Ka question

[DemonD]

Did we hit a Ka from the end of last may until the end of august (or maybe until the end of 06 just looking at commodities)?

And are we "pooming" right now as gold shoots higher?

Or have we yet to hit Ka.

I'm trying to get a feel for where gold is going in the short to mid-term. I've finally got the bonars to put towards some gold-based securities, and am trying to buy in on the dips. I'd prefer to buy when gold dips down to the 600 or below level... was wondering what you guys thought first about gold, and secondly, just having gone through a couple of months of disinflation/depreciating in the financial markets last year, if that was the Ka event, or a dry run/practice Ka event as I've seen EJ characterize it.

[jk]

Re: Ka question

if we have "ka" it will be when the housing bust is finally perceived as serious and the equity markets go down. gold would presumably sell off at that time too, and that would be the time to buy.

[WDCRob]

Re: Ka question

Given Bart's M3 numbers is it possible we're headed out of an abbreviated Ka and skipping straight to Poom? What happens if the Fed has already decided to floor it in an effort to stay ahead of what they can probably see is going to be a miserable downturn?

[bart]

Re: Ka question

Given Bart's M3 numbers is it possible we're headed out of an abbreviated Ka and skipping straight to Poom? What happens if the Fed has already decided to floor it in an effort to stay ahead of what they can probably see is going to be a miserable downturn?

My $.02 worth - probably not.
The first factor is that money measure changes like what is showing in my M3 have a significant lag before they actually hit the broad economy. That lag currently (in my opinion) is running at least 12 months.

Second and more importantly, check out the similarity between now and late 2000-early 2001 on the various money measure trends. There are unmistakable similarities - the only measure that is not following (yet) is bank credit.



Sorry for the excessively busy chart but I also think its easier to use than 4-6 separate ones...

[WDCRob]

Re: Ka question

Thanks Bart -- I follow your comments, but not necessarily the conclusions...

You expect Bank credit to drop while M3 goes off the chart (literally), with a recession likely before any return to rising inflation?

How does the 12-15% growth in M3 compare to pre-1999 data? Is it common, or have the last few years been exceptional. I was under the impression that it was the latter, but think I may have just assumed that from the M3-only chart you posted the other day.

[bart]

Re: Ka question

Thanks Bart -- I follow your comments, but not necessarily the conclusions...

You expect Bank credit to drop while M3 goes off the chart (literally), with a recession likely before any return to rising inflation?

How does the 12-15% growth in M3 compare to pre-1999 data? Is it common, or have the last few years been exceptional. I was under the impression that it was the latter, but think I may have just assumed that from the M3-only chart you posted the other day.

Thanks for asking WDCRob, its not terribly unusual for me to answer in too terse a manner for various reasons.

Yes, I do expect bank credit to drop while M3 is trending up... and there are no guarantees too, I just think its the most likely scenario. That is exactly what happened on the chart above starting in early 2001. M3 moved from 9-10% up to 15%+ while bank credit dropped from 11% down to about 3%.

One of the main things that most folk don't realize or take into account is the lagged nature of various money measures. Without going into huge detail, and putting some readers to sleep... ;) ... it does take a while (months to years) for Fed and banking actions to actually have an effect. As an example, think about how long it took for increasing Fed Funds rates to finally have an effect on housing prices. It's similar with items like M1 or M3 and the Fed is well aware of this, so they tend to start pumping (or slowing) well ahead of what their models and predictions show.
Consumers and businesses also do the same - one of the fastest growing elements of M3 today is institutional money market funds. Eric and others on iTulip and elsewhere also see the handwriting on the wall, and are moving to cash as the recession/slowdown approaches. In my opinion, those are two of the main reasons why M3 is growing so fast now.

It's also very much consistent with the ka in ka-poom and also an expected recession or major slowdown.


Here's the same chart as above, except going back to 1980 and then another going all the way back to 1900... and if one didn't know better, they could also be EKGs from someone having a heart attack (my dark humor for the day). But at least they both do address your question about M3 track history.

[WDCRob]

Re: Ka question

You'll teach me not to ask questions yet, Bart. Is the second one a Pollock? ;)

I appreciate the answers and follow your explanation. Will be interesting to see where interest rates are in 12-18 months. A continued dip in housing prices with a like drop in rates would suit me.

[bart]

Re: Ka question

You'll teach me to ask questions yet, Bart. Is the second one a Pollock? ;)

That'll get you two... ;)

http://www.nowandfutures.com/grins/rimshot.mp3
http://www.nowandfutures.com/grins/rimshot.mp3

[EJ]

Re: Ka question

The Fed is watching leading inflation indicators. The money supply is a lagging indicator. Disinflation bottomed in Q4 2001 in the last cycle. The discount rate bottomed in Q1 2002.

[DemonD]

Re: Ka question

The Fed is watching leading inflation indicators. The money supply is a lagging indicator. Disinflation bottomed in Q4 2001 in the last cycle. The discount rate bottomed in Q1 2002.

Those were associated with recession then correct? So let's say the similar pattern happens over the next 18 months. We get recession in the last half of 2007, and the fed starts dropping rates which will bottom in Q1 2008. It's at that point you move your cash to PM-based investments? (This is just a hypothetical, btw, not asking for strict buy/sell advice but more general guidance.)

How highly correlated is Ka and Recession? Is it a complete overlap?

And I'm still greedy over here, wondering what you guys think will happen with gold and PM's over the next 6-12 months.

[bart]

Re: Ka question

The Fed is watching leading inflation indicators. The money supply is a lagging indicator.

That's part of the problem with the Fed's predictions, there's a lag in combined money supply (aka "liquidity") until it impacts an economic system, so it also leads... although there are of course other leading indicators.

Stay tuned for an article later this year...

[Jim Nickerson]

Re: Ka question

Those were associated with recession then correct? So let's say the similar pattern happens over the next 18 months. We get recession in the last half of 2007, and the fed starts dropping rates which will bottom in Q1 2008. It's at that point you move your cash to PM-based investments? (This is just a hypothetical, btw, not asking for strict buy/sell advice but more general guidance.)

How highly correlated is Ka and Recession? Is it a complete overlap?

And I'm still greedy over here, wondering what you guys think will happen with gold and PM's over the next 6-12 months.

DemonD,

I know of nothing sure, but in trying to figure out what to do and when, if one has a tendancy toward timing, the thing to do is to watch the markets--Richard Russell said something like that a few days back, and I tend to agree. If one is smarter than I, then perhaps such a person can anticipate. My experience is I cannot pick bottoms and tops, so one has to wait until it appears tops or bottoms are in, and things turn the other direction which is something one can see in the charts sometimes.

Personally I have 72% in cash and have been out of commodities and PM (except for a little). If one believes in Ka-Poom, which I find reasonable to do, then I think there will be a better time down the pike at which to get back into PM's and perhaps other things as well.

I think jk gave you a good answer with the caveats "if" and "presumably."

if we have "ka" it will be when the housing bust is finally perceived as serious and the equity markets go down. gold would presumably sell off at that time too, and that would be the time to buy.

[metalman]

Re: Ka question

That's part of the problem with the Fed's predictions, there's a lag in combined money supply (aka "liquidity") until it impacts an economic system, so it also leads... although there are of course other leading indicators.

Stay tuned for an article later this year...

yeh, except the fed, not like us, can "do" something about what they "think" is going to happen... print or burn. they are not inclined to tell us, in fact want to keep everyone guessing, except the guessing is getting easier... buy disinflation, sell inflation.

[friendly_jacek]

Re: Ka question

Did we hit a Ka from the end of last may until the end of august (or maybe until the end of 06 just looking at commodities)?

And are we "pooming" right now as gold shoots higher?

Or have we yet to hit Ka.

... was wondering what you guys thought first about gold, and secondly, just having gone through a couple of months of disinflation/depreciating in the financial markets last year, if that was the Ka event, or a dry run/practice Ka event as I've seen EJ characterize it.

I was going to start a new thread with this very question but found this older thread.

I know that many people are waiting for the ka phase to happen soon (as documented by the record bearish sentiments on the main street as opposed to wall street).

Why would not the May 06 correction count (or even 2/27/07 to a lesser degree)? IIRC, emerging markets, small stocks, NASDAQ, home builders and commodities lost more than 10% back then in 2006. I wouldn't be surprised if in retrospect, after revised GDP figures, Q4 2006-Q1 2007 was actually a mild recession (like the "undeclared" recession of 1990).

This reminds me the times of 1994 when there was a widespread doom and gloom feeling, real estate was tanking, economic indicators deteriorated and I was waiting for a big recession than never happened (I was then a green investor educated by Kiplinger). Now I know that Greenspan provided enough liquidity then to rescue and fueled a big bubble. We know that M3 is exploding now, why 2007 would be different from 1994? Hey, we even had an emerging markets bubble bursting in 1994-1995 (and again in 1997-1998) and yen curry reversal in 1998 that didn't stop the spectacular tech bubble.

Notice that COT is now on the long side of US equities since the 2/27/07 slide.

I wonder if the true contrarian thing is to joint the bull camp, at least till 2008. If everyone on the main street joins the bull camp, then its time to be contrarian again and short the top along with the smart money (COT).

Don't get me wrong, I don't seat on a pile of cash now, but I rotated most of my investments out of US stocks at the beginning of 07 and I placed some short bets (IWM, FXI, banking) recently. I may need to reconsider it now.

[jk]

Re: Ka question

I was going to start a new thread with this very question but found this older thread.

I know that many people are waiting for the ka phase to happen soon (as documented by the record bearish sentiments on the main street as opposed to wall street).

Why would not the May 06 correction count (or even 2/27/07 to a lesser degree)? IIRC, emerging markets, small stocks, NASDAQ, home builders and commodities lost more than 10% back then in 2006. I wouldn't be surprised if in retrospect, after revised GDP figures, Q4 2006-Q1 2007 was actually a mild recession (like the "undeclared" recession of 1990).

This reminds me the times of 1994 when there was a widespread doom and gloom feeling, real estate was tanking, economic indicators deteriorated and I was waiting for a big recession than never happened (I was then a green investor educated by Kiplinger). Now I know that Greenspan provided enough liquidity then to rescue and fueled a big bubble. We know that M3 is exploding now, why 2007 would be different from 1994? Hey, we even had an emerging markets bubble bursting in 1994-1995 (and again in 1997-1998) and yen curry reversal in 1998 that didn't stop the spectacular tech bubble.

Notice that COT is now on the long side of US equities since the 2/27/07 slide.

I wonder if the true contrarian thing is to joint the bull camp, at least till 2008. If everyone on the main street joins the bull camp, then its time to be contrarian again and short the top along with the smart money (COT).

Don't get me wrong, I don't seat on a pile of cash now, but I rotated most of my investments out of US stocks at the beginning of 07 and I placed some short bets (IWM, FXI, banking) recently. I may need to reconsider it now.

i find myself asking the same questions. the bear story is based in the housing bust being more serious than most people think, with a real downturn in consumption [because of the end of the housing atm] leading to a recession. the loss of housing equity, the loss of equity withdrawals is something that will have a drawn out effect, as pointed out in ej's recent installment about the fire economy. perhaps that effect will be diluted by time enough for a new bubble to counteract it. surely the housing problem will hit the whole housing market, but the low end will be most effected. meanwhile, i'm beginning to think that the stock market may be part of the new bubble, feeding its wealth effect to the high rollers first. this fits with the growing economic polarization of our society. just some thoughts here.....