An 80-year economic tsunami. In America, most think they’ll be bailed out. Not this time.

[seemslikeadream]

http://www.jamesgoulding.com/predictions.htm

07-07-08

Predictions Update

For the first time since I began predicting the rise in the DJIA, I’m very nervous. Before, I could state without a doubt, that the DJIA was going higher. However, as I wrote in my last update, the closer we get to the crash, the harder it is to predict. So, I must look at some of my original thoughts about what moves the markets, what I’ve learned in the last six-years, and the triggers that send our economy into 80-year cycles.

Personally, I’ve been struggling emotionally with the downturn in the economy because I know that, August 2007, was the beginning of what I call the 3-year warning (more on that later). The point is that I’ve written several times that regardless of where the DJIA is, in late 2008, I really have to think about getting out of the market. Said differently, if the DJIA doesn’t hit 35k and it’s late 2008, forget about the 35k prediction and take things as they come…look at getting out. I’ll cover the ‘why’ in this update. Lastly, when I say I’m struggling emotionally, I mean it. This is so depressing. I never wanted the prediction of the economy crashing to come true, yet, it is. I think of all the people (99%) in this country (and around the world) who don’t have a clue that they are about to get hit by an 80-year economic tsunami. In America, most think they’ll be bailed out. Not this time.

Let’s get to the analytics and put emotions away. Let’s go back to some of my original conclusions about what leads the economy to an 80-year crash. (By the way, this is a macro-science. It may be 80 years, it may be 85. That’s what makes it so difficult to nail-it as its happening.)

The single largest catalyst for the US economy moving into an 80-year cycle (massive slowing, crash, whatever you want to call it) is the line-up of the generations. That ‘line-up’ took place in 2003 (see my free book, Winter is Coming, chapter 3, for further explanation). So, I can conclude, that catalyst is in place.

Another catalyst is an economic event that hits the economy hard but doesn’t push it into a depression. Something similar to the 1926 Florida real estate crash, or, the August 2007 subprime crash. The similarities between the crashes and the era are very similar. What’s on everyone’s mind now, in 2008, is “was the August 2007 crash the beginning of the meltdown?” That’s the same thing folks were asking in 1926. The answer is…’Yes it is the beginning, but there’s still time to get out on a rally, like there was in 1926, 1927, and 1928, before the larger problems set into the economy. What I know right now is that the August 2007 subprime crash is a catalyst, and that catalyst is in place.

One of the other catalysts that I was looking for was the movement of gold out of the US by the Federal Reserve. However, they took the ability to gage that movement away with the creation of gold swaps. You can see the data here: http://www.federalreserve.gov/releases/bulletin/0508assets.htm .

The problem with the data is that the fed created a swap arrangement with other central banks, so, you can’t see when they move the gold. The ‘Gold stock’ has been at 11 billion for years. The problem? That gold may not be there anymore. They could have swapped it out for any asset they wanted under the swap agreements. So, that indicator is dead-in-the-water.

The housing study I produced back in 2002 is another indicator that stated the number of buyers for upscale homes (above 500k, in 2002 dollars) would run out in January 2006. So, we know that indicator is in place.

The indicator that hasn’t kicked in yet, the one that I’m waiting for, will be the nail-in-the-coffin. That indicator is provided by the FED. It goes something like this: The fed must go on a hiking binge. I warn you, read that again before coming to a conclusion. I’m not talking about a 1-and-done, like the ECB did on July 3rd, 2008. I’m talking about a hiking campaign. More specifically, like the one they went on beginning February 1928.

Their tool back then was the discount rate. You can see the data here: historical discount rate. They started the campaign when the economy was only beginning to recover from the 1926 crash. It was too soon. The markets rallied phenomenally during the campaign. The DJIA almost doubled, going from 197 to 381. However, this was the last rally. The end of the bull market. This is the scenario I’m looking for, today, to close-out the rally that began in August 1982.


http://www.jamesgoulding.com/wic.htm#The_Cover_of_Winter_is_Coming

Winter is coming