cyclepro posts again!

[jk]

after a hiatus of - literally - years, cyclepro has posted again. strongly recommended for its long term perspective on the markets:


http://www.geocities.com/cyclepro2/C...00/Outlook.htm

[FRED]

Re: cyclepro posts again!

after a hiatus of - literally - years, cyclepro has posted again. strongly recommended for its long term perspective on the markets:


http://www.geocities.com/cyclepro2/C...00/Outlook.htm

Good stuff! There's no copyright on it which means Steve wants his writing copied and commented on. So let's do it!

Welcome to CyclePro - Your web resource for Technical, Esoteric Analysis, and Market Forecast Commentary.

The current U.S. stock market appears to be following a similar path as was previously witnessed by U.S. investors in 1929 and 1987, and more recently by investors in the Japan Nikkei in 1990, Hong Kong in 1997, and many others. These were the most famous world stock market "crashes" of the century. We have already witnessed crashes in internet and high-tech industries during 2000, will this year also be added to this prestigious list for a "Crash" in the United States? Will the global economy crash too?

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I would rather be prepared and wrong
than to be unprepared but right!

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Current Commentary -- Where Are We Now?

(Wednesday October 31, 2007 PM):
Flash Update: Spot gold closed today for its highest monthly price in all of its glittering 5000 year history.

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(Sunday October 29, 2007 PM):

What do Rumpelstiltskin and CyclePro have in common?

Well, not 20 years... but CyclePro Outlook puts the PRO in PROcrastination. There have been dozens of times in the past several years that I wanted to update CyclePro Outlook. However, each time the subject was either more opinionating on current events or rehashing more of my primary investment strategy. Discussing current events as they unfolded quickly rotted between the time I wrote about it and the time when I had available to post it. As for the investment strategy, there was nothing new to post, just the same ol', same ol'.

Actually a lot has happened over the past 3 years... I was there while the Enron fiasco temporarily pulled down the Houston economy enough where I was not certain to find comparable consulting gigs like I had before. Since the air pollution in Houston (the most polluted city in the US) was causing health issues for me I decided to step off the career train for a while and have some fun. So I moved to south Florida and went to Culinary School. I got my culinary degree and chef certification and moved on to baking and pastries... but wouldn't you know it, just when the chocolate quarter came up (can you believe it, an entire school quarter devoted entirely to chocolate) I got an offer to do some consulting out of state. It was supposed to last only 2 months so I thought I could return and resume baking. But alas, the client decided to extend my contract and amost 3 years later, I'm still there. I decided the culinary diversion was just that, a diversion at a time when I needed a change of air quality, change of outlook, and change of perspective, and everything in between. While in Houston I was having to take a daily prescription for high blood pressure, popping pills for almost daily headahes and/or migraines, lack of energy, and just an overall yucky mood. In just 2 months in Florida spending as much time as possible at the beach, I was feeling much better. After 1 year my health returned to what it should be, high blood pressure back to "normal", no more daily headaches or migraines, my doctor took me off all medications. I am now healthier at 49 than I was at 29.

CyclePro Outlook - Where everyone is entitled to my opinion.

Now that the sub-prime real estate debacle has stared to unwind, the stock market is at new highs, the world economy is destabilizing, and of course gold is shining brightly at the moment -- all good reasons to jump in with an updated opinion. After all, I believe everyone is entitled to my opinion... and it is just that, an opinion, not investment advice.

Where are we now?

For starters I need to update my previous forecasts to see where we are... on track? or do we need to readjust?

My most famous chart, the 200-year inflation-adjusted chart of US stocks, is so long-term that even after 3 years it has not moved very much.

Click chart to enlarge.

However the following is a zoomed-in view of the most recent activity:

Click chart to enlarge.

The most recent rally looks like it is heading to the top channel line again. Bouncing and trying again to hit the top channel line is similar to what happened in the 1899-1906 topping event. This chart uses inflation data from US Federal Reserve websites. The Fed's CPI is about as useful to economic reality as a DVD Rewinder is for DVD's. Using inflation data from Shadow Government Statistics website (www.shadowstats.com), the following clearly shows the 17.6 year cycle top in 2000. The current rally, after adjustment for inflation, appears as a feeble bear market rally. From an Elliott Wave perspective, it looks like the current rally may still have some frothy legs to rally higher yet. But keep in mind, I believe this is only a rally in a larger bear market as this chart shows and eventually there will be a collapse of immense proportions.

This chart helps to pin a timeframe for the next DJIA trough. Adding 17.6 years to January, 2000 reveals Q3'2017 as a likely low.

Click chart to enlarge.

Sorry for repeating this, but please keep in mind that these charts are adjusted for inflation. This means that the printed DJIA level in the future may very well be higher, perhaps even much higher, than today but the value of the dollars for which the DJIA will be priced will be worth significantly less than today. So much so, that even with a higher printed DJIA price the actual value relative to 2000 may be cut in half or less. The rising centerline in the first chart suggests a conservative target low of about 6500 by 2017 and if it goes down to the first lower channel line then perhaps 3300... or worse case scenario, down to the lowest channel line at 2200.

If you look back in history, each time the DJIA touched the top channel lines, eventually it traded down to the lower channel lines. There is nothing that I see that will change this pattern.

Vindication!

Back in 2003 when crude oil was $26 I took a lot of heat from a few readers for forecasting that $40 was an "inevitable certainty" and longer term I expected over $90 with a possibility of triple digits. Understand that in that timeframe crude oil had just doubled from 18 months earlier and people were already complaining of high prices at the pump... yes, those $1.20 pump prices were rally gouging our household budgets! Well $40 came and went. Last week we saw $92. Haven't seen $100 yet... nonetheless I feel quite vindicated with that original forecast. I had originally thought the $90-100 price would occur before 2010... I really had no idea it would happen so quickly.

No More Gouging at the Pump

I find it interesting that when crude oil prices hit $40, prices at the pump were almost $3. Then crude oil surged to $60 and pump prices returned to $3. Now that were in the $90 area, pump prices are still $3. Big Oil may be making a ton of money right now, but as for refinery margins, certainly consumers can see that with improved efficiency and thiner profit margins, Big Oil has been able to successfully keep pump prices quite low. Back when we first hit $40 crude, I had thought that $90 crude would mean at least $6 at the pump.

Any Way You Burn it, High Crude Oil Stokes Inflation

Crude Oil is the world's most consumed industrial commodity. As such, it essentially functions as a currency too. While a lot of the currently high price is reflective of a weaker US Dollar, crude oil is still higher to everyone worldwide. The high price of crude cascades through the rest of the energy products because as consumers seek alternatives, those products price must also rise to satisfy the new demand.

How Is Crude Oil Related to Doughnuts & Coca Cola?

Because of high Crude prices, ethanol is being touted as a domestic solution to reliance on foreign supply. Ethanol is made from corn (although not very efficiently... sugar cane and certain grasses make for more efficient ethanol production). As a result, corn prices risen dramatically. Because of high corn prices, farmers seeking alternatives have used wheat. Mexico is having a shortage of corn tortilla. High wheat prices affects baked goods. When corn is used for ethanol, it is not available for making corn sweetener, which is used in Coca Cola and other sweetened sodas and soft drinks. This is texbook for price inflation. Monetary inflation is caused by the Federal Reserve printing up too many Dollars... and that is happening too. But price inflation is when shortages caused by high demand requires higher prices to relieve the pressures. So while most people simply view high crude oil as affecting prices at the pump, or heating oil for the winter, or jet fuel for airplanes, the real affect bleeds through the entire economy and no one is completely isolated from its effects. You cannot ship a package without fuel for jets or trucks. You cannot make corn sweetener with out corn. You cannot make doughnuts without flour. And don't forget about all of the plastics that are byproducts of crude oil -- look around your home or office and note how many items are made with plastic.

Crude oil directly or indirectly affects just about everyone in developed or developing economies, every individual, every business. No one will be able to escape its inflationary influence. Airlines will be hit hard, I expect them begin upping their flyer-mile mileage requirements for free trips. Airline tickets and shipping companys will be adding fuel surcharges soon. As heating and cooling energy prices rise people will seek alternatives, that should cause price increases for things like solar panels and wind generators. The list of product price increases will be endless as one increase affects another, and the price inflation ripple cascades through just about every product that everyone uses.

In the 1970's 250 ounces of gold bought a nice house and 50 ounces bought a decent car. Today the same 250 ounces buys a $200,000 house and a $40,000 car. In 10 years I expect the same ounces will also buy a nice house and a decent car. Prices are rising for holders of Dollars, protect yourself and your wealth, buy gold.

Frankenstein Seedstock

On the subject of corn, Monsanto and Cargill may soon have supreme control over corn and other argi-grains once they successfully introduce and enforce the use of their newest genetically-modified seeds. As the demand for more corn acrage and higher yield increases, Monsanto/Cargill will be only too willing to accommodate with their new wonder seeds. These frankenstein seeds grow once but whose progeny seed is sterile and will not sprout if replanted. As such, farmers will become slaves to the Mansanto-Cargill cartel and be forced to buy their seed stock each and every spring. Heirloom seed stock will eventually become rare and may even become extinct as the new engineered seed will be more resistant to persistent pests and fungi.

Old Charts, New Charts

Before we get into gold, let's look at how the DJIA-Gold ratio charts are shaping up. The previous chart suggested that gold would outperform the DJIA until 2013-2018 timeframe. Three years ago the chart was at 27 and today it is at 18. Clearly, this forecast continues to be on-track for a lower ratio. The final expectation is conservatively somewhere around 2:1. Richard Russell has been saying he expects closer to 1:1. It really does not matter since anything near Mr. Russell's or my estimate potends a disaster for stock investors.

Click chart to enlarge.

As a reminder of why the ratio should collapse, the following chart demonstrates the long-term inverse relationship between inflation-adjusted DJIA and the price of gold.

Click chart to enlarge.

The two major cycles of the past century shows that the price of gold should peak right at or just before the lowest point of the inflation-adjusted DJIA. Nimble investors will attempt to switch investment strategies at that time. As for me, this is retirement stuff so I have no plans to tag the bragging rights of hitting the perfect top. Rather, my plan is to begin exiting gold as the DJIA-Gold ratio approaches 2:1 and not worry about missed opportunities if the ratio moves lower to 1:1. I will say this though... a move in the ratio from 2:1 to 1:1 means that during this episode either the price of gold doubles or the DJIA level cuts in half -- that's a lot of "opportunity" left on the table.The peak in gold is likely to be another brief spike so it will be a more conservative strategy to be a few months too early than a week too late. But hey... according to these charts that could be 10 years from now -- on the other hand, theings have been happening a lot quicker than we had thought, so it is best to not become complacent and continually review the progress of our charts and indicators.

Breaking a 5000 Year Old Record?

I do not have much new information to add to my previous forecast for gold. We are clearly on track for higher prices. My original forecast made in 2002 was for $2000/oz by 2012-2014 with a possible brief spike to $3000. It was not mentioned by any media or newsletter that I can find, but as far as monthly price charts go the September, 2007 monthly close for gold was the highest monthly close ever! Even in 1980 when the price peaked to $850, it was mid-month and prices dropped by the end of that month. For very long-term charting, this new high is a significant event that no one seemed to catch. October, 2007 looks like it may close at an even higher price... another all-time record. A few in the media refer to 27 or 28 year highs which compares to 1980... but as far as monthly closing prices go... the 5000 year history of gold is a very long time and we are knocking on that most significant new record.

From an Elliott Wave perspective, we are clearly in the early stages of a dramatic wave 3 rally. For me personally, I have been trying to finese into several leveraged gold securities (such as options and gold exploration and mid-level mining companies) but waiting for a pullback has been an exercise in futility. This is the stuff wave 3's are made of. My core position and mid-timeframe investment strategies are fully invested. What I am attempting to do is play the upcoming massive rally with a playful short-term strategy. I am not alone. The gold camp is quite bullish right now and from a contrarian point of view a pullback "should" happen soon. But what we have had lately has been intra-day pullbacks, but nothing deep enough to trigger buy limits. This means the stochastics overbought levels are likely to stay in overbought for extended periods of time. If I miss out I have my core and mid-timeframe positions working for me. But the short-term stuff is merely to exercise my adrenaline.

Gold Bugs, the Immoral Hazard

Gold is and will continue to be manipulated by central banks. Of course it does not make sense to keep this charade up any longer, but central bankers answer to other interests. Another central bank supported sell-off in gold is still likely. If all I have to go by is the price charts, then it appears gold prices could continue ratcheting higher for several more months before traders take a breather. Central bankers don't necessarily look at price charts so they could intervene at any time. This is like the inverse of moral hazard. Investors in stocks believe the Fed will allow them to reap fantastic gains as prices rally but always intervene to bail them out if prices tumble. For gold the interests are reversed. To the central and bullion bankers, gold bugs are like casino Craps players who bet on the "Don't Pass" side of the roll -- pessimists that should not be given a moral handout for recognizing what is really happening. For the past 6 years of this gold bull market, gold traders have been jabbed by central and bullion banker selling as prices rallied too much too quick. The bankers would rather hold the price of gold flat, but they may no longer have the inventory to do so. Collectively they still have enough to sting the market again, but I doubt their collective interests are as aligned as they once were. It is also quite possible that they are scraping the bottom of the barrel to come up with sufficient bullion -- The Bank of England discovered that a portion of their scantly remaining inventory (which may be several hundered years old and lacking modern purity standards) is of sufficient quality to sell into the market. At some point they have to ask themselves, we own an asset that is rising in value, shouldn't we be holding this instead of trading for Dollars that are falling in value?

Gotta Get GATA

The boys over at GATA (www.gata.org) have been called every conspiracy-laced derogatory name in the book... but you know what? The evidence is building. They were right then and they are right now. Quite frankly I am pleased that the banks had been selling so much gold over the past 20+ years. It has allowed me to buy gold and silver at very low prices and position myself to be prepared in a rock-solid investment for the coming economic debacle.

Gold-Silver Ratio

Three years ago the Gold-Silver ratio was at 60:1 and suggested silver would continue to strengthen relative to gold. Today the ratio is 55 so it continues. The peak of 97 was in 1992 and adding 25.5 years to that suggests a ratio low near 17:1 sometime during 2017. Adding 48 years to the previous ratio low in 1968 suggests late 2016 as the next likely low. You can do the math... if gold peaks out at 2000/oz then silver should be close to $120/oz... likewise $3000 gold suggests $175 silver... and for the ultra-bullish gold price of $5000 reveals an estimate for silver of almost $300/oz.

Click chart to enlarge.

Sub-Primevil Mortgage Lenders

Sub-prime is the scapegoat buzzword for the collapsing mortgage and credit derivative markets. Sub-prime by itself is not a as bad of a problem as it may appear since there have always been mortgage loans for borrowers with less than perfect credit histories.

But the current street definition of sub-prime is the toxic transformation of sub-prime borrowers who stretched their finanical history in their favor, or purchaed homes for investment flipping while saying on their loan apps that the homes were to be owner-occupied. Sure, sub-prime variable-rate and teaser-rate loans were a disaster even before the first loans were written, but it is only the tip of the ol' iceburg. The same mentality that created the environment for sub-prime mortgages to flurish also allowed otherwise higher quality mortgages to slide into lesser qualities. The credit rating agencies, largely through their own faulty revenue structure, continued to get paid by banks to rate packages (called tranches) of mortgages at their original/higher quality level. As a result, investors bought what they thought was high quality, low risk securities. To make matters worse, much worse, hedge funds, banks, and pension plans began buying these asset-backed debt obligation packages (CDOs: collateralized debt obligations) for their high yield. That in itself would would be bad, but what made it toxic was how, particularly the hedge funds, used these CDO's as collateral leverage to buy even more CDO's. It was not uncommon for hedge funds to pyramid CDO's on top of CDO's to return 30%, 50% even as high as 70% to shareholders. Wanting to keep up with the Jones's, banks and pension funds followed suit.

Clearly, while this was developing, no one seriously took a step back to ask whether these high yields were appropriate. Generally if something is too good to be true, then it probably is. But no one seemed to care as long as the gravy train rewarded them with windfall yields.

The Arthur Anderson Approach to Credit Rating

The last time I witnessed such an orgy of abundant & grossly negligent investment blindness was in the late 1990's when in the height Houston's energy trading industry, everyone was in awe of Enron's seemingly unstoppable profitability. So everyone wanted to be just like Enron. Many of the clients I consulted for were actively building trading organizations that would attempt to rival big brother Enron. Keep in mind that Enron was secretly siphoning off their losses onto off-shore accounts thus artificially inflating their apparent profits -- all with Arthur Anderson's professional audit blessing. Even though many of the Enron-wanna-be managers suspected Enron's above board strategies were borderline illegal or worse, they still continued the pursuit of questionable finance for themselves. I recall hearing a joke about Enron, "it's only illegal if you get caught". Once the Enron castle collapsed, so did many of these wanna-be's. After paying huge fines, loss of market share, and reduced investor confidence, the trading shops that still exist have transformed themselves back to their original core business, keeping whatever derivative business they still have under tight audit scrutiny and well within VaR (value-at-risk) parameters.
Several years from now, I expect that at least one of the big rating agencies will no longer exist and the others will have their revenue structures completely revamped. As for investors buying into this titantic superfund -- the term "dumb schmuck" comes to mind. I think you'd be better off buying a highrise condo in North Miami Beach, at least while losing your money you can still enjoy the view.

Superfund Bailout: Banks Too Big To Fail, Screw Investors

And now we hear about a rescue plan for the biggest domestic players in the sub-price market. A $75-80 billion superfund will be created to purchase asset-backed securities from Citibank, JPMorgan-Chase, and Bank of America which is supposed to stabilize the valuation of the securities. Apparently the junkiest of these securities are supposed to be written off and only the higher quality securities sold to the superfund. I read that the fund will buy these packages at 94 cents on the dollar. What this implies is since this will be considered a "market value" any other bank or fund holding similar CDO's will be able to value them also at 94 cents... instead of 50 cents or 30 cents or whatever the real market would otherwise value them at. Essentially, this is little more than a circuit breaker for a financial product that has no clearinghouse. While the stock exchanges will shut down if stock prices fall too far too fast, this superfund is intended to do the same thing. It allows the entire market to take a breather and hope calmer heads will prevail and CDO valuations will return to their previous levels, and everyone will live happily everafter.

I am truely a contrarian when it comes to investing, so when the streets are flowing red from the blood of wounded investors, it generally signals a time to begin investigating opportunities. This time I am not even remotely interested -- I think there is much more blood to be spilled. In fact I think any investor thay buys into this superfund right now will be making a huge mistake. I'll leave the act of juggling with knives to the circus. First of all, who makes the decision about which tranches will be sold? The Enronesque credit rating agencies that inappropriately (fraudulently) mis-rated them in the first place? Or the banks that desparately need to unload their toxic waste -- losing only 6% sounds to me like a bailout dream come true for the banks. Since the US Treasury has been involved in the negotiation of this superfund, I can only guess that any oversight by SEC or Congressional banking & finance committies will be completely sidestepped. It appears to me that this superfund is little more than pulling an "Enron" right under everybodies noses. The apparent moral hazard and the eventual aftermath will be just as predictable if not horrifically more widespread.

And, what happens if the investors of this superfund sustain massive losses or the fund eventually collapses? Because of the involvement of the US Treasury will the banks be granted immunity from investor lawsuits? Goldman-Sachs was invited to the design meetings of the superfund, why did they back away?

Does Anyone See A Bubble on the Horizon?

One after another, we see a bubble burst, the Fed rushes in to rescue and as a result creates another bubble. Rescuing CDO holders is likely to spark another bubble somewhere. Where will it be this time?

If in Doubt, Stay Out

If you get a chance, take a look at your current money market fund holdings. I have an account with Fidelity Investments with 2 separate money market funds, one tax-free and the other taxable. For some reason, I expected the funds to have solid, extremely low-risk investments -- silly me. I discovered that is not necessarily the case. The funds stated purpose is to maintain a $1 NAV price while returning a relatively high yield. Yet in both funds I found a higher percentage of CDO's and commercial paper collateralized with mortgage CDO's than I thought should be prudent considering the toxicity of the leveraging being used behind the covers. I decided not to take any more risk until this whole sub-prime & mortgage CDO situation settles down. I know I will lose 1% in yield, but since I need to keep some cash in money market I moved nearly all of those holdings into a US Treasury backed money market fund.

Can't be CyclePro Without Some Bush Bashing

Look at me, I just went through all of this stuff without even once mentioning anything bad about George W. Bush. While I could list all of the reasons why Bush is to blame for ignoring all of trouble signs and allowing the economy to slip into the massive mess we are in, but you have heard it all already. I will say this, it is truely unfortunate for the chain of events that we have experienced over his presidential tenure and for the events that will unfold and ripple through the near and distant future. It is too big of a mess to avoid. But in order for my most bearish forecast to materialize (as is happening right now), it required someone like G.W. Bush to allow it to happen. Had other candidates won the presidency I am sure some of the events would have still occured, but I seriously doubt it would have been as bad as what we have now. A lot can happen in the 15 months remaining in the Bush tenure. Not enough time to fix the mess but ample time to make it much worse.

It seems Bush is only a moment away from starting a war with Iran over its alledged nuclear bomb capabilities. Iran, Bush says, is the biggest threat to our national defense. Yet while all this sabre rattling is going on, China is quietly testing and preparing to create a lunar orbiting vessel that may someday have the maneuverability to seek and disable individual orbiting satellites all while being controlled by mobile submarine control centers. If China suceeds, good bye cellphones, good bye pagers (does anyone still use those relics?), good bye CNN, good bye satellite radio, good bye GPS-guided missiles. If China suceeds, the war in Iraq may be over sooner than we think.

Is it just me or does this whole Iran thing sound like another maneuver by Bush to keep oil prices high for his Big Oil buddies, to continue destabilizing the Mideast, and to further debase the Dollar through runaway defense spending? If China succeeds in its mission, we have no defense. Is this not a greater threat?

Being Prepared While Preparing is Still an Option

I have prepared myself as best I can for the economic upheaval that I believe we will experience over the coming 5-10 years. I am a late baby boomer that will reach retirement age right about the time I think stocks bottom out and gold peaks. I prefer to be wrong about my forecast. But in the event that I am correct (and all evidence right now suggests I am squarely on track) then the best I can do is be prepared while preparing is still an option. I started buying most of my physical gold in 2001 and even with recent purchases my weighted average is still in the low $300's. My first purchase, which was actually a mutual fund which I thought was a very conservative move for my IRA, was in February, 2001, the US World Precious Metals fund (UNWPX) under $5. It is now over $35.
While that has turned out to be a good investment in itself, what has made it a truely great investment was that the reinvested dividends along with rising NAV value actually paid for the original investment after only the first 2 1/2 years. What was originally supposed to be a "conservative" investment turned into a 10-bagger in 6 years.

For the record, CyclePro Outlook formerly turned bullish on gold on April 2, 2001, one day after the COMEX low price was traded. I started buying gold related securities in February, 2001 because my initial trading was intended to be "conservative" and for that I did not really care that I picked the absolute low... just getting near the low was my primary objective. I bought UNWPX for $4.89 and Harmony Gold (HMY) for $5.53. In May, 2001 I wanted to get a little more speculative and bought Golden Resources (GSS) for $0.58. October, 2001 I started buying physical gold and bought the Perth Mint year 2000 1oz gold dragon coins. In February, 2007 the premium in these coins had attained significant collector value so I traded them in to convert the premium into increased bullion ounces of both gold and silver. In October, 2002 I discovered Goldcorp and started buying it at $9.90 but it dropped in price so by March, 2003 I bought more, much more, at $3.38 and in December, 2003 it recovered and I bought even more at $12.26. Not exactly a perfect buying record, but in hindsight and a current price above $30 I have nothing but pride for following through on my core investment strategy and buying at regular intervals regardless of the price... the dollar cost averaging approach.

Aren't Dividends Just Quaint Relics of the Past?

No one seems to consider dividends any more. If a stock or funds pays any dividend at all, most investors see it as a quaint gesture or outdated relic from the past, but nothing more than that. I expect that by 2014-2017, dividends will become a major consideration once again. With that in mind, if an investor is trying to decide which of 2 investments is the better choice, and all other comparisons are equal, choose the one that has the best opportunity to pay dividends or to increase their dividends... and reinvest them. The UNWPX example above demonstrates how the stock (or fund) itself returned 7x gains, but the dividends alone returned an additional 3x.

"Hope" is a Very Poor Trading Strategy

Right now U.S. stocks don't pay squat for dividends. Now it is all about speculative price appreciation. But I expect that to change. My current retirement plans expect that dividends will play a major role in my retirement income. It is not hope by which I make this expectation, the economic cycles of finance also include the ebb and flow of investor fads, such as dividends. Although I do not possess the chart data to demonstrate and/or forecast it with the same exactness as my other forecasts, I do expect dividends from blue chip and high quality stocks to be paying double-digit dividends 7-10 years from now.

If anyone is looking for a brief yet fairly complete history and explanation of the role of Central Banks please check out this article by Mike Hewitt: America's Forgotten War Against the Central Banks.

Ok, I did it... I said my CyclePro Outlook updates would be infrequent. I have no idea when I will post another, so stay tuned.

Good luck always.

Please visit Steve Williams' CyclePro site for Technical, Esoteric Analysis, and Market Forecast Commentary.

[jk]

Re: cyclepro posts again!

i find cyclepro's long-term outlook revelatory. he means it, though, when he says he doesn't post often. his last post was january 2005! [he posted more often before that date. i had given up checking for updates, when i saw an update announcement at jesse's crossroads cafe, http://www.geocities.com/arthurcutten/jesse.html , a site which was recommended in one of bart's posts some time ago.]

the notion of 17 year or 25 year or 48 year cycles bothers me - it seems too much like numerology - but it's hard to argue with the charts. so- is everyone looking toward late 2016 into 2017 for the BIG SWITCH?

i feel like i'm doing ok with my investing, about 12% annualized internal rate of return over the last 6 years with no more than two 8% drawdowns, but if i'd put it all in gold 6 years ago i'd now be something like 43% wealthier. i don't have the cajones for that, but reading this post has made me think i want to lean towards accumulating slv on pullbacks.

[zoog]

Re: cyclepro posts again!

i find cyclepro's long-term outlook revelatory. he means it, though, when he says he doesn't post often. his last post was january 2005! [he posted more often before that date. i had given up checking for updates, when i saw an update announcement at jesse's crossroads cafe, http://www.geocities.com/arthurcutten/jesse.html , a site which was recommended in one of bart's posts some time ago.]

the notion of 17 year or 25 year or 48 year cycles bothers me - it seems too much like numerology - but it's hard to argue with the charts. so- is everyone looking toward late 2016 into 2017 for the BIG SWITCH?

i feel like i'm doing ok with my investing, about 12% annualized internal rate of return over the last 6 years with no more than two 8% drawdowns, but if i'd put it all in gold 6 years ago i'd now be something like 43% wealthier. i don't have the cajones for that, but reading this post has made me think i want to lean towards accumulating slv on pullbacks.

I have been reading this kind of long cycle analysis from various sources for a while now, so I enjoyed this collection of charts and analysis from cyclepro; thanks for posting it. (I check crossroads cafe fairly often too.)

I'm not into numerology, and I can understand your hesitation with cyclical predictions. For example, W. D. Gann's "Law of Vibration" and Square of Nine chart looks like voodoo to me. (Here's a Minyanville link explaining / touting it.) But I do think there are cycles in markets and the most profitable ones unfold over a period of years.

This view, and these charts and predictions I have seen (all pointing to approximately the same time period for a bottom in stocks / top in commodities) has shaped my ongoing study of what to invest in. For a long-term investor such as myself, I think it simplifies the decisions. Select a few types of investments that should do well between now and that inflection point, and sit back and wait (or if possible / necessary, add to them along the way during corrections).

What I have not entirely reconciled in my mind is the relationship between these long wave cycles and the Ka-Poom cycle. In other threads recently we have been wondering aloud "are we in Ka?" "are we in Poom?" "how long is this phase going to last?" At the moment, I am wondering if the Ka phase may in fact stretch out to the 2015-2020 inflection point of cyclepro's charts. Rather than one catastrophic collapse fairly soon, the Fed / politicians / Big Banks / Illuminati;):rolleyes: / etc. may be able to throw enough debris on the tracks to slow this runaway train down enough to drag it out a few years, with numerous unpleasant surprises but no Mother of All Crashes. Of course, the sum total decline from 2000 peak to future trough may be the largest crash we've ever had, but that would likely only be apparent in hindsight.

Tying in the iTulip thesis that the next bubble will be alternative energy, how much better of a set-up could there be to have an alt-energy stock bubble begin at a long-cycle low for stocks around ten years from now. Conveniently, oil production may be peaking around that time as well, and as production declines there will be more demand for alternatives.

Too long to wait? Maybe. Perhaps the alt-energy boom will ramp up sooner, while generally other stocks grind downwards. But with the public swamped with mortgage and credit card debt, and facing ever-increasing costs of food, energy, and other necessities, I don't see how they (we) are going to be able to jump into another bubble anytime soon. We will need considerable wage inflation to give us enough free cash to invest again, or have to wait until commodity inflation is subsiding.

[Guest]

Re: cyclepro posts again!

JK -

Thanks very much for posting this. Superb, clear summaries.

I don't know where I've been as I had not heard of CyclePro.

[jk]

Re: cyclepro posts again!

.... I do think there are cycles in markets and the most profitable ones unfold over a period of years.

This view, and these charts and predictions I have seen (all pointing to approximately the same time period for a bottom in stocks / top in commodities) has shaped my ongoing study of what to invest in. For a long-term investor such as myself, I think it simplifies the decisions. Select a few types of investments that should do well between now and that inflection point, and sit back and wait (or if possible / necessary, add to them along the way during corrections).

What I have not entirely reconciled in my mind is the relationship between these long wave cycles and the Ka-Poom cycle. In other threads recently we have been wondering aloud "are we in Ka?" "are we in Poom?" "how long is this phase going to last?" At the moment, I am wondering if the Ka phase may in fact stretch out to the 2015-2020 inflection point of cyclepro's charts. Rather than one catastrophic collapse fairly soon, the Fed / politicians / Big Banks / Illuminati;):rolleyes: / etc. may be able to throw enough debris on the tracks to slow this runaway train down enough to drag it out a few years, with numerous unpleasant surprises but no Mother of All Crashes. Of course, the sum total decline from 2000 peak to future trough may be the largest crash we've ever had, but that would likely only be apparent in hindsight.

trying to tie these long cycles to ka-poom is an interesting exercise. a low in the dow:gold ratio can be achieved by relatively low stock prices AND/OR a relatively high gold price.

of course we associate the former with ka, and the latter with poom, so in itself the ratio doesn't associate itself with the kapoom cycle. looking back to the 70's the ka was early in the decade, culminating in the '73-74 bear markets, and the inflation really hit late in the decade. the dow was back to its nominal high late in the decade, but inflation adjusted had lost big time, and that was apparent at the time, not just in hindsight. [inflation was in the public eye, everything was "inflation adjusted," labor contracts had built in "cola's" - cost of living adjustments, and so on.]

anyway, the nominal low in stocks was NOT associated with the low in the dow:gold ratio. the extreme of dow:gold was instead associated with the nominal high in gold at the END [and culmination] of the poom, and, it should be noted, stock prices [or at least the dow] near their nominal HIGHS.

this doesn't mean that the coming market movements must conform to this pattern, but the 70's does supply at least one template for how things might unfold. this would imply that the credit mess unfolds with a recession and big bear market in equities in the near future [next 1-3 years or say til about 2010, midway through hillary's first term?:eek:], leading to nominal lows in equities along with lows in short rates. then fiscal action - tax cuts and subsidies and government spending programs, all of which take time to get in place - finally kick in to help the monetary ease finally gain traction. THEN we get the next bubbles in commodities, infrastructure and alt-energy, which take us back to the recent nominal highs, but with a change in leadership.

[the leadership of this last run-up was really in the financials, which came to dominate the s&p, comprising 25% of its weight, and iirc 35% of its profits. commodities have done fine, of course, along with the other sectors we've identified as the next upleg's leadership - but in the next upleg they will come to dominate the indices.]

so, in this scenario, the dow gets back to about 11,200 in 2016-2017- [the high in gold happened when the dow was at 800, not its nominal high of 1000] with gold over 6000!!:eek::cool:

heaven knows if things play out like this, but -frighteningly - it's a plausible scenario.

[jk]

Re: cyclepro posts again!

I don't know where I've been as I had not heard of CyclePro.

he hadn't posted since january 2005, almost 3 years ago.

[touchring]

Re: cyclepro posts again!

No More Gouging at the Pump

I find it interesting that when crude oil prices hit $40, prices at the pump were almost $3. Then crude oil surged to $60 and pump prices returned to $3. Now that were in the $90 area, pump prices are still $3. Big Oil may be making a ton of money right now, but as for refinery margins, certainly consumers can see that with improved efficiency and thiner profit margins, Big Oil has been able to successfully keep pump prices quite low. Back when we first hit $40 crude, I had thought that $90 crude would mean at least $6 at the pump.

I find this weird as well. Does this mean pump prices will start rising soon?

[Sapiens]

Re: cyclepro posts again!

I find this weird as well. Does this mean pump prices will start rising soon?

Nothing but creative accounting, profits are being moved to haven subsidiaries, we don't like CONgress looking into high profits. Yet, you can't bankrupt Joe Sixpack in one swell swoop, it is about keeping him laboring…

[jk]

Re: cyclepro posts again!

Nothing but creative accounting, profits are being moved to haven subsidiaries, we don't like CONgress looking into high profits.

sapiens,
thank you for this comment. i hadn't really paid attention to this issue but what you imply makes perfect sense. when i'd come across references to low refining margins, i would knit my brow for a moment and wonder, but then move on. but of course, keep demand up while collecting all the profits on the crude, not the end products.

[EJ]

Re: cyclepro posts again!

JK -

Thanks very much for posting this. Superb, clear summaries.

I don't know where I've been as I had not heard of CyclePro.

We don't believe in numerology but we do believe in cycles.

This chart...

...is a worthy update to our 2001 DOW/Gold chart...

iTulip's 2001 DOW/Gold ratio chart

2003 was a decent entry point for gold. Of course, 2001 was better.

The question is, is 2007 still a good entry point for gold?

Looking back on my 2001 analysis of gold, note that I spend a lot of time justifying making an investment in gold then. Now that looks overdone. But remember, at the time after 20 years of price declines gold was universally hated as an investment except by gold bugs who, of course, always thing that "now" is the right time to buy gold. Also, central banks were whining out loud about the terrible risks of "deflation" and shockingly low GDP and CPI numbers were confirming this threat. Buying gold was, as a friend on a board I was on at the time said, "nuts." You could get gold prices at Kitco but that was about it. Good luck finding gold prices listed anywhere in the WSJ without digging.

Seven years later, it's not only not nuts to buy gold but the price was listed in the summary section of the front page of the WSJ weekend edition today.

The processes which I foresaw in 2001 to drive gold up nominally are continuing to play out. I've modified by 2001 projections of gold at between $4,000 and $5,000 to $2,500 and $3,000 for the same reason that others do: the big numbers are not seen as credible in the mainstream press; they are so far outside people's thinking that you risk losing credibility by mentioning them.

I still believe in the DOW/gold ratio as a way of thinking about where we are in the gold and equities markets. It gives us a way of thinking about Ka-Poom Theory:

- How much of the return to a 1:1 DOW/Gold ratio will be driven by a nominal decline in the DOW and nominal rise in gold?
- How much purchasing power a share of the DOW and an ounce of gold?

In 2001 I said: "A return of the DOW to pre-bubble levels puts that index in the 4000 - 5000 range at the bottom of the cycle. The fall of the DOW to 4000 - 5000 and the rise of gold to $4000 - $5000 where they meet at a more or less one-to-one ratio may take two years or more. This is the range for selling gold and buying stocks -- although you will by then be told by every financial reporter, pundit, analyst and adviser that equities are dead: invest in gold."

Williams makes a similar call a year later.

I made a lopsided bet on gold in 2001. Obviously, it has turned out well for me. Readers can be sure that I have a major stake in calling my sell point right, as I don't want to be holding a pile of gold on a set of 1980 stock market bull conditions antecedents. But I sure don't see those now.

In any case, we can count Steve Williams as "on our side" in the inflation/deflation debate. Clearly he is not anticipating commodity price deflation, which is wise.

[zoog]

Re: cyclepro posts again!

trying to tie these long cycles to ka-poom is an interesting exercise. a low in the dow:gold ratio can be achieved by relatively low stock prices AND/OR a relatively high gold price.

of course we associate the former with ka, and the latter with poom, so in itself the ratio doesn't associate itself with the kapoom cycle. looking back to the 70's the ka was early in the decade, culminating in the '73-74 bear markets, and the inflation really hit late in the decade. the dow was back to its nominal high late in the decade, but inflation adjusted had lost big time, and that was apparent at the time, not just in hindsight. [inflation was in the public eye, everything was "inflation adjusted," labor contracts had built in "cola's" - cost of living adjustments, and so on.]

anyway, the nominal low in stocks was NOT associated with the low in the dow:gold ratio. the extreme of dow:gold was instead associated with the nominal high in gold at the END [and culmination] of the poom, and, it should be noted, stock prices [or at least the dow] near their nominal HIGHS.

this doesn't mean that the coming market movements must conform to this pattern, but the 70's does supply at least one template for how things might unfold. this would imply that the credit mess unfolds with a recession and big bear market in equities in the near future [next 1-3 years or say til about 2010, midway through hillary's first term?:eek:], leading to nominal lows in equities along with lows in short rates. then fiscal action - tax cuts and subsidies and government spending programs, all of which take time to get in place - finally kick in to help the monetary ease finally gain traction. THEN we get the next bubbles in commodities, infrastructure and alt-energy, which take us back to the recent nominal highs, but with a change in leadership.

[the leadership of this last run-up was really in the financials, which came to dominate the s&p, comprising 25% of its weight, and iirc 35% of its profits. commodities have done fine, of course, along with the other sectors we've identified as the next upleg's leadership - but in the next upleg they will come to dominate the indices.]

so, in this scenario, the dow gets back to about 11,200 in 2016-2017- [the high in gold happened when the dow was at 800, not its nominal high of 1000] with gold over 6000!!:eek::cool:

heaven knows if things play out like this, but -frighteningly - it's a plausible scenario.

They don't you call you the brain for nuttin. I think these long-wave cycles are really only applicable in an inflation-adjusted sense, and since I am more concerned about the purchasing power of my investments than their nominal values, that may skew my perspective. Maybe I don't properly understand the relationships in nominal terms, but I see what you are saying, and it sounds quite possible to me.

[WDCRob]

Re: cyclepro posts again!

I've got an account at BullionVault now, but I'm wondering what you all would recommend as far as something similar and reputable for trading in silver?

[Guest]

Re: cyclepro posts again!

WDCRob -

I did the same as you, just opened an account at GoldMoney.

From what I can understand, and I'm sure you've heard this too, you definitely want to stay away from pooled "paper silver". Silver in custodial accounts is totally different from gold in custodial accounts, and a lot riskier of being unbacked.

However both BullionVault and GoldMoney should be fine for bullion holdings. In GoldMoney accounts you can seamlessly trade between real audited silver holdings in either gold or silver and so buy one or the other depending on how overbought or oversold either of them is. You can park funds in cash of several denominations any time.

The reason I picked GoldMoney over BullionVault is GoldMoney does not require you to secure a buyer within their network before selling your metal - you just sell it back to GoldMoney directly. However I think BullionVault sounds excellent.

For silver, I'd prefer taking personal consignment of 75% of the silver I wanted to hold. Get hold of the stuff and keep it to yourself rather than holding it in one of these vaults. Seriously, there are some real issues potentially in the paper silver market. It's understood they are in pooled accounts such as SLV or Kitco's unallocated instruments. GoldMoney and BullionVault are a whole order of safety above those and should be OK, but I am uncompromising on the silver part of this.

I believe Grapejelly has some fairly "clear cut views" on the merits of holding all your own metal??? :rolleyes:

[WDCRob]

Re: cyclepro posts again!

Thanks Lukester. I'll go back and look again at BV - I didn't see any way to trade silver there, but I didn't spend a lot of time searching either.