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Advisor

WCMO- K-Wave

I notice the thread is done but was interested in your reference to Kondratief theory.

 

For my money, the 1983-2000 period perfectly fits the description of the Autumn- the end of the cycle- when falling interest rates drive asset prices continuously higher before the final collapse and reset.

 

But of course we didn't collapse- we deflated a stock bubble and replaced it with a mortgage crime wave and when that collapsed responded with unprecedented intervention and ultra-low rates.

 

So we should have had a depression but didn't, which I'm not really complaining about.

 

But shifting gears a bit, in 2000 if you were observing classic portfolio management and not getting greedy- rebalancing to bonds regularly- the crash really didn't hurt that bad- bonds went up as stocks went down and you had plenty of cash to rebalance back into cheap stocks. Same in '08 but not as great.

 

This time around if we have a sharp selloff, bonds don't have much room to rally from a 2% yield so nothing works- the pension, insurance and private retirement sectors get hurt bad.

 

I don't think any of this is lost on the PTB even if they put on a brave face. So my conclusion is that we can't even let stocks sell off more than 10-20% and as far as bonds go, we just have to keep squashing rates down the rat hole even if it means going negative.

 

Both aspects seem to not be able to go on endlessly, though, and when those let loose, uh oh. But I've been watching this thing play out since pre-2000 and am impressed with the ability to kick the can down the road. Won't go on forever but longer than you'd imagine.

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12 Replies
Honored Advisor

Re: WCMO- K-Wave

I may be the oddball here, but we should`ve had the depression that Ravi Batra predicted back in 1990.  We need to have economic "resets" and since we don`t follow Biblical Laws of the Jubilee, then the Great Pumpkin has to reset things for us. This is why you have the super rich have become super filthy rich, the poor are poor but those in the middle are dwindling. Liberals want to "equalize" (to their specifications) those that they feel have won life`s lottery. 

 

But had there been that depression that was scheduled for 1990, we could`ve handled it so much better.  25 years ago we weren`t so dependent upon the global economy, the way it is now util the rest of the world "recovers" we all sit in the same soup together.  Back in 1990, our national debt wasn`t so unmanagable, a depression then would`ve lasted 5-10 years..we probably would`ve had the 2000`s war to get us out but we`d now be 10 years into a recovery.

 

If this turkey goes down now, we`re too broke to fight a war to get out of a depression, we already have zero interest rates, our main lenders are probably more broke than we are.  I know, I was much better situated to weather a depression in 1990 than I am now.

 

http://www.nytimes.com/1987/08/30/business/depression-guru-ravi-batra-economist-or-mystic-tune-in-ar...

 

 

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Honored Advisor

Re: WCMO- K-Wave

BA, in hind sight what mistakes did you make that in about twenty years you are worse off than you were when you were younger?

 

What would be your "do over"?

 

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Veteran Advisor

Re: WCMO- K-Wave

I haven't studied it much.  I remembered the theories from reading about them during the farm crisis of the 1980's, and remained interested in the theories for other reasons (I got older and have money invested) since that time.  My observational opinion -- they don't really understand exactly why the past patterns fit, they don't really understand the historical cause and effect, yet they can observe and chart the general patterns over a very long time period, several cycles, hundreds of years, perhaps more.  While it is possible that our folks in charge have figured everything out, it is more likely that whatever caused the patterns to hold in the past remains in control of the eventual future.  The historic actions to fight the trends, provide liquidity to the markets with unprecedented levels of injections, were based on theories put forward that might have helped improve the situation (reduce business and bank failures, and reduce unemployment), during the 1930's and up thru WWII.  All those actions might have been absolutely the right things to do, absent the waste, fraud, and theivery, yet might also have simply bandaided and delayed the inevitable return to historical trends and cyclical norms.  And, what that could represent, based on the exhaustive infusions of liquidity, interest rates at/near zero for an extended period of time, is that we have greatly narrowed the future effectiveness of our options to continue the fight.  The question then becomes -- if we cannot break the cycle, then the return to the cycle will possibly be incredibly more painful than it would have been absent the tactics used to delay the potentially inevitable.  If we have not broken the cycle, did the actions taken actually expand or contract that portion of the cycle, or was it simply delayed until our means of counter-acting it are exhausted?  Or, do we still have more options to create more liquidity, more debt, lower or negative interest rates, and for how long?  Do we begin a long, slow "spring" after a shortened "winter, or, have we simply benefitted the older generations by transferring potentially unbearable future burdens to the youngest generations? 

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Advisor

Re: WCMO- K-Wave

Yeah, of course virtually all conspicuous wealth that is in existence today is the product of the manufacture of debt over the past 30 years (the total debt curve lifts off in the mid-80s and climbs relentlessly higher with only a few pauses along the way. This is an old chart but it covers most of the period I refer to. We've avoided a depression by getting the line back on the uptrend.  Keep in mind this is total debt, not just goverment. Key growth areas have been corporations borrowing to buy back their stock, student loans, auto loans that now run an average term over 5 years.

 

Trend national debt vs national income

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Advisor

Re: WCMO- K-Wave

Obviously still a lot of room for rates to come down in 1990.

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Veteran Advisor

Re: WCMO- K-Wave

I don't remember the name of the red-headed republican lady clerk at the courthouse in Washington County Illinois -- but I remember telling her that Regean's record debt creation as governor of California would eventually come to haunt California, and if elected POTUS, the same thing would eventually happen to all the rest of us, it was the start of Reagonomics, be it good, bad or indifferent, only time would tell.  "Trickle-down" has its limits.  Concentration of wealth theories fit the pattern.

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Advisor

Re: WCMO- K-Wave

For all intents and purposes the USA is the stock market. Thus it will be defended by all means necessary.

 

As I've often noted elsewhere, the Rubicon was crossed a long, long time ago, when Greenspan intervened in the 1987 crash.

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Advisor

Re: WCMO- K-Wave

I don't think the Reagan years were entirely bad but what is bad is the mythology associated with the memory. 

 

One of those myths is economic performance was just amazing under Reagan, which simply isn't true. Growth did recover substantially when Volker took his foot off the economy's throat and Reagan's deficit spending did give it some push.

 

If there's anything to credit Reagan with is that he was popular enough politically that he could survive while Volker strangled inflation (while almost killing the patient).

 

Not a fond period for many in agriculture.

 

Of course what happened concurrently was the start of the age of financial piracy, beginning with the corporate raiders of that period. Who, among other things, had a higher incentive to destroy comapnies when they'd only pay 35% of millions in taxes rather than the 70% they'd previously have to pay.

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Advisor

Re: WCMO- K-Wave

Also it initiated the practice of our "best and brightest" all flocking to become hedgies, private equity artists etc.

 

Say what you will about 70% marginal rates on extremely high incomes, there is little use in a private equity outfit doing the mafia style takeover of a company, loading it with debt and leaving it to die if they have to pay 70% of the proceeds in taxes.

 

Now when it is considered "carried interest" and taxed at 10-20%, now you're talkin'.

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