Wednesday, July 30, 2014

SOWING THE SEEDS OF THE NEXT DEPRESSION

In their infinity wisdom the Fed thinks they have rescued the economy by inflating asset prices and creating a so called "wealth affect". In reality they have created the conditions for the next Great Depression.
Over the last two years the Fed has increasingly intervened in the market to prevent normal corrective moves. As you can see in the chart below this has allowed the stock market to transition from what could've been a normal bull market into a gigantic parabolic bubble.
spx parabolic
Now it's just a matter of time as to when the forces of regression collapse this parabolic structure. When they do it will drag the global economy into the next depression.
This is the same process that happened in 1929. The Fed with their easy monetary policy in the 1920s allowed stocks to generate a huge parabolic move exactly the same as what is happening today. In October 1929 the forces of regression finally clamped down and collapsed the parabola. This wasn't the stock market predicting the depression. The depression was caused by the collapse of the stock market which had simply succumbed to the forces of regression.
The same thing is going to happen to our stock market today. While no one can predict when the exact top will occur, I can predict with 100% accuracy that at some point this parabolic structure is going to collapse. And when it does it will push the global economy into the next great depression exactly as the stock market collapse in 1929 caused the first Great Depression
.spx collapse
I expect central banks worldwide will exacerbate the problem after the initial crash by printing staggering amounts of money trying to rescue the broken stock market. This will have the effect of extending and prolonging the downturn for many years, and in the process should drive inflation into the commodity markets.
commodity inflation

11 comments:

  1. Gary, I think the example of Japan puts a very large whole into your example today. The meltdown in 2008 created massive global Deflation, I'd say with the governments of the world now focusing on increased taxation, that with unemployment at record levels and government corruption a Tsunami of Deflation is the result, not inflation...time will tell........jj

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  2. I think it's next to impossible to get deflation in a purely fiat monetary system. At any time the government can print money and mail checks to the population.

    The bubble in the stock market is a symptom of the ongoing inflation. If that inflation ever starts to leak out of stocks and go into the commodity markets it's going to bring on stagflation just like the 70's.

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  3. gdxj ready to go

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  4. Markets seem totally confused by the US GDP and the Fed tapering - is it good news or bad news or good still equals bad or vice versa? What a right mess.

    I think they have so much debt now they are going to inflate away cash - in the UK they have sold houses for 10, 11 and 12 times the average wage. If IRs rise a bit then they reckon about 2 million will not be able to afford their mortgages... so that leaves them either with near enough a 0% base rate for a decade or more - like Japan - or they inflate and give massive pay rises to people whilst raising IRs.

    Or.... something else.

    What a mess.

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    Replies
    1. 10, 11 and 12 times the average wage? Of course, if some guy with four or five times my income buys a house he is likely to buy one at 12 times my (average) wage.

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  5. Tell me what you think about this:

    The price suppression of precious metals has become a national security issue. The government and the Fed can secretly create unlimited amounts of money to buy equities, and short metals. So, the stock market can continue to go up, up, up, while metals stay flat.

    The US will likely succeed in starting a war with Russia, while blaming it on Putin. The US has the most powerful economy, military, spy network, covert operations, and propaganda machine in the world and is able to continue to force other world leaders to go along with the US agenda. A war with Russia will collapse the European economy, driving a rush to safety into US stocks and the dollar, propping up the US economy perhaps for a long time.

    Is my thinking clear here? If not, what am I missing?

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    Replies
    1. While it's possible the morons in Washington may succeed in starting a WAR with Russia or China proper it will be a total mess.These are not Iraq or Even Iran.Both have the capability to knock out our satellites.They both have large Nuclear arsenals and delivery capabilities.A war with Russia proper will will do much more to the world than hurt the European economy.Hope the juveniles in Washington are forced to wake up by their elders.

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    2. Yes, The gov and Fed can suppress PM's. However, for that to work you need physical to sell at that suppressed price. If you don't have the physical, you create two markets, one for physical and one for paper (ETF's) and what's the point of paper when that happens. The paper market will disappear. Singapore is all ready trying to set up an exchange for pricing physical. They may well set the world price, should that occur.

      The central banks have all ready purchased 29 trillion in equities, etc. as reported. There is a limit as to how much money you can print. That limit is when people lose confidence in that money, and they prefer real assets to paper. That is happening now. Those who are informed are exiting paper for real things, now, as should you.

      There will be no war with Russia. Europe, with Germany leading the way, will form closer ties with Russia as it is to their economic interest to do so. Right now Europe is walking a razor's edge, transiting from the past to the future. Germany will export more to Russia than to the US and receive more raw materials from Russia than the US. To have a world war you need a consensus and the US won't get it. After all, Europe is a victim of US aggression, too. A war with Russia would certainly crash the economy and do it world wide. There will be no safe haven. People will rush to real assets not US stocks and bonds.

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  6. What or who are "the forces of regression"?

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  7. Regression is simply the tendency for all markets to revert to the mean over time. In asset markets it the tendency for participants to at some point start to take profits when markets get stretched too far above the norm. Stocks are experiencing this right now. Stocks have been forced higher for a very long time and participants with big gains get more and more nervous the longer this continues the more nervous traders become until at some point a profit taking event begins and everyone tries to get out the door at the same time and protect their profits.

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