"Poom" happening?

[EJ]

Looks like it the "Ka" in "Ka-Poom" is starting.

[EJ]

Also, anyone else buy USPIX?

http://www.itulip.com/cgi-bin/bbs//netboardr.cgi?fid=105&cid=101&tid=136&pg=2&sc=20&x=0

[VKToronto]

Hi Eric,

I discovered iTulip.com in 2002 or 2003 (can't remember now) and checked back every few months. I found it (and prudentbear.com) when I drew the connection in my head between rising housing prices and the innumerable credit card offers in the mail. At the time it felt like I was the only one who had that light bulb go off in my head. I'm only an ordinary person, engineer by training, not an economist!

Delighted to see you're back, with new stuff on Housing and the Ka-Poom theory. Particularly the Ka-Poom theory. Inflation has been on my mind for the last three or four years, so the idea of precious metals and energy has been an easy sell for me. I think we can expect a shake-out in both commodities this year but plan to hang on tight. Keep posting, you are doing a great service. Wondering how long the first "Poom" will run before we get the second "Ka" (aka Dollar's Last Stand?) Worried how it might drag down the canadian dollar (yeah, we're Canadian, that alone has saved us a lot of grief already but we need to think how a dollar devaluation/crash impacts us too).

comments welcome.

[ChessMan]

Yeah I'd like to know how a US dollar devaluation affects Canada. I'm a Canadian too.

[Jim Nickerson]

Yes, I bought it along with the other two. Percetages are positions in my portfolios. The last two days were good days.

9.93% URPIX
15.62% UCPIX
17.67% USPIX

Jim

[jk]

I've been thinking for a while that we're headed, eventually, for another deflation scare, but my thoughts were not articulated as well as your revised ka-poom theory. I do have a question about your scenario.

It appears that a deflation scare results as each bubble pops. An Asian bubble popped in 1998, triggering more extreme liquidity injections and the last acceleration of the internet/tech bubble. That bubble popped, leading to extreme interest rate cuts which inflated the credit-sensitive housing bubble.

It appears we are in the last days of the real estate bubble, but as you have pointed out, a real estate bubble deflates in slow motion as that market becomes illiquid as inventory rises but prices fall very slowly [at least at first].

You seem to imply that the next "ka" of deflation will come from the Fed raising rates to defend the dollar. Do I understand you correctly on this? If so, I must disagree. Given a choice between defending the dollar and avoiding recession, it appears clear that the Fed will choose the latter, and devil take the dollar. So what triggers a sharp "ka," as opposed to the slow, softer "ka" of air coming out of real estate?

Question 2: you write of dollars coming home as foreign dollar holders attempt to get rid of them before their value shrinks still further. The only way they can do that is to buy U.S. real assets - U.S. owned real estate at home or abroad, U.S. companies, U.S. owned commodities, U.S. owned foreign assets. They have to find an entity that does its accounting in dollars and buy something real [i.e. not a dollar denominated bond] from that entity.

The commodities spike we've been experiencing certainly fits this model of diversifying out of dollars. In the '80's Japanese investors bought U.S. trophy real estate at the top, selling it back later for cents on the dollar. Are we going to see a repeat of that? IS IT POSSIBLE THAT WE WILL HAVE ANOTHER STOCK MARKET BUBBLE fueled by foreign buying? As the dollar declines, U.S. denominated assets look cheaper to foreign entities, including U.S. denominated stock. As our equity market declines, this effect is amplified. If I were a foreign dollar holder, buying the highest quality U.S. companies would be on my list of possible things to do with my dollars. So, what companies are going to look good to foreign buyers? Are we back to the usual suspects of resource companies or are there others? How about Gavekal's "platform" companies? Are there buyout targets that will look especially attractive to foreign, as opposed to domestic, corporate raiders? Any nominations? Or, if you can't imagine foreign dollar holders deciding to buy stock [as an acquisition/buyout] then what U.S. dollar denominated assets will they buy?

[jk]

Question 3: I just re-read the piece, and see you talk of dollars flooding home by foreign holders purchasing their own currency [[on the open market?]. So if, say, a French holder of dollars wants to purchase Euros, who is the seller? If from another non-US holder, the dollars haven't come home. I suppose U.S. companies hold Euros, and there must be some at the Fed, but the whole imbalance is based on the fact that there are SO MANY DOLLARS floating around the world. Also, as you point out, we are in a regime of cooperative devaluation, and the central bank of China for example [just to pick a random dollar holder] is not close to ready to shut Chinese producers out of the U.S. consumer market.

I don't think we are in a dollar crisis, exactly. This feels more like 1985 after the Plaza accord. The IMF and the G7 recently announced that it's time for the dollar to depreciate and, surprise surprise, the dollar is going down. After 1985 we had about a 25% devaluation, if I recall correctly. So far the dollar index has dropped from about 92 to about 84, down not quite 9%.

So I think the Fed will flinch, if it hasn't already, pause briefly and then start cutting again as the U.S. consumer is squeezed by high commodity, especially energy, costs and the shutting-off of the housing ATM. The dollar continues to descend, with an extra push from the emergence of non-dollar denominated petroleum markets in Russia and Iran and who-knows-where-else. The U.S. dollar gradually is giving up its reserve status, but I don't see a replacement. The only currencies big enough to consider are the Euro, a currency without a country based in a region of high social costs, low productivity and increasing national tensions trying to pull economic policy in different directions. Or the Yen, with Japan just barely out of deflation and dependent on exporting capital goods to China, which uses them in the factories aimed at American consumers. Maybe, someday, after a prolonged period of near-chaos, the Yuan, but not yet.

Capital is a coward. In time of turmoil it seeks safety. Where's the safety?

And where's the next bubble? Is it really just in commodities?

[jk]

check out john mauldin's column dated 5/12, "do trade deficits matter?" it is very much on topic for this discussion.

2000wave.com

[jk]

from doug noland's credit bubble bulletin: [is this about a "ka" or a "poom"?]

Let there be no doubt. There is a great deal riding on an "orderly” dollar decline. The Reason? Well, if we are, as I suspect, entering a period of more disorderly currency markets, the risk profile of shorting the yen, the Swiss franc, the Euro or other low-yielding currencies (as a source of funds for leveraged positions in higher-yielding securities or assets) becomes immediately much less attractive. What this might mean for the proliferation of global “carry trades” is this evening not at all clear, but it can’t be good. To what extent “carry trades” have fueled global liquidity overabundance – and, in the process, the “conundrum” and the “global savings glut” - is unknown but clearly substantial.

With the yen, the swissy and Euro surging against the dollar concurrently with sinking global bond prices, some speculators have been hurt and are being forced to retrench, which often leads to more selling, losses, further retrenchment and liquidity issues. Unwinding leveraged trades always poses the risk of getting out of hand, and this is especially the case currently for lots of Reasons.

[EJ]

Yes, I bought it along with the other two. Percetages are positions in my portfolios. The last two days were good days.

9.93% URPIX
15.62% UCPIX
17.67% USPIX

Jim

Well done! My advice* is to not hold onto it for long. It's great for catching the downdrafts on panicy markets, generating 2x returns to the extent of the decline... you must have done quite well the past few days. But your can gains dissapear just as fast on the dead cat bounces and recoveries.


* Free, and worth ever penny

[jeffolie]

The NASDAQ-100 McClellan summation broke down through the zero line with wide intervals. Look for continued down draft this coming few days before a dead cat bounce.

[Jim Nickerson]

The NASDAQ-100 McClellan summation broke down through the zero line with wide intervals. Look for continued down draft this coming few days before a dead cat bounce.



Where do you access such as the Mac summation on something like the NDX?

Jim

[Jim Nickerson]

Looks like it the Poom in K-Poom is starting.



EJ:

This is trivial, but is Ka-Poom meant to be phonetic for the sound an explosion makes? Being a Southerner, I would say Ka-Boom! Though use of boom would convey something positive going up in the markets and might confuse.

In your post of revised and extended Ka-Poom Theory yesterday, there is a hyperlink not so random at the bulleted Poom that doesn't seem to work, all the other hyperlinks I clicked on did work, so perhaps it isn't my browser.

In your 1999 Ka-Poom you speculated a parabolic rise in interest rates to levels that I suppose qualify as hyperinflation in about three years from what I figure was mid-2002.

Yesterday, in revised Ka-Boom Theory you extended the peak out to 2014 with a zag before it gets there. If it is not too complicated to answer, what sort of thinking leads to your notion of it lasting relatively longer?

I appreciate your work and site.

Jim

[bart]

Where do you access such as the Mac summation on something like the NDX?

Jim

http://www.stockcharts.com/charts/indices/McSumNASD.html

[Jim Nickerson]

bart, jeffolie above referenced a mac oscillator for the NDX, not the nasdaq.

I just wonder if there is any public site at which the one he mentioned can be accessed.

thanks.

Jim

[bart]

bart, jeffolie above referenced a mac oscillator for the NDX, not the nasdaq.

I just wonder if there is any public site at which the one he mentioned can be accessed.

thanks.

Jim

True and I'm unaware of one, but the Nasdaq McClellan not only broke through zero with large gaps but also has quite high correlation with the NDX.

Hopefully Jeff will chime in...

[EJ]

Looks like it the Poom in K-Poom is starting.



EJ:

This is trivial, but is Ka-Poom meant to be phonetic for the sound an explosion makes? Being a Southerner, I would say Ka-Boom! Though use of boom would convey something positive going up in the markets and might confuse.

In your post of revised and extended Ka-Poom Theory yesterday, there is a hyperlink not so random at the bulleted Poom that doesn't seem to work, all the other hyperlinks I clicked on did work, so perhaps it isn't my browser.

In your 1999 Ka-Poom you speculated a parabolic rise in interest rates to levels that I suppose qualify as hyperinflation in about three years from what I figure was mid-2002.

Yesterday, in revised Ka-Boom Theory you extended the peak out to 2014 with a zag before it gets there. If it is not too complicated to answer, what sort of thinking leads to your notion of it lasting relatively longer?

I appreciate your work and site.

Jim

Jim,

Yes, I chose "Poom" over "Boom" for that reason... the word "Boom" has the wrong connotation

The possibility of a stall in the parabolic rise in interest rates and inflation is a warning that one should expect the world's central banks to mount a last stand to support the dollar. None win from a sudden collapse. That doesn't mean we won't get one. But there is a lot at stake. Do not underestimte the extent of the effort that will be made to maintain.

Here's a paradox for you: 70 years of suffering under Communism for millions was the result of the last failure of "free marlet" capitalism.

We've ever experienced the ideal of free marlet capitalism, but I hope some day we will.

The early stages of a shift from quasi-free market capitalism to totalitarian capitalism are indiated by 1) deception and 2) fear.

Best think in terms of processes versus events.

[EJ]

Hi Eric,

I discovered iTulip.com in 2002 or 2003 (can't remember now) and checked back every few months. I found it (and prudentbear.com) when I drew the connection in my head between rising housing prices and the innumerable credit card offers in the mail. At the time it felt like I was the only one who had that light bulb go off in my head. I'm only an ordinary person, engineer by training, not an economist!

Delighted to see you're back, with new stuff on Housing and the Ka-Poom theory. Particularly the Ka-Poom theory. Inflation has been on my mind for the last three or four years, so the idea of precious metals and energy has been an easy sell for me. I think we can expect a shake-out in both commodities this year but plan to hang on tight. Keep posting, you are doing a great service. Wondering how long the first "Poom" will run before we get the second "Ka" (aka Dollar's Last Stand?) Worried how it might drag down the canadian dollar (yeah, we're Canadian, that alone has saved us a lot of grief already but we need to think how a dollar devaluation/crash impacts us too).

comments welcome.




VK, thanks for your support. No telling how long a "Custer's Last Stand" for the US dollar might last. No one wants to see the dollar collapse, but no one wants to be left holding the bag if it does. I expect PMs will remain a decent hedge throughout.

[Jim Nickerson]

EJ wrote:
Here's a paradox for you: 70 years of suffering under Communism for millions was the result of the last failure of free marlet capitalism.

We've ever experienced the ideal of free marlet capitalism, but I hope some day we will.

The early stages of a shift from quasi-free market capitalism to totalitarian capitalism are indiated by 1) deception and 2) fear.

Best think in terms of processes versus events.

A while back, I sent EJ and email asking if he could provide me with a copy of his curriculum vitae. He didn't, which is fine. My reason for asking was curiosity about what is the educational background of people like him. It is absolutely clear to me that there are participants on this web site that know way more than I do, and though I am absolutely not in any position to question their credulity, I do out of my natural curiosity wonder what was their formal educational experience.

Many of these topics involve economics, finance, and accounting (and perhaps other disciplines I cannot name) and I personally have no formal education in any of these areas--I am not sure I could even accurately define them off the top of my head.

Above each posting on a forum there is an icom of a face which when clicked shows a bit about the author of the note. Most of them that I have clicked really reveal nothing about the author. I wish respectufly to suggest that participants might click the My Profile button at the top of the forum page and edit their profiles to the extent that in the Interests field they enter their educational backgrounds. It would help me, and perhaps others, gain at least a bit of insight on how they may know what they may know. It is certainly possible that a chemical engineer could know more about some macro-economic issues than an ecomomics major, but not likely.

Back to EJ's remarks above. If the you referred to me, as opposed to it being a plural you referencing all who might read the comment, then my answer is: I do not have the foggiest idea of what to answer to the paradox, or even if it is a paradox.

It seems to me that you (EJ) were up later than I last night, and perhaps tired as you typed. I assume free marlet is an error, and you intended to state, We've Never experienced the ideal of free marKet capitalism. I point out those typos, to bring up the question of when will contributors be able to click the third icon from the left on each posting so that they can edit overlooked errors after their messages have actually been posted.

I would like someone to responds to EJ's comments, anyone who has more knowledge than I.

Because of my educational background, my perception of free marKet captialism is likely woefully inadequate compared to anyone grounded in economics.

I have developed my own opinion about capitalism in America. Let me state that a bit differently, I have developed my opinion about how many financially successful people may generate wealth in this country

We all have heard the term insider information. Perhaps we all have insider information about something, but I believe most of us have no such insider information about most things. Many years ago, in my own field of endeavor, I became aware of what some fellow practitioners did so that for a given procedure it appeared to the consumer (whoever was paying the bill) that there was more involved than was actually involved. That deception made the fees more tenable.

A while back my wife found a 1$ Store where one could buy various magnification eye-glasses, as are increasingly required to see up close as one moves beyond 40 years of age, that were made in China and cost $1. It still befuddles me how could anything so useful could be sold for just a dollar, even an inflated one.

At Walmart a while later, and I think we save a lot buying somethings at Walmart, I was looking at their glasses and the cheapest pair was $14, also made in China. It struck me that Walmart was making an absolute killing whenever anyone bought a pair of its glasses, and if one thinks one is saving money by shopping at Walmart then one might think $14 for the glasses was probably as good a deal as one would find anywhere. What I lack in insider information is intimant knowledge of how much Walmart paid for those glasses. Being kind, I could imagine they paid a couple or three bucks, but perhaps actually less. The point to me is that Walmart, as an example, appears to be taking advantage of consumers when they buy those glasses--that is to me a deception. Of course this is anecdotal, and I may be all wrong in my perceptions.

One other anecdote. I have athletes foot. I recently went to the grocery store closest to where I live to buy some antifungal medication. I spent much more time than someone who is rushed would in looking at the products. I noticed an antefungal product labeled for treating the fungus that causes toenail disruption, discoloration, thickening that contained EXACTLY the same ingredient, quantity, and strength as the product that was packaged as a treatment for athletes foot. The medication marketed with the clear insinuation (by pictures on the box--though the written description of effectiveness said nothing about its use as other than to treat the fungus between the toes) that it was effective in treating established nail fungi cost $12.99, while the same medication for athletes foot cost $3.69.

Why would anyone buy the $12.99 product? Partly ignorance and partly thinking it is a helluva lot cheaper than prescription drugs that actually have proven efficacy in treating nail fungus. I do not know as fact what is the cost for a month's supply of Lamisil pills for treating nail fungi, but I do know that it might take many months of treatment, and I would be surprised if a single pill cost only $1.00. Anyone told he/she needs oral Lamisil, as an example, for months, but who does not have the money to buy it, would be tickled pink to find a product on which the packaging insinuates it is useful against nail fungi. To pay $12.99 on one hand is almost nothing, except in our free market society producers are free ot prey upon the ignorance of consumer, and in reality the $12.99 product is a rip off if one bought it thinking it would effective against established nail fungi.

Other simple examples along these lines are the differences one can pay for Tylenol versus the generic equivalent acetaminophen, or for Bayer Aspirin vs. the generic form of exactly the same ingredient, and the list is endless, and these are only ready examples.

The reason I am writing this is because of the use by EJ of the word deception in his comments about the the shift from quasi-free market capitalism to totalitarian capitalisism. I am not sure of the actual definition of
the type of capitalism we have in our country, but my opinion of it is that there is deception everywhere. The deception works to the advantage of those who probably make the most money at the expense of those who have the least, or something along that line.

Jim

[jk]

jim- put up a bit about my background and investing history.

i'll skip the theoretical discussion about capitalism - we live in a mixed system of private interests and public institutions and we have to deal with it.


i can see the dollar index has major support in the 80-81 range. and i can believe that 850 or so will be real resistance for gold. so those numbers might be triggers for corrections -[ the echo "ka"?], but i doubt that the major trends will change so soon. does anyone have any thoughts on how to play the dollar and pm's right now? or is trying to "play" it too cute? jesse livermore said that the hardest thing is to be right and sit tight, so just sit tight? any strategy thoughts?

[EJ]

EJ wrote:
Here's a paradox for you: 70 years of suffering under Communism for millions was the result of the last failure of free marlet capitalism.

We've ever experienced the ideal of free marlet capitalism, but I hope some day we will.

The early stages of a shift from quasi-free market capitalism to totalitarian capitalism are indiated by 1) deception and 2) fear.

Best think in terms of processes versus events.

A while back, I sent EJ and email asking if he could provide me with a copy of his curriculum vitae. He didn't, which is fine. My reason for asking was curiosity about what is the educational background of people like him. It is absolutely clear to me that there are participants on this web site that know way more than I do, and though I am absolutely not in any position to question their credulity, I do out of my natural curiosity wonder what was their formal educational experience.

Many of these topics involve economics, finance, and accounting (and perhaps other disciplines I cannot name) and I personally have no formal education in any of these areas--I am not sure I could even accurately define them off the top of my head.

Above each posting on a forum there is an icom of a face which when clicked shows a bit about the author of the note. Most of them that I have clicked really reveal nothing about the author. I wish respectufly to suggest that participants might click the My Profile button at the top of the forum page and edit their profiles to the extent that in the Interests field they enter their educational backgrounds. It would help me, and perhaps others, gain at least a bit of insight on how they may know what they may know. It is certainly possible that a chemical engineer could know more about some macro-economic issues than an ecomomics major, but not likely.

Back to EJ's remarks above. If the you referred to me, as opposed to it being a plural you referencing all who might read the comment, then my answer is: I do not have the foggiest idea of what to answer to the paradox, or even if it is a paradox.

It seems to me that you (EJ) were up later than I last night, and perhaps tired as you typed. I assume free marlet is an error, and you intended to state, We've Never experienced the ideal of free marKet capitalism. I point out those typos, to bring up the question of when will contributors be able to click the third icon from the left on each posting so that they can edit overlooked errors after their messages have actually been posted.

I would like someone to responds to EJ's comments, anyone who has more knowledge than I.

Because of my educational background, my perception of free marKet captialism is likely woefully inadequate compared to anyone grounded in economics.

I have developed my own opinion about capitalism in America. Let me state that a bit differently, I have developed my opinion about how many financially successful people may generate wealth in this country

We all have heard the term insider information. Perhaps we all have insider information about something, but I believe most of us have no such insider information about most things. Many years ago, in my own field of endeavor, I became aware of what some fellow practitioners did so that for a given procedure it appeared to the consumer (whoever was paying the bill) that there was more involved than was actually involved. That deception made the fees more tenable.

A while back my wife found a 1$ Store where one could buy various magnification eye-glasses, as are increasingly required to see up close as one moves beyond 40 years of age, that were made in China and cost $1. It still befuddles me how could anything so useful could be sold for just a dollar, even an inflated one.

At Walmart a while later, and I think we save a lot buying somethings at Walmart, I was looking at their glasses and the cheapest pair was $14, also made in China. It struck me that Walmart was making an absolute killing whenever anyone bought a pair of its glasses, and if one thinks one is saving money by shopping at Walmart then one might think $14 for the glasses was probably as good a deal as one would find anywhere. What I lack in insider information is intimant knowledge of how much Walmart paid for those glasses. Being kind, I could imagine they paid a couple or three bucks, but perhaps actually less. The point to me is that Walmart, as an example, appears to be taking advantage of consumers when they buy those glasses--that is to me a deception. Of course this is anecdotal, and I may be all wrong in my perceptions.

One other anecdote. I have athletes foot. I recently went to the grocery store closest to where I live to buy some antifungal medication. I spent much more time than someone who is rushed would in looking at the products. I noticed an antefungal product labeled for treating the fungus that causes toenail disruption, discoloration, thickening that contained EXACTLY the same ingredient, quantity, and strength as the product that was packaged as a treatment for athletes foot. The medication marketed with the clear insinuation (by pictures on the box--though the written description of effectiveness said nothing about its use as other than to treat the fungus between the toes) that it was effective in treating established nail fungi cost $12.99, while the same medication for athletes foot cost $3.69.

Why would anyone buy the $12.99 product? Partly ignorance and partly thinking it is a helluva lot cheaper than prescription drugs that actually have proven efficacy in treating nail fungus. I do not know as fact what is the cost for a month's supply of Lamisil pills for treating nail fungi, but I do know that it might take many months of treatment, and I would be surprised if a single pill cost only $1.00. Anyone told he/she needs oral Lamisil, as an example, for months, but who does not have the money to buy it, would be tickled pink to find a product on which the packaging insinuates it is useful against nail fungi. To pay $12.99 on one hand is almost nothing, except in our free market society producers are free ot prey upon the ignorance of consumer, and in reality the $12.99 product is a rip off if one bought it thinking it would effective against established nail fungi.

Other simple examples along these lines are the differences one can pay for Tylenol versus the generic equivalent acetaminophen, or for Bayer Aspirin vs. the generic form of exactly the same ingredient, and the list is endless, and these are only ready examples.

The reason I am writing this is because of the use by EJ of the word deception in his comments about the the shift from quasi-free market capitalism to totalitarian capitalisism. I am not sure of the actual definition of
the type of capitalism we have in our country, but my opinion of it is that there is deception everywhere. The deception works to the advantage of those who probably make the most money at the expense of those who have the least, or something along that line.

Jim

Jim,

I continue to be impressed by the thoughtfulness of your comments, as well as of those of others here.

Generally, communications on forums like these are informal. When hammering out notes on a forum, spelling, punctuation and grammatical errors are par for the course, as long as you get your idea across. If you take the time to perfect the spelling, punctuation and grammar on every post, you you're not going to have time to post much. That's the trade-off.

Briefly, since you asked, my background is as follows. I studied economics in college, but did not major in it or get my degree in that subject. I got a specialized Bachelor of Science degree from University of Massachusetts, Amherst in a special program that combined economics, journalism, business and natural resource studies. The intent was to train to be a science writer. When I left college in the depths of the Volcker induced recession in 1981, there were no jobs for science writers. I wound up in the high tech business where I started as a technical writer for Stratus Computer, documenting the operating system. Twenty years in the industry brought me through product management and sales at several companies, two of which went public. i spend a few years in venture capital and was CEO of two VC backed companies.

You can decide for yourself whether this background represents relevant credentials for running a site like this. I suspect no matter what my credentials, I'll be judged by my track record.

On a far broader historical scale than covered on the site, I'll mention this with respect to your observations about the dissonance between what you hear and what you see.

Capitalism promises wealth for everyone through fair participation in production and access to capital, but capitalist societies tend to eventually devolve into systems that produce unequal distribution of wealth as a side effect of social institutions that develop to promote wealth for the benefit of a minority. Communism promises an equal distribution wealth but instead delivers equal distribution of poverty. For hundreds of years, society has cycled between the excesses and eventual failures of the two systems under various names. We are in my opinion entering the tail end of the latest cycle of concentration of wealth and privilege. The concentration is not as extreme as during the period that ended in the 1930s, but is extreme enough to potentially lead during a crisis to political "solutions" that have in the past been counter-productive for society as a whole, a cure far worse than the disease.

[Jim Nickerson]

Jk:

I was correct, there are a lot of people who know way more than I either based on formal education or from the school of hard knocks.

I try to be simple and look at just a few indicators and invest in just a few things in order to try to keep track of them.

Based on the last news posting on the home page, Monday and for sometime after that might be turbulent for the dollar, will be interesting to see. I try to use RSI for hints where things may be going. I can only access a 3-year chart on USD index, and the $ looks to be headed for retest of late '04 low, but I do not remember as much concern back then as there is now-- it might have been similar. Looking at RSI and MACD suggests USD is still going down for a while. I am sitting sitting tight, as usual whether market up or down, I am nervous.

Using same indicators, the MACD on gold looks scary to me and there might be a hint of non-conformation in RSI from the peak gold reached in late '05, but not enough to make me sell right now.

Perhaps doing what Livermore suggested is right.

Jim

[Charles Mackay]

Well, it's Sunday afternoon on Mother's Day and everyone is here talking about markets. Guess it's the knife-edge that we currently all sit on. I'm personally gearing up for the Tokyo Forex opening.

Why are there gaps in the dates on EJ's revised Ka-Poom chart? The dates appear to not be in equal increments ... and the year 2010 is missing all together... etc.

??

[EJ]

Well, it's Sunday afternoon on Mother's Day and everyone is here talking about markets. Guess it's the knife-edge that we currently all sit on. I'm personally gearing up for the Tokyo Forex opening.

Why are there gaps in the dates on EJ's revised Ka-Poom chart? The dates appear to not be in equal increments ... and the year 2010 is missing all together... etc.

??



Charles,
I need to write a whole separate piece that explains the new Ka-Poom. But, in short:
- Every change in the Discount rate since 1970 is shown vs in the old model where the average discount rate was annualized starting in 1960.
- Some years, there were many changes. Other years, none at all. For example, there were nine discount rate changes in 1980, six in 1981, seven in 1982 and none in 1983.
- Years when no discount rate changes occurred are shown as a single entry, as in 1983 when the discount rate was for the entire year 9%, the same as the rate at the end of 1982.
- Inflation for each discount rate period is the average CPI rate
- This means that the chart is not to be read as a linear time sequence
- The 2010 data are in the chart but you can't read them due to the peculiar way Excel compresses the dates in the Y axis. For example, just as the dates of all nine discount rate changes that occurred in 1983 are not displayed, the two guestimated discount changes in 2010 are not displayed, but the data are in the discount line

The point is that from studying the relationships between the discount rate and inflation since 1960, it became clear to me that a single linear inflationary event is unlikely. More likely, we will see an initial panic, followed by a recovery induced by policy efforts to contain it, followed by a deeper and more prolonged decline as imbalances unwind. The guys over at Bridgewater put it well yesterday:

In an issue titled "Bernanke's Test begins," Bridgewater wrote: "Today's imbalances are much larger and global in scale. They have been sustained for a longer time because China, and many other countries, are not defending a declining currency with shrinking reserves. Instead, they are resisting rising currencies with increasing reserves, a much more sustainable action."

The result, according to Bridgewater: "bigger imbalances that have taken longer to build, have been sewn deeper into the economic fabric, and will take much longer to unwind, with dramatically larger financial consequences."

http://tinyurl.com/hkepe

I agree... next week is shaping up to be interesting.

[Jim Nickerson]

EJ wrote:

Generally, communications on forums like these are informal. When hammering out notes on a forum, spelling, punctuation and grammatical errors are par for the course, as long as you get your idea across. If you take the time to perfect the spelling, punctuation and grammar on every post, you you're not going to have time to post much. That's the trade-off.



EJ: I wasn't picking on your errors nor anyone's. It will (would) be nice if one could correct one's errors if they were to serve to confuse--I hope that capability is soon reestablished.



You can decide for yourself whether this background represents relevant credentials for running a site like this. I suspect no matter what my credentials, I'll be judged by my track record.



Thank you for saying a few things about yourself. That answered my wonderment. My interest about people who write things is not so much whether or not they may be right or wrong, but moreso, on what basis they might have for what they are saying. In my book, when talking about finances and the markets, there is some greater chance that writers are credible when they aren't selling products. Your site has some greater chance toward credibility based on its not be related to selling anything.

Even if your Ka-Boom Theory fails miserably, I will think no less of you or your site. It is a great idea and I expect is time and money consuming for you.

I am devoid of real knowledge that enables me to hypothesize what the future of markets, dollars, and interest rates may be, and your site and mostly your thinking on these issues has given me a lot more to consider, and I feel good about having found the site.



EJ wrote:

Capitalism promises wealth for everyone through fair participation in production and access to capital, but capitalist societies tend to eventually devolve into systems that produce unequal distribution of wealth as a side effect of social institutions that develop to promote wealth for the benefit of a minority.



Your quote above at first confused me, but I believe you are saying the minority turns out to be the ultra wealthy, and then what might be the social institutions?

I do not think of Enron, Ivan Boesky, Milkin, Kovloski, Evers at MCI and all the people Spitzer has been taking to task as social institutions. Just what are the social institutions? Jack Welch at GE and similar high ranking officers in public corporations, excepting Warren Buffet? To me all these people and things are businesses and business men.

America for me has been a good place to be born and in which I will probably die. If there is one thing mainly that is wrong with it, I would say the one thing is GREED, and whether I live to see it or not, I think at some point greed will be the thing that leads to the system breaking down or being broken down.


Communism promises an equal distribution wealth but instead delivers equal distribution of poverty. For hundreds of years, society has cycled between the excesses and eventual failures of the two systems under various names. We are in my opinion entering the tail end of the latest cycle of concentration of wealth and privilege. The concentration is not as extreme as during the period that ended in the 1930s, but is extreme enough to potentially lead during a crisis to political solutions that have in the past been counter-productive for society as a whole, a cure far worse than the disease.



As I see things right now there are a minority of ultra rich people in the US and at the bottom at least 48,000,000 without health insurance--to use some sort of a figure. Earlier it was 45M, and before that 40M, etc. Does anyone see anything happening to stem that rising number of poor? Despite whatever counter-productive event that may lay in the future that would erupt--like cvil rebellion, I do not think the politiicians are capable of reversing course, just as the financial course of this courtry is not going to be reversed until some external event forces a change.

If you asked me for the answer, I do not have one that would effect a change and even begin to reverse the course of things.

WE ARE DOOMED, I tell you DOOMED! I write that as sort of humorous, but it really may not have any humor in it at all.

Jim

[Charles Mackay]

OK EJ, I understand the periodicity of the time scale now

I notice that you and others are looking at inverse stock funds. I used the Rydex Tempest (RYTPX) for the 2000 - 2002 bear but rode it too long after the bottom, They're a little tricky due to leverage and compounding... not to mention fees and slippage. It didn't take much of a retracement in the S&P and most of my gain had disappeared.

I had a few emails with Chris Taffe who runs the fund regarding this phenomenon and he said:

"It is due to the fact of compounding. The fund's objective is to match the
performance on a daily basis. When you track it over a period longer than a day you have to account for compounding. Our fund rebalances on a daily basis and the movements in the market can either work for or against the investment. I can give you a deeper explanation if you want to call me and discuss."

Christopher Taffe, CFS
Rydex Investments

So, caution is advised. You do have to exit in a timely manner - it's not a buy and hold. Since the fund rebalances on a daily basis it's quite thrilling when it's going your way but just the opposite when it turns.

Regarding the title of this thread "poom happening?" :

Aren't we nearing the end of the first poom and about to enter the "mini-ka" before the actual "flight from the dollar" poom? I see you don't have the "mini-ka" predicted until 2nd quarter '08.

What has happened in oil, copper, gold, housing, equities etc. seems to indicate that we are closer to the end of the first poom rather than just entering it. Interest rates are rising, housing inventory is skyrocketing as sales transactions fall, stocks appear to be topping, metals are going parabolic. Isn't there a turn here in our near future rather than more of the same of until 2008? If you are right and this poom has 2 more years to run then we have one helluva pop left in gold before the mini-ka.


CM

[jk]

is the definition of the mini-ka a severe correction in commodities? if so, anyone have any ideas about how/whether to try to "play" it? or is eveyone just planning to hang on?

[Jim Nickerson]

The explosion [Poom] is the move up in interest rates and inflation. If EJ's presmise is the inflation rate is as reported by whichever agency reports it, then now there would be inflation that is not so bad, EJ has it marked on the latest Ka-Poom graph with a red arror. Inflation on the graph is less than 5%. He theorizes it could go to 10-15%. The discount rate is now 5%, he theorizes a push to 9%.

So if his prognostications were to turn out correct, then we have a while to ride the interest rates up, gold, and commodities up, and nobody ever mentions the stock indices, but I think they will be going down.

I follow the the Asia markets by periocially looking at the online wsj Markets Data Bank. It is better, i.e. is updated closer to real time, than anything else I have found. It requires a subscription. Anybody have a better site to watch Asian markets at night?

Right now HK, NIK, Indonesia, S. Korea, Singapore are all down > 1%, on that same site, it doesn't appear that the currencies are being updated for some reason.

Jim

[Jim Nickerson]

OK EJ, I understand the periodicity of the time scale now

I notice that you and others are looking at inverse stock funds. I used the Rydex Tempest (RYTPX) for the 2000 - 2002 bear but rode it too long after the bottom, They're a little tricky due to leverage and compounding... not to mention fees and slippage. It didn't take much of a retracement in the S&P and most of my gain had disappeared.



Charles, for a while I have used the Profunds of the ultra type--all of which move 200% of the assoicatied indices. I also keep track of the percentage changes of whichever Profund I am in compared to the underlying index, and all the ones based on the SPC, NDX and RUT whether the bet is the markets will rise or fall move right around the 200% mark. Sure they are dangerous if you are on the wrong side of the market, but I do not seem to have been stung by any factors that I can detect such as leverage and compounding errors.

I trade these fund through Schwab and up until a few months ago, I was whacked with hefty fees when I sold, but now that has disappeared. I could buy one tomorrow and sell it Tuesday and there is NO fee.

Jim

[jk]

jim- i stopped trading mutual funds at schwab because of their transaction fees and short-term trading penalty fees up to 180 days post purchase. have they abolished these or did you complain and get a deal? [i now do all my mutual funds through tdwaterhouse, now tdameritrade.]

equity indexes from around the world are free at:
http://quote.yahoo.com/m2?u

futures, incl currencies are at:
http://www2.barchart.com/mktcom.asp
or
globex quotes at
http://www.cme.com/trading/dta/del/globex.html

[Jim Nickerson]

jim- i stopped trading mutual funds at schwab because of their transaction fees and short-term trading penalty fees up to 180 days post purchase. have they abolished these or did you complain and get a deal? [i now do all my mutual funds through tdwaterhouse, now tdameritrade.]

equity indexes from around the world are free at:
http://quote.yahoo.com/m2?u

futures, incl currencies are at:
http://www2.barchart.com/mktcom.asp
or
globex quotes at
http://www.cme.com/trading/dta/del/globex.html



jk:

The profund fees were onerous, but in part because all other stock trading fees had come way done, I didn't complain, because it would have been a waste of my time. I just sold something--long profunds I think-- and few months ago, and there was no fee. I called and asked if there was a mistake, no, they changed how they do business. The only thing a bit troublesome is the Short RUT fund and the gold fund, UCPIX and PMPIX have cut off times at 3PM EDT, and that frustrates me at times.

I believe the yahoo url is delayed more than the WSJ online quotes, thanks for the tip on the currencies.

Jim

[EJ]

http://finance.yahoo.com/intlindices?e=asia

[Jim Nickerson]

jk, EJ

The wsj online Asian quotes are closer to real time than Yahoo's

The http://www2.barchart.com/mktcom.asp is great and it shows the times of last update which I like, THANKS,





Jim

[Charles Mackay]

is the definition of the mini-ka a severe correction in commodities? if so, anyone have any ideas about how/whether to try to "play" it? or is eveyone just planning to hang on?



I'll second that!

EJ, what kind of market phenomena do you expect in the "mini-ka" ? Let's start from a hypothetical vantage point.

1) Gold is at $1600
2) RICI is at 6000
3) The DJIA is at 13,000
4) 10 year bonds pay 10%

[Charles Mackay]

OK EJ, I understand the periodicity of the time scale now

I notice that you and others are looking at inverse stock funds. I used the Rydex Tempest (RYTPX) for the 2000 - 2002 bear but rode it too long after the bottom, They're a little tricky due to leverage and compounding... not to mention fees and slippage. It didn't take much of a retracement in the S&P and most of my gain had disappeared.



Charles, for a while I have used the Profunds of the ultra type--all of which move 200% of the assoicatied indices. I also keep track of the percentage changes of whichever Profund I am in compared to the underlying index, and all the ones based on the SPC, NDX and RUT whether the bet is the markets will rise or fall move right around the 200% mark. Sure they are dangerous if you are on the wrong side of the market, but I do not seem to have been stung by any factors that I can detect such as leverage and compounding errors.

I trade these fund through Schwab and up until a few months ago, I was whacked with hefty fees when I sold, but now that has disappeared. I could buy one tomorrow and sell it Tuesday and there is NO fee.

Jim


I found the Rydex to be very close to 200% on a daily basis also. However, the S&P fell from 1175 to 775 from 3/02 - 9/02 and the 200% inverse fund Rydex Tempest went from 65 to 115. Guess how long it took to loose that gain... only a retracement in the S&P to 1000 ! You would have thought it would have to retrace back to 1175 to give back all your gain but no. That's what I mean.
CM

[qwerty]

Some questions were posted above about how all those dollars held abroad could cause inflation in the US in future.

How about this logic:

If foreigners, sell USD assets to each other, they may drive down the price of those assets (e.g bonds) but they won't send any dollars back to the US.

But if they as a whole reduced their USD assets, they will increase their USD cash.

If the cash is held by foreigners, they will not keep it under the mattress but inject it into eurodollar or domestic US deposits, no? Thus increasing the money supply available within the US. Right? And hence prices.

If they don't want to lend the cash, but want out of dollars, then - as someone posted above - they have to buy something with it, and since - on the whole - the foreigners are lightening up on their dollar cash and not just swapping it around amongst themselves, then they will have to buy something from Americans, or USD corporations. And what is going to happen to those dollars? - Again, they will enter the dollar money supply, I guess.

As was asked - what will all those excess dollars buy from the US?

Buying US equities or domestic businesses and other assets that produce USD cash flows wouldn't seem to meet the objective of getting out of dollars. Same real estate.

I guess it would have to be US exports or US capital investments abroad.
(US corporations' plants in Asia?) Patents?

I remember reading a story of someone in the Weimar Republic buying a truckload of bedpans on their way home from work just to get rid of their marks before they fell any further in value ....

[Jim Nickerson]

EJ:

iTulip.com Daily News with AntiSpin: Don't say we didn't warn you.

May I ask how do you come upon these new stories? Some sort of key word search? If you go to all the sites individually and just find them, what time do you get up every morning?

Jim

[EJ]

I get a lot of help.

[Jim Nickerson]

EJ;

I am trying to understand more of what you have been proposing with Ka-Boom Therory.

Were it to be possilbe to use the same format for dates on your latest chart of Ka-Poom that you used on the Original 1999 chart, it sure would aid my eyes.

On the new graph, from 11/1981, as well as I can see the dates, until 03/2000 the slopes of the Discount Rate and the Annual CPI Inflation were down. Was that period of equity stock markets BOOM a deflationary period? If it wasn't, then why was the period 3/2000 to 11/2002 deflationary when the CPI was level except for an up blip and the Discount Rate was definitely down, and the equity markets were definitely down?

From the periods you have boxed in Red as Deflation, the trends of Discount Rate and CPI are down as they were 1981-2000 (Markets up), and in the first Red box, the equity markets were down. Is there an explanation for these differences?

I hope I have put all that down without error

Jim

[Jim Nickerson]

Bill Gross at Pimco.com seems to post his Investment Outlook comments about the beginning of each month. Today I noticed he has comments for June/July.

How what he said will strike readers will be based variably depending upon their understanding of all things financial and economic, so what I gleaned might be less that what others will gather.

He stated Pimco have have not shifted our secular forecast from a disinflationary to a reflationary scenario just yet, and that global inflation will remain between 1-3% in most places. He also suggested a recession in the U.S. in the next several years, and a range on the 10 year treasury note of 4-5.5% between now and 2010.

Were Pimco and Gross to be correct, as this pertains to EJ's Ka-Poom Theory, from the red arrow on his recent graph, it would mean to me that neither the Discount Rate nor the Annual CPI Inflation are about to take off from where we are presently.

However, Gross acknowledged early on in his current comments that Pimco's projection in recent years of 3-4.5% 10 years turned out to be incorrect.

Jim

[Pheyton]

Any new news?

I am one of the 48,000,000 poor with no insurance, a bit of savings in the market and PM that I have been collecting over the years.

Your discussions are fascinating, although I admit that at times it seems to me that you are speaking in tongues. Please keep posting with updates!

[zmas28]

EJ, I'm not an economist but am following this with great interest.

I think back in the eighties there was a dollar scare also, but that was managed more smoothly, at least according to what I've read. Of course, the current accounts deficit was much smaller then. What would be the drivers of runaway inflation and interest rates? Is the poom phase predicated on an abrupt dollar crisis (as opposed to a gradual decline over time)?

If the decline of the dollar were managed smoothly, not sure how price inflation would manifest itself. Would this be through commodities? However, I read that the US economy is not as vulnerable to oil pricing as it was during the seventies. Also have read that price of imports may not increase commensurately with the dollar drop because Asian vendors are more likely to absorb this in their margins. Although this would also seem to be unsustainable long-term.

I see that several members of the Fed are going out of their way to emphasise the inflation threat. I wonder how much of this worry is about inflation, and how much of this is about defending the dollar through higher interest rates.

Love your website!

[zmas28]

According to this article the 1987 dollar decline wasn't managed so smoothly. There seem to be some similarities in the underlying conditions in 1987 to waht we have now. The one exception I see (till now) is that the stock market may have been more over-valued at that time (going by a comparison to the Treasury yield of 10% at that time against about 5% now).
Here's an excerpt from the Web article (link fllows):
Blue
Once foreign investors sniffed that another dollar tumble was inevitable, they dumped U.S. stocks and bonds. Private bankers worldwide operating in the Eurodollar market smelt blood, and managed to get short the almost unbelievable total of $143.5 billion in the weeks before the Crash.

Meanwhile, the U.S. Federal Reserve Board, now led by new Chairman Alan Greenspan, was pursuing an extremely tight money policy to try to defend the dollar and fight inflation. Central bankers abroad, faced with this concerted flight from the dollar, bought more than $100 billion, but they finally buckled in October. The private bankers were shorting the dollar, private investors were fleeing from it, and the Fed had stopped printing them.

The greatest liquidity crisis in the dollar area in post-war history was thus inevitable. That crisis smashed the stock markets here, and set off aftershocks around the world.

So the end of the Reagan bull market also marked the end of the post-war era, because no one, certainly not George Bush, believes that the U.S. could, or should, climb back to a lonely throne. The U.S. is now the primus inter pares of an international grouping that hasn't yet written its own operating rules. Why was there no economic collapse after the Crash? First, over-all global liquidity was adequate, because the Plaza Agreement had set off the biggest expansion in total liquidity ever seen. Therefore the dollar liquidity crisis was offset, in great measure, by liquidity in European and Asian currencies.
Blue

Link: http://www.empireclubfoundation.com/details.asp?SpeechID=1535&FT=yes

[Jim Nickerson]

Looks like it the "Ka" in "Ka-Poom" is starting.
http;//www.safehaven.com/article-5389.htm (http://http;//www.safehaven.com/article-5389.htm)

I know nothing of the author Robert Blumen, but his article added to my understandings of the arguments regarding deflation and inflation as part of our futures.