THE LIBERTARIAN ENTERPRISE
Number 573, June 6, 2010
"A sign of the tyrant is a failure to
distinguish between dissent and treason"
Special to The Libertarian Enterprise
A few weeks back I mentioned that there were many trillions of good reasons to think that the sovereign debt crisis would spread from Greece to other eurozone countries. One of the countries mentioned in my analysis was Hungary. And it just blew up, enough to drag the US stock markets down.
If you were to envision Europe as a long train of cars all hooked together by their common currency, relatively open borders, and hypothetically common market, then you'll have noticed that the Greek car in the train recently burst into flames. As a metaphor, this train wreck concept works to some extent. Today the car representing Hungary caught fire.
Of course, it is only an analogy, as the cars are not lined up in a particular order. You can't be sure that the crash isn't going to cause Spain, Portugal, Ireland, or Italy to burst into flames. You can say with some confidence that Iceland has already burst into flames, and be pleased to see the anarchists in Reykjavik coming into their own.
As you may have noticed by now, there was a crash on Wall Street today, too. Gold, which had been moving lower for the last few days, has surged up. These are not unexpected.
If you believe that the markets have formed a head and shoulders formation, which appears to me to be consistent with an examination of a linear chart of the Dow from 1995 to present, then there is going to be a period of roughly five years starting from April 2009 to form the right hand shoulder. Which is a strategic opportunity if you place bets based on volatility, expecting the market to move between 11,500 and 7,700. If you accept the technical analysis implicit in charting you would then expect the markets to fall dramatically below 8,000 until fundamentals change the underlying context of the markets. Now, there are several "ifs" in this paragraph.
Personally, I have seen more persuasive formations in clouds, and never got a ride on any of the horses or llamas in the clouds. But a market is made of hundreds of millions of investors, and many of them follow charting and "believe" in technical analysis. And when you are playing a game like poker, you aren't betting on the cards, you aren't betting on the probabilities (though you should have these in mind) you are betting on the other players. You are trying to understand the psychology of the other players, because how they bet, and how they bluff, makes all the difference to your strategy of bidding, calling, and showing or folding.
It seems to me that if you are wise, you want to get your assets clear out of the market and wait out the storms. In a highly volatile market there are many chances to be completely wrong, and there is an excuse for the government to act against your interests. You could lose everything. Your investments could be locked out from your access. Your 401K or other retirement funds could be seized in the name of "protecting" you from volatility in the markets and forcibly invested in government securities. (That would provide the government with $15 trillion in badly needed cash.)
No, it isn't fair. You rode the volatility on the way up from 1998 to 2001 and back down, and then up to the top of the pointy head in 2007. And so far you've been riding the volatility up and down ever since. But the government is not fair, it is not just, it is force. And governments are not composed of just, fair, decent, wise persons who think calmly about the long term consequences of their actions. On the contrary, they are composed of greedy and vindictive politicians and bureau-rats. These people think nothing of protecting their asses today at the cost of a deluge later on.
Your retirement funds are in danger. Your funds in the bank are in danger. I believe you should have gold and silver coins, preferably in your direct physical possession. If you trust the system to remain whole, to provide you with access to your wealth, to have reasonably open public markets for stocks, bonds, and commodities, I think you are living in a dream world. But let's say all that's true to some extent. You still want to have some cash and some gold and some silver in your possession, as a hedge against the system going nuts.
Remember that in the long history of stocks, bonds, and commodities there have been many similar periods. In 1672, King Charles II closed the exchequer and fucked over everyone who had ever placed gold with a goldsmith in the City of London. In 1722 the South Sea company which was monetising the slave labour of hundreds of thousands of Africans who were forcibly transported to the Caribbean and North American mainland crashed, dragging with it the bubble on stock markets across Europe.
Within ten years, about nine out of ten companies listed on the exchanges in 1722 had been wiped out. Something like 90 to 95% of the value of the surviving stocks had also been wiped out by 1732. It would be 1782 before stocks on the markets in Paris, London, and Amsterdam reached their previous highs. George III would go mad and lose his North American colonies. Louis Seize would be executed and France plunged into the madness of hyperinflation and dictatorship. Napoleon would rise, set Europe on fire, and bring a badly conceived measuring system to the world, throwing out thousands of years of development of useful measurement standards, while slaughtering around 6.5 million both in combat and in pillagethe rules of European continental siege warfare being widely understood to mean rape first, ask questions later.
As a consequence of the economic misery brought about by the foolish bubbles of the John Law money, Banque Royale scandal, and South Sea Company, Europe was plunged into a series of world wars. The Seven Years' war was a world war from 1756 to 1763. The American Revolutionary was a world war from 1777 when the first Indian colonies revolted until 1783 when the war was settled with the Treaty of Parisultimately involving Britain, France, India, the Dutch Republic, and the USA. The Napoleonic wars from 1797 to 1815 were also a world war, and the war of 1812 in the USA was a part of that larger conflict.
So it would not be unexpected that the current crisis is going to burn hot enough to fuel more war. The USA occupations of Germany, Japan, Korea, Iraq, Afghanistan, and combat operations in Somalia, Yemen, and probably Iran are a phase in a series of world wars that started in 1914. Eisenhower clearly and deliberately created a monstrosity in the CIA and military industrial complex which almost certainly assassinated JFK and has fought a Cold War and wars of occupation in Vietnam and elsewhere. So the economic consequences of forming the Federal Reserve and printing enough money to make war seem cheap have not yet been entirely reaped.
The good news is that new technologies are now allowing mankind to build the new society in the shell of the old. The bad news is that to retain their grasp on power, these wicked people have already used nuclear, chemical, and biological weapons on civilian populations in Nevada, Utah, Tuskegee, Waco, and elsewhere.
This train wreck is taking some time, and the completion of the right hand shoulder of that formation might take as long as the left hand shoulder formation tookroughly five years. So you may have time to prepare. But so does the state. And it can pull a fast one on you by banning certain types of trades, imposing currency controls, erecting a huge border wall to keep you from moving yourself or your wealth around, and start going door to door to seize your property and weapons. You and I are already dead, if the government wants us to be. Which is a condition that gives you a lot of power to act rationally and without remorse.
The modern nation state and the modern economy both come into existence by fits and starts between 1649 and 1689. For those of you who remember English history, the first date is when a king had his head chopped off and the second is when another king was run out of England by angry mobs. I can point to half a dozen other formative events in the history of other countries if England isn't your cuppa.
There are two aspects of this "nation state" and "economy" thing that I think are relevant to look at and think about. One is the parliamentary system of authority, which spreads to an oligarchy of sorts the business of decision making without necessarily keeping a very small power elite from pushing their agendas. Second is the Bank of England type paper money system of artificially exacerbated business cycles. This volatility causes people who develop new things to lose control of their inventions and keeps the ever-changing power elite individuals in power.
If you accept these premises, such as they are, then you would want to compare the current collapse of an enormous bubble to any other event in recorded history. I think there are basically five possible events to use for comparison. One occurs in the Fourth Century AD and effectively ends the Roman empire as the dominating force in trade and commerce, which shifts to Constantinople and Byzantium. Two occurs in 1258 and represents the end of the gold dinar as a world currency. Three occurs in 1453 and represents the end of the Byzantine solidus as a world currency. Four happens in 1637 at the end of the tulip mania. Five happens in 1722 at the end of South Sea bubble.
The only one of these events that takes place amidst more or less modern economies and with more or less modern nation states is the 1722 event. So I think the rational thing to do is look at what happened then and see what might be expected if what has been happening since August 2008 is really at all comparable. And I think it is.
Of the stocks listed on the exchanges in London, Paris, and Amsterdam in 1722, something like nine out of ten or more go bankrupt and cease to exist by 1732. During those ten years the value of the remaining stocks plunge by 90% to 95%. If you check my notes and go back to March 2009 or so you'll see where I document the collapse of stock prices for some stocks by as much as 98% at the nadir. Major companies have gone bankrupt: Chrysler, General Motors, Lehman Brothers, Bear Stearns, Merrill Lynch, Washington Mutual, etc. And we haven't gotten anywhere close to 2017 when I would expect the true nadir to arrive.
Instead we are seeing global markets form the right hand shoulder of a fifteen year head and shoulders pattern that peaked in 2007. The five years from 1998 to 2003 form one shoulder. The five years from 2003 to 2008 form the head. The five years from 2009 to 2014 are going to form the right shoulder. After that, the markets are going to plunge below the neckline, roughly 8,000 on the Dow. And they are going to stay below that level until fundamentals shift the underlying nature of the markets.
Between 1732 and 1781 stocks did not rise to their former highs. During that time there were two world wars known as the Seven Years War and the American Revolutionary War (which involved the USA, British empire, French empire, Spanish empire, Dutch republic, and two major sections of India, among others). In 1782 global markets finally rose back to their 1722 peak and have continued more or less upward as a trend ever since, though with some major drops and panics and world wars.
So if you are ready for a sixty year depression and two more world wars, you should be good.