Daily Archives: December 9, 2011
The Impending Economic Collapse Of 2012-2022
In Part 1 of this series, Is This The Best Stock Market Indicator Ever?, I examined the technical indicator known as $OEXA200R, that is, the percentage of S&P 100 stocks above their 200 day moving average, found on StockCharts.com.
The $OEXA200R can be thought of as a valuable early yellow light flashing ‘bears ahead’ or a confirmatory green light that we’re really back in a bull market after a bear. It is an extremely accurate market timing and short term predictive tool for any investor.
But what of the long term trends in the market? What does the future hold over the next 2 or 5 or 20 years? Is there a predictive tool for that?
I believe there is.
In this article we will analyze the long term S&P chart developed by Doug Short (Figure 1), using it as a reference to “tease out” some very specific predictions of future trends. The estimates and scenarios are based on an unbiased interpretation of data derived from this chart.
By following the cold data where it leads us, we arrive at some unnerving predictions which I will collectively refer to as The Great Repression.
Figure 1 illustrates the long term trend of the S&P from 1870 to present. It is inflation-adjusted and set on a log scale for clarity. Notice the red trend line and how the market regresses from bull and bear periods back to the historical trend.
Below the S&P graphic on Figure 1 is an illustration of S&P variance from trend. That is, the percentage the S&P skewed above or below the trend line at corresponding time points. For example, at the 1929 bull peak the S&P was at 82% variance above the trend line. In 1982, the S&P had fallen to minus 55% variance below the trend line.”
An analysis of the chart (Figure 2) revels that the slopes from each bull top measured at the highest variance points in 1901, 1929 and 1965 to the beginning of the next bulls in 1920, 1949 and 1982 all measure exactly 34 degrees. Again, the start and end points for the slopes are determined by the variance tops indicated on the “Variance from trend” graphic, not the actual S&P tops.
Assuming the slopes could theoretically measure anywhere from 1 to 44 degrees (excluding the 45 degree vertical and 0 degree horizontal orientations), the probability of all three equaling 34 degrees is less than 1 in 79,000.
Based on that data, one could make a reasonable statistical assumption that the slope for the current secular bear market beginning in 2000 would also follow the same 34 degree angle as the previous three bears. Overlaying that slope on the 2000 bull top would suggest that we are not yet half way through the present bear cycle.
But how much more “bear”is left?
To answer that question, we add an additional green line to the S&P chart corresponding to -50% variance from the trend (Figure 3). All three bears in 1920, 1949 and 1982 have touched that line before rebounding. In fact, all three have actually exceeded -50%: 1920 at -59%, 1949 at -57%, 1982 at -55%.
If we follow the 34 degree bear slope line to the -50% green variance line, we arrive at a very conservative end point for the current bear in 2022 – 2023 with the S&P at approximately 540. That, I wish to emphasize, is the conservative scenario.
A more mathematically realistic scenario is illustrated in Figure 4. Here, a blue variance line has been added at the -65% level, below the green -50% line. This would take the end of the secular bear out to 2025 – 2026 at S&P 450.
This post originally appeared at Advisor Perspectives.
Why is that the more likely scenario? If one looks at the variance from trend graphic, we observe extreme positive variances in 1901 (84%) and 1929 (82%) followed by dramatic corresponding negative variances in 1920 (-59%) and 1932 (-67%). The relatively moderate 1965 peak (57%) was followed by a moderate 1982 dip (-55%).
Unfortunately, in this case there is no precise correlation as there was for the 34 degree bear slopes. However, the rule seems to be that the more extreme variance goes in one direction, the more extreme it corrects in the other.
In 2000, we had variance of an unprecedented 155% above trend. There is no way to forecast how deeply the upcoming negative correction will be other than to assume it will probably be severe, that -65% is a realistic estimate and that it could very possibly drop even lower.
This would result in a situation where by 2025 the S&P at 450 has lost 65% of its December 2011 value. The market downturn would be worse than the 2008 – 2009 correction, with the current recession growing more severe but not as catastrophic as the deflationary Great Depression of the 1930’s. In other words, a “Great Repression.”
Why wouldn’t there be a repeat of the Great Depression? One can only assume that Mr. Bernanke (a student of that event) or his successor would run the Treasury printing presses until they spewed smoke and flame in order to prevent another major deflationary event. What of the near term?
Upon close examination of the chart, one can see that during the past three secular bears there was always a small dip below the S&P trend line immediately preceding a sharp decline. Figures 5 through 7 illustrate when this occurred in 1915, 1930 and 1972.
Following these downward ‘blips’ there was brief rise in the market followed by a precipitous drop. I believe this phenomenon was repeated by the 2008 – 2009 drop (‘blip’) and 2009 – 2011 cyclical bull (Figure 8).
Note another striking coincidence: in each case, the S&P fell precipitously to the -40% variance level (blue line in Figure 9 above green line). If this trend repeats a fourth time, the S&P will experience another decline in 2012 – 2013 to 580, a 54% decline in its current value.
The S&P would then likely rebound to straddle the 34 degree slope line to the end of the secular bear in 2022 – 2025, as previously discussed.
The charts point to various long and short term scenarios for the market, several of which have a very high probability of coming to pass. Statistically, it is extremely unlikely that the mathematical patterns discussed here are simply due to random chance.
Taken as a group it would seem to be virtually impossible. Although the patterns are mathematically driven and not dependent upon world events it is fascinating how current events seem to be aligning with the near term pattern. In particular, the S&P decline indicated for 2012 – 2013 coinciding with the very likely disintegration of the Eurozone and euro.
Is there a silver lining for investors somewhere within this dark cloud? I believe there is, an extremely lucrative one that will make itself apparent in 2012 as the market tumbles.
It will be examined at that time in part 3 of this series.
This post originally appeared at Advisor Perspectives.
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- CHARTS: Is This The Best Stock Market Indicator Ever? (businessinsider.com)
- The Bull, Bear, And Secular Case From BofAML (zerohedge.com)
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Exxon Is Incredibly Bullish On The Future Of Hybrid Vehicles
by Andrew Shen
ExxonMobil‘s new report anticipates 50 percent of cars on the road will be hybrids by 2040.
That’s up from only 1 percent today.
It expects that cars will get 48 miles per gallon; a big improvement from the current 27 MPG.
ExxonMobil’s 2012 Outlook for Energy says that the increase of hybrids will be mainly due to government policies on fuel economy around the world.
Unfortunately for Chevy and Nissan, electric vehicles are not expected to move into the mainstream.
Some other interesting predictions from the report:
- Oil will still be the #1 source of energy
- Global demand for natural gas will rise 60%
- Nuclear capacity will grow over 80% globally
- Geothermal and solar contributions will be limited
- China will no longer be the leader in industrial growth
DON’T MISS: Reasons Why The Electric Car Won’t Be Popular Anytime Soon >
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Gone with the Wind Subsidies
Nicolas Loris December 9, 2011 at 10:52 am
The year 2012 marks a monumental yet depressing milestone for the wind energy industry: 20 years of tax credits.
The federal renewable energy production tax credit, which allows wind producers to take a 30 percent investment tax credit or receive a 2.2-cents-per-kilowatt-hour production tax credit, has been around since 1992. The tax credit expires at the end of 2012, and the wind energy advocates are already ramping up their efforts to include an extension in any end-of-the-year must-pass legislation. It’s time to let this wasteful, unnecessary subsidy run out.
The Wrong Way to Promote Technology
Let’s take it back to 1992. The parents are watching Murphy Brown, the kids are watching Full House, and people are rockin’ out to Nirvana and Dr. Dre. (Some things never change.) And wind was ready to usher in a new era of energy production. In fact, Matthew Wald wrote in a 1992 New York Times article, “A New Era for Windmill Power,” that “striking improvements in technology, the commercial use of these windmills, or wind turbines as the builders call them, has shown that in addition to being pollution free, they can now compete with fossil fuels in the cost of producing electricity.”
He went on: “Kingsley E. Chatton, president of U.S. Windpower, which operates 22 new-generation windmills here, said the economics of wind power was at the point where it ‘will compete with fossil fuel.’ Others agree.”
Twenty years of subsidies later, wind still only provides a paltry 2.3 percent of America’s electricity in 2010, and it still needs subsidies.
Jim Nelson, CEO of Solar3D, argues that government subsidies are obstructing innovation in the renewable-energy sector:
Operating subsidies, or installation subsidies, helps get clean energy sources installed but the problem is that current technology is not economically competitive. Everything we do needs to be done with a view toward global competitiveness. Unfortunately, because current technology is not economical relative to alternatives, it does not promote our competitiveness.
The problem is that subsidies promote technological malaise. They take away the incentive to innovate and lower cost by promoting business models geared more toward gaining favor with politicians than on technological innovation. The result is that subsidized industries quickly become dependent on government. At that point, long-term competitiveness becomes secondary to near-term survival, which is generally conditioned on more handouts.
Thus when the government support is threatened, the propped-up industry responds with pleas for more handouts. Recognizing that their survival depends more on securing subsidies than on technological innovation, subsidized industries reject such investments to the extent that they too are not subsidized by government. Hence, the vicious cycle of subsidies inevitably result in technological stagnation.
When 2.2 Cents Adds Up
That 2.2 cents doesn’t sound like much, but it is on average 40 percent of the wholesale price of electricity. Treasury says the tax credits costs taxpayers $1.5 billion annually. This is uncalled for. Not only is the nation facing $15 trillion of debt, but it already has access to ample supplies of diverse electricity sources that are perfectly capable of meeting our energy demands so long as government gets out of the way. Not only are the subsidies not needed, but they do not work. So regardless of our debt problems, taxpayers shouldn’t be subsidizing any energy source.
Artificially Creating Politically Preferred Jobs and More Lobbying Jobs Will Not Grow Our Economy
Wind-energy advocacy groups are on their megaphones screaming that without the extension of the tax credits, thousands of jobs will be lost. This is a half true, at best.
Subsidizing uneconomical industries, as perhaps the wind-energy tax credit has done for two decades, shifts labor and capital away from other sectors of the economy. Removing the subsidy would free up these resources to be more productive elsewhere in the U.S. economy. In the process, jobs that rely on taxpayer handouts would likely go away. But the newly available resources could then go toward the likely creation of more and better jobs.
If we produce more wind energy without subsidies, all the better, but the American Wind Energy Association says that may not be the case if the tax credit expires. Spokesman Peter Kelly said, “Industrywide we are seeing a slowdown in orders for towers and turbines after 2012 that is rippling down the supply chain and the big issue is the lack of certainty around the production tax credit that gives a favorable low tax rate to renewable energy.”
President of the Cheyenne and Laramie County economic development organization Randy Bruns echoed, “A lot of these projects, the economics change without that tax credit.”
If wind energy is not economically viable without the taxpayers’ crutch, then we’re propping up a market loser. If wind energy is a market winner, the subsidy is taking money out of the taxpayers’ wallets and putting into the hands of the wind producers. Neither case makes any sense.
Removing the government’s influence in the market reduces the need for more office space on K Street in Washington, D.C., the central hub of lobbyists. Just yesterday, Occupy Wall Street shut down K Street with protests, but they should direct their message to the root cause of lobbying—government controlling decisions that are best left for the private sector. If Occupy Wall Street is sincere in its fight against crony capitalism, it would be arguing for less government intervention into the economy, not more.
These problems will continue to persist so long as politicians continue to expand subsidies for their pet projects. When it comes to energy subsidies, we need to prevent the new and repeal the old.
That’s my 2.2 cents. I’d like to keep them in my own pocket.
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Corpus Christi, TX / Spain: Fairmount Marine Delivers Topside for Castor Project
Fairmount Marine’s powerful tug Fairmount Expedition has safely delivered a 18,000 ton topside for process, utilities and living quarters for the Castor project offshore Spain. The topside was loaded onto Heerema’s H-541 barge and towed from Corpus Christi towards Spain.
The Castor project is a 1,3 billion cubic meters submarine gas storage project at a depth of 1,800 metres, 12 miles offshore Valencia at the east coast of Spain in the Mediterranean Sea. The topside was build in Corpus Christi, US.
Fairmount Marine was hired for the towage across the North Atlantic by Heerema Marine Contractors. Tug Fairmount Expedition had to mobilize the barge H-541 from Flushing, the Netherlands, to the US first.
Upon arrival of tug and tow in Corpus Christi, the topside was loaded onto the barge, where after the barge was prepared for towage across the North Atlantic. On the morning of October 12th, the Fairmount Expedition crew started with preparations for the towage connection. After the towage connection was established the convoy left Corpus Christi around noon the same day.
In the meanwhile Heerema Marine Contractors crane vessel Thialf was brought into position in the Castor field in order to install the topside which was being delivered by Fairmount Expedition. Fairmount Expedition maintained stand-by in the Castor field. Once the topside was taken of the barge H-541, Fairmount Expedition commenced demobilization of the barge.
The total 12,068 mile voyage (Flushing/the Netherlands – Corpus Christi/US – Tarragona/Spain) took just 50 days, with a just in time delivery of the topside by Fairmount Expedition.
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