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3.8.2015 Financial Intelligence Report Bookmark

Crash in September?

 

If you’ve been reading us for any length of time you know that I’ve mentioned that we might see some interesting events in the September/October time frame. That has prompted people to ask “why then?” which is a very good question. But the reasons for my observations will cause some people to question my sanity. That’s okay; it’s been done a million times before.

Let me lay out some ground work before we get into some pretty interesting discussion. Every one of you lives through cycles, and most of them we don’t even pay attention to, they’re just “the way it is”. For instance you know with NO doubt that when you go to bed tonight, that tomorrow the sun will rise. It has for billions of years and will continue to for billions more.  That’s a cycle. You also have no problem declaring that as sure as the sun will rise, your winter will be followed by spring, which is followed by summer and then autumn will appear. That’s a never ending cycle as the earth makes its travels around the sun.


Crash in September?

 

If you’ve been reading us for any length of time you know that I’ve mentioned that we might see some interesting events in the September/October time frame. That has prompted people to ask “why then?” which is a very good question. But the reasons for my observations will cause some people to question my sanity. That’s okay; it’s been done a million times before.

Let me lay out some ground work before we get into some pretty interesting discussion. Every one of you lives through cycles, and most of them we don’t even pay attention to, they’re just “the way it is”. For instance you know with NO doubt that when you go to bed tonight, that tomorrow the sun will rise. It has for billions of years and will continue to for billions more.  That’s a cycle. You also have no problem declaring that as sure as the sun will rise, your winter will be followed by spring, which is followed by summer and then autumn will appear. That’s a never ending cycle as the earth makes its travels around the sun.

Then there’s the cycle of the zodiac. As the earth circles around the sun, the stars we observe in the night sky change. As the seasons progress it appears as though we’re traveling through the different constellations, again this is a cycle as it looks like the sun passes through the 12 star signs. Then there’s the 26000 year cycle of how the earth (which spins like a top) wobbles on its axis, only to return to where it started.

In economics, there’s many many “cycles” that have been observed, from the typical “boom/bust” to the longer wave theories. Take for instance the “Kondratieff wave”.  It was developed by a Russian economist named Nikolai Kondratiev, and as Wikipedia has noted, his economic theories got him into so much trouble with the Russian government that he was eventually executed because of them.  This is how it works….

 

Kondratiev’s analysis described how international capitalism had gone through many such “great depressions” and as such were a normal part of the international mercantile credit system. The long term business cycles that he identified through meticulous research are now called “Kondratieff” cycles or “K” waves.

 

The K wave is a 60 year cycle (+/- a year or so) with internal phases that are sometimes characterized as seasons: spring, summer, autumn and winter:

Spring: a new factor of production, good economic times, rising inflation

Summer: hubristic ‘peak’ war followed by societal doubts and double digit inflation

Autumn: the financial fix of inflation leads to a credit boom which creates a false plateau of prosperity that ends in a speculative bubble

Winter: excess capacity worked off by massive debt repudiation, commodity deflation & economic depression. A ‘trough’ war breaks psychology of doom.

Well according to K wave theorists, we’re in the winter phase, something that should last until about 2020, with a serious depression hitting before then.

Of course there are many other examples of “waves” or cycles, including Elliot waves, Kress cycles, Proprietary cycles, energy wave cycles, etc.  But there’s another one that’s making headlines lately and it’s called the “Shemitah” which is based on Biblical interpretation.  The basic idea is this…when God told Moses how things had to work, there was a “rest period” on the 7th year of the cycle. So you’d sow and reap for 6 years then let the ground lay “fallow” or dormant on the 7th year. It also corresponded with the dismissal of debt. Every 7th year on the last day of they cycle month of Tishri, all debts had to be discharged, which tended to lead to economic upheavals. In fact the last day of the cycle has it’s own name called Elul which is the 29th day.

Well, the Shemitah years get a lot of press simply because they’re very interesting. I personally don’t believe in random coincidence, I believe in synchronicity which I can best describe as “coincidence with a purpose”. Well, when you look at the years that correspond with the Shemitah, you do indeed see some incredible correlations. Almost every major economic “shaking” has landed in a Shemitah year cycle, with the bulk of the big events clustered around a 3 week period at the end of a Shemitah cycle years.

So what have we seen happen in Shemitah cycle years? Well the biggest stock market crashes on record happened during them. On September 17th, 2001 (which was Elul 29 on the Jewish calendar), we witnessed the greatest one day stock market crash in U.S. history up to that time. At the end of the next Shemitah year in 2008, another horrifying stock market crash took place.  On September 29th, 2008 the Dow plummeted 777 points, which still today remains the greatest one day stock market crash of all time. (Barring “flash crashes” of course)  Oh and guess what? It landed on Elul 29, the last day of the calendar.

But it wasn’t just 2001 and 08 that gets interesting. The market crash of 30/31, was another “record” time for the period. The recession/market melts of 73,80,87,94,2001 come to mind. All of them were Shemitah years.  The mind boggling event of 9/11 was at the last week of a shemitah year in the month of Tishri. That’s quite the coincidence. 

I could go on an on about the Shemitah because frankly there’s simply too many events to ignore the fact that because of or in spite of, things tend to happen in those years. For instance this year Elul 29 will fall on September 13th, but that’s a Sunday right? Right. However that means the market stops trading on 9/11 ( we’ve seen a total halt to all trading on 9/11 once before) however the Globex global markets do trade on Sunday evening the 13th.  Wait it gets even stranger….On Sept 13th, the Biblical Elul 29 we also get a Solar eclipse. The last time that happened where a solar event landed on Elul 28 at the end of a cycle we got the 1987 “Black Monday” the following days.

So am I saying I think something really wicked could happen this Sept/October because it falls on a Shemitah cycle and Tishri month? Not exactly. When you look at markets you have to have an “assemblage of information” to make your decisions. Just like when we enter a trade we want a stock with 1) a reason it might want to go up 2) a defined level it must cross to prove it wants up and 3) a flat to rising market to help it. Well when looking at the big picture, we also have to line up more than one thing. So consider the following….

This September is indeed the end of the Shemitah cycle and Tishri is the last month of that cycle. Things do tend to happen on or around those dates. We have a Solar eclipse scheduled to happen on that very same day. Interesting. Then we add in the Kondratieff cycle which says we’ll be in the “winter” of the big cycle, often leading to recessions/depressions, etc. The Kress cycle says that the end of 2014 – the 2017 period, should cause shaking. The Armstrong cycle suggests trouble as it peaks in October of 2015 and leads to massive trouble by 2020. The Elliot wave cycle suggests a period of turmoil.

All these interesting cycles suggest some trouble on the way. While you can’t place 100% confidence in ANY humanistic cycle, when you add up how many of them point to troubles, you should at least take note.  But it isn’t simply moon cycles or K cycles or Shemitah’s that have me pondering some autumn troubles. We’ve got global Geo-political issues that are coming front and center too.

The IMF is going to rebalance it’s weightings of the SDR’s this September. We know that China wants in in the worst way. If they get the Yuan included in the basket, it will be one more shot to the stomach of the US dollar, a currency no one seems to want to trade in any more. The Greeks got an extension of their economic woes put off until June where we’re going to have to endure more back and forth bickering with the European Union. Could that ultimately lead to a Greek exit around September?

I’m on record saying the Fed’s will indeed raise rates this year. While largely symbolic, there will be reaction to it. If it doesn’t happen in June, the next likely time slot would be September. Interesting? Maybe. What about Ukraine? There are some who believe that NATO might make a push to get closer to Russia’s borders before the harsh winter season sets in. The month of September has been mentioned a few times. Will Russia sit back and let NATO arms park on their doorstep? Not likely.

Here’s the bottom line folks. We all know this economy is held together with Duct tape, hollow promises, derivatives and printed money. We also know it is going to end one day. We know the world is a very dangerous place with major tensions over Ukraine, Syria and Iran. We know that any number of things could be the “one” that causes a great shaking. From where I sit, the most logical time for something to happen would be the 90 days from August through October. Will it? I have no idea. We could go through the period with nary a hiccup. Or we could see a massive crash. I just find it all worthy of note, and take my guess that we “very well could” see an event in that time period.

 

The Market…

Well that was interesting…

On Monday the DOW put in an all-time closing high. There was no news to account for it, and many chalked it up to “new month money”. But it only lasted a day and for the balance of the week, the market faded. This ended with Friday’s plunge of almost 300 points.  That makes about 432 points lost from Monday’s close to Friday’s close. What’s that all about?

You can speculate on the reasons, as there are many that sound plausible. However I tend to saddle up to the idea that the bankers and Wall Street have sort of shot themselves in the foot. Here’s the thinking…we all know that they try and paint the economic releases with the “pretty brush” so that things appear to be better than they are. But there comes a time when they lie so much about how great things are, that they are then up against the situation where they have to do something about it.  Enter the interest rate debate.

The economy is NOT even remotely close to being as strong as the cheerleaders suggest it is. But the Fed’s did something last year that caught many people off guard. They said they were gong to taper the QE program to zero. Well that brought chuckles and even outright laughter out of some really bright folks. People like Peter Schiff for instance or Gerald Celente. They said there’s NO WAY given the lousy economic picture that the Fed’s would end QE and in fact called for an even bigger QE program.

 But guess what? The Fed’s did taper the program and ended it just as they said. Did the economy really mend itself? Nope. So in other words, they tapered QE right into weakness? Yup.  Why did they do that? Because it was clear that all their QE, all their stimulus, all their “exotic” plans to fix the economy had failed. But they couldn’t admit to that. They had to put on the brave face and act like all was going swimmingly.

 Since the start of the year we’ve now had 36 out of 40 economic reports come in below estimates. The Atlanta Fed, and now JPM is talking about the first quarter GDP coming in with a “one handle’ meaning in the 1% range. Yet the Fed’s are still talking about the “strength of the recovery” and making excuses for bad numbers as being temporary and transient. They continue to talk of the need to start “normalizing rates”.  But along with their happy talk about the economy, there’s NO question they have prompted the BLS to doctor up the employment reports.

Even the bullish of dolts that infest CNBC were expecting numbers hovering around 200K for Jobs Friday.  Their “panel” of goofy experts talked of numbers from 166K to about 220K jobs being posted. Instead we got 295,000 and the unemployment rate fell to 5.5%, a very low number. Of course the number was fiction. Companies in the oil patch have announced over 40K job losses. The BLS only seemed to find 1900. The labor force participation rate fell. Those declared ‘not looking for work” flirted with all time highs. Part time jobs posted huge gains while services like bar tendering were big winners. But all in all, it was baloney. Fiction. A work of imaginary free license.

 However…it IS the official report and because of it, we’ve now had two back to back home run jobs reports. This gives the Fed’s the ammo to begin hiking interest rates.  Well the FOMC meets on the 18th and the street is scared to death that they’re going to include language suggesting that the first rate hike will be coming “soon”, which they’d interpret as in June. That scares the hell out of them. They saw the Fed’s announce they were going to Taper QE and figured it was a bluff. It wasn’t a bluff and it caught them off guard. Now they say they’re going to hike rates soon and the Street realizes it’s probably not a bluff either. So, they sold off stocks.

 I don’t want to beat a dead horse here but I think I’ve got enough background proof to state my case once again. I think the Feds know that their schemes have not worked. They know this economy and the entire financial system is going to blow up, it cannot be fixed or stopped. Now, if you were in their shoes what would you do? Would you keep trying more and more exotic BS plans that you know ultimately won’t work, or would you find a way to toss in the towel?  It is my guess they’ve tossed in the towel. BUT…they can’t tell you that!  Remember the ULTIMATE goal of a Central bank is to REMAIN the central bank. If they’ve failed us…why would we need them? Exactly.

 

I think the plan is to act like all is just fine, and go along with making policy that they would implement if indeed the economy was growing well and jobs were expanding well. I think they will indeed hike rates. I think they will continue to tell us the system is healthy and the recovery wonderful. And all the while they’ll be looking for that one event that they can then blame all our ills on. 

 I’ve been preaching this for months folks. So far it looks like my theory is working exactly as I figured. They painted up these jobs reports to give them the “look” they need to proceed with hiking rates. And, they will hike rates. Right into the face of a sagging economy, something never done before. Just like they tapered QE to zero in the face of sagging economic reality. 

 Meanwhile they’re setting the table for some form of massive event to happen, an event large enough that when it happens, they can blame THAT for our economic ills. NOT them.  They have to act like all is perfect, and they saved us from the big bad recession of 2008 and only they know how to manage an economy. Then when we, or Israel, or us AND Israel attack Iran…they can blame that for our ills. Or if and when NATO and Russia come face to face in a hot war…they can blame that for our ills. Or when Greece gives the EU the finger and the European Union dissolves…they can blame that for our ills.

 Friday’s fictional jobs report finally opened the eyes of a lot of people that indeed they are going to carry out their charade. That is why stocks sold off. Now the only question is; how far will they let things fall? The March 18th FOMC meeting is still a long way away, and it isn’t reasonable to think we’re going to fall every day until then.

 We’ve warned that 2090 on the S&P was a level that needed to hold or “we could see a hefty fade”. Well 2090 didn’t hold and we ended Friday at 2071.  However that is still above the 3 “top” days we got in early January, each of them hitting a day high of 2064.  Thus the next level of support if there’s more weakness to come is indeed that 2064 level. That’s also pretty close to the 50 ay moving average at 2062, and we could sort of call them the “same”.

I suspect we’ll hold in this area, using those numbers as support. But if I’m reading that wrong and we’re going to fall more, then we could see a drop all the way to 2017 before the next soft support.  Then of course there’s always the chance some Central bank steps in and just buys up a few billions of stocks, pushing things back up into the comfort zone. Never underestimate how active Central banks are in the markets.

 The bottom line is simply that the bull is long in the tooth, the Fed’s are acting tough despite a lousy  economic situation and the world is more dangerous in many respects than it’s been in many years. You’d have to be braver than me to try “buying this dip” just yet. I think patience is a key here folks. I’ll see you all on Wednesday.

 

 

 

 

 


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