Sunday, November 05, 2006

History "Rhymes"

I was doing some thinking the last couple of days about markets and cycles in general.

Although I didn't go back past the 1920's, their seems to be an interesting cyclicality in the financial markets evolving....While I can't be certain, I imagine that the birth/work/death cycle of the average human has a lot to do with it. I'm sure others have noticed and pontificated on the causes, but this is newer to me.

Lets talk about the great "busts" in US history


This is the most famous...The Great Depression. Even though outside forces (apparently) conspired to bring the US out of the GD, notice that is was "about" 14 years


Although most people realize that the market did not perform well during this period, most would think it anywhere near as severe as the GD. That is because the GD was *deflationary* and the 68-82 crash was *inflationary*.

The result was that the GD looked a lot worse in nominal dollar terms than the latter, however, they were more similar than casual analysis would at first appear.

There are lots of *dissimilarities* between the two, that although it took a war to bring us out of the GD, the 68-82 started closer to the beginning of a war, and ended during a time of peace.

However, (suprise suprise) it lasted about 14 years.

If we look at the Japanese realestate/Nikkei crash in this chart:

We can see that the Nikkei peaked right at the end of 89/beginning of 1990.

If we extrapolate out our theory, we can speculate that the "bottom" would be put in at the end of 2003 to the beginning of 2004. And, as we see from the chart, the "theory" holds. what? That might help predict when the crash might bottom....but what does it tell us about when the next crash might occur?

Well, on this I need more research and data to be SURE. However, I noted that 1929 to 1968 is a period of 39 years. 39 years is close to the working life of one professional...

39 years is 2X 19.5 years, which could be close to 2 generations removed.

1968 + 39 years = 2007

So, will 2007 be the beginning of major pain the general markets. I think so. It could happen sooner, frankly....I believe it is already happening although one does not see it in the averages yet. I believe that this relative underperformance could be deflationary and it could be inflationary....depending on how the US Federal reserve responds. However I believe there will be relative underperformance.

One way to possibly protect yourself is to move a portion of your wealth out of US dollar denominated assets....Gold, silver, shares of producers of gold, silver, energy, uranium sourced in geopolitically secure areas of the world should continue to outperform.
WARNING: in the case of a panic -- everything will underperform for a minute...maybe even the price of bullion as people (wrongheadedly in my opinion) try to raise cash... in a couple of months (or less) when they realize that it's just paper, the third phase of the great bull market in metals will be released.

Remember, however.....I'm just some conspiracy nut living in South America. This advice should be worth roughly what you just paid for it. :)

ciao for now,

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