Everybody! Outa the Pool!

[SeanO]

Sorry if I'm a little dense, but I need some help aligning Eric's comments today with his last graphical revision to Ka-Poom theory (see http://www.itulip.com/retrospective2006.htm#KaPoom2006).

I assume when he said "We are at the beginning the Ka phase of Ka-Poom", that he is shortening the current mini-poom, and thus shifting the next period of disinflation up a year or two.

What I can't make sense of is that "Ka" as shown on the above chart is the start of sharp drops in the discount rate and CPI. Both of those seem to be at least a ways off. Is Ka better described by the drop in value of assets like equities and real estate? Should we still expect to see drops in the discount rate as originally described? CPI? Are they necessary to start the "Poom", and thus a likely indicator?

While I think I'm beginning to get the correlations being described here, I continually find that I'm second guessing myself and re-reading articles. I'd sure love to see historical and expected plots of the dow, housing, commodities, etc added to the ka-poom chart. Or something else that more clearly illustrated the key correlations to better show the "big picture".

Thanks,
Sean

[EJ]

Sorry if I'm a little dense, but I need some help aligning Eric's comments today with his last graphical revision to Ka-Poom theory (see http://www.itulip.com/retrospective2006.htm#KaPoom2006).

I assume when he said "We are at the beginning the Ka phase of Ka-Poom", that he is shortening the current mini-poom, and thus shifting the next period of disinflation up a year or two.

What I can't make sense of is that "Ka" as shown on the above chart is the start of sharp drops in the discount rate and CPI. Both of those seem to be at least a ways off. Is Ka better described by the drop in value of assets like equities and real estate? Should we still expect to see drops in the discount rate as originally described? CPI? Are they necessary to start the "Poom", and thus a likely indicator?

While I think I'm beginning to get the correlations being described here, I continually find that I'm second guessing myself and re-reading articles. I'd sure love to see historical and expected plots of the dow, housing, commodities, etc added to the ka-poom chart. Or something else that more clearly illustrated the key correlations to better show the "big picture".

Thanks,
Sean

Sean,

I think of each "Ka" phase as multi-year, non-linear process. The last one went from mid 2000 to late 2002. We should expect the Poom" to be long and non-linear as well.

[Jim Nickerson]

Everybody out of the pool?

I do not know how anyone knows anything except by reading, talking to others who presumably know something about a topic at hand, or some personal experience. I don't talk to anyone, so my thoughts are influenced by what I read exclusively on the web--some news and some commentary, and my dissection of data I accummulate on the markets' behaviors.

I think most of what I am attracted to on the web is bearishly biased, which in my simple mind says there are now a whole of of bears.

To me Eric is a genius, and I respect his thinking and his track record of foresight. It may be time, as EJ said, for everyone to get out of the pool, but to me it seems too prescient--not that I would wish anything for him except success.

Several predominant mantra about the markets this year strike me. Go away in May, and the second year of the presidential cycle is likely to be bad with the lows in Oct. Nov. Some or all of that may be true this year. If we stay alive, we'll get to see. I don't like it when too many people are thinking the same things about the markets.

Looking back at 1987, a bad year if you were long after the end of August, but earlier that year the markets sold off from March to near end of May and then rallied to new highs near the end of August. So there was definitely money to have been made between April and August--and a lot lost thereafter, but nevertheless a significant summer rally.

1990 was another year that had a significant rally from end of April to the middle of July, and then a significant collapse into October. So summer rallies can occur. '90 was Bush I's 2nd year in office. In early, 1990, the NDX had a period of 9 consecutive down days, followed by 3 months of sideways to slightly up movement, then a significant rally into the middle of July. We just had 9 down days in a row in case you didn't notice in the Nasdaq, NDX and 8 down in a row in the RUT.

In 2000, looking at the SPX, if one did not get out of the market in March, then one had almost as good a chance to get out of it at the end of August--the NDX and Nasdaq did not recover as much from their 1st qtr highs, but nevertheless, the end of August was still a good time to have exited the markets, interesting (and costly)to me is that I did not take advantage of either exit.

1994, the markets bottomed in July and rallied well until Oct. or Nov, and then corrected a bit--not so much in the NDX at the end of the year as were the late year corrections in the SPX and DJI.

Right now the markets are rather severely oversold, and certainly they can get moreso. Yet looking at a lot of measurements, there have been some very worthwhile rallies from similar low points as the markets are now.

If the markets were to rally from where they are now until later in the year, it would stymie a lot of bears, and reinvigorate the perpetual bulls. There is a lot of time left for the markets to rally back toward the May highs, and for the market to still collapse in the Fall as the gods of the 2nd presidential year appear to have mandated.

[jk]

which pool do you get outa?

surely you want no net exposure to equities in general. but outa gold? outa oil? outa currencies? that doesn't sound quite right. nonetheless if we are on the brink of another deflation scare, those positions will go down. so let's try to be a bit more specific. a couple of years ago bill gross wrote a piece in which he said "cash is prince." so is it ready to be king, or are those other kinds of exposures worth keeping? opinions and reasoning would be much appreciated.

[SeanO]

Yes, further break down needed...

To expand on JK's post, what, if anything, benefits from Ka's disinflation and Poom's apparent stagflation. I'm quickly getting outa the pool, but I don't want to just stand around and wait for someone to clean up the pee. And I care as much about where to invest my time, as my money.

Buy a farm? Open a grocery store? Start a soup line?

Per my original post, I'm still struggling with what the key indicators and effects of Ka will likely be. I fully get that no ones knows what will truly happen, I'm just trying to gain a better understanding of Eric's theory.

What, big picture, happens during a period of disinflation?