Like Robert McHugh, "Mish" also follows the Elliot Wave theory:
In Elliott Wave terms the index is in an impulsive wave 3 down. At some point there will be a corrective wave 4 up, with still more down to follow in wave 5. A lower low can be expected.
Friday, October 10, 2008
Back to Kondratieff
Some people are now revisiting Kondratieff''s theory of economic cycles. Seems to fit winter, at the moment. The above image is modified from this source: smart fellows.Thursday, October 09, 2008
A question
What would have happened if the UK had not followed suit with monetary inflation over the past 5 or 6 years?
Would prudence have been rewarded, or would a Protestant adherence to the right course of action have been punished by falling exports and unemployment? In a global trading system, when one major player makes a mess of their money, must others do the same or be sorry?
Can the world be run on the principles of the efficient-market purists, or is there an advantage to the first to break ranks? Are monetarists doomed to merely understand what is going on, incapable of preventing it?
Would prudence have been rewarded, or would a Protestant adherence to the right course of action have been punished by falling exports and unemployment? In a global trading system, when one major player makes a mess of their money, must others do the same or be sorry?
Can the world be run on the principles of the efficient-market purists, or is there an advantage to the first to break ranks? Are monetarists doomed to merely understand what is going on, incapable of preventing it?
Hope
Brad Setser sees hope in the correction:
I increasingly suspect that one consequence of United States and Europe’s recent financial crisis will be a smaller deficit in both regions, and a smaller surplus in the emerging world.
I increasingly suspect that one consequence of United States and Europe’s recent financial crisis will be a smaller deficit in both regions, and a smaller surplus in the emerging world.
Robert McHugh was right!
15 months ago, Robert McHugh predicted this:
[The Dow] can be expected to drop to about the start of the pattern, at a minimum, meaning into the 9,000s over the intermediate-term... It is looking increasing likely to us that world central banks will choose hyperinflation rather than nominal decline in stock indices, which will force precious metals prices to rise sharply.
In gold-price terms, McHugh's Dow prediction came true on January 22 this year. Now it's come true in nominal terms, too (9,153.22 at 13:04 ET today) (UPDATE: 8.731.87 at 15:41).
It seems McHugh is an adherent of the Elliot Wave principle. Wikipedia gives a criticism of the theory:
The premise that markets unfold in recognizable patterns contradicts the efficient market hypothesis, which says that prices cannot be predicted from market data such as moving averages and volume. By this reasoning, if successful market forecasts were possible, investors would buy (or sell) when the method predicted a price increase (or decrease), to the point that prices would rise (or fall) immediately, thus destroying the profitability and predictive power of the method. In efficient markets, knowledge of the Elliott wave principle among investors would lead to the disappearance of the very patterns they tried to anticipate, rendering the method, and all forms of technical analysis, useless.
I think one could riposte that events have demonstrated that the efficient market does not exist.
[The Dow] can be expected to drop to about the start of the pattern, at a minimum, meaning into the 9,000s over the intermediate-term... It is looking increasing likely to us that world central banks will choose hyperinflation rather than nominal decline in stock indices, which will force precious metals prices to rise sharply.
In gold-price terms, McHugh's Dow prediction came true on January 22 this year. Now it's come true in nominal terms, too (9,153.22 at 13:04 ET today) (UPDATE: 8.731.87 at 15:41).
It seems McHugh is an adherent of the Elliot Wave principle. Wikipedia gives a criticism of the theory:
The premise that markets unfold in recognizable patterns contradicts the efficient market hypothesis, which says that prices cannot be predicted from market data such as moving averages and volume. By this reasoning, if successful market forecasts were possible, investors would buy (or sell) when the method predicted a price increase (or decrease), to the point that prices would rise (or fall) immediately, thus destroying the profitability and predictive power of the method. In efficient markets, knowledge of the Elliott wave principle among investors would lead to the disappearance of the very patterns they tried to anticipate, rendering the method, and all forms of technical analysis, useless.
I think one could riposte that events have demonstrated that the efficient market does not exist.
A big figure
Hard on the heels of the $700 billion US bailout bill comes the UK's £400 billion rescue plan.
Oddly, this latter figure, in dollar terms, is very similar to the one approved by Congress - a little over $692 billion at today's retail conversion rates (and even closer in wholesale terms).
But the really interesting thing is the difference is in its relationship to the size of the population of the country, and the GDP:
Oddly, this latter figure, in dollar terms, is very similar to the one approved by Congress - a little over $692 billion at today's retail conversion rates (and even closer in wholesale terms).
But the really interesting thing is the difference is in its relationship to the size of the population of the country, and the GDP:
Marc Faber recently said that the US needed $5 trillion to resolve the crisis, i.e. 7 times more than the amount approved by Congress. Britain's bailout fund is proportionately 7 times greater, and so, crippling cost to the taxpayer aside, maybe it could work.
And it has political implications. The average Brit is so innumerate that he doesn't know how to calculate 75% of 100, so don't expect him to understand that it wasn't simply "the banks" to blame, but the relaxation of Government monetary controls. Don't discount the possibility that, however undeservedly, Gordon Brown may win the next election.
End of the dollar as the world's reserve currency?
See the comment in Brad Setser's blog - Brazil and Argentina are already finding other ways to pay each other, Russia may deal in euros... if no-one wants the dollar after Jesse's predicted devaluation, it may go from devalued to almost worthless.
But what will countries do, that export to the USA? Devalue their own currencies? Or demand payment in euros? Or oil contracts? Even Setser admits to struggling to understand what's going on.
Jesse also comments on a report that the Gulf States may diversify into gold.
But what will countries do, that export to the USA? Devalue their own currencies? Or demand payment in euros? Or oil contracts? Even Setser admits to struggling to understand what's going on.
Jesse also comments on a report that the Gulf States may diversify into gold.
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