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Economy
by
charleshughsmith
Executive Summary
- Technical analysis offers methods for identifying long-term trend changes
- Introducing the Coppock Curve
- Why the Coppock Curve indicates a coming decline in the equities markets
- If correct, it may take 8-15 months to hit the bottom of the decline before a recovery begins
- Global markets are likely to all go down together, making finding "safe havens" more challenging
If you have not yet read Part I: When Will Reality Intrude and the Stock Market Hit Bottom?, available free to all readers, please click here to read it first.
In Part I, we explored the correlation between the stock market and the real economy (tenuous in times of massive intervention) and the probability that the economy’s next trough lies between 10 and 30 weeks in the future. We then looked to Japan’s Nikkei stock market index as a guide to equities’ performance in eras dominated by debt and deleveraging, and found that the Nikkei’s history suggests a bottom in U.S. stocks could be as far as a year away, in mid-2013. This aligns with the possibility that the real economy hits a recessionary bottom in late 2012 and the stock market finally reflects that weakness six months later in mid-2013.
As we look at other evidence supporting a significant decline in stocks, we must keep Part I’s caveats firmly in mind:
- It’s possible that equities could rise to previous highs or even reach new highs in the near term, despite the recessionary stagnation of real incomes and growth, as stocks tend to be “lagging indicators” of recession.
- Massive monetary easing and fiscal stimulus could push “risk-on” assets (such as stocks) higher, even as the real economy weakens.
- Global Corporate America could continue generating profits that would support stock market valuations even as the bottom 80% of U.S. households sees further deterioration in their real incomes and balance sheets.
These three factors could support a decoupling of the stock market from the “main street” economy as measured by real (inflation adjusted) incomes and household balance sheets.
Predicting the ‘When?’ & ‘How Far?’ of the Next Market Decline
PREVIEW by charleshughsmithExecutive Summary
- Technical analysis offers methods for identifying long-term trend changes
- Introducing the Coppock Curve
- Why the Coppock Curve indicates a coming decline in the equities markets
- If correct, it may take 8-15 months to hit the bottom of the decline before a recovery begins
- Global markets are likely to all go down together, making finding "safe havens" more challenging
If you have not yet read Part I: When Will Reality Intrude and the Stock Market Hit Bottom?, available free to all readers, please click here to read it first.
In Part I, we explored the correlation between the stock market and the real economy (tenuous in times of massive intervention) and the probability that the economy’s next trough lies between 10 and 30 weeks in the future. We then looked to Japan’s Nikkei stock market index as a guide to equities’ performance in eras dominated by debt and deleveraging, and found that the Nikkei’s history suggests a bottom in U.S. stocks could be as far as a year away, in mid-2013. This aligns with the possibility that the real economy hits a recessionary bottom in late 2012 and the stock market finally reflects that weakness six months later in mid-2013.
As we look at other evidence supporting a significant decline in stocks, we must keep Part I’s caveats firmly in mind:
- It’s possible that equities could rise to previous highs or even reach new highs in the near term, despite the recessionary stagnation of real incomes and growth, as stocks tend to be “lagging indicators” of recession.
- Massive monetary easing and fiscal stimulus could push “risk-on” assets (such as stocks) higher, even as the real economy weakens.
- Global Corporate America could continue generating profits that would support stock market valuations even as the bottom 80% of U.S. households sees further deterioration in their real incomes and balance sheets.
These three factors could support a decoupling of the stock market from the “main street” economy as measured by real (inflation adjusted) incomes and household balance sheets.
by
Alasdair Macleod
Executive Summary
- Why Greece is unlikely to release a new drachma
- Why globally-coordinated money printing is the most likely resolution to the Greek & Spanish crises
- Why the magnitude of derivative risk makes a Eurozone collapse much more frightening
- Why capital flight will get worse, and why gold will benefit from this
- Why Germany's odds for leaving the Eurozone are lower than most assume
- Why the time left before extreme action must be taken is than a few months – possibly only weeks
If you have not yet read Part I: Abandoning Ship, available free to all readers, please click here to read it first.
Here are some key points to bear in mind as the crisis progresses:
Greece: new drachma?
The Greeks would be crazy to embrace a new drachma, as recommended by neoclassical economists. A new drachma would be backed by nothing, unless it comes with full convertibility into Greece’s 111.6 tonnes of gold, assuming that actually exists. The complete lack of faith in any Greek government’s economic credentials would mean a new drachma in the absence of gold convertibility would rapidly descend towards its intrinsic value, which is zero. Interestingly, recent polls suggest that the Greek people understand this and prefer to remain with the euro.
The legality of changing deposits from euros to drachmas is highly questionable. Assuming the Greek government can force this through on domestic deposits that will leave an open question over loans, likely to be challenged through the courts. And in the past non-Greek banks lending money to Greek businesses have as a matter of course stipulated contracts to be governed by the laws of another jurisdiction.
Message: do not buy into the siren attractions of an independent drachma…
The Most Predictable Next Events
PREVIEW by Alasdair MacleodExecutive Summary
- Why Greece is unlikely to release a new drachma
- Why globally-coordinated money printing is the most likely resolution to the Greek & Spanish crises
- Why the magnitude of derivative risk makes a Eurozone collapse much more frightening
- Why capital flight will get worse, and why gold will benefit from this
- Why Germany's odds for leaving the Eurozone are lower than most assume
- Why the time left before extreme action must be taken is than a few months – possibly only weeks
If you have not yet read Part I: Abandoning Ship, available free to all readers, please click here to read it first.
Here are some key points to bear in mind as the crisis progresses:
Greece: new drachma?
The Greeks would be crazy to embrace a new drachma, as recommended by neoclassical economists. A new drachma would be backed by nothing, unless it comes with full convertibility into Greece’s 111.6 tonnes of gold, assuming that actually exists. The complete lack of faith in any Greek government’s economic credentials would mean a new drachma in the absence of gold convertibility would rapidly descend towards its intrinsic value, which is zero. Interestingly, recent polls suggest that the Greek people understand this and prefer to remain with the euro.
The legality of changing deposits from euros to drachmas is highly questionable. Assuming the Greek government can force this through on domestic deposits that will leave an open question over loans, likely to be challenged through the courts. And in the past non-Greek banks lending money to Greek businesses have as a matter of course stipulated contracts to be governed by the laws of another jurisdiction.
Message: do not buy into the siren attractions of an independent drachma…
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