Schulz on Market Cycles Richard Schulz
SOMC's past newsletter issues, starting on 5/5/2006 presented an astronomical and astrological perspective on the evolving economic landscape into 2007 when SOMC changed to a website presentation.
Below highlights some of the important newsletter themes and quotes.
Chronological: Schulz on Market Cycles Newsletters (snail mailed).
Between these issues, there were always multiple trading bulletins, that were emailed to subscribers, to complete the trading record shown on the Home and Notes pages. After Issue #10, the website was begun on Yahoo. That site crashed irretrievably in the summer of 2007, and replaced with this site under a different host.
Newsletter 05/05/2006: #1 (First issue)
The first priority of any investor/trader is to keep losses to a minimum (let profits run, and cut losses short).
A 50% loss requires a 100% gain to return to the starting capital. Diversify and maintain a 10% loss limit on any one trade.
There exists today a significant probability of a greater than 10% decline in stock indexes between now and Fall...the current high of the TAO is a major sell signal.
(Dow fell from 11600 to 10700 in July, and double bottomed in Aug--9% drop in 2 mths).
Gold's latest parabolic move (higher) is directly related to how weak the US Dollar is. The sell on the USD occurred on 3/30/06, with the June futures at 89.10; it's now down to 85.50. The US Dollar is NOT worth its weight in gold...since M3 is no longer released, we cannot know directly how much money is being printed. The more USDs printed, the higher gold will go...so gold could be just starting to rise.
For the first time in history there is little to no spare capacity in the production of crude oil or its refined products (like gasoline). Once Crude Oil rose above the $40/brl level, and held for a month, it was on a long term buy from 2004. No one knows how high is high... (Oil was at $70/brl at the time).
1) China currency manipulation, 2) Oil/Refinery limits/disruptions, 3) Inflation accelerating, 4) Commodity Bull market
5) Declining USD, 6) Record trade deficit, 7) A recession is the cure for #6, 8) Record Federal budget deficit,
9) Congressional gridlock, 10) Real estate market now in decline, 11) Home builders index at 10 year lows
Cycles: The 25-year Economic cycle is longer and stronger than the numeric (10 year) and Presidential (8 year). This 25 yr cycle is the Major One, and tends to produce long and grinding lows: recently, 1929-32 and into 1937, early 1956 through 1957, late 1980 through mid 1982, and starting soon mid 2006/7 into ???. These lows produce declines of more than 20%. Given the economic excesses currently in place, this current cycle is likely to be severe.
Newsletter 06/01/2006 #2
(SOMC was distinctly Bearish from mid-2006, and was premature, with both bull and bear trades in the interim.)
For traders, the last issue recommended selling the stock indexes, that we have covered for a profit...The TAO bottoms this fall, and the Slow TAO doesn't peak until mid 2007.
Gold will probably decline to the $500-550 target, then revive into next year. (It did).
The TAO is a psychological index. When it is positive and rising, world psychology and underlying events are at their most positive, and global stocks tend to rise. When the TAO is negative and falling then the reverse is true...it is helpful to know when this investor psychology is likely to change. Since somc recommends technical trading, the Barron's ad comes to mind: "The market goes up--you make money; the market goes down--you make money." I don't read Barron's. somc DOES practice a strict technical Trading strategy, to profit from both Bull and Bear markets.
The Slow TAO peaks in 2007.
Newsletter 07/15/2006 #3
All 3 TAO indices (Quick, Slow and TAO 2) are declining rapidly, and these indicate increasing pessimism and deteriorating global economic conditions. somc's sell signals are doing well. The 25 year generational cycle is beginning to manifest. The prosperous times of the last few years are now turning cyclically and astrologically into the opposite--the yin and yang of the TAO--the creation and destruction of wealth and other things. What has a front, has a back.
At present, the Age of Scarcity (reference is made to the weekly CRB chart of that time) has put serious upward pressure on commodity prices since 2001, and that translates into accelerating inflation. This chart shows a continued uptrend, with no hint of reversing the straight channel advance. Producers throughout the world have to buy the materials included in the CRB to produce their products. The Prices Paid continues to rise. A Global Recession is Required to slow global demand. The markets are just beginning to digest this unsavory prospect. We are revisiting the early 1980's stagflation. Inflation is here. Stagnation (and worse) is coming soon.
Current GDP rates (+5.6%) are too strong to be sustained. As the Global economy enlarges, the US FED's influence wanes. Paul Volcker (FED chairman during the 1979-1982 stagflation battle) may have had it easy. The US inflation was The Primary enemy. Now, its global, and less responsive to any US FED action.
6/5 to 8/6 and beyond: Mars negative to Neptune, bullish for Oil/Gold
9/22: Solar Eclipse, negative.
Longer term, into 2011, the TAO outer planet aspects are negative.
Newsletter 08/18/2006 #4
There is some evidence that the 25+/- year generational cycle is a sub-set of a longer 75-80+/- year cycle. The last trough of this cycle was 1929-1937, with the initial low being in 1932. 75-80 years from the Great Depression of 1929-1937 is now. We are vulnerable to oil spikes (supply disruptions combined with increasing global demand and peaking supply), to a weak and weakening US Dollar, to unsustainable federal budget and trade deficits, to the sustained interest rate inversion, to the inclinations of foreign investors who fund our dual deficits, to a substantial and sustained housing correction, to political risks, to climate change and its economic consequences, and more. I do not expect stability any time soon.
The fundamentals may merit a gradual slowdown of GDP, as the FED expects. HOWEVER, a "soft" landing is by far the exception rather than the rule following a series of rate hikes. The FED almost always overextends itself, and causes an economic contraction. The Slow TAO peaks in mid 2007, and probably with it market psychology and the last of the buying frenzy before the plunge into the 75/25 year generational lows.
The TAO is presented as a measure of global psychology. It interrelates with how people around the world are thinking and feeling. When the cumulative TAO values are positive and rising, people tend to be the most optimistic. For stock markets, this means buying, and there is the expectation of making money from rising prices. When the cumulative TAO values are negative and falling, people tend to be pessimistic. Fears dominate, and stocks are sold, prices fall, and there is the fear of losing money. Several planetary pairs are involved in the creation of the TAO, and how these values oscillate and combine forms a fascinating study of both human psychology and stock trends around the globe. The primary aspectarian (assigns positive and negative numbers to degrees of separation between planetary pairs) bears a striking resemblance to Elliott Wave theory.
Late January 2007: Most TAO's peak, starting a major decline.
Early April 2007: Quick and Intermediate TAO bottom, the likely intermediate low in the stock markets.
Slow TAO peaks mid 2007, for a sustained decline.
Newsletter 09/29/2006 #5
SOMC has outlined three dominant economic/cyclic themes over the last few issues: 1) the Age of Scarcity globally feeding into resource price appreciation (inflation), 2) the bullish 8 year Presidential versus the bearish 75/25 year cycles (the 8 year is currently winning), and the astrological/astronomical TAO that trends toward a Mar 07 low, then higher into Jun/Jul 07. The September eclipses have yet to complete their work of overturning the powers that be. So far, consistent with the added Mars effect, Hungary, Georgia (S. of Russia), and Mexico are having significant civil unrest; Blair was ousted; Thailand had a military/monarch coup; Baghdad is now under curfew (marital (Mars) law). Global insurgencies are thriving. Bush and his White House are under well-justified attack. Greenspan's housing bubble is bursting. The triple debt debacles (foreign trade, federal budget, and housing) are compounding. Sometime before the end of March, the stock market is likely to experience a sharp decline (more eclipses in March).
Increasing interest and mortgage rates are placing even more pressure on the collapsing housing markets. Rex Nutting wrote in his CBS MarketWatch article today, "Lenders Gone Wild", on exotic mortgages, "...the runaway writing of these mortgages went on unchecked...About one-third of the mortgages sold in the last year were devised to minimize the initial monthly payment to make it seem as if buyers could afford a more expensive home. The cost of that Mephistophelian bargain comes later, when the monthly payment is reset to cover all the deferred interest charges, plus, in some cases, the extra principal...In the Orwellian parlance of the mortgage industry, loans that ignore the true ability of the borrower to pay for the loan are called "affordability" products...(later "liar" and "lemming" loans were added)...the monthly payment on a $200,000 option ARM could rise from $643/mth in the first year to $1,578 by the sixth year...competitive pressures have driven even the stodgiest and most conservative bankers to embrace exotic mortgages...including such old-line companies as Wells Fargo, Lehman Brothers, Citicorp and Bank of America..." (and now we know the rest of the story). somc says Buyer Beware. Greenspan (along with the SEC, Banks, Investment Banks, Mortgage Brokers, President, and Congress) created this fiasco--raising rates far too slowly for far too long--and then standing aside as the housing bubble grew uncontrollably. It will probably take several years to unwind.
The prolonged inversion of the yield curve is problematic and usually predictive of a recession. somc asserts that by April 2007, this will be more apparent (for most markets this was 6 months pre-mature, not for housing, though).
The value of the US Dollar is at risk. The current rally will be short term. A decline breaking below the 84.00 May/June lows is likely (that happened in Nov/Dec 07).
As this happens Gold will benefit and rise (also happened, and continued the long bull run).
As the generational cycle re-emerges, and the Slow TAO peaks in mid-2007, optimism will give way to pessimism, and high, inflated prices cede to lower prices. To help keep these current "new high levels" in perspective, the DOW would have to exceed 14,500 just to come back to its Jan 14, 2000 high, inflation adjusted. For the last 5 1/2 years, there has been a loss of 25% of the purchasing value of the DOW stocks. The Nasdaq Composite has been far wrse--down more than 60%. "Buy 'em and hold 'em ain't golden. In pleasant contrast, real Gold has gained more than 100% during that same time.
Early April 2007: Quick and Intermediate TAO bottom, the likely intermediate low in the stock market.
Mid 2007: Slow TAO peaks, dragging real estate even lower--Bear market.
Newsletter 02/10/2007 #6
Both our TAO astrological and our technical indicators are now giving primary Sell signals. For Investors, it is time to take profits from the SOMC Buy Bulletin of October 6, 2006, and exit equities. For Traders, the current equity situation is ideal for a sharp drop, with the TAO declining and the March eclipses featuring Uranus (the unexpected, rebellion, dynamic instability) closely aspecting the Moon and its nodes (public), the Sun (leaders, governments) and Jupiter (wealth, politicians, clergy). Eclipses are normally problematic, and this one is likely to coincide with unusually traumatic events pertaining to governments and their leaders. Hence, as somc has forecast previously, a decline in stocks is likely to emerge into the April 2007 time frame. However, Uranus acts quickly, and somc expects a rebound rally of significance into this summer. (both happened). In the meantime, the eclipses will likely destabilize BRIC (Brazil, Russia, India, China), the Middle East, and spread to the more mature world markets (Europe, US, Japan). The BRIC's have been the speculative wonders of the world for the last two years, and what bubbles up, thends to burst down quickly, much to the chagrin of the unwary. (also happened).
The stronger 75/25 year generational lows have yet to be seen, however...This year, into 2008, has the potential to be much like 2001, with frequent, sharp swings in market value, with the bias to the downside (also happened).
The global stock market is now dominant (US share less than 50% of global capitalization). This global market is also now far more interdependent. Once a few cogs become loose, the whole wheel destabilizes, with a leveraged domino effect.
The housing debacle is continuing, with year-to-year prices declining, and Thursday HSBC (major lender) declared that it has substantially underestimated the number of loan defaults that it uses reserves for. As was written in the last somc issue, "loan affordability products (sub-prime) are a Mephistophelian bargain", contrived the greed of the lending industry, and are now forcing increased and increasing foreclosure rates. The "enjoy, now, pay later plan" has a high price. Housing bubbles take years to unravel and unwind. The major generational cycle also takes several years. May/June 2006 was just a foretaste. The precariousness of the US debt situation was apparent back in 2003, when the US barely pulled out of the last 2001-2003 equity decline with DED Funds dropping to 1%--shades of Japan's 15 year implosion after its debt bubble burst.
Gold is on a buy, and will rise further when equities decline into April.
Globally, there is a precarious balance between inflation and deflation at present. Commodity scarcity and emerging market hyper-growth promotes higher overall commodity demand and inflation. Globalization ultimatley promotes deflation, as the emerging markets gain the skills needed to produce higher end products at a lower price (cheap labor) than the more mature world markets. The odds favor that, longer-term, deflation will prevail, as the emerging markets level the playing field. Continued currency manipulation promotes unsustainable growth and poses a risk. China overtly manipulates their renminbi (yuan) to produce less expensive products. The Japanese yen is also greatly undervalued, giving it an unnatural product pricing edge. The Euro and USD are 25% overvalued, with Asia similarly undervalued. These imbalances will not resolve automatically. I expect that nationalism will increasingly rear its ugly head, especially against Chian's policies.
Oil has been a picture of technical strength...higher prices ahead...The US dependency on foreign oil is one of its Achilles Heels.
HSBC (a major bank, symbol HBC) took a huge hit on 2/8/07 when it reported that it had to increase its lone loss reserves by 20%. It is a major sub-prime lender ("affordability loans") While the news media insisted that this type of loss is not spreading to the major, conservative banks, like Citigroup (see chart...it was at 54), the technicals indicate otherwise. Thursday and Friday, Citigroup experienced big distribution days (lower closes/range on higher volume--a warning of worse to come). After its parabolic exhaustion rally in Dec 2006, it has traded sideways, with a lower least-squares bias (chart line) and now lower highs. The projection is for Citigroup (a Dow component) to test 51 soon, and break through it later.
The flat/inverted yield curve has existed for almost a year now, just as it did for 10 months during 2000...the longer the yield curve stays inverted, the more damage that is inflicted upon the US economy.
I postulate, at this time, that due to the major demographic demands of the US--baby boomers retiring in increasing frequency--the normally reliable Presidential cycle will atrophy into insignificance. Year after year, their current positive contribution to the US economy will turn into a greater liability. Also, the dominace of the US economy is waning, as more significant players on the global economic stage emerge, and this trend will continue. In the US, out demographics, debt, and foreign trade imbalance will start to outweigh normal business cycles. Rather than push to significant new highs, equities will more likely tread water for awhile with a longer and stronger downward bias.
The TAO is signaling a negative reversal in market psychology, and the technicals are indicating the first thrust toward lower prices is starting...somc thinks the housing bubble is going to have a much greater impact on the US economy than is currently factored into the market. Political tensions within the US will lead to increasingly acrimonious debate, both on how to support the stressed middle class and retiring baby-boomers, and how to end the war in Iraq.
As indicated in the last somc issue, somc expects the ISM indexes to fall below 50% (economic contraction) and stay there. It is now at 49.3%. The ironic good news is that as the ISM falls below 50 and stays there, the FOMC has always cut interest rates. Unemployment is just beginning to feel the effects of the housing contraction.
Existing home sales, (by far the largest segment of the housing market), have continued to fall, as are housing values. The current leveraged effect of the housing sector on our economy is unprecedented, and is likely to have a greater effect than is anticipated, soon. The ripple effects are considerable.
March 3 and 18 Eclipses...negative.
Slow TAO peaks mid 2007, and heads lower (more negative global psychology) for years...
Newsletter 04/26/2007 #7
The winter squall of the eclipses has come and gone, leaving somc subscribers with an improved bottom line. We have done several relatively quick trades netting profits. With increased market volatility, market timing is critical...The major damage done to stocks was a rapid tightening of global liquidity. First, before the lunar eclipse weekend, China reined in loans for buying stocks, and the "emerging" markets tumbled more than 10% in a few days. somc forecast that "the eclipses would likely destabilize BRIC (Brazil, Russia, India, China), the Middle East, and spread to the rest of the world markets...". Second, from the lunar eclipse to the solar eclipse, in the US, banking institutions (Jupiter) suddenly (Uranus) stopped making "lemming loans" (sub-prime). for 9 months now, somc has written on the housing bubble. It's worse than 2000-2002. The built in 50% increases in premium payments with "teaser" sub-prime loans of all forms are coming due with increasing frequency. This housing bubble will take years to unwind.
The TAO (global psychological sentiment--the TAO astrological component) plateaus now, peaks in June, then trends lower for a long time. The TAO seems to be in tune with the longer generational cycle that bottoms during the next few years.
US stock capitalization is now less than 50% of the world market. Europe's capitalization now exceeds that of the US for the first time. The 4 1/2 year global bull market continues. The Slow TAO is peaking this year (as in 2000), and investor sentiment and prices tend to peak with it. There are frequent historical periods when "buy and hold" carries greatly increased risk AND reduced returns...Increased volatility is likely to remain a significant factor in the markets, and will increase the importance of timing. We haven't seen a sustained bear market since 2001-2002. We're due...Upward interest rate pressures will continue to outweigh any short-term relief until the next global recession...for the moment, the FED is stuck on hold...The Case/Schiller housing index (the best one) is now worse in many parameters than the early 1990's decline. The "lemming loans" are now going over the cliff en masse. The "enjoy now, pay later" plan is now paying. It takes years for housing to normalize.
Gold is likely to remain active, and trend higher over time as the US Dollar weakens under escalating US debt burdens.
Oil, (cash chart, left), since its Jan 2007 bottom, has been a picture of technical strength. On this USO chart, (somc subsequently switched to OIL) the 64-day ma is now support, and the MACD above zero signals higher prices. Bought gasoline recently? USO's buy was at 46.30 on Jan 26, 2007.
(current note: in this issue somc added comprehensive ETF coverage)
ETF's (Exchange Trade Funds) are the stocks of the present and future. They Trade Like Stocks, and enable every investor, throughout the globe, to participate in hundreds of specialized markets. Their advantages are their diversity, specificity, flexibility, and very low mangement fees. It is the goal of somc to cover a few of the most important one for our subscribers. ETFs are replacing mutual funds. ETFs now command 20% of the total mutual fund capitalization. That will almost certainly expand to more than 50% within a few years.
The TAO is starting a highly oscillating mode, which somc interprets to mean rapid changes in investor/market sentiment and prices. The expected market decline is likely to be temporary in nature, with the rally resuming back toward new highs. That is the short term; the Slow TAO trends lower starting this summer. After that the TAO begins a long series of lower highs and lower lows, meaning a steady deterioration in global psychology, and likely Bear Market ahead.
Demographics: From The Great Bust Ahead, by Dan Arnold. The graph shows that the likely peak of US consumer purchasing power occurs in 2011-13. The DOW tends to lead by 2-3+ years. Time enough to prepare. The graph shows a decline not seen since the Depression and the 1960s into 1970's, lasting into the 2020's.
June: Mars trine (120 degrees) both Jupiter and Saturn: The Peak. As the movie said: "As good as it gets."
Mid 2007: Slow TAO, and longer term investment psychology, peaks--near the highs, going into a Bear market. Several Sectors are already in a Bear market, real estate (iyr) especially.
Newsletter 06/27/2007 #8
With increased market volatility, market timing is critical. The TAO is peaking. It also happens that June through October is the worst cyclical period of the year for stock market performance.
The US consumer faces increasing interest rates, record rates of martgage default, rising food and gasoline prices, and, now, losses on their stock investments. The recent short decline took many of the technical indicators from being overly bullish, down into an area where the market can decline significantly for several months or longer. Recent economic data has been negatively biased. LBO's (leveraged buy-outs), which helped fuel the recent rally, also can Leverage Both Ways, as corporate debt is now a major liability. Debt load, higher interest rates, and the weakening economy are major negatives.
somc has written for over a year now that the housing bubble will take years to unwind. The start was 2006. Without going into the sordid details about the housing numbers, they are as bad now, and worsening, than they have been since the 1991 recession, or the 1930's Depression--take your pick. Simply stated, credit is tightening, housing inventory is rising, and prices are declining with much farther to go.
Year to year, the SPY is now in the 4th year of a bull market (in a longer cyclical Bear market). If the US is going into a recession, which I think we are, look at the dismal 2001-2002 period on the SPY weekly chart. If/when the Yen carry trade reverses, liquidity dries up, and stocks will fall hard. For investors, it is a time to be very cautious and conservative. For traders, the best trading times are just beginning. Rising volatility increases opportunites.
somc wrote late issue that "The pressure on rates (interest) continues to be upwards, regardless of the downward short-term rate influence of the weakening US economy. Long-term upward rate pressures will continue to outweigh any short-term relief UNTIL the next global recession." Since then long rates have risen significantly, and now there is even more pressure on the Financials (XLF), the leveraged corporate debt structure, the housing market (which is still deteriorating), and general consumer debt payments. The FED, at present, is stuck on hold.
The Case/Schiller housing index (the most reliable) continues to be worse in most parameters than the early 1990's decline (the worst to date since the Great Depression). "Exploding mortgages" are being experienced across the country (ARM's that increase 30-80% upon expiration of the "teaser" rate).
XLF: Financials thoroughly rolled over in May, failing a slight breakout of the Feb 2007 high, broke down sharply in early June, and then, most significantly, failed to rise above moving average resistance. Financials comprise 20+% of the SPY (SP 500 Index). When the Financials can't move money, they lose profitability. Sharply rising interest rates and the inverted yield curve have crimped their style. The recent Bear Stearns blow-up may just be the beginning of many more. One analyst said today, "Buying BX (Blackstone--the newest LBO firm) is like sucking on the tailpipe of a $500,000 Lambourgini,"...(closed its opening week at $32, now at about $5).
Right now, FXE (the Euro) is a buy. However, it has a mixed technical picture, over the longer term...Germany is the powerhouse behind the Euro's strength. It is likely that Germany will fair better than the US during somc's expected imminent global economic slowdown...
In April somc wrote, "The expected market decline is expected to be temporary in nature, with the rally resuming cak toward new highs." The declined between then and now was very temporary, and promptly the stock market rallied back to its previous highs...Other than modest reflex rallies, somc forecasts that these Jan 2007 highs will remain intact for the foreseeable future. (true for some ETFs, not true for others). The TAO begins a series of lower highs and lower lows, implying a steady deterioration in global psychology (and the market along with it).
XLY/IYC (consumer related ETFs) are at the heart of the US economy. The Feb-Mar 2007 Eclipses sharp sell-off was fair warning of a downturn. The rolling, rounding retracement back to the old Beb high, and then the sharp negation of that breakout to new highs early this month are confirmations of a consumer slowdown. I suggest that related to the imploding housing market, exploding consumer debt, negative savings rate, rising prices, etc., that the consumer is being pinched NOW--preceding the recessionary/depressionary demographics shift (2011-13) by the usual 3-5 years=Bear market.
Jun/Jul/Aug/Sep: Jupiter closely squares the Moon's Node. Politics, Religion, Economics under fire. Dissention in the ranks. Givernments and religious leaders lose credibility.
July 31: Mars squares Staurn. The instability of fundamentals--Earth, structures, food countries, war, hurricaines and oil move to the forefront for 6 weeks, and will have a longer term negative effect.
Aug 23: Mars opposite Jupiter. Rebellion and the status-quo/prosperity under scrutiny/attack. Both Mars aspects have effects both prior to and beyond the exact dates (for months and longer). From the best (trines) to the worst, conjunctions and oppositions.
Newsletter 08/26/2007 #9
For the past year somc has emphasized how leveraged asset bubbles interrelate globally. The last few trading weeks have been intriguing. Without the extraordinary intervention by the US FED and Europe's ECB, the global stock market indices would now be considerably lower than they are, since the asset-bakced financial system was "freezing up". They poured more funds into the financial system than after the 9/11 disaster. Last issue I wrote, "somc forecasts that stock prices will decline 5-10% or lower by the end of Sep 2007. The DOW is likely to decline to or below 12800. It may fall apart, reminiscent of 1987." So far, that is about what has hapenned. Many stock sectors (ETFs)(especially BRIC related) were down 20%. Now, for a brief period, somc is bullish...We gained an average of 4% for a one-day wonder, said thank-you Bernacke, and left, to go back in Monday for a two-day encore. somc is currently flat, as per the 8/22/07 Exit Bulletin. somc expects choppy, bottoming action ending before the Solar Eclipse on, of all dates, 09/11/07.
Housing Depression. I have written about this bubble for over a year, and it does continue to worsen, spilling now into significant financial sectors. It is one of the defining economic factors globally for several years to come...The economic contraction continues.
So far, as somc wrote last issue, "Buying BX (Blackstone--the newest LBO firm) is like sucking on the tailpipe of a $500,000 Lambourgini," and now down 25+%, and Buffett's venture in Transports near their highs did a little better--only down 10%.
The consumer...XLY/IYC...is down but not out yet. The housing fiasco will take its toll, over time.
All of the standard stock sectors shorter and longer term breadth and volume oscillators are well into over-bought territory, and likely to normalize soon. Higher prices are still possible, but momentum is weakening, especially longer term.
From 09/07 hard asset prices, including Gold and silver, are likely to be supported. After the expected stable to lower price action in the next two weeks, somc is looking for higher Gold and Silver.
XLB: XLB is one of the raw commodities sectors. This represents the prices that producers pay for their materials. It is also a prozy for the real level of inflation, modified by consumer demand. One of somc's themes from Issue #1 has been the Age of Scarcity, and it is still with us, as manifest by the absolute 15+% rise XLB has had over the last year...the longer trend in place continues the solid rally.
IYR: (real estate) IYR adds both dynamism and more diversity as the last addition to the somc Portfolio. As with the other stock sectors, somc is looking for a more complex bottom (IYR was at 68, and rallied to 75)) during the next two weeks. The most recent price rise is helpful in forming a tradable bottom. Once the MACD's normalize, the IYR has the potential to have a 10+% rally from here. Before or after 12/07, reality is likely to set in, with more declines in order (now at 21). the housing crisis is far from over, lasting 3-5 years, on average, late 2005 to ???
Partly because of the trine of Mars to BOTH Jupiter and Saturn, the TAO's top optimism was in mid-June. somc wrote, "Other than modest reflex rallies, somc forecasts that these Jun 2007 highs will remain intact for the foreseeable future (many ETF's peaked in Oct, many didn't). The 08/08-12/07 "reflex rally" will likely be playable for significant returns, and may be more than just "modest"." Then the TAO begins a series of lower highs and lower lows, implying a steady deterioration in global psychological (and economic returns) over the next year. This highlights the astrological component of somc's work.
In practical terms, the awareness of these psychological oscillations allows somc to have a relatively unique perspective on current global events and market activities. From 06/07, the TAO begins to erode over the longer term (years). The Average TAO (combines short, medium and long TAO's), however, is momentarily due for a steep ascent back into levels that will probably find the words "euphoria" and "approaching new highs" actually being used again. (happened in Oct 07).
Slow TAO has already peaked, for a sustained decline into 2008 and well beyond, into 2011.
Newsletter 02/15/2008 #10 (Last print issue)
Helicopter Ben fuels US Addiction to Debt and Easy Money.
BUY AND HOLD turns into CRY AND FOLD
I wrote August 26, 2007: "For the past year somc has emphasized how leveraged asset bubbles interrelate globally. The last few trading months have been intriguing. Without the recent extraordinary intervention by the US FED and Europe's ECB,
the global stock market indexes would now be considerably lower than they are, since the asset-backed financial system was "freezing up". The FED poured more funds into the financial system than after the 9/11 dsaster." That still applies today. "Stocks may fall apart, reminiscent of 1987." The stock market almost did fall apart then, and recently, the FED bailed out the global stock markets with an almost unprecedented 1.75 point reduction in the Fed Funds Rate in less than two weeks, as well as supplying massive liquidity, and easing access to the discount window.
Astrologically, the TAO 3 (technical aspect oscillator)(theoretically a measure of global psychology developed by somc) is now close to bottoming, for a few months. The Slow TAO topped last year and is making lower lows and lower highs. somc expects a 1-3 month rebound rally.
We are 2+ months into the current Recession. The global stock indices will likely have substantially lows after the Apr 2008 rebound highs.
Again, from last August, "Housing Depression. I have written about this bubble for more than a year, and it does continue to worsen, spilling now into several significant financial sectors. It is one of the defining economic factrs, globally, for several years to come." This still applies. Eventually, the FED (after being in denial for several months--Bernacke's "this is confined to sub-prime" statements) was brought to its knees, and eventually did lower interest rates. "It's probably only a patch on a hemorrhage. The economic contraction continues."
The contraction is now literal. Recession is now, and the inflation risk is an expedient way out--for awhile. Meanwhile, for traders, there is trading opportunity. Trading Bulletins are now issued as the technical dynamics change on the somc website: www.schulzonmarketcycles.com
SPY (SP 500 Index ETF): Most of the SP 500 stocks have significant international operations, and generate much of their earnings from overseas investments. It is the most liquid international stock index ETF to use, and has active futures/options markets. somc expects a short-lived rebound in optimism (price) into Apr 2008. This is a Bear market rally, with the projected downward price target of 115 or lower (was 135 at the time). The Slow TAO model has been profitting from this decline, being leveraged short SPY from 142.80, on 1/2/08. However, by Apr 2008 a Bear market rally is expected, actually back to or near the 142 level--so still time to exit or short before the Bigger decline ahead.
Germany (EWG) is the fourth largest global economy, and is the largest and most influential member of the ECB (Europe's FED). Germany and the ECB are reliably pragmatic concerning inflation. Germany also runs a budget surplus. The ECB has only one primary economic mandate, and that is to moderate inflationary pressures. This is in contrast to the dual mandate of both containing inflation AND maintaining maximum sustainable economic growth. Unfortunately, it is clear now that Germany (and Europe) has been sucked into the global asset-backed/sub-prime vortex, and is suffering accordingly. The MACD signalled downside risk in Nov/Dec 2007. Now EWG is in a confirmed Bear Market.
Canada (EWC) trades mainly with the US, and therefore has liabilities related to US weakness. However, just as Germany has strengths through it fiscal responsibility, Canada has strengths from its natural resource assets--oil, minerals, metals, forests, agriculture (one of the few global countries poised to benefit from global warming) and water. If Canada could pipe its water reserves to the US southwest, it could retire. It is temporararily bullish, but the recent severe (10+%) breakdown implies it too is now in a longer term Bear market.
US Consumer (XLY, IYC) Last August I wrote, "The housing crisis is far from over, lasting 3-5 years, on average, from late 2005--???" The housing credit card was not only revoked from the US Consumer, but also compounded debt interest applied in the forms of declining equity and increase mortgage rates (especially as the "teaser loans" reset). These ETFs started their Bear market in July 2007. There will be a temporary rebound followed by an extended Bear market.
Technology (XLK) stated in a Bull market until the first week of Nov 2007, and confirmed its Bear market with a double top and declining weekly MACDs in Dec 2007. After a climb into Apr 2008, somc will again be looking for some serious shorting opportunities.
Real Estate (IYR, VNQ): Last August I wrtoe, "This housing contraction will take years to resolve. It is negative now, and bottoming somewhere between the 1991-93 recession lows, and the Great Depression--take your pick." That still applies. In Real US Dollar terms, it is somc's assessment that the US Housing market has seen its valuation top--for a long time. Adding to its current problems, starting in 2010, the US joins the negative European and Japanese Demographics Trend, and that means distinctly and significantly reduced housing demand. (As an aside, Europe (especially the UK) is now in the estate position that the US was in one year ago). Sharp declines, after this 2+/- month rally, are likely to follow. The IYR and VNQ ETFs entered their Bear market earlier than most, in Feb 2007.
Transportation (IYT) is a new addition to the somc Portfolio, and is frequently a leading indicator, because they feel the effects of an increase/decrease in new orders first. They are affected, of course, by fuel prices...IYT may lead the way down.
Gold (GLD): This page is Inflation (somc devoted a whole page to ETFs related to inflation--GLD, SLV, DBA, OIL, USO, etc. and TLT (long bond, adversely affected by inflation/interest rates). In somc's bullish Aug 2007 newsletter, "In the next 6 months, GLD is due for some major moves...". Since then GLD has made two major thrusts to higher levels. Longer term, GLD way over 100 (spot Gold greater than $1,000/oz) is a given. Perverse credit is given to the Bernacke FED's very stimulative money supply and lower rates, that, when coupled with higher demand, will take GLD, SLV, DBA and others to much higher highs. The highs are likely to be seen before Nov 2008. China's rampant Inflation is now the World's Inflation problem. After the Olympics, and a curtailment of its related construction/preparation activities, China's stability is in question. The Solar Eclipses into 2009 are very problematic for China.
One of somc's themes from Issue #1 has been The Age of Scarcity. Commodity Demand coupled with Easy Money has produced Systemic Inflation. The increasing demand for Crude Oil (OIL, USO), from China and India alone, is likely to propel it above $100/barrel--to stay.
Agriculture (DBA) represents the AG-flation part of Stag-flation. The trend is obvious--up. Technically, until proven otherwise, somc is buying dips.
Bonds 20+ year (TLT) have entered a Bear market. TLT is now feeling the heat of the FED's fueling inflationary fires. However, there are two problems. First, globally, we are in a Bear market, and that helps TLT stabilize its decline at some point. Second, Inflation will eventually overextend and extinguish itself. Both of those factors can happen rapidly. And what overextends on the way, can, and usually does, over extend on the way down--the yin and yang, front and back...
The SOMC ETF PORTFOLIO: somc features the somc ETF Portfolio (SEP). It currently includes 15 Primary ETF's in 3 separate sectors. Sectors 1 and 2 trend with the TAO 3. Sector 3 tends to be either non-correlated or inversely correlated with the TAO 3. (At that time, Sector 1=DIA,SPY,EWG,EWC,IYC; Sector 2=XLF,XLK,IYR,IYT,SLX, and Sector 3=GLD,SLV,DBA,DBP,IEF). (These sectors all had/have flexible interchangeable component ETFs)(Refer to somc's current and evolving ETF page). The primary benefit of the somc Portfolio is stable performance over time, during all market conditions. The SEP tends to benefit from market uncertaintly and high volatility. The recent action by the NYSE to eliminate the rule against short-selling on down-ticks has added to volatility (the magnitude and frequency of price fluctuations). The recent increase in volatility has transformed many "buy and hold" investors into "cry and fold" divestors. For somc and the SEP, increased volatility adds multiple trading opportunites.
One of the large benefits of diversity is that large market moves in specific sectors come at different times, e.g., for both Sectors 1 and 2: 2000, 2003-07, 2007-08; Sector 3L 2002-06, 2007-08. Riding these big waves, up and down, improves the benficial potential for somc's bottom line, AND substantially decreases risk.
ETFs (Exchange Traded Funds) are the individual and institutional stocks of the present and the future. They Trade Like Stocks, and enable every investor and trader, throughout the globe, to participate in hundreds of specialized markets. Their advantages are their diversity, specificity, flexibility and very low management fees. All of the ETFs used in SEP are highly liquid. They can be used in combinations with options, leverage, and short-selling as you prefer. Fortunately, there is now almost No Need for short-selling, since there are now multiple INVERSE ETFs. When bought, these Inverse ETF's increase in value when the primary index goes down in value. For example, when DIA (the DOW) goes down, DOG, when bought, goes up. So, now, only standard buying trading accounts are needed to profit from both Bull and Bear markets. ETFs are replacing mutual funds. Enjoy them now in your account.
Recession: If it Looks like a Duck, and Walks like a Duck, and Quacks like a Duck--probably IS a Duck. That, in practical terms, means, if you are long (looking for higher prices) after April, DUCK and RUN for cover. More serious declines are likely to come both before and Well After That.
Feb 20: Total Lunar Eclipse: Public unrest. The current global weather extremes cause widespread suffering, from China's snow to US Midwest floods. Friction over US election results. Public figures resign. Political dissatisfactions.
Apr 24: Mars opposition Jupiter. A major negative (especially in comination with Mars/Saturn negatives). One big factor in somc's projected 2nd quarter equity decline. Business adversity and contraction. Job cuts, lowered profits, downsizing, lower expectations. This (and Mars/Sautrn's) aspect has a long and potent lead and lag time.
Aug 1: Solar Eclipse: Beware, instability ahead.
After this issue, SOMC communicated through www.schulzonmarketcycles.com and the Bulletins.
For better or worse, I have preserved and published those below.