is growing along a path which
will ultimately yield a return to zero.
As can be easily noted, financial activity increased over the past
half century in direct relationship to the growth of corporate
capitalism ( a real misnomer) against the competing systems found
globally. It is ironically predictable that as the last of the large
competing system fell (Russian and eastern European statism) and
as the Chinese system of collective control was compromised, the
corporate capitalistic system began its decline toward zero.
Much like an organism which grows to the complete boundaries of its
resource environment, the current global financial system is now in
the position of bearing the natural consequence of unchecked
success.
We see this in the financial crises occurring since dominance was
achieved. What is worth noting is that since the fall of the Berlin
Wall, the both the rate and severity of global financial crises has
increased just as predicted by Smirnov's model. What had been
'hopefully' identified as a continuous cycle of global financial crises
on a 3 year scale (from Tokyo U. economic dept during the Asian
crises decade of the 90's) was in reality, the beginning of Smirnov's
crescendo period in which the behavior wave starts to go through the
complex system in much the same way that the system went
through its environment.
It is during these last 13 years that we see this effect. Financial
crises (Russia, Thailand, Argentina, Japan, Mexico, Turkey, LTCM,
Argentina, et al) increasing in both intensity and frequency until the
period of the Fed Panic in 2001.
Like all predicted systems, since then we have had a pick up to
near saturation of the behavior wave. Now, as a tool, Smirnov's
proof suggests that increasingly we will see the 'successful'
complex system of the global financial world racked by the ripples
of the disease waves of crises until we achieve a state which can
easily be described as 'perpetual crisis'.
This period immediately precedes the final stage in the complex
systems' growth which is saturation of environment leading to a
return to zero. As might be predicted, the likely vehicle for the
return to zero phase will be a crash.
There are many indicators which could be used to track the
progress against Smirnov's proof, but the best would appear to be
the state of the dollar index. This is not good.
Charted forward, it looks like crossing into breakdown levels shortly
before the end of June this year. Look at the trends of the dollar
index recently, and pick out the anomalous moves. These
invariably line up with financial crises events (Enron, Argentina
recently) and are not looking good. In the equations, they show
crisis forming now, and followed by one which will rapidly grow out
of the response to the next one. Self building potential, much like
an over charged battery.
Anyway, very revealing. Unlike any financial crisis in the past, I
think we are nearing a crescendo state for the dollar and what it
represents.
This is just another thing to consider as you pick and choose among investment alternatives. But one thing is for sure, our gold buying in the $260-$264 region last fall is feeling a lot like a genius move based on Friday's $312 close with more expected next week.
The Big 1930's Parallel
Eating the Bottom-fishers
Bill Shepler ( www.rocketsciencetrading.com ) and I were chatting this morning about the direction of the market and he made a very interesting observation: there hasn't been any large-scale capitulation in this market.
As we kicked it around, what came into focus for me was that this is precisely the cloth from which huge Depressions are cut: People want so much to believe that the "bottom is in" that they will step in at the wrong moment to buy stocks - and then get killed as a result of making the wrong call, long or short, because they're not getting the whole picture.
Take for example the latest decline. You know from what Bill has shared of his model publicly that he entered a short position on 3/7/02 of the QQQ's at around 38.60. You should also know from looking at the close of the market on Friday that the q's closed down at $29.74 for the week just ended. Not a bad gain for Bill (or Elaine & I either, come to think of it).
But my point is that there's something really odd about the psychology of the crowd going on that I'm not sure I entirely understand or can put into words. I think it's something like a misplaced confidence that the market will keep going to the moon. It's a wonderful believe in America kind of thing, to be sure. The only problem is that it may not really work out for several more years, if, as the charts suggest, we are really on the front edge of the biggest economic slowdown since the Great Depression of 1929-1937. This one should be bigger, deeper, and more painful.
The weird part to watch is how people are sitting back on the one hand being "cautious" with their money, yet they continue to pile money into mutual funds that mostly under perform the major averages like the Russell or the S&P 500. Why people don't just by the average tracking instruments and be done with it is beyond me. Or, for that matter, because some big companies like GE are so well diversified, why they don't just by GE and call it good, is beyond me, too.
But back to my point about the present crowd psychology - and how it is mirroring the 1930's.
I have an uncle who has done very well for years as a bottom fisher - and who is well well versed in market history. He remarked to me once that "What was interesting about the 1930's was it was later called the "long slide". People would keep getting back into the market thinking the worst of the devastation was in, yet it wasn't. The market kept making new lows, week after week, month after month, and year after year. It was horrible."
So what is there about bottom-fishers that makes them do this "walk back into the meat-grinder" thing that they keep doing with potentially false lows coming in every few weeks?
I think there are several things that figure into it: Greed naturally is at the top of the list. Some people have an unreal need to be first, make the most, have the most, you know - the typical over consumption stuff that comes from being saturated with the three letter word that runs the country: "Buy!"
The emergence of the "bottom fishing" strategy has not been one of those "all of a sudden, overnight" deals. I noticed an investor conference registration for a 1999 event touting Kaiser's Bottom Fishing Strategies. I have to assume that these people advising on how to bottom fish have exercised the appropriate cautions in telling investors where to throw bait because if you were bottom fishing the techs in 2000, the odds of losing 100% of your money seem like they'd be pretty high.
To their credit, over at www.investor.com there's an article that lists bottom fishing as a dangerous pursuit saying:
*Bottom fishing. If a stock is plunging, your best move is to let it go. Yet many try to catch the falling knife. That's greed taking over. Why wait for a stock to prove its mettle, you figure. You'll just buy at the bottom and grab the big score.
Don't fall into that trap. Wait for your stock to carve a solid base. When it breaks out on heavy volume, that's your time to buy.
Still, people fall into the trap every time the market drops below 10,000 on the Dow and the big "investment" firms turn on their boiler rooms.
eSignal's "Exchange" forum makes an interesting observation that the Dow usually turns up before the prior bull market industry leaders in a real bear market - and they suggest keeping an eye on the Dow. While that may have been true of some bear markets in the past, I'm not so sure that will have much to do with anything in the future. I think you've got the feeling from my past notes that I'm a little skeptical of the Dow 30 because in terms of the domestic investor, they are almost global in nature, thus the winds that blow may be offshore winds, and they are only 30 companies. There are thousands of other choices in securities, not to mention physical asset plays like gold, and the host of ways to play the government securities game.
With a host of investment choices before us today, I continue to stick with the basics: Some money in gold - as a last resort. I noted that gold kicked up a $4 rise at the end of trading on Friday and there are rumors about among the gold bugs this weekend that we will see $325 before the next week is out. Certainly the $320 area is interesting for gold - as a significant resistance area.
But as for doing any bottom fishing in here? The only thing I have purchased lately was a few shares of GSRSF to augment our QQQ position. I found it an interesting company with a potential to be highly leveraged if gold takes off which I think gold will. $4 Friday puts it back over the $310 line, which had been the skirmish line previously, so $320 looks to me like a slam dunk in the near term with those predictions of $600 by next year looking less and less feverish.
News hound Tim sent in an interesting note from Europe today: In Ireland it has suddenly become almost impossible to get change for a U.S. $100 bill. The reason is that counterfeiting has become so pervasive. Apparently some banks won't let you change a $100 bill unless you have an account at the bank - and so if you do cash one for something else, and it turns out to be bad - these Irish banks are deducting the funds from your account just like it was a bad check - even if the bank was the one that gave you the bad cash in the first place.
As you know, I have been predicting the emergence of a two-tiered currency system for a long time. It looks like this is just another nail in the coffin of the U.S. dollars, whose reign is just about done.
With that kind of background news, it's hard to find much of anything that looks like a bargain on the U.S. exchanges.
On to the charts...
Food: I couldn't help but notice that the price of meats has gone through the roof over the past month or so. I was planning to pick up some steaks to BBQ tonight, but instead I opted for $3.29 a pound ground sirloin - which will be turned into spaghetti here shortly. The steaks that were in stock at Publix down here in So. Florida looked only so-so and they were $9.59 a pound. No thanks. Shelter: One other side note from my conversation with Bill Shepler this morning - we are both in agreement that it's a good thing to not own a house at this particular moment in history. I measure informally something I call my spam index - and whatever is coming in as spam is generally a good indicator about what is being actively hyped to the America public. Leading the list again this month (so far)? You got it: Mortgage refi deals. No credit checks...blah, blah, blah. The guys over at Prudent bear made an incredibly good observation about what is going on with poor credit. The deal, as they see it, works something like this: A not very reputable loan company makes not very good loans, which are then bundled to make they appear to be a safer investment. Whereas in the 1930's a lender and borrower were linked by the wallet through the lift of the loan, we've entered a new area of hyperspace where loan quality can be crap, but when rolled up as collateralized mortgage obligations (CMO's) they sudden look a little more pure than they really are as an investment vehicle. Something to think about if you are looking to refi. Not that its a bad idea, but if you think the idea of taking money out of your home in order to bottom fish is a good idea, you might want to look around for one of those investor 12-step programs...Communications: I finally got a small ham radio antenna up on Saturday afternoon. Spent the evening talking to various parts of the world - several Italian stations, Columbia, some on the Black Sea, Russian Georgia, and a few stateside contacts. This coming weekend the linear amplifier arrives along with a brand new vertical antenna. I can't encourage you enough to get an HF radio and the skills to use it. It's really an interesting hobby - and as a first step you can pick up a short-wave radio from place like the C. Crane company. Speaking of which, the price of solar powered lighting is coming down too..Transportation: With summer here the price of gas is going up, but it seems like more than just a seasonal thing - most likely a bit of a Middle East violence premium being built in to the prices. But what's this? Once again foreign media are scooping the U.S. domestic sources with Pravda reporting the U.S. really has more reserve in the Golf of Mexico and Atlantic than every previously reported. We'll see if the U.S. media wakes up from its ratings induced slumber, featuring Ken & Barbie anchors, long enough to get even a few facts out before the Financial Times, the BBC, Pravda, and Other offshore media.
OK, that's it. Elaine is out shopping for another half hour and I promised her a pot of spaghetti would be ready when she gets home. It was a very busy week, with my employer's annual conference, so I'm a whupped dog in the tired department.
I think I'll go have what my friend Zeek Pardo used to call "a light but slightly oakey Chardonnay with a slightly buttery finish". That'd be...ummmm...April...yeah, that was a good month...
Write when you get rich!