See the megaphone formation? It is called a Wolf Wave. We are at a fairly good level of profits now. But it projects a nuclear winter in corporate profits dead ahead (see chart below). From Record highs never seen in fifty years, to record lows also not seen in the same period, below the lows of 2001-2002. This chart is a testament to how fiat money and credit creation has made steady growth and economic stewardship become more and more unmanageable over a long period of time, it is clear that monetary policy is also following this wolf wave pattern, either too hot or too cold. Politicians (and their “something for nothing” constituents) in the western world see these enormous profits and are set to attack the creators and holders of this wealth, they want the money and will put in place new taxes and entitlement mandates to claw back this gusher of wealth, thereby accelerating the downside of this wave. We all want business cycles that cleanse past excesses but the up and downs are now out of control, there is no consistency. No orderly form to the business and economic cycles, everything now is either booming or busting.
This is as frightening a chart as I have seen since the one I used in “Sea Change” (see Tedbits archives at www.traderview.com). The wealth of the world is rotating. Combine the message of the two charts and commentaries and it signals big trouble in the US, then in Europe and then the rest of the world. Now let’s look at the micro picture of corporate profits:
Corporate profits are collapsing and accelerating to the downside as indicated by the macro look…
The financial and central banks’ authorities must prevent this collapse in profits and stock asset values at all costs. You can clearly see what Greenspan’s last episode of liquidity created. Notice how the wolf wave really started to wildly amplify and get out of control when he took over at the helm of the Federal Reserve in the mid 1980’s!! This is the Greenspan Put at work. Now we will see the encore, as the financial leaders of the world try to save the most stupid money in the world from their poor decisions and mal-investments (from previous easy money episodes) by buying these inflated valuations in any asset you can imagine. It’s called Hot Money and is chasing yields around the world! And of course these assets were bought with borrowed money, because easy, “below market rate” credit is abundant and available to anyone with any qualifications (the sub-prime borrowers are the exception, but if asset prices fail to hold up it will move up the ladder). And since inflation is massively understated they are borrowing the money at below market rates even now.
They bought those assets with the belief that markets and asset prices never go down, and anybody who studies markets knows it is a two-way street. The reversion to the mean projects big time pain. The shake out will be enormous unless these financial leaders step in right now to flatten it out like the mid 1970’s. This is the specter of the ghosts of Christmas past. This is a highly deflationary picture if the money printing and credit creation doesn’t accelerate from here. It must be global in nature. And it is coming when it already is at record levels, as global currency reserves are approximately 18% higher year over year throughout the world. Can anybody say Weimar Republic on a global scale? Argentina? Zimbabwe?
The US is in dire straights and the politicians are set to add it to the bonfire if they follow through with their current plans (see previous Tedbit above) of taxing, mandating wages and benefits, costly regulations and destroying future business creation. The attack on “foreign and domestic” capital currently building steam in Washington DC is reckless and potentially ruinous to the United States specifically, and world economies in general. The stupidity spilling from the mouths of the Presidential contenders is unbelievable, these people that claim they are ready to guide us into the future. The ultimate ignoramuses (the US Congress) are at the wheel of the US economy and set to strike like a poisonous viper. And of course their only concern is the next US election, not doing the right thing for the long run. And as I have said before, Europe has its own coterie of like-minded idiots. Serving only their ambitions for power by promising something for nothing to the least prepared of their constituents. These constituents also happen to hold the majority of votes over the educated parts of the electorates.
A recent missive from Steve Roach summed up Washington’s coming attack in its four-section summary:
“It's a new game in Washington D.C. The pendulum of political power has swung in a decidedly pro-labor direction. It's a shift with potentially profound consequences for the US and global economy - to say nothing of financial markets still steeped in denial.
Conclusions: There are three legs to the stool of Congress's pro-labor agenda: (1) Proposals have been offered that would provide direct support to lower- and middle-income workers; these include a minimum wage hike, a boost to labor unionization, and relief from the Alternative Minimum Tax. (2) Bills have been introduced that focus on returns at the upper end of the income distribution; the targets here are executive compensation, hedge funds, and private equity. (3) Anti-China legislation is gaining momentum; several new bipartisan efforts have been introduced in both the House and the Senate that focus on the all-contentious currency issue. (4) There is broad bipartisan support for these actions, with possible veto-proof margins on anti-China trade initiatives.
Risks: The biggest risk comes when US joblessness starts to rise - an inevitable outcome at some point in the not-so-distant future. In that context, pro-labor Washington politics - especially anti-China proposals - will only gather deeper and broader bipartisan support”. Thanks Steve.
The “something for nothing” crowd is firmly in control of the halls of power in the US and Europe; both politically and at the reigns of finance and Central Banking. We have had calm sailing in the markets since late 2002 (due to unbelievable amounts of stimulus from Alan Greenscam, er, Greenspan and now Ben Bernanke, the father of no M3 reporting), now four years later, confidence is at superman levels and the miscalculation that things go on forever is the only thing on investors minds. They have short memories, just like their leaders. There is big money here for the smartest among us, for all the rest of us it is disaster directly ahead.
Keep in mind that this was written in MARCH 2007, and look around you. It’s like it was written YESTERDAY. Now let’s take a look at the wolf wave TODAY:
It is slicing through the lower boundaries of the mega phone and a democratic supermajority LOOMS as people are desperate for someone to SAVE them! And they are turning to the people who CAUSED it. Incomes are being EATEN alive, personal, corporate, state, municipal, and, at the same time, NOMINAL asset values are being destroyed as well.
Take a look at these long term charts of unemployment from a recent www.wsj.com :
When people are OUT OF WORK, incomes and revenues plummet all up and down the economy. Those aren’t peaks; those are base patterns pointing much, much higher in ALL three examples. You shall soon see a monthly job report with 400 to 500 thousand lost jobs, assuming they don’t HIDE the ugly TRUTH of business and employment in America. But rest assured, the G7 is in the boat with us.
Everybody is scrambling for the “financial” lifeboats, but just as the Titanic was short of them so are the G7 economies. Things will soon get vicious as those who believe in PAPER money are DESTROYED, and their former wealth falls into the hands of the same culprits that perpetrated it then. Majorities of the G7 no longer “produce more then they consume” and they are headed for the poorhouse and bankruptcy; courtesy of G7 public servants and central banks.
EVERYTHING that creates wealth, produces more then it consumes, as well as savings, are about to come under withering attacks. SO THERE WILL BE LESS AND LESS of it. Misery spread in ever widening circles. Everyday low prices at WALMART are about to be redistributed to run amok UNIONS who serve no one but themselves. Massive hyperinflation to pay for it as wealth creation FAILS and is substituted with government imposed socialism with politicians deciding who gets what. The father of the SUB PRIME debacle himself recently spoke on the coming expansion of government spending to SAVE you:
All of this to SAVE you. More “power and money” for them and less for you; inflation and deficits which you, your employers and children must pay for. Stealth taxes on your paper money “while it sits in the bank” and they inflate its value away through FIAT money and credit creation.
Take a look at money creation on the most basic levels which is HIGH POWERED, as it is the fuel of the fractional banking systems of the G7:
UP 38% year over year and almost triple the size of any monetary expansion since 1985; and you haven’t seen ANYTHING yet. This is the face of FUTURE inflation. Add to this the HUGE expansion of government to save and provide for you, where $1.00 goes in and .10 cents of goods or services comes out; the rest goes to line the pockets of their CAMPAIGN contributors and the government enforcers they have SPAWNED in leviathan government. THIS IS WHY THE STOCK MARKETS ARE COLLAPSING and will continue to do so until they turn higher in a ZIMBABWE-like rally to escape the debasement and the “Crack-Up Boom” EXPLODES in your face.
In conclusion: Stock Markets can rally but sell into them. The collapse in incomes has just begun to unfold. Since wealth creation and income is COLLAPSING, fiat money and credit creation MUST rise to FILL the gap. When the socialist dictators take the reigns of power, put your hand on your wallets as it shrinks without them even putting a hand on it. They will steal your money to “spread the wealth”. The hardest hit will be the ones that VOTED them into power with the PRINTING press. Further enlarging their constituencies of impoverished citizens who DO NOT know from where wealth comes, and who are voting for the things most detrimental to their futures. As I said: George Orwell’s Animal Farm and 1984 are now becoming REALITY. I await the new “Ministry of Truth”, but government statistics are ALREADY a form of that.
The money required to save the G7 financial systems and bloated state and municipal sectors, insurance companies and soon general conglomerates such as GE, and NATIONAL champions in the G7 will be at least 5 times what has been CREATED to date. Bernanke is now OUTDOING the maestro himself, but now he has been joined by every CENTRAL BANK and government in the developed world. You must keep your cash NOW and get ready to get into TANGIBLE assets which will REPRICE to reflect the unfolding DEBASEMENT. Don’t be fooled by gold and silver as when you sell, the DEBASERS will buy it from you before it rockets higher. BONDS are bombs, avoid them at ALL costs, and sell into rallies. As they ultimately WILL CRASH just as stocks and the economies are. The greatest REFLATION in history is in front of us as they will do as all have done before them in a fiat currency financial system: They will print the money. As Public Serpents, er servants try to save what can’t be saved the next great depression will unfold except it will briefly be deflationary then will become hyperinflationary.
This is the GREATEST OPPORTUNITY in history as YOU will get to be the beneficiary of the transfer of wealth if you position yourself PROPERLY. You can still hold cash and fix it if you like. Markets are all still MASSIVELY mispriced to reflect the unfolding future. Do not despair or succumb to the misinformation you are BOMBARDED with daily. Stock, Bonds, currencies, commodities, natural resources, everything is MISPRICED. Volatility that is already high is set to CONTINUE. VOLATILITY IS OPPORTUNITY! Learn how to capture it.
Public servants will use the unfolding debacles as their excuse to SAVE you, and will extend their control and MISALLOCATION of precious capital to activities which WILL DESTROY the economies of the G7 rather than to activities which create wealth in the PRIVATE sector -- just as Roosevelt’s NEW DEAL did in the 1930’s; and the public servants will blame it on someone else, just as they did then, and the public is dumber now then they were then so they will GET AWAY with it AGAIN. The Crack-Up Boom just moved a little closer on the horizon…..
Don’t miss the next edition of Tedbits and the “Crack-Up Boom” series….
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Tedbits is authored by Theodore "Ty" Andros, and is registered with TraderView, a registered CTA (Commodity Trading Advisor) and Global Asset Advisors (Introducing Broker). TraderView is a managed futures and alternative investment boutique. Mr. Andros began his commodity career in the early 1980's and became a managed futures specialist beginning in 1985. Mr. Andros' duties include marketing, sales, and portfolio selection and monitoring, customer relations and all aspects required in building a successful managed futures and alternative investment brokerage service. Mr. Andros attended the University of San Diego, and the University of Miami, majoring in Marketing, Economics and Business Administration. He began his career as a broker in 1983, and has worked his way to the creation of TraderView. Mr. Andros is active in Economic analysis and brings this information and analysis to his clients on a regular basis, creating investment portfolios designed to capture these unfolding opportunities as the emerge. Ty prides himself on his personal preparation for the markets as they unfold and his ability to take this information and build professionally managed portfolios and developing a loyal clientele.
Tedbits may include information obtained from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made to ensure its accuracy or completeness. Opinions expressed are subject to change without notice. This report is not a request to engage in any transaction involving the purchase or sale of futures contracts or options on futures. There is a substantial risk of loss associated with trading futures, foreign exchange, and options on futures. This letter is not intended as investment advice, and its use in any respect is entirely the responsibility of the user. Past performance is never a guarantee of future results.