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Today's Featured Article
We are entering a time window where deflation will dominate as most of the friendly and positive inflation cycles are over except for one minor one due around Sept. 10-11. An important 2.5-year cycle is approaching and it tends to create trouble, fear and instability when it shifts between Sept. 1 and Oct. 4. The CRB tends to fall during this time window and stocks do not do particularly well. Also, September is usually a down month for the stock market and investors are already exiting. Crude oil and metals do not do particularly great during this cycle. Our original work focused on Sept. 17 for lows but it could easily bleed into the following
week and maybe after Sept. 29 before it becomes more stable.
The current 7-year cycle for the United States that began in Dec. 2008 and runs through 2015 has its best analogue in 1979-80 time window. This larger cycle also coincided with the 29-year cycle that also begins in September. In 1979-80, interest rates were sharply higher with gold, Russia invaded Afghanistan, Saddam Hussein assumed the presidency of Iraq, and the Iranian hostage crisis and many other messy problems occurred. The worst part of the cycle was toward the end of the period, which is the equivalent of the year 2015 this time. Still, some of the messier parts of that year were also connected with the 29.5-year cycle that first began in Nov. 1979 and its equivalent start date
this time is the Sept.-Oct. 2009 period. We are particularly worried about the health of the U.S. with over the next two years and the Swine Flu may not be a joke this time. We also sense that the March-May 2010 period is more heavily correlated with the mess in late 1979-1980. The projected top of gold in Jan. 2010 and the sharp rise in interest rates also correlates well with the earlier period.
That major run-up that caused the top of crude oil in 2009 is connected with a rare cycle that is repeating again into Oct. 9 and that certainly will lead to another major run-up in crude of about $20-25 from late September into mid-October. It may be caused by hurricane season or by violence in the Middle East and both are up during that cycle. Some of it will be softened by a few other cycles but metals, oil and stocks should recover from their September slides into the middle of October.
This same crude cycle will be amplified by a larger cycle for the US between Aug. 26 into about Halloween and it seems that is filled with violence, fear and possible terrorism. Obama's cycles also suggest particular problems Sept. 5-10, 2009 and let's hope that he is protected but if an external crisis does not hit him, a major internal one will.
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We had mentioned the wildfire cycles were strong in August and California is already getting hit and it may be that they will intensify into the first few weeks of October.
A key cycle that peaks Aug. 25-26 is connected with earthquakes as well as a crisis in debt. We last saw this cycle Sept. 21, 2007. During that key time window, the first confirmed deaths resulted from the Myanmar military's crackdown on weeks-long anti-government protests. Buddhist monks were arrested and Internet access was cut off. Also a Thai jetliner crashed about 1 week before that and a major typhoon hit China. In the T-note market, a major swing low occurred 1 day before the peak of the cycle.
Our biggest concern is another 29-year cycle that hits exactly Sept. 26 and the same cycle impacts the United States during the last few week of October. The signature of this cycle is economic recession/depression energy and we are wondering if sometime during the next months, whether we will have enough bank failures to break the FDIC. We are not expecting bank runs but it will certainly cause a mess in all the financial markets and probably affect the markets over the next 6 months.
The FDIC insures 8,246 institutions, with $13.5 trillion in assets. As of late July, 64 banks have failed this year -- the most since 1992 -- costing the FDIC $12.5 billion. At the end of Q1, the agency was already asking for emergency funding.
Moreover, banks charged off almost $40 billion in bad loans in the last two quarters alone. And the number of non-current loans -- loans where payments are not being kept up -- is soaring. Together, these measures indicate the potential for more big failures and more big bailouts ahead.
In addition, the banking crisis has severely depleted the FDIC's reserves, which have dwindled from almost $60 billion last fall to only about $13 billion in early August, a 16-year low. And these depleted reserves are stretched impossibly thin, with the FDIC covering each dollar on deposit with a trivial 2/10ths of a penny.
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Translating this to best trades suggests being short stocks until at least late September if not longer and expecting that the dollar will have big trouble in October as crude and metals and foreign currencies come back to life from September lows. Until then they are looking like decent shorts. At publication, all these markets are showing signs of being ready to crack. We think the energy for the crack will heighten the last week of August and continue much of September.
Again, all of this is a wake-up call if people are willing to look. The bailout package has been smoke and mirrors. The banks still have lots of bad loans on their books that will be exposed if they ever liquidate those with a loss. The bailout package has helped the stock market but that is about to end for a while unless there is a decent recovery for a few weeks in early October. Metals should go through deflation. T-notes have been rallying nicely lately but appear ready for another setback at end of August. The dollar may continue to benefit in September as crude and gold fall but then may be in trouble for new lows from late September into mid-October.
Real Estate: This winter into early spring, real estate may come out of basement for a brief period. We have mentioned that real estate has an important 18.5-year cycle that points to a bottom into 2014-5 but often 3-5 years into the cycle, there is a bounce for a year and that may happen soon. Otherwise we are not sure what will help it. That bounce could be suffocated if we have rapidly rising interest rates next spring as oil and metals and all commodities shoot up between March-June 2010.
So put on your helmets and get ready for the fall. I really cannot find too many bright spots except for people who want to be long the dollar.
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About the Author
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For the past 21 years, Barry Rosen
has been in the business of advising clients on market timing using modern adaptations to certain ancient cycles. His company Fortucast Market Timing Inc. publishes daily and intraday reports on over 20 futures markets, and mutual fund indices/ETFs using Gann, Elliott wave and five cyclical models. Barry predicted the July 15, 2008 low on the S & P to the day, hitting the price within .75 ticks -- and in fact has been forecasting a major break in the stock market of about 33% since January. Timer Digest ranked the Fortucast Alternative Investment Newsletter 6th in long-term timers over the years and 5th for Top Ten Timers between March 2007 and March 2008.
Mr. Rosen is registered with the NFA and the CFTC as a Commodity Trading Advisor (CTA). Fortucast uses proprietary cyclical timing models to filter out false indicators. His opinions on the markets are his own and do not necessarily represent the view of FutureSource. For more information about Mr. Rosen or his company, please visit his company's website: www.fortucast.com.
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