Regardless of what we hear from various sources, fact is, the economy peaked
in 2000. This peak corresponded with the stock market top in 2000, which was
followed by the decline into the 2002 low. Since that decline began, the money
masters have tried to reignite the underlying economy and in the process they
have only made matters worse.
Seriously, rather than letting the mainstream media tell you what to think,
stop and think for a minute with some basic emotionless common sense. If the
economy was so good, then why did the money masters cut interest rates following
the 2000 top? It's simple, in their own words, they were trying to "stimulate
aggregate demand." Why? Because the economy had peaked and they were trying
to jump start it, again. Obviously, if the economy had been sound, these measures
would not have been needed. As the 4-year cycle advance out of the 2002 low
continued pressing higher and higher, I specifically said in interviews and
in articles posted here that they were only making matters worse. All the while,
even Greenspan denied the housing bubble, which is exactly what I mean when
I say think for yourself. The housing bubble was obvious, yet they tried to
tell us that it did not exist. I guess the main point here is to simply watch
what they do rather than what they say. Kind of like the old saying, actions
speak louder than words. They are telling us one thing and doing another. In
the end, the efforts to re-inflate the economy following the decline into the
2002 low did in fact make matters worse and it resulted in the worst financial
disaster since the 1930s.
This now brings me to the current situation. I said when the advance out of
the 2009 low began, that it was a bear market rally and that the longer it
lasted the more dangerous it would become. I also said that it would, however,
continue until the proper statistical based setup to cap it was seen. At that
time I did not realize just how profound this statement was. Honestly, I had
no idea that this advance would last this long or that it would carry price
to these levels. However, I still stand by these statements. The rally out
of the 2009 low has NOT been based on a solid technical, fundamental or economic
foundation. Rather, it has been based on the same phony smoke and mirrors liquidity
driven actions that caused the housing crisis, a commodity bubble and a banking
crisis, which all resulted in the worst financial disaster since The Great
Depression. But, what do the money masters do as a result of that crisis? More
of the same that created it in the first place. So, here's another common sense
question. How or why should we expect more of the same behavior that created
the worst financial crisis since The Great Depression to yield a different
result this time? I think this is particularly true given that it's being done
on the back of the same rotten economic foundation.
Back in 2009 when I said that the longer this rally lasted the more dangerous
it would become, I was referring to the fact that the longer it lasted, the
more convincing it would become and that as a result it would draw more and
more people into it. Given the underlying technical, economic and fundamental
foundation, this has now turned into what I think will prove to be the greatest
bear trap of all. An example of the degree to which this rally has become convincing
is evident by the Investors Intelligence sentiment data, which is at the highest
levels seen since February 1987.
As for the state of the economy, I want to share one simple chart with you.
That being a chart of the Velocity of M-2, which can be found below. Let's
first define what the velocity of money is. Per www.investopedia.com,
it is "the rate at which money is exchanged from one transaction to another,
and how much a unit of currency is used in a given period of time. Velocity
of money is usually measured as a ratio of GNP to a country's total supply
of money. Velocity is important for measuring the rate at which money in circulation
is used for purchasing goods and services. This helps investors gauge how robust
the economy is, and is a key input in the determination of an economy's inflation
calculation."
Now with this established, let's examine the chart. First, I want to point
out that it peaked in mid-1997, which supports my theory that the economy peaked
in 2000. It is interesting to note that from a cyclical perspective the 1997
top occurred just ahead of the 1998 4-year cycle top in equities, which created
a non-confirmation that was followed by a decline into the 1998 4-year cycle
low by equities. The velocity of M-2 bottomed in early 1999 and then advanced
as equities moved into their 2000 4-year cycle top. But again, with the velocity
chart peaking ahead of equites, a non-confirmation occurred, which was followed
by the decline into the 2002 4-year cycle low. The velocity of M-2 turned up
in early 2003 in association with the 4-year cycle advance in equities. But,
notice that the velocity of M-2 peaked in early 2006, which again formed a
non-confirmation with equities as they continued up into October 2007 and which
was followed by the decline into the 2009 4-year cycle low. Now, let's refer
back to the definition of the velocity of money. ......."Velocity is important
for measuring the rate at which money in circulation is used for purchasing
goods and services. This helps investors gauge how robust the economy is, and
is a key input in the determination of an economy's inflation calculation." Appears
to me that this definition it pretty accurate. It's an indisputable fact that
these non-confirmations clearly show the underlying economic slow down and
it is indisputable what followed. Now, in association with the advance out
of the 2009 4-year cycle low, the velocity of M-2 bottomed along with equities
in early 2009, but it peaked in mid-2010, which with the stock market having
continued higher, has formed yet another non-confirmation. Is there perhaps
a pattern here?
But, more importantly, when we stand back and look at the velocity of M-2
as a whole, note that it has been moving progressively lower since its 1997
peak. This clearly shows that the economy did in fact peak in or around the
2000 time frame. This one chart also clearly shows what the money masters have
been fighting ever since. With the velocity of M-2 at levels not seen since
the inception of this data in 1959, how in the world can anyone argue that
we are in an economic recovery? The very definition of the velocity of money
argues otherwise. I will also argue that the continued actions of the money
masters is evidence to this effect as well. Point being, if things were so
great, would the extreme measures seen had been necessary? Watch their actions,
not what they say. With the velocity of money having drifted lower and lower
ever since the 2000 stock market top and with the knowledge of this chart,
how can anyone honestly argue that we have been in a secular bull market? In
fact, this one chart alone pretty well confirms that I'm right about this being
a bear market rally as was the case with the advance into the 2007 top. This
one chart clearly shows what the money masters have been fighting since 2000.
That being, a deflationary and contracting economy. It's all one big phony
secular bear market advance. More importantly, this chart also clearly shows
that all of the efforts to "stimulate aggregate demand," in order to reignite
the economy, has not worked. In fact, this chart shows that it has out right
failed.
My long-term cyclical, statistical and Dow theory work has told me all along
that this is a bear market rally and I continue to stand by that opinion. I
also continue to stick with my guns that the statistical based research will
tell me when this advance has run its course. Given the underlying economic,
technical and fundamental back drop in which this smoke and mirrors phony liquidity
driven bear market rally has occurred, along with the continued efforts that
created the worst financial disaster since The Great Depression, I am truly
concerned that the current bubble, yes bubble, will result in an even worst
financial disaster. This situation is so serious that I am not just worried
about the implications for the stock market and the economy, but also the social
and political implications that could well follow. In spite of the fact that
the market is sitting at new highs, along with the associated bullish sentiment,
the market and the economy are rotten at the core. I don't care what economist,
analyst or Phd says otherwise. My data tells me otherwise. This is a bear market
rally that is not apt to end well. Many try to discredit such thinking and
my only response to that is that anyone trying to do so is either uninformed
as to the totality of the supportive data, as was presented here in one small
way with the M-2 chart, or they are deceptive. The potential for a financial
apocalypse is enormous. In the meantime, this madness will continue until the
proper setup to cap it is seen. At which time, it will be checkmate for the
market and the economy. Just as the practices that stretched the last bear
market rally up into the 2007 4-year cycle top only served to make matters
worse, so is it apt to be the case this time. You have been warned!
If you would like to know more about my statistical based research, the associated
cycles, Dow theory, the setup required to cap this advance, commodities, gold,
the dollar and the related developments as they occur, it is available in my
research letters at cyclesman.com I used these methods to warn and identify
the 2000 top in equities as well as the 2007 top, the housing top, the 2008
commodity top and the 2011 top in gold.
