Economic cut and paste

Economic and political advice/analysis/predictions from my very good friend Jarrod. Don't get annoyed with him; he knows what he's talking about and is highly educated on economic theory, and is almost always right with his predictions at an intuitive level anyway. So just bear with him and believe him, and prepare:



Election 2008 is causing a much bigger societal rift than expected, but that generally happens preceding times of extreme volatility, deflationary economic conditions, and upcoming/ongoing periods of warfare.Time is not chronological in the sense we think of it as today, but rather it is cyclical. This is especially true in massive national, and especially global, economic cycles. We are entering a period known as deflation, and it has been seriously on since at least 2000. The second "Bull" market from early 2000's until now has failed to truly break any high ground set back then, and the iceberg tip has surfaced to be followed by much more severe economic pain and after a counter-trend rally, a much further decline in stocks.The choice of President has nothing to do with this. Money is too liquid, too massive, for any government to ever successfully control it. Don't believe me? Name one global market that is currently stable and rising at larger degree. Despite the choice of government, regulatory policies, or levels of taxation (all of which vary greatly from nation to nation) the entire global economy is contracting. Now tell me that the choice of our next President will solve this crisis. (Speaking of money, the U.S Dollar is essentially illegal anyway because it has been, since Roosevelt, a revolving door of taxes and printing new notes to kind of spiral us upwards into a monetary structure with no real base. The "gold standard" is also a myth, especially in modern times, and besides gold is just "money" because we say it is... the same way we say a dollar bill is a dollar.)Deflation hurts, and lasts a long time (like every economic cycle... I'm calling around 2018 for this one.) It starts with a primary recession (early 2000's) and then balloons up well past that into new mania, and then crashes into a secondary recession generally larger and more painful than the first, and global in nature (current.) Interest rates plummet, rise again, and once again plummet as credit freezes (sound familiar?) It is a period in which prices fall across the board. We know this because the "flight to safety" as the market crashed failed: gold is also down a significant amount (56%.) Gold will come down to around $600 an ounce and then we will look to seriously consider buying in at this level. Oil has also fallen as we've predicted, despite fears of its inevitable rise into the stratosphere (down 54%.) Our current target is $39 - $49 a barrel, and then it will stage a significant rally. The dollar will pull back hard and then push new highs, but this will only hurt our ability to export thus pushing us into a deeper contraction. Other commodities are also down - silver, corn, copper, soybeans, etc. The Baltic Dry Index, tracking shipping demand and such, is down 92% in five months. Unprecedented in the history of modern globalization.Stock markets during these times do whatever the Hell they want. Generally they crash hard, followed by the biggest rallies ever recorded (which only occur in the depths of Bear markets), and then crash again. Rallies in these conditions are only occurring because economic news is "not as bad as expected." A negative GDP is ALWAYS a bad thing, yet it wasn't "as negative" as analysts predicted, so the market surged this past week. However, net and net after a deflationary cycle the market loses money. Buy-and-hold is a myth. 401(k)'s are not wise decisions. Sell into rallies, and hold short ETFs for near-term swings. Cash is king. Treasury bills bought and held from 2001 until now would have made a combined 36%, whereas investing in the S&P 500 would have lost you just about 30%.Social mood undergoes radical change during these periods. Oftentimes deflation is accompanied by massive warfare and bloodshed - the only two modern examples of this are WWII and the Civil War. The Panic of 1819, etc. is also comparable, but too non-studied in this country for anyone to know what I'm talking about. Essentially heavy borrowing to finance the War of 1812 led to the inevitable collapse of the banking system- widespread foreclosures, bank failures, unemployment rates sky-rocketed, prices dropped, and agriculture and manufacturing plummeted. Immediately following 1816 and leading into 1819 (the panic officially ended in 1823), American bankers created banknotes and other such products to sell here and globally that inevitably led to the collapse and failure of those markets as well. This is sounding awfully familiar. People proposed many fixes- increasing tariffs, decreasing tariffs, direct debt relief, restricting bank credit, increasing infrastructure and public works, stricter regulations, etc. The governent initiated programs for immediate debtor relief and calls for financial reform, and it is generally considered that this only prolonged the pain, and the long-term result was the future Panics of 1837 and 1857. Incidentally, no matter which candidate you vote for this problem is already inherent in the system, and there is nothing they can do about it that will reverse this course. Again, whoever wins this election will not make a decisive difference. But you can go ahead and believe otherwise, and if the candidate you support loses you can blame whoever wins for four or eight years if it makes you feel better.http://www.mises.org/rothbard/panic1819.pdfAnd during all of what is occurring now people bicker about social issues that blind them to the greater picture: a financial and economic global disaster that will soon make any "moral" issue pale in comparison. All in all whoever wins this election will likely leave office after one term, and do so as the most hated President in modern U.S. history. Looking back over decades of economic and market data shows that the MARKETS precede politics, not the other way around. If you look at candidate popularity over the last few months the rallies gave McCain a more equal edge, and the crashes gave Obama significant leads. Now the market is "stabilizing" (it is not) in the public's eye and McCain is gaining a few points here and there. The candidates will not affect the market. The candidates will not make the United States more capitalistic or more socialist.FDR is a prime example. Took over where Hoover left off post-Depression era and using a "braintrust" of economic advisors instituted the New Deal, which a lot of Republicans and Americans alike feared was Socialism in Disguise. The New Deal did two critical things: it prevented the United States from turning into a socialist country by instituting REGULATORY AGENCIES rather than GOVERNMENT-RUN agencies, and it softened the blow of serious recessionary conditions. But in the long run it did not matter much and we still plunged into a major international conflict, during which all "normal" economics fails to matter.I digress. The single best predictor of an election outcome is the Dow Jones Industrial Average, and it is also the single best predictor of a President's popularity. Now remember that money is too vast, too liquid, and too emotional when tied to the market for any President to ever have a handle on it. Social mood en masse dictates the markets' actions, not a President. Whoever is elected will do so in the toughest economy our country has yet faced, and it will only get worse. He will leave office one of the most hated Presidents in our country's history, and that will only be inflated due to this "Culture War" that is being stirred up into a frenzy by both sides.My main point for saying all of this is exactly that. The Culture War is upon us, and is only being hastened by the likes of Limbaugh, O'Reilly, Olbermann, and the list goes on and on. There is money to be made spinning nothing but the purest shit, regurgitated in nice sound bites that rile up your base and anger the other side.We are staring into an economic abyss the scope of which we have never seen and we're bitching about who might be a Muslim, or who might be a terrorist, who's the biggest patriot?This country is being torn apart by two conflicting viewpoints that have been home-spun by pundits and media outlets on both sides. Buzz words are tossed like chum to frenzied sharks for mass consumption and to fuel the hatred and enhance the rift: Terrorist. Muslim. Nazi. Racist. Religious Nutjob. Too Old. Socialist. Anti-Gun. Pro-Gun. Homophobic. Anti-Semite. Anti-American.Ludicrous.I can't wait for Tuesday night just because I can't wait to stop hearing all the bullshit, but I know that this is not going to happen. Whoever wins, the other side will bitch and gripe about it for four more years. We're in for a long, long time of "I told you so's." And all of it is unwarranted, unfounded, and pure U.S.D.A. Grade A Bullshit. Each side is rallied to the point where they "FEAR" the other side winning. So much for Unity.The only fear we should have in this country is the fear that we will once again tear the very fabric of this Nation with a culture war fueled by severe economic deflation and absolute stupidity. The Civil War pit brothers against brothers in physical bloodshed. The Culture War is pitting sons against fathers, mothers against daughters, neighbors against neighbors, in a figurative war that is causing emotional and societal rips and only increasing the scope of the polarization. I have already begun to see the seeds of it: people in traffic cussing out those with conflicting political endorsement stickers, families arguing over issues that should not be as important as a familial bond, and the use of hate speech on both sides being tossed about in serious anger. My only hope is to make enough within the next couple years so that a place like New Zealand, Switzerland, or Thailand will soon be calling my name and I can call it Home.The progression of social mood in a delfationary economic cycle is as follows: Concern. Fear. Panic. Despair.And we have not even begun to experience the Panic yet.