21st Century Breakdown

Gold-Speculator comment: Another great article by James Quinn

“Wherever we’re headed, America is evolving in ways most of us don’t like or understand. Individually focused yet collectively adrift, we wonder if we’re heading toward a waterfall. Are we?” Strauss & Howe The Fourth Turning

Political leaders and the mainstream media have been blindsided by the sudden mood shift of the country in the last few years. The reason they have been blindsided is they believe world history is linear. Liberals have now begun referring to themselves as progressives. These people think the world only progresses. The facts indicate otherwise.

History is cyclical. History is replete with grand empires like Rome, Spain and Britain. It is also replete with Dark Ages, depressions and wars. Strauss & Howe have established that history can be broken down into 80 to 100 year Saeculums that consist of four turnings: The High, The Awakening, The Unraveling, and the Crisis.
The First Turning is a High, an upbeat era of strengthening institutions and weakening individualism, when a new civic order implants and the old values regime decays.

The Second Turning is an Awakening, a passionate era of spiritual upheaval, when the civic order comes under attack from a new values regime.

The Third Turning is an Unraveling, a downcast era of strengthening individualism and weakening institutions, when the old civic order decays and the new values regime implants.

The Fourth Turning is a Crisis, a decisive era of secular upheaval, when the values regime propels the replacement of the old civic order with a new one.
This isn’t some variety of mystical Nostradamus conjecture trying to foretell the future. Strauss & Howe have been able to link the human life span to generational shifts in mood. This makes logical sense. As generations progress through the four stages of life their attitudes and views change. When you are born within the four cycles will greatly sway the course of your life. History forms individuals and generations as individuals and generations shape history. In this age of individualism, Americans are highly insulted by being lumped into a generational category. The fact is that a generation is composed of individuals who share common experiences, music, literature, and economic circumstances. This shared time frame leads to recurring attitudes and reactions to events. Generations come in four archetypes, always in the same order, whose phase-of-life positions comprise a constellation. They are:
The Prophet archetype is born in a High, enters young adulthood in an Awakening, midlife in an Unraveling, and elderhood in a Crisis.

The Nomad archetype is born in an Awakening, enters young adulthood in an Unraveling, midlife in a Crisis, and elderhood in a High.

The Hero archetype is born in an Unraveling, enters young adulthood in a Crisis, midlife in a High, and elderhood in an Awakening.

The Artist archetype is born in a Crisis, enters young adulthood in a High, midlife in an Awakening, and elderhood in an Unraveling.
During a Fourth Turning, the constellation contains all four archetypes born in the current saeculum. We are now in the midst of the fourth Crisis period in U.S. history. The previous Fourth Turnings The American Revolution, Civil War and Great Depression/World War II all required immense sacrifice and entailed great danger. There are only a few Americans alive who experienced and recall our last Fourth Turning. This is one of the foremost reasons the country seems surprised when the next Turning arrives. Just think about the response of politicians, mainstream media pundits, supposedly brilliant economists, and the elite thought leaders during the last five years. They have been blindsided by the housing collapse, worldwide financial crisis, election of Barack Obama, and furious rage of the Tea Party movement. This is because they prescribe to the belief the world only moves forward, never backward.

They failed to identify the signs of Crisis. Threats that have been ignored and/or deferred for decades are now coalescing into a once in a lifetime emergency that will require public consensus, aggressive action, and personal sacrifice. Leaders who think the old way of governing will continue to work are learning a difficult lesson. This is why so many old time politicians like Chris Dodd are fleeing Washington DC. A maelstrom of government debt, unfunded liabilities, looming energy catastrophe, and consumer collapse is about to hit the United States. There is no politician in Washington DC willing to stand up in front of the American people and tell them the truth about the storms on our horizon.

The Turnings in American History First
(High) Second
(Awakening) Third
(Unraveling) Fourth
(Crisis) Saeculum:
Augustan Age of Empire
Great Awakening
French & Indian Wars
American Revolution
Civil War
Era of Good Feelings
Transcendental Awakening
Mexican War & Sectionalism
Civil War
Great Power
Reconstruction & Gilded Age
Third Great Awakening
World War I & Prohibition
Great Depression & World War II
American High
Consciousness Revolution
Culture Wars
Millennial Crisis?

Born Into Nixon

Born into Nixon I was raised in hell.
A welfare child where the Teamsters dwelled.
The last one born and the the first one to run.
My town was blind from refinery sun.
We are the [cries of] the class of ’13
Born in the era of humility
We are the desperate in the decline
Raised by the bastards of 1969
Green Day 21st Century Breakdown

The music of today best captures the generational shifts and attitudes that reflect the true mood of the country. Billie Joe Armstrong, the lead singer of Green Day, was born into Nixon in 1972 in the midst of an Awakening. This was a period of upheaval and passion. He was the last child born to a large working class family in Oakland, California. His reference to hell refers to the lower blue collar city he grew up in. Oakland was an awful place to be raised in, with drugs, gang violence and racial unrest. His Dad died when he was 10 years old, leaving his five older siblings to raise him while his mother worked the graveyard shift as a waitress. The family was on welfare and Armstrong’s childhood was disconnected and discontented. He fits the classic Nomad (Generation X) description of a tough, hard edged pragmatist who does not trust government or corporations. Armstrong’s lyrics have always reflected his distrust of traditional institutions. His description of their current album reflects his Nomad view:

“The album is a snapshot of the era in which we live as we question and try to make sense of the selfish manipulation going on around us, whether it be the government, religion, media or frankly any form of authority.” Billie Joe Armstrong

The lyrics about the Class of 2013 reflect the fact that his eldest son Joseph will graduate high school in 2013. Born in 1995, he is part of the new Hero generation. This is the generation that will do the heavy lifting in the current Crisis. This cohort is known as the Millennial generation. This generation has been nurtured with increasing protection by pessimistic adults in an insecure environment. They will challenge the political failures of their elder leaders during the coming years, leading to a secular crisis. Armstrong’s son was born in an era of humility during the Unraveling. The Clinton years were a time of little action, with problems ignored and public civility declining. This generation has been raised by Generation X parents and will now be expected to guide the country through the desperate times ahead. If there are wars to fight, they will fight them. Since their elders have made impossible financial promises, the Millennials will have to make the sacrifices and tough decisions. Every generation will have their part to play in the current Crisis. Boomers will be the elder leaders who push the country to resolve the major issues of our time. They will summon the Heroes to make the ultimate sacrifice for the nation. Generation X will provide the tough resolute leadership in the midst of the Crisis, defending society. Let’s hope the country will produce Nomad leaders on par with previous Nomads – George Washington, Stonewall Jackson, George Patton and Dwight Eisenhower.

There is no way to avoid this Crisis. It can’t be bypassed. Just as the seasons must progress from Spring to Summer through Fall and into Winter, a Crisis must follow an Unraveling. History does not have a rewind button. Secular Winter has arrived and the country couldn’t be less prepared for the challenges ahead. The government and the governed enter this highly dangerous period weakened and fragile. The short-sighted economic choices and deferred fiscal decisions will collide with peak oil and uncontrolled globalization to inflict a horrific resolution to this Crisis. The gravity of our situation cannot be overstated. As politicians and the mainstream media play pretend games of recovery and false optimism, the country hurtles closer to the abyss. The country had a chance to prepare for this Winter by:
Forging consensus regarding the problems we face.
Preparing our governmental institutions for the challenges ahead.
Political leaders bluntly describing the issues before us, stressing duties over rights.
Developing community teamwork to solve local problems.
Treating our youth as a national priority.
Preparing elders for the sacrifices and unfulfilled promises in their future.
Reducing government and personal debt.
Conserve military resources for the long road ahead.
You may have noticed that as a country we not only did not prepare for Winter, we proceeded like it would never come. No leader has emerged to bluntly speak the truth to the American people. Culture wars still rage. Government has expanded and our military has been depleted in useless wars of choice. All that is left is for individuals to prepare their families for the immense challenges ahead.

Generation Zero

My generation is zero
I never made it
As a working class hero

21st century breakdown
I was once lost but never was found
I think I am losing what’s left of my mind
To the 20th century deadline.

Videogames of the tower’s fall
Homeland security could kill us all
Green Day 21st Century Breakdown

To comprehend what awaits us in the next fifteen years, the blizzards of 2010 provide a preview.

“Reflect on what happens when a terrible winter blizzard strikes. You hear the weather warning but probably fail to act on it. The sky darkens. Then the storm hits with full fury, and the air is a howling whiteness. One by one, your links to the machine age break down. Electricity flickers out, cutting off the TV. Batteries fade, cutting off the radio. Phones go dead. Roads become impossible, and cars get stuck. Food supplies dwindle. Day to day vestiges of modern civilization bank machines, mutual funds, mass retailers, computers, satellites, airplanes, governments all recede into irrelevance. Picture yourself and your loved ones in the midst of a howling blizzard that lasts several years. Think about what you would need, who could help you, and why your fate might matter to anybody other than yourself. That is how to plan for a saecular winter. Don’t think you can escape the Fourth Turning. History warns that a Crisis will reshape the basic social and economic environment that you now take for granted.” Strauss & Howe The Fourth Turning

The two principal political parties that control our government continue to act like we are in the early days of Autumn, anticipating a mild Winter. They persist in adhering to their conservative and liberal talking point agendas. They continue to push forth more policies like those that put the country in its current mess. They govern based upon weekly poll results, not upon what is best for the country. Big Government, big Military, and big Debt is the mantra of both parties. In his new documentary, GENERATION ZERO, director Steve Bannon scorches both parties and particularly the Baby Boom generation that now holds the reins of power in Washington DC and in corporate America. It is not a coincidence that 4 out of 5 CEOs of the investment banks that leveraged 40 to 1 and brought the worldwide financial system to its knees were Baby Boomers. George Bush, Hank Paulson, and Ben Bernanke are all Baby Boomers. Their greed, fiscal mismanagement and warped ideology led to the financial disaster.

“This film is about a crisis one that is as profound as The Revolution, The Civil War, or The Great Depression and WWII.” The title ‘Generation Zero’ is ironic, as it refers to both the Baby Boomers and the generation born today: the one generation whose greed and fiscal mismanagement has destroyed the financial legacy and inheritance of the other.” Steve Bannon

Anyone who doubts that Baby Boomers are most responsible for the current state of affairs just needs to review the following charts. These politicians have voted for bailouts of criminal banks run by Boomers, voted for hundreds of billions in pork projects for their corporate constituents, delegated their Constitutional duty of declaring war to the Executive branch, voted for the Patriot Act and creation of a Department of Homeland Security which have stolen freedoms & liberties from the citizens, and have deferred the critical cuts that must be made to entitlement promises they’ve made to the American public in order to get elected. These “honorable” politicians have doubled the National Debt of the United States to $12.4 trillion in less than 8 years. It took 213 years to accumulate $6 trillion of debt ($5.6 trillion added since 1971) and only 8 years to add another $6.4 trillion. These same politicians have approved current budgets that will add $1.5 to $2.0 trillion per year to the national Debt for the next 10 years. Progressives put forth the preposterous idea that piling on more debt will solve a problem created by too much debt. They have pressed the accelerator to the floor as we approach a turn on a mountain road.

U.S. House of Representatives
Generation Birth Years
Count GI Generation
1901 1924


Silent Generation

1925 1942


Boomer Generation

1943 1960


Generation X

1961 1981


U.S. Senate
Birth Years
Party Division
GI Generation
4D, 0R

Silent Generation

15D, 1I, 1ID, 16 R

Boomer Generation

32D, 23R

Generation X

4D, 3R

We are truly in the midst of a 21st Century breakdown. Armstrong’s lyrics twist the lyrics of the inspirational Amazing Grace psalm. The inspirational message is changed from:

“I once was lost but now am found, was blind, but now I see,” to “I was once lost but never was found, I think I am losing what’s left of my mind.”

These lyrics reflect hopelessness and frustration as the country approaches financial collapse. We are on an unsustainable fiscal path built upon an altar of debt. Progressives believe that debt is inconsequential and is necessary to the advancement of the welfare state. No politician will tell an American voter that their entitlements must be slashed. No politician will vote to reduce pork projects or useless programs or worthless Federal departments. No politician will vote for a reduction in Defense spending. Someone within the ruling elite must sense danger, based on their overt and covert actions in the last nine years.

Allowing the government to monitor phone calls, emails, and internet messages along with stationing combat troops within the U.S. border is a warning sign of how government will treat American citizens during the current Crisis. The Department of Homeland Security has already issued reports suggesting that Tea Party members and returning Iraq War veterans are potential terrorist threats. The mainstream media has perpetuated these lies. Financial chaos will lead to social chaos. The recently signed Executive Order 13528 established a Council of Governors, an “advisory panel” chosen by the President that will rubber-stamp long-sought-after Pentagon contingency plans to seize control of state National Guard forces in the event of a “national emergency.” Would U.S. troops fire on American citizens? That question will be answered in the coming decade.

Dream, America Dream

My name is No One
The long lost son
Born on the 4th of July
Raised in the era of heroes and cons
That left me for dead or alive

I praise liberty
The “Freedom to Obey”
Is the song that strangles me
Don’t cross the line

Dream, America Dream
I can’t even sleep
From the light’s early dawn
Green Day 21st Century Breakdown

The American dream has turned into a nightmare. Led by the selfish, materialistic, self-absorbed Boomers, the nation has degenerated into an individualistic society of wealth seekers. The country’s common good and attitudes of thrift, hard work, and self reliance have been cast aside for the corporate good, immediate material satisfaction, and entitlement attitude. America is no longer the land of opportunity. It is the land of corporate fascism, benefitting the few.

“The American Dream is that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement. It is a difficult dream for the European upper classes to interpret adequately, and too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.” — Historian and writer James Truslow Adams in his 1931 book Epic of America.

This version of the American dream has been slowly fading away for decades. Those with ability who have earned a better life through their hard work, superior intelligence and integrity should attain a higher spot in the social order. Instead, government rewards those Americans who have taken unwarranted risks, made corrupt choices, and willingly chose a path of excessive debt to scale the social order. The game is stacked in favor of the elite, while middle class wages have stagnated for the last 40 years. Government bureaucracy strangles the entrepreneurial spirit of the people, while empowering those who want to control our every action.

Today’s aristocracy consists of Wall Street bankers, corporate chiefs, Washington lobbyists, the military industrial complex, and corrupt politicians, all engendered by the printing presses of Ben Bernanke and the Federal Reserve. The rich get richer and the middle class disappears, as their jobs are shipped overseas by corporate conglomerate CEOs who preach globalism as a benefit to society. It is a benefit to their country club elitist society. These elite Boomers have sucked the life and vitality from the American financial system. The three previous Crisis periods in U.S. history were all initiated by a financial related trigger based on excess.

The American RevolutionCrisis was instigated by the colonist response to overly burdensome taxation by the English Parliament. This ultimately led to the dumping of English tea into the Boston harbor. Parliament’s response to the Boston Tea Party ignited a colonial tinderbox—leading directly to the first Continental Congress, the battle of Concord, and the Declaration of Independence. The Civil WarCrisis had its roots in the issues of property rights and industrial versus agrarian society. The economic widening of the gap between slave and free states was symbolic of the changes occurring in each region. While the South was devoted to an agrarian plantation economy with a slow growth in population, the North had embraced industrialization, large urban areas, infrastructure growth, as well as was experiencing high birth rates. This boost in population doomed Southern efforts to maintain balance in the government as it meant the future addition of more free states and the election of a Northern, potentially anti-slavery, president. The Civil War began with a presidential election that many southerners interpreted as an invitation to secede. The attack on Fort Sumter triggered the most violent conflict ever fought on New World soil, with over 600,000 dead Americans. The Great Depression & World War II Crisis began suddenly with the Black Tuesday stock-market crash. The events leading up to the “sudden” collapse were caused by loose monetary policy by the Federal Reserve, Wall Street greed and corruption, and government incompetence. After a three-year economic free fall, the Great Depression triggered the New Deal revolution, and a vast expansion of government. The worldwide economic collapse led to the rise of Nazism and Fascism, a World War that killed 65 million souls, and mass destruction in Europe and Asia. The parallels with previous Crisis periods are eerily visible today.

The current Millennial Crisis which we are attempting to grasp was commenced by the combination of a housing collapse caused by loose Federal Reserve monetary policy, no regulation of financial institutions and corrupt greedy bankers on Wall Street. The depth and breadth of this financial disaster is being exacerbated by government borrow and spend policies and the free market globalism mantra of big business being sold to the American public. This fraudulent economy has been supported by a world awash in cheap oil. The American people have been scammed. Free market globalism didn’t benefit the middle class and the era of cheap oil is running out. James Howard Kunstler describes the scam perpetrated on the American people in his book The Long Emergency:

“Globalism had the same tendency to impoverish and enslave huge populations while enriching the elite who managed its operations. The American people were sold on it, even while it destroyed their towns, their landscapes, and their vocations. Globalism was primarily a way of privatizing the profits of business activities while socializing the costs. This was achieved by discreetly discounting the future for the sake of short-term benefits. Globalism was operated by oligarchical corporations on a gigantic scale, made possible by cheap oil. As Wendell Berry put it, ‘a corporation essentially, is a pile of money to which a number of persons have sold their moral allegiance …. It can experience no personal hope or remorse. No change of heart. It cannot humble itself. It goes about its business as if it were immortal, with the single purpose of becoming a bigger pile of money’.”

We’ve sold out America for cheap Chinese hair dryers, low-priced Chinese TVs, inexpensive Mexican apparel, economy packs of Fruit of the Looms from Indonesia and yellow smiley face stickers for our kids.As reward for gutting the American economy by shipping jobs overseas, American CEOs have enriched themselves at a rate 500 times higher than the average worker’s pay. Wall Street bankers were paying close attention to how corporate CEOs were able to reap ungodly profits while socializing the costs. With a clear signal from Alan Greenspan that the Federal Reserve would save any moron on Wall Street that got in trouble, the gluttonous Harvard MBAs created exotic financial products and convinced the world they could spin gold from straw. The CEO’s of the five biggest investment banks (including Hank Paulson of Goldman Sachs) convinced the SEC to waive their 12 to 1 leverage ratio and leveraged their Wall Street gambling casinos at 40 to 1. This excessive leverage combined with financial products designed to confuse and bamboozle investors generated billions in profits for these banks and hundreds of millions in pay and bonuses for their Boomer leaders. When the crooked house of cards collapsed under the weight of lies and fraud, these banks were essentially insolvent. At that point Hank Paulson, who was now Treasury Secretary, along with Ben Bernanke decided to socialize their losses by having the U.S. taxpayer pick up the tab. Middle class Americans lost 8 million jobs and Wall Street bankers used the taxpayer bailout to generate billions in fake profits while paying themselves hundreds of millions in pay again. The resentment of average Americans is boiling over and will play a main role in the unfolding Crisis.

Scream, America Scream
I am a nation
A worker of pride
My debt to status quo

The scars on my hands
And the means to an end
Is all that I have to show

I swallowed my pride
And I choked on my faith
I’ve given my heart and my soul
I’ve broken my fingers
And lied though my teeth
The pillar of damage control

Scream, America scream
Believe what you see
From heroes and cons?
Green Day 21st Century Breakdown

Progressives like Arianna Huffington clearly don’t comprehend what is happening. The anger and disillusionment of the population are seen as worrisome and disturbing by those who believe history is linear. The entrenched ruling elite should be apprehensive. During a Crisis existing institutions are torn down as the social fabric of the country undergoes wrenching changes. Those in power are rightfully fearful of the masses they have screwed for decades. President Obama, Ben Bernanke, Timothy Geithner, and the majority of economists and TV pundits are convinced the Crisis has passed and they have successfully maneuvered the country through the worst, avoiding a second Great Depression. History suggests otherwise. We have yet to experience the nastiest part of the Crisis. We can expect to encounter private and civic choices analogous to the cruelest ever confronted by ancestral generations. The recently submitted Obama budget, adjusted for reality, will add at least $12 trillion to the National Debt in the next ten years. That would bring the National Debt to $24 trillion in 2019. At a modest interest rate of 5%, the country would be paying $1.2 trillion per year in interest. The more likely scenario would be a 10% interest rate, resulting in annual interest costs of $2.4 trillion. The entire spending of the Federal Government was only $1.2 trillion in 1990.

Mr. Progressive, Paul Krugman, insists that worries about the debt are overblown. Despite the fact that our economy isn’t capable of growing more than 2.5% over the long term, he sees no problem growing our National Debt by 10% per year. It’s as if his Nobel Prize was coated in lead and he has been sucking on it. Only someone who is brain damaged would argue that doubling our debt will solve a crisis caused by too much debt. It’s as if Krugman wants to become the Irving Fisher of his time. One week prior to the Stock Market Crash of 1929 Fisher famously pronounced:

“Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months.”

The truth is our lenders will not allow our National Debt to reach $24 trillion by 2019. The U.S. dollar has already lost more than 80% of its purchasing power since Nixon closed the gold window in 1971. The amount of currency in circulation since that time has gone up by a factor of 16 to $800 billion. The result has been a stagnation of real wages for the middle class, while the ruling elite have seen their wealth soar to astronomical levels. The correlation between printing more of something and its relative value are as clear as day to anyone with a smattering of intelligence. Ben Bernanke is attempting to print his way out of this financial crisis. He is playing a game of chicken with our foreign lenders. He wants to devalue the U.S. dollar slowly to reduce the unbearable weight of U.S. debt. Foreign lenders from China, Japan and the Middle East know what he is doing. They will be the long-term losers in this scenario. At some point in the next few years they will balk at buying more US debt. A “Weimar Moment” will strike the United States like a sledgehammer. The veil of financial stability will be revealed to be a fallacy and the worldwide reserve currency will revert to its intrinsic value of zero. The chaos that would ensue as people’s life savings are wiped out would test the mettle of our country’s citizens, government, and military.

The dollar is likely to collapse just based upon current spending and borrowing trends. The unsustainable entitlement promises made by politicians over decades would have guaranteed a dollar collapse by 2030 anyway, so we will just arrive sooner. Not one politician from either political party has the courage to stand in front of the American people and tell them they will not receive the Social Security and Medicare benefits they were promised. Not one politician from either party is even willing to discuss the fact these promises cannot be honored. This train has been headed down the track since the 1960s, picking up speed, and no one is willing to apply the brakes. The Baby Boomers have sold their children and grandchildren into slavery. Their unwillingness to sacrifice entitlement benefits, guarantees a vastly lower standard of living for their descendents. How very egocentric and superficial of them. The most coddled, self absorbed, egotistical generation in history would rather crash the economic system than make any personal sacrifice for future generations. The $106.8 trillion of unfunded promises will not by paid, because there will be nothing left to pay. The country is bankrupt today. By 2030, half of all tax revenue would be needed to fund these programs. The Boomers will be forced to accept much less than they expected. The delusion of getting something for nothing will be put to rest during this Crisis.

The wildcard within the current Fourth Turning is cheap easily accessible petroleum. Progressives and those who only view the world in a linear way, fail to recognize that easily accessible oil only came onto the scene 150 years ago and we have depleted the easiest to reach 50%. The implication of these facts is beyond the comprehension of linear thinkers. They trust our ingenuity and brilliance to solve the problem. A new form of energy will magically appear on the scene and save our industrial world. Brain power and human resourcefulness played only a small part in the economic boom of the last 150 years, produced by cheap oil. The industrial revolution began more like Jed Clampett shooting at some food and getting bubbling crude. The world benefited from a positive Black Swan event. In other words, we got lucky. Now the luck is running out. There is a finite amount of petroleum on the planet. Most of the remaining supply is trapped beneath deep oceans, within tar sands, in shale rock and in inhospitable countries. Cheap sweet crude is running out. New oil discoveries peaked in 1964. Worldwide oil production peaked between 2005 and 2010. As supply enters terminal decline and demand continues its relentless rise, prices will soar and the world will be transformed forever. This could even put a creak in America’s military machine that consumes over 150 million barrels of oil per year.

The deniers believe that technology will save the day. They don’t step back and think that their technology couldn’t function without cheap oil. The hardware and software are made in factories run by fossil fuel. The amount of energy that exists on the planet is a closed loop system. The sun’s energy created fossil fuels. The population of the planet has converted 50% of these fossil fuels back into CO2 and other byproducts. This is the process of entropy. Entropy is the movement of energy from complex, higher states to simple, lower states. Energy cannot be created or destroyed, only changed entropy dictates that energy flows in only one direction, from being concentrated in one place to becoming diffused or dispersed and spread out; from being ordered to being disordered. After 150 years of profligate use of oil, we are within a few years of experiencing an unsolvable oil shortage which will affect transportation, industry, heating, plastics, fertilizers, pharmaceuticals and all the myriad products essential to our contemporary lives. Our energy-devouring civilization has been accelerating entropy. Kunstler sees this entropy leading to a crisis of epic proportions:

“We don’t really need to reach the end of oil to experience the disorder that accompanies entropy. The economic efficiency we praise creates one-industry towns that become simplified and vulnerable communities. Businesses evolve into big corporations that dehumanize and feudalize our lives. Our monocultures of specialization create ecological disasters. We poison our water, land and air using the justification that more and faster are always better. Mass production produces the homogeneity that deadens the spirit and vitality of people they compensate by becoming hyper-consumers, fad-chasers, unsettled and disquieted beings in search of the meaning denied to them by a loss of complexity.”
The combination of debt, dollar devaluation, delusion and depletion will make this Fourth Turning the most challenging and dangerous in U.S. history.

The Five Ds of the Fourth Turning


Every previous Fourth Turning in U.S. history was triggered by an economic conflict or devastating financial event. The current Fourth Turning was activated by the collapse of our housing market, the subsequent revelations of Wall Street fraud and excessive risk taking and the actions of politicians to protect Wall Street from their hubristic exploits. The choices by leaders after these triggers will have a dramatic impact on the future course of the Crisis.

George Washington decided to fight and stayed on the battlefield for eight years before succeeding. Abraham Lincoln could have let the South secede. He decided to fight in order to retain the Union. The result was 600,000 dead and abolition of slavery. Franklin Delano Roosevelt decided to implement massive social welfare programs to keep Americans employed. These programs planted the seed for our current Crisis. He also committed 16 million American men in World War II, with 450,000 dying for their country and another 670,000 wounded. All previous Fourth Turnings began as financial episodes and eventually led to total wars of destruction. There is nothing about this current Crisis that would lead me to an alternative picture of our future.

I could propose a number of logical Crisis scenarios based on the facts at hand, but the truth is that no one knows how the next fifteen years will play out. We do know there will be much upheaval, worldly peril, and cataclysmic changes to the exiting institutional and social order. I believe the financial crisis will transform into a Depression as the layers of new debt piled upon the old debt ultimately collapse our economic system. It could be a deflationary collapse or an inflationary collapse. Both scenarios would lead to further destruction of the middle class. When the U.S. dollar is no longer viewed as the reserve currency for the world, America’s worldwide influence will wane. How global economic rivals like China, Russia, and the Middle East react to our economic and social weakness will determine the next phase of the Crisis. When countries are experiencing severe domestic problems, they seek out or invent a foreign threat. The likely flashpoint which could lead to foreign conflict would be a terrorist attack on U.S. territory and/or a clash over depleting worldwide oil supplies. Strauss & Howe explain the nature of Fourth Turnings:

“The ‘spirit of America’ comes once a saeculum, only through what the ancients called ekpyrosis, nature’s fiery moment of death and discontinuity. History’s periodic eras of Crisis combust the old social order and give birth to a new. A Fourth Turning is a solstice era of maximum darkness, in which the supply of social order is still falling—but the demand for order is now rising. It is the saeculum’s hibernal, its time of trial. Nature exacts its fatal payment and pitilessly sorts out the survivors and the doomed. Pleasures recede, tempests hurt, pretense is exposed, and toughness rewarded—all in a season.”

Personally, I have grave apprehensions about the coming years. As a libertarian minded person I will not be happy, as it is highly unlikely that government will willingly get smaller. The last two Crisis periods resulted in a much more powerful Federal government. It is difficult for me to conceptualize how the country will come out the other side of this Crisis as a stronger society. The likelihood of the citizens rallying around the flag and following a Boomer Prophet into a world war seems farfetched to me. I fear the angry have-nots are more likely to rise up against the ruling elite, with potential dire consequences as the military may have to choose sides. My principal fear is that Crisis periods always rely on the Hero generation to make the greatest sacrifices. An entire generation of Heroes was wiped out in four years during the Civil War. A million Heroes were either killed or wounded in World War II. My three sons are all part of the Hero generation. I’m not prepared to sacrifice them for a cause that I do not believe in or agree with. The Boomer generation has been discredited in my eyes. Following a Boomer leader into battle seems out of the question today.

My guess on the end result of this Crisis is that Americans will need to localize. Reduced fuel availability will force people to depend on their neighbors and locally produced food. Forging closer relationships with family and neighbors will stand you in good stead during the remainder of this crisis. This Fourth Turning has only just begun. Strauss & Howe do not predict the outcome, only the challenges that await us and the hope that we will rise to the occasion.

Thus might the next Fourth Turning end in apocalypse or glory. The nation could be ruined, its democracy destroyed, and millions of people scattered or killed. Or America could enter a new golden age, triumphantly applying shared values to improve the human condition. The rhythms of history do not reveal the outcome of the coming Crisis; all they suggest is the timing and dimension.
A Fourth Turning harnesses the seasons of life to bring about a renewal in the seasons of time. In so doing, it provides passage through the great discontinuities of history and closes the full circle of the saeculum. The Fourth Turning is when the Spirit of America reappears, rousing courage and fortitude from the people. History is seasonal, but its outcomes are not foreordained. Much will depend on how tall we stand in the trials to come.

Strauss & Howe The Fourth Turning

Will America in 2025 look anything like the America of today? Will the country resemble a dictatorship? Will it resemble socialist Europe? Will it break apart into regions? Will it reaffirm its roots as a Constitutional Republic? Or, will it no longer exist? The choice is ours.

-James Quinn

Bear Market Race Week 123: DJIA Market Volume, Dividend Payout & Yield Considerations

The 1929 & 2007 Bear Market Race to The Bottom Week 123 of 149

DJIA & Market Volume
DJIA’s Dividend Payout & Yield Considerations

Mark J. Lundeen

19 February 2010

Color Key to text below
Boiler Plate in Blue Grey
New Weekly Commentary in Black

Below is my BEV chart for the Bear Race.

The DJIA had its best week since last November, (Wk 108). Well during Bull Market, there are bad weeks, and in Bear Markets there are good weeks. Until the Bulls force me to relocate my text box, I’m not impressed. And if Doctor Bernanke and Secretary Geithner force me to move that Text Box; I’m going to be really upset with them! There is absolutely no reason for the DJIA to be that high with the problems the Financial World currently has. But they never listen to me.

Below is the DJIA Volatility’s 5 Day M/A & BEV Chart

The DJIA is up this week with a slight decline in daily Volatility. But so what? I do find it interesting how in the Summer of 2007, there were several peaks and valleys in Volatility, starting in March of 2007, just prior to the DJIA’s October top. We can always learn something from studying the past, but past performance is no guarantee of what is to come. But still; this could be seismographic evidence of Market Magma rising.

I haven’t shown the next Chart for months! If Market Volatility was all I was following, this Chart would tell us the Bear left town a long time ago. And you know what? He has!

Well after all, 2010 is an Election Year, and the “Policy Makers” like things looking as normal as they can make it. They’ve succeeded as far as the DJIA’s Volatility is concerned! But as I’ve noted below, in my section on Market Volume, there are signs of official-level monkey-shines going on at the New York Stock Exchange. Like any forensic investigator can tell you, there are some things that just can’t be hidden.

No word on this from my agents in Manhattan. It seems that PETA has refused them a lawyer, so they’re still enjoying the hospitality of Major Bloomberg. I’ll let you know when he lets them out of the clink. Until then, we will just have to be satisfied with my charts.

Here is another interesting Chart I haven’t shown for a few months.

As I’ve said before, Market Volatility increases in declining markets, and declines in rising markets, it’s been that way for 110 years. But this pattern has been aggravated since the US Took the dollar off the Bretton Woods Gold Standard in 1971. This can’t be denied! When the Bear comes back, we’ll see his tracks first in my Volatility Charts.

Daily Volatility Statistics for Wk 123

70% A-DMondayHolidayN/AN/AN/ATuesday10268.81+1.68%1-Wednesday10309.24+0.39%0-Thursday10392.90+0.81%0-Friday10402.35+0.09%0-
Historical Daily Volatility is < 1.0% Source Dow Jones The Lundeen Bear Box and Step Sum is below. This is a change! The DJIA was up 3% this week with only an increase of 4 in its Step Sum, very nice! But will this trend last? For a few weeks or even a month or two: sure it could. But I'm still a long term Bear. From this point on, I think the current Bullish Correction, within our Greater Bear Market, is nearer its end than its beginning. Come on; it's been going on for a year now.Sometimes the smart position in the Stock Market is no position in the Stock Market. But 2010 is an election year, and Washington has all the money in the World to make the voters happy. Below is a 15 Year Chart of the DJIA and its Step Sum. It's just amazing that the #2 All-Time DJIA Bear Market went down 53% on only 25 Net Down Days! Well the DJIA and its Step Sum are now working together, at least they have been recently, and as we see below, the DJIA is bouncing back nicely after an 800 point correction. The Ball is on the Bull's side of the court. They cleared the failed bounce the DJIA had in early February, and now have only 300 points to go before they exceed the highs of 19 January. If the Bulls are really in control, those 300 points should be easy to find in the next few weeks. But I'm only watching this market for its entertainment value. I don't believe any of these prices are the result of a free market attempting to discover real prices. In other words, I'm assuming the “Policy Makers” are currently managing market expectations, on a day to day basis, via the changing valuation of the DJIA. This means that they don't want investors getting to Bullish, or to Bearish. They don't want to incite the Voters into doing something stupid that the “Policy Makers” will later regret. So, I find all of this a complete farce, but a very entertaining farce. We are living history here! Fifty years from now all of the shenanigans Washington pulled on the rest of the world will be taught in school. Including the bit where in 2013, 95% of Congress decided to take a prolonged 4 Year recess at Davos, Switzerland. They decided it was finally time to conduct an audit of the Gold that was formerly stored at Fort Knox. It's happened before. This is from the Bible. “Where is that chief officer? Where is the one who took the revenue? Where is the officer in charge of the towers? You will see those arrogant people no more.” - Isaiah 33:18/19 New International Version (NIV) Bible Ya; you won't see them or the Gold they stole from us: “no more.” The Step Sum is an indicator of market sentiment. When the underlying sentiment is bullish, the Step Sum rises. When bearish, it falls. Think of the “Step Sum” as the sum total of all the up and down price “steps” in a data series over time; an Advance Decline Line for a data series derived from the data series itself. Logically, bull markets will have more net up days, while bear markets will have more net down days. Understanding the Step Sum is no harder than that. DJIA & Market Volume In Weeks 75 & 99 of my Bear Market report, I covered the relationship between the DJIA and Stock Volume. This is only an update to those Reports. But to people who haven't read these reports, it might be worthwhile to read them, although a little review is in order for everyone. Bull and Bear Markets, since 1900 have been closely associated with Volume and Volatility Trends: § Increased Volatility is the Calling Card of the Bear § Increased Volume is the Calling Card of the Bull Remember, Market Prognostication is not a science, but more of an art. So we should expect periods when these two rules of thumb are not present in the Stock Market. However, over the course of a Bull or Bear Market, these rules should be clearly evident in the charts. I'm taking some charts from Wks 75 & 99 for my review. The chart below is for the DJIA and NYSE during the Great Depression. 1926-1934 Rising NYSE Volume is clearly evident during the Roaring 1920s. After the DJIA's 1929 BEV Terminal Zero (last all-time high), the DJIA declined with NYSE Volume. How hard is that to understand? I've frequently mentioned in the past, that the single best year in the history of the DJIA was from July 1932 to July 1933; the DJIA increased 163% in those 12 Months. But there was also a nasty -37% correction in February in 1933. The rise, fall, and then the rise again in the price of the DJIA from July 1932 to July 1933 is evident in the Volume Plot above. 1932-1966 The DJIA may have seen its single best year from July 1932-33, but the 1930s were hard markets to make money in. We see that NYSE's Volume found a bottom in 1942, along with a BEV -50% Bear Market Bottom. But for the next 24 years, the DJIA was to rise from its 1942 Bottom of 92.92, to 995.15 in 1966 for a gain of 1171%. This gain was supported with a tremendous increase in NYSE Volume. Using Charts from Wk 99, next are some examples for the DJIA using a 10 Day M/A of the DJIA's Volume. So the above charts are NYSE Volume with no Moving Average. The charts below use the DJIA's Volume with a 10 Day Moving Average. Moving averages are nice as they smooth out the day to day noise. 1950 to 1966 From 1950 to 1966, the DJIA saw a Bull Market as the Fed's “Liquidity” flowed into the Stock Market. The effects of this flow of inflation can be seen in the rising DJIA's Blue Plot. But note also the effects on the DJIA's Volume. It too rose for these 15 years, as the DJIA increased from 200 to 1000. Oh about that Volume Spike in June 1962, that is one nice signal the Five Month DJIA Correction was over. In Barron's 08 June 1962 issue, which records this data spike, Eleanor Roosevelt claimed the resent market correction was a conspiracy by “Big Business.” J Paul Getty was buying more oil shares. Barron's, as it always did back then, had a front page editorial. Topic for 08 June 1962? One of these days Washington is going to bankrupt us. “Basically Sound? The US Should Beware of Easy Optimism” Barron's warned its readers that deficits and trade imbalances do matter, and the basic problem with the American economy was the Red Ink in its trading with our partners. There was the record * 3.4 Billion Dollar * trade deficit in 1960, and things look worse for 1962!Gold was draining from the US Treasury. The US Dollar was under pressure in the currency markets. In 1962, these problems had been chronic for a decade already. I'm sure in 1962, no one at Barron's thought this would go on for another 48 years! What I wouldn't give for one of those old fashioned 3.4 Billion Dollar Trade deficits! 1964-1983 This is a very interesting period in market history. Note the Blue DJIA Plot is not a BEV Plot, but the DJIA itself. From 1966 to 1981, the DJIA tried 5 times to breach its 1000 line, and 5 times it failed. But as we know now, on the 6th try the DJIA made 1000 stick. The last DJIA closing below 1000 was last seen on 16 Dec 1982, with a closing price of 990.25. Note from 1966 to 1974, with each attempt on the 1000 line, the DJIA fell into successively lower lows until 1974, when the DJIA saw its first BEV -40% Bear since 1942. All during this time the DJIA's Volume was rising, but not by much. After the 1974 bottom, the DJIA's Volume increased dramatically over the next 8 years, resulting in a pattern of higher lows when the DJIA had price corrections. In August of 1982, the DJIA's Volume exploded, taking the DJIA above its 1000 line. 1979-1991 The relationship between the DJIA and Stock Volume began to break down during the Greenspan Fed. Notable in the chart below is the huge spike in DJIA's Volume during the Crash in October 1987. On Live TV, Doctor Greenspan promised “Ample Liquidity” for the markets, and he delivered. But the 1987 Crash was unique in the history of the Stock Market. In 1987, all of the major Investment Banks began “Program Trading”, where computers (Black Box Programs) were fed information on when to buy and when to sell. Apparently these programs' parameters for selling were alike. On Monday 19 October 1987, Robots ruled Wall Street as selling thresholds were met, and mindless computerized selling in the Stock Market began. Wall Street's Robots took the DJIA down 19% in hours. And the lower the market went, the more the Robot Traders were programmed to sell. The Banks were all afraid to turn off their Robots, so the selling continued until the close of Trading. So maybe this spike in volume doesn't have Doctor Greenspan's fingerprints on it. Note how the Stock Market performed for the next few years. A rising DJIA as its Volume stayed static. This is one of those instances where the DJIA rose in spite of lackluster volume. Remember, you invest in the Stock Market, not in its volume. 1990-2000 The DJIA continued to increase, while its Volume lagged behind until 1997. After 97, the Stock Market Bull entered its Blow-Off Stage and Volume exploded. Why did Market Volume explode? Because the Stock Market became a public mania. Its easy riches lured in people who had no business in the Stock Market.In the late 1990s, Investors were assured that there were no 10 year period in the Stock Market where Investors, “who bought and held stocks for the long term” lost money. So with interest rates on savings single digit, the promise of double digit gains in the Stock Market of the 1990s, and the Real Estate Market 10 years later, proved to be fatal attractions to many people. Note the two vertical dashed lines in the Charts below. These spikes in Volume have Doctor Greenspan's fingerprints all over them. The old “Greenspan Puts” as they use to say. The markets are rigged by the Government. Still, if people make a serious effort in educating themselves, good money can be made in the Stock Market. But one has to know when to be in it, and more importantly, when to BE OUT! Currently, my studies conclude that I want nothing to do with the General-Stock Market right now. The day will come when I will change my opinion, but right now Gold and Silver coins are compelling values in our Inflationary World. The alternative is collecting “risk free” interest on bank deposits or in the debt markets. Today's yields on short term T-Debt are at Great Depression levels. This “Risk-Free” assumes that US Treasury Debt, and the US dollar are sound, which I don't believe they are. In my opinion, the only risk-free investment easily available to the public are Gold and Silver Coins. If you don't know where to purchase gold and silver, just get on GATA's Chris Powell's mailing list. You'll be informed on current events in the markets, and provided with a list of Gold and Silver Merchants who have supported GATA for years. 1998-2010 Since the 2000 DJIA Top, the relationship between the DJIA and its Volume, has changed beyond recognition. As the DJIA declines, its Volume has consistently increased. As the DJIA rises, it Volume has consistently declined. If this happened only once or twice, we could assume these violations in the Bull and Bear Market's Volume Protocol were merely a few of those inexplicable market anomalies. But it's been this way for 10 Years now! 2005-2010 This pattern has become extreme since the DJIA's October 2007's Terminal Zero (last all-time high). Market Volume and the DJIA were in sympathy with each other from 1900 to 2000 (100 Years), and then after 2000, everything changed. So we need to ask ourselves: what's changed? I believe the difference is, previous to 2000, the major players in the market had Market Risk to worry about. Smart money, like major investment companies purchase their stocks at market bottoms, not on the way down. They know that buying in a declining market is an effective technique of losing money. But take a moment and examine my charts from 2000-10 again; we see a repetitive pattern of significant Volume increases as the DJIA goes down, and then Volume backs off after the DJIA turns around. Logically, this pattern only makes sense if the big NY Financial Houses are using the Federal Reserves' Inflation to maintain the Stock Market's valuation within “Policy's” designed parameters. When the market falls, measured amounts of “Liquidity” are “Injected” directly into the Stock Market via the Big Banks. When the market reverses, it's a mission accomplished, and the spigot of “Liquidity” is turned off. If this is true, and I'm sure it is, the spikes in the above Red Plot shows how much muscle the Fed had to use to make Mr Bear say Uncle. In Weeks 75 & 99, I have charts for 110 years of Market history. Is there anything historically comparable to what happened from August 2008 to March 2009 above? No there is not! The big players would never do this with their own money, so the Federal Government must be giving them our money to play this losing game. And the insiders know that if all goes wrong, Congress will bail them out again. Why wouldn't Congress bail them out? The money at risk is coming from the Government's monetary printing presses.Remember, 2010 is an Election Year. Politicians want a good Stock Market when it's reelection time. When the Stock Market breaks again, and it will, the upcoming Congressional Hearings should prove to be a real Dog and Pony Show. Someone has to take the rap, but who? Martha Steward" target="_blank">Martha Steward

took it in 2004 for a trumped-up charge of insider trading. I guess the Department of Justice showed her the error of her wicked ways! It will be interesting to see who takes it this time.

DJIA’s Dividend Payout & Yield Considerations
Robert Prechter of Elliot Wave Fame is predicting a DJIA Bottom of below 500.Here is a 7 minute Bloomberg Video from October 2007, at the top of the DJIA. The video is over 2 years old, but his points on the Stock Market are only more valid in 2010 than they were in 2007. When it comes to Gold however, Prechter has been a Bear since Gold was at $250 an ounce. No one is perfect.

Can the DJIA fall to 500? That would be a retracement of the entire move the DJIA has made since the 06 Dec 74, 577.60 Bottom! What is he thinking?! I don’t know what Mr. Prechter is thinking, but using the DJIA’s Dividend Yields as a Valuation Model, the DJIA could fall further than most “Experts” think possible today.

Let’s take a look at the DJIA’s Dividend Yield from 1925 to 2010. There was an old rule that investors should sell the Stock Market when the Dividend Yield on the DJIA was near 3%, and come back into the Market when the DJIA’s Yield rose above 6%. That rule, as we see below, was an extremely effective market timing system for decades. But, as usual, when Doctor Greenspan became Chairman of the Fed, the old rules of prudent investing only lost money.

The old rules worked because there are two methods of valuing the DJIA:

§ The Inflationary Expectation Model
§ The Dividend Yield Model

People would purchase stocks at a DJIA 6% Yield, because a 6% yield, with the promise of future capital gains, provided a superior source of income on capital, as one waited for the Bull Market to start. From 1925 to 1975, banks didn’t pay 6% on their savings accounts.

As the Bull Market progressed, the DJIA’s Yield would decrease. But who cared when the Inflationary Capital Gains more than made up for a smaller Yield. For 50 years, 3% on the DJIA proved to be a tipping point. A time to sell your stocks, take your capital gains and wait until the DJIA Dividend Yield again saw +6%. But in August 1987, when Doctor Greenspan became the New Sheriff in Town, all that changed as we can see in the chart above.

So how important are the DJIA’s Dividends and Yields? Well currently, as the Market is being valued by Inflationary Expectations, they’re not important at all. People see the DJIA’s current Yield of 2.70% and they’re not impressed. Should they be?In Week 123 of my Bear Market Report, buyers of Stocks are after bigger game: Capital Gains. The DJIA can do better than 2.70% in a single day, so what attraction does 2.70% a year have to people hooked on Inflationary Profits? None whatsoever!

But when Inflationary Gains become Deflationary Losses, as we saw in March 2009, the DJIA was Yielding 4.74% while 2 Year T-Bills were paying only 1.03%. That 3.74% split was no good for people who took the -53% loss in the DJIA from its October 2007 high. But there is always lots of money in the Fixed Income Markets that might be tempted to sell some bonds and buy good yielding stocks.As we all know now, that was an excellent trade!

But unlike Bonds, whose payout is fixed, and cannot be cut without defaulting, Stock Dividend Payouts are at the mercy of a company’s Profits. During times of Economic Stress, Dividends are reduced or eliminated, and since September 2008, the DJIA’s Payout has been reduced by 16%. Corporate America is currently under great strain. How bad can it get? Let’s look at the Great Depression, and see what happened to the DJIA’s Payout and Yield 78 years ago.

These relationships are mathematical; it’s simply not possible for the DJIA’s Valuation to rise, or even stay range-bound if its Payouts Decline as its Dividend Yield rises. Here is the DJIA’s Valuation formula.

DJIA’s Valuation = Dividend Payout
Dividend Yield
When the Stock Market is being valued by its Inflationary Expectation Model, investors ignore the Dividend Payout and Yield. The 11 January 2000 issue of Barron’s reported a DJIA Yield of 1.30%! To most investors in January of 2000, Dividends were only an irritation that made them fill out an additional line on their 1040 Income Tax Form. Had the DJIA doubled to 22,000, while maintaining a constant Payout, the Yield would have fallen to 0.65%. The Bulls of January 2000 would have rejoiced! They were only interested in the Inflationary Capital Gains Doctor Greenspan was Injecting into the Stock Market.

But there comes a point where values do matter. This is when money decouples from bovine fantasy, and jumps onboard economic reality. Such times are called Bear Markets. And Mr. Bear doesn’t care a whit about the Value of the DJIA. His only concerns are about the quality of the DJIA’s Dividend Payouts, and that those Payouts are priced properly. As we saw in the chart above, Mr Bear slashed the DJIA’s Dividend Payouts by 79%, and then repriced them from 3% in 1929, to 10.38% in July 1932. In the process the DJIA fell 89%, and resulted in much human suffering. But Mr Bear’s attitude has been rather clinical when it came to correcting the excesses of past Bull Markets. I expect more of the same when he goes to work in correcting the excesses of our current market

I started this segment with a prediction by Mr Prechter that the DJIA could fall below 500. Let’s take a look at the DJIA, as Mr Bear does, and see if what would happen to the DJIA, if the Payout and Yields trends of 1929-32 were repeated.

DJIA Dividend Yield and Payout
What if 2007-10 was a Repeat of 1929-32?
Barron’s IssueDJIA PriceYieldPayout02 Sept 1929380.36 3.31%$12.59 11 July 193241.23 10.38%$4.28 15 Oct 200714,093.20 2.06%$290.32 Unknown950.95 10.38%$98.71 My 950.95 DJIA Value is based on a 66% Reduction in the DJIA’s Dividend Payout, with a July 1932 Dividend Yield.

Source Barron’s
Graphic by Mark J. Lundeen

The results are not as bad as Mr Prechter predicts, but seeing the DJIA Valued below 1000 would be shocking to everyone; but Mr Bear may want more. After all, with the mess the Bulls left behind, there is so much work for him to do. In the 1930s, interest rates collapsed as the Yield of the DJIA soared. In a yield hungry environment, where savings returned less than 2%, the July 1932, 10% Yield on the DJIA was compelling!

But in 2010, with decades of Monetary Inflation and Fiscal Malfeasants hiding in American Government, Corporate and Personal balance sheets, we should not expect a collapse in future interest rates, or that the earnings on the DJIA will be predictable and stable.They haven’t been since US Politicians and Bankers intentionally took the US dollar off the Bretton Woods’ Gold Standard in August 1971. My BEV Chart shows the reality of the post Bretton Wood’s DJIA’s Earnings fluctuations.

It’s not just Greece that went to Wall Street to hide their liabilities!Wall Street has created a thriving derivatives market that has intentionally obfuscated accounting for the past two decades.

Most people are unaware that there exists a 600 Trillion Dollar OTC Derivatives Market created by Wall Street’s major “Investment” Houses. These are Leveraged Junk Financial Instruments. Warren Buffet called them “Weapons of Mass Financial Destruction.” They were not sold directly to the public, but rather to the publics employers, insurance companies and pension funds. We know the names of some past purchasers of Wall Street’s “derivative products”, the Government of Orange County, California, who in the mid 1990s went bankrupt because of derivative losses. And then
Enron” target=”_blank”>Enron

comes to my mind. Enron and their accountant Arthur Anderson went down. But as is so typical, Banks like JP Morgan who made these fraudulent deals possible, are always ignored by the US Justice Department and the Media.

We should suspect that many Enrons are currently listed on the major stock indexes, and Orange Counties in the Municipal Bond Market. With hundreds of trillions in notional value in the OTC Derivative Market hiding somewhere, there must be Companies whose financial obligations for payroll, capital re-investment and taxes will be overwhelmed. Dividend Payout for such companies will be the first line item to go to zero when these ticking time bombs detonate.

What will make them blow up? When Doctor Bernanke and Secretary Geithner lose control over asset valuations, currency and interest rates. These were the risks being hedged. And I note that all of these “Risks” were * NOT * present in the global economy when the world was on a Gold Standard.

It would be wise to expect future yields for US Dollar Debt to explode, taking the DJIA’s Dividend Yield up with them. In such a situation, how high must the DJIA Dividend Yields rise to compete with Bonds when Capital Gains are only a pleasant memory, and Dividend Payout cuts a constant fear?

Looking at Barron’s Best and Medium Grade Bonds in December 2008, the lesser quality bonds had to half their price in a matter of weeks to produce a competitive yield with Bonds of higher quality.I don’t care to predict when, but I strongly suspect we will see the DJIA’s Dividend Yield soaring above Bond Yields.

Money knows no borders. The day is coming when the Political, Economic, and Corruption realities currently present, but largely ignored in the United States, are going to be priced into the valuation of American Financial Assets. American companies, such as the 30 listed in the DJIA, are going to have to compete with other nations, whose companies have better prospects because they operate in Economies with vastly less corruption & pettifogging government regulations.

Mr Prechter believes that to be competitive, the American Stock market must discount the DJIA to around 500. I think he’s on to something.

Mark J. Lundeen
19 February 2010

Dow Jones -40% Declines From 1885 to 2008 is the article inspiring this race of 1929 & 2007 Bear Markets. You may want to read that article to understand my “BEV Chart.”

Dow Jones Industrials Average Market Volatility is the source for my volatility studies.

The Lundeen Bear Box and Step Sum is the source for my Lundeen Bear Box and Step Sum Chart

Note For the Record: Mark Lundeen does not want a devastating bear market in the next two years. However, in full view of Congressional Market Oversight Committees and under the supervision of Government Regulatory Agencies, things were done that I believe will make a historic bear market inevitable. If you have a problem with this bear market, contact Washington, not Mark Lundeen.

S&P 500 Earnings Can Move Higher

The following graph shows inflation-adjusted earnings for the S&P 500 for the past 75 years. I often see patterns when looking at charts and have added some visual “guidelines” to the graph.

The implication is that earnings are right where they belong, if the growth trends of the past 40 years are to be continued. This is debatable, of course, for the following reasons:

1. Unprecedented unemployment problems compared to the last 40 years;

2. Continued deleveraging from the credit bubble;

3. Higher energy costs likely inhibiting any growth scenario;

4. Lack of any new economic expansion driver being evident; and

5. The current rebound is the result of temporary inventory rebuilding.

Other arguments could be used to counter the idea that S&P 500 earnings are right where they belong. One is that we have rebounded too fast, resulting in an overshoot that will be pulled back as inventory rebuilding subsides and expense/revenue ratios increase.

Part of the rebound in earnings has resulted from cutting expenses, particularly payroll expenses. If employment starts to improve as payrolls start to increase, productivity growth will probably be reduced, and earnings may give back some of the recent gains. Of course, increased employment should increase consumption. However, a more conservative attitude toward spending may be the new normal. In such a situation, payrolls could increase faster than earnings.

Jeff Miller has questioned a number of things about the discussion up to this point. This will address some of his concerns.

Here is another view of the earlier graph:

This view of the graph sees only one excursion outside of trend: the crash of 2008-09. There was no dot.com stock bubble or credit-derived stock bubble; these two peaks are just high points in the 75-year trend. This trend in real earnings is more than double what was previously proposed as the normal trend. Here the growth rate is about 125% in 45 years (vs. the 50% growth in the earlier view). The 125% rate is 1.8% growth per year compounded.

Jeff has also questioned the adjustment of S&P 500 earnings per share for inflation. He raises a good point; I have not justified that. It may be more meaningful to look at the total earnings of corporations when adjusting for inflation – this definitely would offer a strong measure of real earnings for stocks. The adjustment of earnings per share may or may not reflect the total of earnings.

I also think that real corporate earnings should be normalized to population to get a good measure of national productivity in so far as corporate earnings reflect that. All of these questions will be examined as I develop future articles in my series on the business cycle.

The final takeaway from this discussion is that projections of further real earnings growth occurring in 2010 and 2011 are predicting either (1) a new earnings bubble, or (2) a new normal which establishes a higher trend rate for earnings growth, or (3) continuation of a 75-year trend.

Of course, there may not be further S&P 500 earnings growth in 2010 and 2011, and the entire discussion of bubble or a magical new normal becomes rhetorical.

Many thanks to ChartOfTheDay.com for another seemingly simple chart that evoked great discussion. This article could be called a “macro view” as opposed to bottoms-up earnings potential analysis company by company. I believe this “micro view” has more merit, but the long-term trend analysis does add an element of perspective for me.

Disclosure: No positions.

How Goldman Sachs Aided Greek Spending… The Truth About Political Correctness

How Goldman Sachs Aided Greek Spending and Why

Tuesday, February 16, 2010 – by Staff Report

Goldman Sachs

The Greek crisis has taken on a decidedly sub-prime feel following revelations that Wall Street investment banks earned hundreds of millions of dollars over the past decade from transactions that helped the country hide billions of dollars of debt. The New York Times reported on the weekend that Wall Street tactics had played their part in worsening Greece’s financial position and undermining the euro by helping European governments to hide their mounting debts. The reports said that in 2001, shortly after Greece joined Europe’s monetary union, Goldman Sachs helped the government quietly raise billions of dollars. Athens was able to continue its free-spending ways while complying with the strict EU deficit regime, because the transaction was treated as a currency trade rather than a loan. Apparently, Greece wasn’t the only EU government to use these types of deals, where a government would raise cash up front in exchange for handing over the rights to a future income stream. They were also popular in Italy, Spain and Portugal. Greece has defended its use of financial derivatives, saying they were legal at the time. The problem for Greece is that it now finds itself under extreme pressure to cut its budget deficit by slashing spending and boosting its revenues. But the result of these past deals with Wall Street banks is that the Greek government has already handed over the rights to big chunks of its revenues, such as airport fees and lottery proceeds, for years to come. And, of course, the revelation that Greece participated in these Wall Street transactions has further undermined its credibility within the EU. Greece had already been criticized by the EU for supplying incorrect information about its budget situation in the past. – Business Spectator

Dominant Social Theme: It’s Goldman’s fault.

Free-Market Analysis: It has apparently emerged that Wall Street’s Goldman Sachs was not alone in helping Greece – and other countries – avoid EU-determined governmental budget limits. But the way this story is playing out, Wall Street is made to look like an enabler of bad and profligate Greek behavior. In fact, it seems a bit more complicated than that. Follow along (if you wish to) dear reader …

First we need to relate the story of a fine feedback we read somewhere explaining how (price) inflation was actually one of the causes of the current Greek predicament, and that the adoption of the euro itself had helped ruin the Greek economy. While corruption in Greece was certainly bad, the proximate cause of the current crisis, this feedbacker wrote, involved the one-size-fits-all euro. We were intrigued, as it was not an argument that has received a great deal of attention (though it rings true).

This person was of Greek descent and had visited Greece for years. His well-made point (or so it seemed to us) was that the euro was great for industrial Germany, and to a lesser degree France, but that it was hell for countries like Greece that had to import high-priced euro goods from industrial countries, while relying on lower-priced dollars and other currencies for their (tourist) revenue, etc. What this means practically is that Greek income went down while the nation’s import costs went up. This is one definition of price inflation. The Greeks started borrowing, buying houses on credit, etc., and so did the government.

Now actually we have heard something like this before. And it makes sense. Italy, Spain, etc. – these governments are all terrible black holes. But Germany’s government, we would venture to say is not that much better. What has apparently helped Germany is its industrial economy. Which brings us back to what we have been writing about the EU recently – that it is essentially a project that has massive benefits for Germany, so long as Germany agrees to be bound by EU conventions. Sort of like Gulliver being bound by Lilliputians.

Anyway, the EU is working out fairly well for Germany and a lot less well for the “Pigs” as they are called. And while the considered wisdom of the EU mainstream press is that the Greeks will do anything they need to stay in the union, we wonder when it is that Greek citizens will figure out that they have been sold downstream by their own elites – which wanted the upfront loot the EU was dangling – and EU bureaucrats themselves.

Greece is in for a long hard slog. The EU itself will insist on Greece reducing governmental “profligacy.” But what this may mean in reality is that Greek citizens, having struggled with painful euro-inflation for years are now to be slugged with a “euro recession” of indeterminate length and viciousness. “How’s that EU-thingy working out for you,” Sarah Palin might ask. We also believe the EU, Germany, somebody … is going to have to step in and help Greece unless the intention is to have Greece default. How bad is it? This bad:

The recent credit crisis was over a few trillion in bad, mostly US, mortgage debts, with most of that at US banks. Greek debt is $350 billion, with about $270 billion of that spread among just three European countries and their banks. Make no mistake, a Greek default is another potential credit crisis in the making. As noted above, it is not just the writedown of Greek debt; it is the mark-to-market of other sovereign debt.

That would bankrupt the bulk of the European banking system, which is why it is unlikely to be allowed to happen. Just as the Fed (under Volker!) allowed US banks to mark up Latin American debt that had defaulted to its original loan value (and only slowly did they write it down; it took many years), I think the same thing will happen in Europe. Or the ECB will provide liquidity. Or there may be any of several other measures to keep things moving along. But real mark-to-market? Unlikely.

The entire EU is faced with no good choices. It is coming down to that moment of crisis predicted by Milton Friedman so many years ago. And there is no agreement on what to do. (- MoneyWeb.com)

We haven’t predicted the breakup of the EU over Greece or the Pigs, only a great deal of pain, so far. But we have asked how long the long-suffering citizens of the EU will be prepared to tolerate an endlessly painful euro-experience. Eventually, the pain will be used as a cynical launching pad, we expect, for Europhiles to call for a political union to supersede the current economic one. Of course, this has probably been the plan all along, but we wonder whether it is going to work.

We think the EU is a despicable organization, clearly corrupt from heel to head, a dictatorial regulatory democracy of the worst kind, one apparently modeled on purpose after the USSR’s old bureaucracy. It is a kind of engineered coup of the power elite, a step toward creating and then integrating large national blocks in anticipation of ever larger, global economic union. Unfortunately, for the elite, the Internet has clearly become a focal point for organizing against the EU in Europe, and has even been a main force in keeping Britain out of the euro.

It is not surprising to find Wall Street mixed up in the Greek mess. And many may make a big deal out of it. But as bad as Wall Street is, the EU itself is worse – at least when it comes to culpability for the Greek situation. And boy does the EU have problems. You probably won’t read this elsewhere (which is why you read the Bell!) but the biggest problem the EU has is not the failing of the Pigs but the failing of the Euro promotion itself. And for this reason in this case, Wall Street’s (direct) involvement seems to us, for once, more a symptom than a cause.

The EU’s problems actually are far bigger than the Greece of the Pigs or the endless, looming economic crisis. The biggest problem is that the cynical plans of its leaders to exploit the inevitable currency crisis (one sure to come, they knew) are dimming thanks in large part we believe to modern electronic communications. There is an incredible amount of anti-EU sentiment on the Internet in Britain. And we have to think that there is a good deal of anti-EU sentiment being expressed elsewhere on the ‘Net in Europe as well.

Conclusion: Here’s our point: When the bureaucracy of the EU attempts to “spin” the currency crisis toward a more perfect political union, watch out. The EU powers-that-be rammed the euro through. But building a stronger political union at this point in time, given the ubiquity and power of the ‘Net and the increasing disillusion of EU citizens, may be a rougher haul than EU planners expected. Times have changed. Power elite dominant social themes are not looking healthy, and it is possible that the EU itself may fall victim. Couldn’t happen to a more deserving bunch.

Tuesday, February 16, 2010 – by Staff Report

Glenn Beck / Getty Images

This candidacy will self-destruct in five seconds… Texas Republican gubernatorial candidate Debra Medina imploded on the Glenn Beck (pictured left) radio program … when she said she didn’t have an opinion on whether the US government was behind the 9/11 attacks. Medina, who has literally come out of nowhere to quickly become a legitimate candidate in the Republican primary, first laughed when Beck said he had received emails from listeners saying she was a “9/11 truther.” “That’s the first time I’ve heard of that accusation,” she said, not exactly denying the charge. So Beck asked her straight up: “Do you believe the government was in any way involved in the bringing down of the World Trade Centers on 9/11?” Easy answer, right? Nope. “I think some very good questions have been raised in that regard,” Medina replied. “There are some very good arguments, and I think the American people have not seen all of the evidence there, so I have not taken a position on that.” That answer caused a stir in the studio. Beck quickly followed up by asking her if she would disavow any of her staff if they were “9/11 truthers.” “Well, you know, that’s a federal issue. We’re very focused on issues in Texas, on Texas state government,” she said. “I’m certainly not into mind control or thought policing people. We’ve got a very diverse team in this state and that’s because Texans are standing shoulder to shoulder to support and defend the Constitution. I frankly don’t have time, you know, to go through and do psychological testing on people and know every thought or detail that they have.” – Christian Science Monitor

Dominant Social Theme: Crackpots come in all colors and sizes.

Free-Market Analysis: The Glenn Beck program has provided us with an instructive lesson on the nature of modern political correctness. This article will use Beck’s behavior, as related above, as a jumping-off point to analyze the term within a 21st century context – at a time when the term, in fact, is a little less popular than it used to be. Perhaps the leftwing of Anglo-American axis is less powerful than it used to be, and thus inspires less animosity, or perhaps other media concerns have become more compelling. But the point we want to make is most pertinent, we think, and much larger than points that have been made about political correctness in the recent past.

This is indeed a term that became very popular in the later 20th century and yet was in a sense indefinable except as a collection of mores that seemed vaguely leftwing. Of course back in the early 20th century political correctness was indeed a socialist and even communist preoccupation. One WISHED to be political correct to fit into those organizations. The pejorative odor came later. We looked up political correctness in Wikipedia just to see how it was defined. Here’s what we found:

Political correctness (adjectivally, politically correct; both forms commonly abbreviated to PC) is a term denoting language, ideas, policies, and behavior seen as seeking to minimize social offense in gender, racial, cultural, sexual orientation, handicap, and age-related contexts. In current usage, the terms are almost exclusively pejorative, connoting “intolerant” and “intolerance” whilst the usage politically incorrect, denotes an implicitly positive self-description. Examples include the conservative Politically Incorrect Guides published by the Regnery editorial house and the television talk show Politically Incorrect. Thus, “politically incorrect” connotes language, ideas, and behavior, unconstrained by orthodoxy and the fear of giving offense.

In Marxist-Leninist and Trotskyist vocabulary, correct was the common term denoting the “appropriate party line” and the ideologic/ “correct line”. Likewise in the People’s Republic of China, as part of Mao’s declarations on the correct handling of “non-antagonistic contradictions”. MIT professor of literature Ruth Perry traces the term from Mao Zedong’s Little Red Book (1964).

The New Left later re-appropriated the term political correctness as satirical self-criticism; per Debra Shultz: “Throughout the 1970s and 1980s, the New Left, feminists, and progressives . . . used their term politically correct ironically, as a guard against their own orthodoxy in social change efforts”. Hence, it is a popular English usage in the underground comic book Merton of the Movement, by Bobby London, while ideologically sound, an alternative term, followed a like lexical path, appearing in Bart Dickon’s satirical comic strips. Moreover, Ellen Willis says: ” . . . in the early ’80s, when feminists used the term political correctness, it was used to refer sarcastically to the anti-pornography movement’s efforts to define a ‘feminist sexuality’.”

Nobody really seems to like the idea of political correctness a whole lot. Yet it can still be argued that the term even today defines what can and cannot be argued within the “mainstream” of the Anglo-American media (and European media as well, of course). Here are issues that we would argue ARE politically correct. Beck touched on one of them in the Medina interview: US government culpability for 9/11 is NOT up for discussion. Adding to the list, we would offer the following (just for starters): That …
Al Qaeda IS a valid international terrorist force;
Israel is NOT an aggressive and even hostile theocracy;
the Anglo-American axis is NOT an aggressive force for war in the world;
the wars in Iraq and Afghanistan WERE justified;
national defense and national security CANNOT be a part time civil responsibility;
the environment IS degrading;
public education cannot EVER be eliminated;
regulation WORKS;
government is OBVIOUSLY necessary;
public service is ALWAYS important;
the world is TERRIBLY overpopulated;
the world is on the BRINK of running out of food and water;
public/private central banking CANNOT be eliminated;
paying taxes is NEVER, finally, a waste of money;
no CORE service provided by Western governments could be done better and more efficiently in a competitive and private manner.
We’ve listed the above areas of “political correctness” only to prove what regular readers of the Bell already have guessed: that our impression of political correctness (in the 21st century anyway) has to do with being careful not to contradict the dominant social themes of the power elite! Until only a month or two ago, we would have added global warming to the list, but as has been amply documented, global warming is one elite promotion that seems to be dying a lingering and public death.

To return to the lead of this article, there are plenty of PUBLIC red lines that media and government proposes, and in his Medina segment, Glenn Beck was very clear about one of them – you don’t question whether the American government was involved in 9/11 if you want to run for public office. What is also clear is that after Beck conducted this interview, the backlash began. Medina has apparently surged in the Texas polls and Beck himself has been excoriated for “ambushing” Medina and asking her questions about an issue irrelevant to Texas politics.

And then there is this found in the feedback queue in response to a CBSNews.com story on the Medina Beck controversy, “Debra Medina Says Comments on Glenn Beck Show about More than 9/11:”

By Judiladybug February 12, 2010 4:28 AM EST … A VERY interesting development happened right after Debra Medina’s interview with Glenn Beck. Friends from Austin, Houston, Dallas & Fort Worth began getting robo calls from not only Perry but Hutch. They started within an hour or so after the Glenn Beck radio show, guess what enlightening news they had to share? That Debra Medina was not a worthy candidate because she is a 9/11 Truther.

Wow!! Isn’t that interesting. How was Mr. Perry’s team so ready to start a massive robo blitz with this new Truther news so quick? Looks like someone is getting scared, and that he had a little help from a friend. Some coincidences are just too coincidental to be brushed aside. I am not any more of a Truther than Ms. Medina, but I have friends that feel that certain things don’t add up with the 9-11 facts and questi ons OB’s birth certificate. Everyone has a right, not an obligation to question everything going on in our country.

Throughout the 20th century, and into the 21st, power elite promotions were so powerful, threatening and effective, that people – businesses, too, and, of course, government – carefully self censored, even when they could not explain how and why they came to their self-censoring determinations. This was the ultimate triumph of elite promotional memes – they exercised an iron-class hold over people’s imaginations and internal life. Yet of course it would be the Bell’s argument that all of that may be changing now as the Internet-driven conversation continues to rapidly expand.

Conclusion: The ongoing implosion of the global warming meme is perhaps a sign of what is to come. And so is the Medina interview on the Glenn Beck radio program. We’ve predicted that even the 9/11 meme would eventually come under fire, along with the endless and devious justifications for various Western national security and government military industrial complexes. The idea that only big government, spending trillions on domestic spying and overseas military campaigns, can properly defend Western citizens against terror attacks is the most well funded and well promoted elite promotion of the 21st century. But even this dominant social theme may be destined for the fate of global warming. Just give it time. And Beck, too.

Gold & Silver Daily: World’s Central Banks Meet in Secret in Australia – Feb 09, 2010

World’s Central Banks Meet in Secret in Australia
Gold didn’t do much in Monday trading anywhere in the world. There was a peak in the price [around $1,075 spot] at 4:00 a.m. New York time, when the dollar was at one of its lows of the day… but it was basically all down hill from there, right into the New York close at 5:15 p.m. yesterday afternoon. The low of the day [$1,059.90 spot] occurred during New York trading at some point.

Silver’s high of the day [around $15.28 spot] was also at 4:00 a.m. Eastern time. Then it got smacked for about 30 cents at the Comex open in New York… got it all back by 12:45 p.m… but lost it all by the New York close. Silver’s low of the day [$14.92 spot] occurred shortly before 9:00 a.m. in New York trading.

I wouldn’t read a lot into the action of either metal yesterday. Most of it had to do with what the U.S. dollar was doing… or it was least made to appear that way.

Of course, the precious metals stocks rolled over the same time as the Dow… shortly after 11:00 a.m. yesterday morning… and most of Friday’s lovely gains disappeared.

As far as Friday’s open interest numbers go… gold o.i. rose 5,002 contracts. Volume was a fairly large 275,496 contracts. In silver, open interest was up 1,567 contracts. Volume was a monstrous 67,245 contracts. I’d give a day’s pay to know what the bullion banks did on Friday. On the new lows in both gold and silver, they must have covered a lot of shorts… but gone massively long as well… plus, they were probably 100% responsible for the big rallies off the bottom on Friday afternoon. I suspect that both of these rallies were the result of short covering by the bullion banks, because the tech funds would not be buyers at these prices and moving averages… as they were the ones puking up their long positions earlier in the day! And if this Friday’s Commitment of Traders report shows the correct information… all of this data should be in it.

Well, the CME Delivery Report yesterday showed that 337 gold and a rather large 216 silver contracts are up for delivery on Wednesday. There were two big issuers and stoppers in both metals… and all the details… right down to the last contract, is linked here.

There were no reported changes in the alleged holdings over at GLD… but the SLV added 1,472,061 ounces to their holdings! This, in the middle of one of the biggest bullion bank-orchestrated sell-offs of all time? The Zürcher Kantonalbank in Switzerland updated their ETFs for last week. They added a very small 7,542 ounces of gold… but their silver ETF increased a rather large 510,361 ounces. I thank Carl Loeb for those numbers. There was no report from the U.S. Mint and the Comex-approved depositories showed that 557,194 ounces of silver were added to their inventory on Friday.

Dan Norcini [of Welcome To Jim Sinclair’s MineSet fame] published some excellent graphs over the weekend. Here’s the first one. It shows that the “Commercial Traders” [read JPMorgan et al] are massively short the U.S. dollar index. Do you, dear reader, remember what happened to gold and silver when these fine folks were short both metals as much as that? As Dan says in the sidebar to this graph… “It could well be that the Dollar rally is getting long in the tooth.” No kidding!

There are two other graphs in the 5-page pdf file linked below. The graph above [if you’re having a tough time reading the fine print]… plus the graphs on page 5 and 6… are well worth your time. The link to all of them is here.

It’s Tuesday, and as per usual, I have a lot of stories for your consideration… quite a few of them are very important. Today’s first gold-related story is about another “let’s pretend we have all the physical we say we do” precious metals ETF. It’s called the “ETF Securities USA”. The prospectus, and the story about it, is located in this GATA dispatch that Chris Powell headlined “New ETF will claim to have gold, silver, platinum, and palladium”… and the link is here.

The second gold story is from Peter Brimelow over at MarketWatch – Stock Market Quotes, Business News, Financial News. The headline reads “Gold hit hard, but bugs buoyant”. It’s not very long… and I think you should read it… and the link is here.

There was a top secret banking meeting this past weekend. The only place I found the story was this item from of one of the Australian newspapers. The reason they have the story, is because Australia is the host country… but the location is secret. The headline reads “Secret Summit of Top Bankers: World’s top bankers fly in to meet at secret location… trouble on the horizon”… and the link to this must read story is here.

One must have to wonder, dear reader, just how bad things really are. Well, you should already know. As I’ve said many times over the last ten years… and long before I started writing for Casey Research… “if the free markets were allowed to have their way; the world’s economic, financial, and monetary systems would be a smoldering ruin within a week.”

Here’s another story along the slippery slope. This is a piece that’s posted over at zero hedge | on a long enough timeline, the survival rate for everyone drops to zero. The headline reads “Deutsche Bank And Unicredit Pull Out Of Greek Repo Market, Cease Lending Against Greek Collateral”. This is another must read… and the link is here.

Since it’s Tuesday, I have an Ambrose Evans-Pritchard piece from The Telegraph in London. It’s another one for your must read pile. The headline states “Greek Ouzo crisis escalates into global margin call as confidence ebbs”… “For the third time in 18 months the global financial system risks spinning out of control unless political leaders take immediate and radical action.” The link to the story is here.

In another directly related story from last Thursday’s Telegraph in London… courtesy of Friday’s King Report… comes this piece, and the title is so apropos… “Greece crisis: There, but for the grace of God, goes Britain”… “Should markets pass the same verdict on Britain as on Greece, the results would be almost identical – and just as disastrous, says Edmund Conway.” [That’s a big 10-4 good buddy!] I think this is a must reader… but, dear reader, I’ll leave that decision up to you… and the link is here.

Here’s an interesting story that you’d never find in the main-stream press. “The civil liberties committee in the European Parliament on Thursday recommended that the parliament’s MPs reject a deal that would allow U.S. authorities to continue accessing information held by a Brussels-based international money transfer system… commonly know as SWIFT.” It’s a very short article headlined “Bank Data Wars Escalate”… but has lots of links on this subject if you wish to pursue it. I thank GATA board member Catherine Austin Fitts for providing the story from her Solari | The Solari Report website… and the link is here.

And lastly… thankfully… is this video clip that was posted over at zero hedge | on a long enough timeline, the survival rate for everyone drops to zero. It’s a Marc Faber interview at Bloomberg yesterday. Marc says that “if the U.S. was a corporation, it’s credit rating would be junk.” The video runs about five and a half minutes… and the link is here.

Central banks meeting in secret it Australia… it sounds like The Creature From Jekyll Island all over again. Greece, Portugal and Spain et al on the brink. A stock market [the Dow] that wants to die. It appears that the central banks are watching their control of world financial and monetary events slip away… and are in a full panic mode.

From what I can see at this juncture, there are only two possible ways this economic, financial, and monetary situation is going to resolve itself, and they are… a hyper-inflationary depression… or a complete deflationary collapse. Both of which will result in the destruction of most of the world’s currencies. But, somewhere along either of those paths, or a combination of the two paths… individually or collectively, the central banks will be forced back into using gold as a convertible currency. When [and notice I didn’t say ‘if’] that happens, gold will have to be revalued to some fantastically high price. At that moment, the Golden Rule will come into play… He who has the gold, makes the rules!

Then, and only then, will we find out which countries and their respective central banks have gold reserves of any kind… and how much they really have left.

In the interim, things are going to get incredibly ugly. And, without doubt, the world’s central banks will resort to anything to prevent ‘all of the above’ from happening. But it’s way too late for that now. And, as Ambrose Evans-Pritchard said in his story from The Telegraph above… the crisis in Greece is now escalating into a “global margin call as confidence ebbs.”

These are not just interesting times… they are historic times!

In closing, I see that both metals are up a bit in ragged Far East and early London trading. Gold volume [at 5:03 a.m Eastern time] sits at 22,246 contracts for April… an in March silver, volume traded so far is 3,800 contracts. And the CME has posted the preliminary volume figures for gold and silver trading on Monday. Gold volume was a pretty light 162,375 contracts… and silver shows 47,771 contracts traded.

See you tomorrow.

Cycles of Western Civilizations from Ancient Greece to the present (and future)


NOTE: I have updated this paper somewhat since I originally wrote it over Last January/February 2009. I added a few more comments explanations and added a small part on Copenhagen. My Octave fractal for the large cycle, based on the DOW Top in 2007 called the bottom almost to the day based on time and closely followed on pattern and structure. I originally first published Figure 7 in the Fall of 2008. I updated Figure 7 when I originally released this paper. And keep it there to match the original paper. The market has continued to rally and there is another large cycle that will similarly end in a few years. In the original paper I make reference to the date range 3-16-2009 till 1-3-2010. I would note that the first date is associated with Fed Monetization and the Second with unlimited bailouts for Fannie Mae and the health care bill.

I also updated the big western civilization chart somewhat. The first was somewhat sparse as to personalities, movements, empires etc. For those who know western history many of these are not needed. The dates are the major inflection points in the overall pattern. It is also always a balance between providing details and creating clutter that makes it difficult to read.

This larger cycle is also a fractal and so one can go to a lower level and it too will have difficulties at the beginning. And that will not end until around April 2010. But from where we now stand this is the beginning of a final move of this larger cycle. The expressions of these cycles are hyperbolic. Things are going to get crazy in the Atlantic world. This is a period where a hyperinflation can manifest itself in the material world. But this cycle, going back 500 yrs is coming to an end very soon.

However, this paper is not about market predictions. The market is just one aspect of a manifestation of the cycles. Irregardless of short term (2-3 yrs) predictions the long term one remains. And that is that Western Atlantic world’s financial system has no future. It is headed for oblivion.

The Obama administration has opted to set itself against this civilization cycle. The Atlantic elites have clearly done so as well and are now starting to freak out as their geopolitical power goes up in smoke. As I indicated in my newcycle paper, Obama is their sock puppet. So at least he has an excuse. “Change we cannot believe in”.

A New Cycle

But as my newcycle paper clearly stated, anyone who goes against these cycles will be ground to powder. And on the contrary those who went with these cycles and their principles would find real support. This has proved itself beyond any doubt.

I decided to publish a little bit more of the results of my research. Some of this research has drawn on more ancient science that has been lost to modern science. It is not surprising that it has been lost as this is also part of the cycles of civilization.

It is a dynamic universe. Everything is moving. And the way things move always follows the same pattern. The pattern of Music! The ancient Greeks discovered this principle or were given it by the Egyptians. Kepler rediscovered it and it inspired his work. And so in turn has it inspired mine.

The other inspirations to this work have been Gauss and his ideas on potential. The Great Russian scientist Vernadsky and his ideas on the Noosphere. I have also been inspired by other ancient ideas from Christian and eastern philosophy and other Western esoteric sources. A modern source has been some of the writings of the US economist Lyndon LaRouche. It is a sad commentary on our culture that he is anathema to most of the US and European Elites. But then this is after all about the beginnings and end of civilizations. And the Atlantic world civilization is in the grips of a fatal catastrophe. This is not meant as a scientific paper and I do not wish to argue about minutiae. I am selectively publishing some of the results of some of my research so that some may benefit.

Previously, I have written about the Renaissance and what I have termed the rise of the Synthetic civilization[1]. In this paper I attempt to put things within a larger perspective; the entirety of western civilization from Ancient Greece to the present and its potential future.

One can view the entirety of western history from ancient Greece to the present and on into the future as one movement. And one can assign this entire movement a potential. That is from its very origins it contained a potential. And it’s subsequent movement the unfolding of that potential. Just like a rose bud contains the potential to unfold into the rose itself. And over an interval of time it will unfold to maximum beauty and from there onto a process of decay.

Now this movement follows the law of Octaves. And indeed we can trace this movement into a series of sub movements. Do-Re-Mi-Fa-So-La-Si. I call this entire movement a cosmos. This is in tune with the ancient idea of a cosmos.

One of the interesting things about this is a synchronistic effect that happens relative to the orbit of Pluto reoriented relative to the Galactic Center. I do not know entirely why this happens. Only that it exists. I have read and worked with a number of hypotheses of which I will not get into here. There are harmonic relationships that affect the entirety of the earth’s climate that are separate from the familiar earth’s seasonal cycle with the sun. In any case the synchronistic effect does exist which I will demonstrate.

As I indicated in my previous paper Civilization is really about culture. And culture is born from culture. And each culture has its own unique characteristics peculiar to itself. And there is in turn movement within each culture. Everything is dynamic.

In figure one you can see how the Octaves of western civilization are unfolding. Each of these octaves I call a civilization. This is all part of greater movement of western civilization. But each sub movement is a civilization unto themselves. So there is the ancient Greek, Roman, etc.

These sub movements of Western Civilization are: Do- Greek, Re Roman, Mi Early Christian, Fa Monastic Christian, So Medieval Christian, La Renaissance, Si Synthetic. Note that a dark age exists in the Mi-Fa interval.

Figure 1. Octaves of Western Civilization. Do- Greek, Re Roman, Mi Early Christian, Fa Monastic Christian, Sol Medieval Christian, La Renaissance, Si Synthetic. A few historical details and personalities notated. Massive Crisis always occur at defined boundaries in the expression of the octaves. King Canute really could not hold back the tides.

The figure also illustrates how the movement between and within is synchronized with the Pluto/Galactic center cycle. The longitude of Pluto relative to the Galactic center is plotted on a 360 degree scale.

The way it works is that one culture begets another culture. In effect each is an offspring of the preceding one. For the entirety of Western civilization and the Greeks (Do) in particular it is Egyptian. At a higher level the Egyptian civilization went through its own set of Octaves and its offspring is our own Western civilization. So the Roman world is a product of the Greek and the Early Christian of the Roman, etc.

In terms of the Pluto cycles there is a period of gestation prior to the 0/360 point. Then that new culture unfolds a potential until the next 0/360 point. Then there is a mini-crisis and often a new people take over. The center shifts geographically. It then rises to another and final peak and dominance at the next 0/360 point. Then there is a major crisis and collapse of the dominant culture. So there are two potentials and two unfolding cycles to that larger movement’s potential. It behaves like there is a boundary condition in terms of time. Because of these overlapping cultures only those who have studied the entirety of western civilization can readily see them. But as indicated in my previous paper they are clearly there.

The crises that repeatedly occur happen over a period of about 7 years. With the most clearly defined around 5 years. And the time period following these usher in periods of instability as the political and economic structures reorient themselves to the newer increasingly dominant culture.

I made this chart in 2006 and circulated it to a few people. Using the French collapse and defeat in Quebec in the last cycle as a reference point, one would put the end of summer 2007 as the point of a similar collapse. But this time of the entire renaissance culture and the Atlantic world that grew up around it. The way these things work is that when a potential has been reached it is OVER. And all of those things that have been supported by it get decimated. Although it is a continuous process and many years in coming it is also hyperbolic in its expression. And so likewise an intense period from the summer of 2007 to around late 2012 is a transition period to the new civilization. A period where it will become the dominant civilization on the planet.

So I was watching closely the late summer of 2007 to see if the state of affairs was consistent with this prediction of the model. Because of the nature of the renaissance civilization and its relationship to Banking and finance one would expect a major world financial crisis. The kind of crisis that involves all of the world’s money center banks. In fact they should be the epicenter of it. This did in fact turn out to be the case. And if one did look with any degree of honesty it was pretty obvious that the world’s financial system was absolutely and totally bankrupt. Of all of the world’s economists only Lyndon LaRouche called it dead on as to both the timing and the nature of it.

There is also a certain characteristic changes that happen as cycles progress. Consider the Eastern idea of the three Gunas; Raja, Tamas and Satwa. One would say that a cycle begins with the abundant energy of Rajas, comes to Sativic balance in maturity and dies in a Tamastic materialism. That is it moves from spirit towards materialism. What starts out in the bodies and minds of people become manifest in the material world. In the beginning the potential is in the people and they are alive with energy and it is the material existence that has relative poverty. In the end the potential has been used up and manifested in the material world. And then it is the people who are poor in spirit, but within a world of relative material affluence. Towards the end a process of corruption takes hold and brings it to an end like so much overripe fruit.

So today we worship man or nature and the bankers are all like socialists/communists. Those are signs of where we are in the cycles of civilization. And of course this is true of the larger movement of western civilization. We are now towards the end at Si in the larger set of octaves. So it is not entirely surprising that the center of synthetic civilization has shifted to East Asia and China. Does it not deem appropriate that the last octave in western civilization should be done by former communists? This is a natural progression of the cycle. Except for the mi-fa interval, as one moves from one octave to the next one also moves to higher levels of material expression. And we are at the very beginning of the time when the Synthetic civilization is coming into a young maturity. And that emerging balance can be seen in the leadership of the societies that are embracing it. Compare and contrast the individual members and the activities and responses of the US Federal Reserve, London and the ECB with the Central bank of China to the Crisis. Also where Asia in general and China in particular is embracing nuclear power, space exploration, building high speed rail networks, etc the Atlantic worlds response is bailout and a regressive technology orientation. Anyone with any brains can see who is corrupt and incompetent and who is behaving more soundly and intelligently. Clearly we have reached a point in western civilization where it is clear that the old Atlantic world is dead and that the Si-Synthetic note which is geographically centered in Eurasia is capable of materially supporting the entire world.

During this period of transition it is China that is taking the lead. Note that at Copenhagen, China could have stood alone against the Atlantic world. None of the other Asian/Pacific nations could have done so alone. Also, it was China that acted as the center for coalition of nations that opposed it. The British Empire never even had a chance. Nationalism, a principle of the new Synthetic civilization was credited with destroying Copenhagen. But it is a lot more than that as indicated in the newcycle paper. Note also that China was able to destroy Copenhagen by doing nothing. By not agreeing to anything. This is a sign of tremendous strength. The new geopolitical realities were absolutely clear coming out of Copenhagen.

These movements themselves are ones of unfolding potential. They too unfold according to the law of octaves. I have discovered a fractal that operates on the law of octaves and the concept of potential. If you know the time in which a potential unfolds you can predict the patterning of that potential. This is because everything moves, at all levels, according to the law of octaves. And these octaves move in harmonic relationships to other cosmoses, higher and lower. This is fairly radically different from all other cycle work.

The next charts show the expansion of that fractal using the Pluto/Galactic center synchronistic time cycles. I use the 1759-1764 interval as a basis for the boundaries. This is the time of the French loss of Quebec and defeats in India and the consolidation of the British Empire that began in 1763. Note that the collapse and defeat in Quebec during the seven years war corresponds exactly with the beginning of the collapse phase at the end of summer 2007. Also, the French defeat and collapse in India at the end of 1760 and the beginning of 1761 corresponded exactly with the collapse of the markets in the fall of 2008 and into 2009. It is exactly synchronistic with the same period during the last cycles.

Figure 2 Atlantic World 1517-2012

The 1517 date is also interesting one. This is the beginning of Protestantism and schism within the church. It is also the beginning of the collapse phase of the Medieval Christian civilization. Which was destroyed by a 150 years of religious wars. The schism was not the cause of the wars. That cause was the collapse of the medieval Christian civilization. But the wars were organized around this schism in the church at this time.

The end of the second rise is always much worse than the first. It has always been followed by manmade and even natural catastrophes. Looking at figure 1 you have to go back to just a few other point in the chart 1: A) The end of Monastic Christian civilization with the collapse of the crusades and Norman Chivalry. This is when the Knights Templers were destroyed. End of Second Byzantium. B) End of Early Christian Civilization and fall into a dark age. C) End of Roman civilization in the Crisis of the third century. And now today with the end of the Renaissance civilization we are at a similar point. So it is quite serious.
Figure 3. 1500 – Begining of Atlantic world.
Figure 4 Atlantic world Comes of Age British Empire.

I plotted this against the DOW and a reconstructed DOW going back to 1790. This uses the Cowles index and some other measurements of 19th century stock indices. I received it from someone else and had no part in its construction. This was produced independently of my work. I used the DOW and its proxy because it is a civilization and Wall Street, like London are integral parts. Also, Wall Street has it’s beginnings around 1790 and therefore a product of the Atlantic world. The history of Wall Street in the US puts it clearly within the orbit of the British Empire. The behavior of Wall Street in both creating and responding to the world financial crisis makes it clear that this is so.

Figure 5. Close up of look at British empire. Dow and reconstructed Dow as proxy.

One of the big problems the US faces is that both Washington and New York are Atlantic World cities. And the economic and political elites of these cities are members of the Atlantic world. Many are members of all of these Transatlantic institutions. And they are all doomed because when the bigger cycle of culture of which they are just an expression comes to an end they too will be cut down. It is a law of these cycles that when a higher process that contains a lower ends the lower process is just cut off.

There are other cycles and potentials I have discovered in the data and these are not shown. One of these is responsible for the 1929 market bubble. That was contained within these larger cycles and what is happening now is MUCH larger.

There are always difficulties at the beginning of a new cycle. And this is expressed in the fractal. Although it is in 1763/64 that the new cycle begins it is not until around 1790 that the skies begin to clear. Note that 1790 is a critical year. The British opium trade is launched which is key to British finance. US Constitution has just been implemented. Hamiltonian Banking system begins. Wall Street begins trading in this time period. Many innovations in British centered industrial revolution also occur. What are to be the two pillars of the Atlantic world are now solidly in place.

If you look at the fractal even the 68 phenomena is there. The first sub peak is late 1962 (10/22/1962). The Kennedy assassination occurred the next year. The second is January 1968. What this represents within the larger fractal is the end of a line of development. The chaotic late 60s and 70s ensue in the aftermath. Out of this emerges a new (and final) line of development to the recent peak.

This uses a log of the DOW data. This brings out another interesting point about these cycles. And that is that these cycles are not linear. We live in a hyperbolic universe. There are no straight lines.

Figure 6 shows the end of the world dominance of the Atlantic world and the rise of the coming Eurasian world. I do know from studying history that sometimes potentials are cut short. Some civilizations are destroyed before they reach their allotted potential. And I know we are at one of those points right now. So it is possible that we will not reach the maximum potential of the larger movement of Western civilization.

Figure 6. End of Atlantic world dominance and the coming Eurasian world.

One of the things my studies makes clear is that the British Empire is going down no matter what. There is no possibility of recovery for it. The British Empire’s potential is all but used up. Like all empires before it has had its day in the sun. At their end they may even be able to put up a impressive display of material assets. But inside it is all rotted out and used up. Only the Synthetic civilization has the ability to support the whole world economy. The center of the world economy is transitioning to a new people. Like all before them they want their day in the Sun. And they can and will take it. Go back to the beginning of western civilization with the Greeks. When they were threatened by the Persians with their overwhelming material assets. Did they do the logical thing and submit or did they fight? They fought and won. And this pattern is repeated over and over.

Boundaries of time. What appears to be the case is that there are boundaries as to time created by the whole movement as well as within. All of which are governed by the law of octaves. This creates boundary conditions. Things at lower levels simply get cut off at the boundary. So people can make choices but they cannot determine outcomes that are bounded by higher processes.

The other thing is that there is also the possibility of creating a whole new set of octaves. This would be a new set of octaves as large as the original Western or Egyptian one. Also we have experienced in the west what I call a “break in culture”. There is no longer any sense in the population of where we have come from and where we are going. Maybe now is the time when that is possible. That America itself is a product of the larger movement of Western civilization.

I hope this helps everyone orient themselves as to where we are in world history and see better the way out of our predicament. Or at least prepare themselves for the coming changes.

I do not understand why the synchronistic effect with the Pluto/galactic center exist. I do have some hypotheses as to why. It is likely found within harmonic relationships of a lower cosmos to higher cosmos.

Declines have their own movement in terms of Octaves. But in a different kind of space. Figure 7 shows the decline from the Dows all time high. There are other cycles that are not shown that also influence this. But this is the dominant cycle for the initial decline.

Figure 7. Octaves of Dow decline

Near term prediction is that the Chinese and East Asia in general should find some support right now. When you are at the end of something you are also at the beginning. And that beginning should be around 2-28-2009 or so. But as indicated in my previous article the shift is to East Asia.

And there should be a near term rally in the DOW until 3-16-2009 or so. But it is not a buy for several reasons. First due to the higher fractal being at a high level it suffers a decline from 3-16-2009 till 1-3-2010. Because of the hyperbolic nature of these fractals, and its current level, this is really a significant decline. Secondly the other cycle is in the basement. Also, not shown some smaller and intermediate cycles are moving down. And other longer term ones are also low. In particular the seasonal cycle will also move down into fall 2009. They may be feeling good right now but the Obama administration is likely to find itself in very serious trouble during this period. Looking Further out the post 2012 period should be a period of great instability both is terms of the world economy, nations, political entities and in international relations. Just as the post 1763-64 period was a period of such instability. Only much worse for what has been the center of the Atlantic world. This is because it is the end of an entire note of an octave and not just an intercycle like the last one in 1763-64. These only happen every 300 to 500 years. And the way the cycles work at all levels is that whatever was supported by the cycle loses all support when the cycle ends. They are cut off and die when the larger cycle that contains them comes to an end. So today everything in the world that is part of the Atlantic world civilization from Columbus on in the Atlantic world is coming to an end.

Note that in the longer run my octave fractals indicate there is a breakdown until towards the 2045 time period. Even with an optimistic assumption. This is much of the life of the upcoming generation. Needless to say people also need to reconsider their stock investment and retirement plans. And hope that the Federal government remains solvent and viable. Unfortunately, the way congress, and the Obama administration is currently operating on the bailouts it currently does not look good. Instead of orienting policy towards where there is support, the Synthetic civilization, they are still trying to revive the now dead renaissance one. Hopefully, post 3-16-2009 they will abandon that folly under the pressures of survival.

Ed Moran
Signal Space, Inc.

[1] Synthetic civilization. Rodney Colin, Theory of Celestial influences. One of the few references. I do not want to assume credit for coining the name of the Synthetic civilization, its nature or sequences. Not a scientifically rigorous book but nevertheless based on some scientific facts and correlations. A strange but also very interesting book, It is rich in some powerful and useful ideas. I have significantly extended his ideas on the sequence of civilizations and cycles. Particularly in the areas of cycles, civilizations and their structure, timing and transitions.

Weekly Investor Alert – Jan 29, 2010

Index Summary

The major market indices were lower this week. The Dow Jones Industrial Index fell 1.04 percent. The S&P 500 Stock Index dropped 1.64 percent, while the Nasdaq Composite finished 2.63 percent lower.
Barra Growth underperformed Barra Value as Barra Value finished 1.09 percent lower while Barra Growth fell 2.19 percent. The Russell 2000 closed the week with a loss of 2.44 percent.
The Hang Seng Composite finished lower by 3.63 percent; Taiwan lost 3.62 percent, and the Kospi declined 4.86 percent.
The 10-year Treasury bond yield closed at 3.60 percent, down 2 basis points for the week.
All American Equity Fund – GBTFX • Holmes Growth Fund – ACBGX • Global MegaTrends Fund – MEGAX

Domestic Equity Market

The chart above shows the performance of each sector in the S&P 500 Index for the week. All of the sectors were down. The best-performing sector was financials, down 0.1 percent. Other better-performing sectors include consumer staples and consumer discretion. Underperforming sectors were materials, technology, and energy.

Within the financials sector the best-performing stock was Genworth Financial, up 11.5 percent. The other top five performers in financials were Zions Bancorp, Travelers Cos. Inc., Wells Fargo & Co., and Chubb Corp.


The photographic products group was the best-performing group for the week, up 39 percent, driven by its single member, Eastman Kodak Co. The company reported fourth-quarter profit that greatly exceeded the consensus estimate. It was the company’s first profit in five quarters. The earnings were driven by consumer and commercial inkjet printer sales, leaner costs and royalties on digital-imaging technology.
The homebuilding group outperformed, rising 4 percent. A major brokerage firm published a positive note on the homebuilders, reiterating an “attractive” view on the homebuilders, and noting that it sees upside to current valuations. The brokerage based its opinion, in part, on positive comments from builders about January home sales, which may bode well for a strong spring selling season and growth in new home sales in 2010.
The automobile manufacturer group was among the outperformers, up 3 percent, driven by its single member, Ford Motor Co. The company reported fourth-quarter earnings significantly above the consensus estimate. Also, Ford may have an opportunity to gain from the recalls being made by Toyota Motor Corp.


The steel group underperformed, dropping 9 percent. United States Steel Corp. reported earnings below consensus, and it provided disappointing guidance. Investor concern over China starting to slow bank lending negatively affected the basic materials groups. A stronger dollar also weighed on the steel group.
The home furnishings group was among the underperformers, down 9 percent, led by its single member, Leggett & Platt Inc. The company’s fourth-quarter earnings report beat the consensus estimate, but the midpoint of the guidance for 2010 was below consensus.
The communications equipment group underperformed, losing 7 percent, led down by its second-largest member, Qualcomm Inc. The firm’s first-quarter earnings beat consensus, but guidance was disappointing. Competitive pricing in the cellular chip market was part of the reason for the reduced guidance.


There may be an opportunity for gain in M&A (merger & acquisition) transactions in 2010.
The strength in the market since March could be an opportunity to eliminate weaker companies in the portfolio and upgrade to companies with better fundamental outlooks.


Should investors’ expectations for an improving economy not come to fruition on a reasonable time frame, it could be a threat to stock prices.
As governments around the world begin to wind-down the monetary and fiscal stimulus programs put in place during the economic crisis, it will likely present a headwind for stocks.
January 28, 2010

Platinum Goes Platinum

January 27, 2010

Wind Power Not Hot Air

January 26, 2010

A Car and Housing Growth Story

U.S. Government Securities Savings Fund – UGSXX • U.S. Treasury Securities Cash Fund – USTXX
Near-Term Tax Free Fund – NEARX • Tax Free Fund – USUTX

The Economy and Bond Market

The 10-year U.S. Treasury note was relatively stable this week, with the yield decreasing by one basis point to end the week at 3.60 percent.

As reported this week, real gross domestic product (real GDP) increased at an annual rate of 5.7 percent in the fourth quarter of 2009, besting the consensus estimate of 4.7 percent. This was the best performance since the third quarter of 2003. The figure below shows the annualized quarter-over-quarter percentage changes.


The Reuters/University of Michigan final index of consumer sentiment for January rose to 74.4, exceeding the consensus of 73.0 and the preliminary estimate of 72.8. This was the highest level in two years.
The Chicago Purchasing Managers Index increased to 61.5 in January, higher than the consensus estimate of 57.2. This was the highest level since November 2005.
The S&P Case-Shiller 20-city home price index for November rose a seasonally adjusted 0.24 percent from October, the sixth straight monthly gain. The index was down 5.32 percent year-over-year, the smallest year-over-year decline in two years.
The Conference Board’s index of consumer confidence rose to 55.9 in January from a revised 53.6 in December, besting the 53.5 median estimate of economists.


Durable goods orders for December rose 0.3 percent from November, less than the 2 percent advance expected by economists. Orders for durable goods excluding transportation increased by 0.9 percent, more that the 0.5 percent consensus.
Initial jobless claims for the week ended January 23 were reported at 470,000, more than the 450,000 expected.
December new home sales declined 7.6 percent month-over-month to 342,000, less than the forecast of 366,000.
Sales of existing U.S. homes in December fell 16.7 percent from November levels to an annual rate of 5.45 million, worse than the consensus of 5.90 million. November sales had been helped by the government tax credit, which was originally scheduled to expire on November 30.
The Richmond Fed’s manufacturing index for the central Atlantic region for January came in at -2.00, slightly worse than the consensus estimate of 0.00. It did edge up a bit from December’s index of -4.00. For each of the seven months prior to December, the index had been positive.
The Mortgage Banker’s Association index of mortgage applications for the week ended January 22 dropped by 10.9 percent after rising for the preceding three weeks.


The fourth-quarter GDP of 5.7 percent reported this week provides another indication that the global economic recovery appears to be taking hold.


Coordinated global removal of fiscal and monetary stimulus are the biggest threats to the financial markets.
World Precious Minerals Fund – UNWPX • Gold and Precious Metals Fund – USERX
Gold Market

For the week, spot gold closed at $1,081.28 per ounce, down $11.92, or 1.09 percent. Gold equities, as measured by the Philadelphia Gold & Silver Index (XAU), fell 6.83 percent for the week. The U.S. Trade-Weighted Dollar Index (DXY) climbed 1.52 percent.


Investment demand for gold continued to be robust. The World Gold Council said investors bought 30 metric tons via exchange-traded funds in the fourth quarter of 2009, contributing to an overall total of 1,762 metric tons of ETF holdings for the year.
The China Gold Association said China’s gold output jumped 11.3 percent to a record of 314 metric tons in 2009, securing its position as the world’s largest gold producer for the third straight year.
India started the year on a positive note by importing 35 to 40 metric tons of gold during the first 27 days of January, up from 9.8 metric tons last January. Stable prices have given 2010 a good start to gold demand, the Bombay Bullion Association said.


Gold was negatively impacted during the week by offloading of positions based on sluggish global cues.
President Obama’s spending freeze for several federal departments, and the Commerce Department’s announcement that the U.S. economy grew at a 5.7 annual rate in the fourth quarter of 2009, were also supportive in a market environment where sovereign risk and financial imbalances are key concerns.
The Office of Fair Trading is conducting a probing investigation on several companies in the “cash for gold” industry after complaints from customers show they were not offered fair values for their mailed-in jewelry.


Research from Cormark Securities shows that global gold production peaked in 2001 at 2,600 metric tons. World output has been steadily declining from that point because of lower grades and higher capital costs that are making it uneconomic for producers to bring new gold onto the market.
A bullion analyst in Beijing said the high price of gold is not deterring investors from the yellow metal as it does in India and the Middle East. Global investors Jim Rogers and Marc Faber have said that falling Chinese equity markets present good gold-buying opportunities.
The U.S. Federal Deposit Insurance Corporation is planning to securitize more than $36 billion in assets from failed banks, and auction them off in a bond offering to help cushion the ailing mortgage backed security market.


Bank of America-Merrill Lynch analysts believe that policy risk and government intervention remain the largest two risks to the economic outlook in 2010.
Economist Nouriel Roubini said he is pessimistic on the eurozone and that Spain poses a serious threat because of its fiscal imbalance. Spain is the region’s fourth largest economy with the unemployment rate of 19 percent, double the EU average. Rising sovereign risk may cause a flight of capital into the refuge of the U.S. dollar.
The World Bank said commodity growth will be restricted for the next two years as a result of a low-growth economic environment. It has forecast global GDP growth of 2.7 percent this year, followed by 3.1 percent in 2011.

Global Resources Fund – PSPFX • Global MegaTrends Fund – MEGAX

Energy and Natural Resources Market

Despite forecasts for record grain supply over the 2009 and 2010 growing season, the global grains stocks-to-use ratio is expected to remain below the historical average due to forecast growth in grain consumption.


Capacity utilization at U.S. steel mills has risen 1.5 percent to 65.6 percent in the last week, according to the latest American Iron and Steel Institute data. At 1.44 million metric tons, the total production was the highest since the end of October 2008 and represents 75 million metric tons per year on an annualized basis.
Japan’s shipments of aluminum rolled products rose 9.1 percent in December, posting the first increase since September 2008.


Crude oil prices fell this week as the U.S. Dollar gained 1.4 percent and concerns about Chinese oil demand amidst the Chinese government’s tightening economic policy.
Base metals prices plunged this week on fears of a slowdown in buying from China. Copper fell nearly 9 percent and zinc more than 10 percent.


BHP Billiton announced that it will acquire Athabasca Potash for $320 million. BHP Billiton also raised offers on manganese ore to customers in China by as much as 17 percent, as global supply tightens and demand picks up.
The queue of ships at Newcastle, Australia—the world’s biggest coal port—is near its longest level since before the financial crisis, and waiting times are at a one-year high. Figures published this week show 58 ships waiting on Monday, just shy of the pre-Christmas peak of 60, which was the longest queue since mid-2007. Average waiting times for vessels is 18 days, the Newcastle Port Corporation figures show.
Bunge has sold its Brazilian fertilizer assets to Vale for $3.8 billion in cash to fill a war chest for agribusiness and sugar expansion and to attack its heavy debt burden.
Russian steelmaker Severstal confirmed its intention to restart its 1.2-million-metric-ton-per-year facility in Warren, Ohio, during March.


Australia’s government has not yet decided what recommendations it will adopt from a report proposing major tax reforms, possibly including a big increase in mining royalties, Prime Minister Kevin Rudd said this week.
MySteel.net claims that Chinese hot-rolled coil prices have fallen 80 Chinese yuan per metric ton so far this week and that cold-rolled coil price is off 100 Chinese yuan per metric ton. Further declines are expected ahead of the Chinese New Year holiday.
China Region Opportunity Fund – USCOX • Eastern European Fund – EUROX
Global Emerging Markets Fund – GEMFX

Emerging Markets


Fitch raised Indonesia’s long-term foreign and local currency credit ratings from BB to BB+, the highest level in more than a decade and only one level below investment grade. Indonesia’s resilience to the 2008-2009 global financial crisis due to improvements in its public finances was cited as a reason.
Thailand’s industrial production growth rose to 35.7 percent year over year in December, the highest on record and ahead of market expectations, as continued global recovery drove up exports 26.2 percent during the month.
The unemployment rate in Brazil in December declined to 6.8 percent from 7.4 percent in November, attributable to seasonal factors.
Fitch followed S&P in raising Russia’s sovereign credit outlook from negative to stable. Industrial production in the country grew 2.7 percent in December, a second positive monthly reading in a row. The monetary base jumped 25 percent in December, spurred by year-end government spending.
Bond yields in South Africa fell to their lowest level in three weeks after December inflation came in below expectations at 6.3 percent. Outside of gasoline, most major subcomponents of the CPI decelerated during the month.


Continued fears over the prospect of macro tightening in China resulted in an 8.8 percent decline for Chinese domestic A shares and 10.1 percent decline for Chinese H shares traded in Hong Kong in January.
South Korea’s GDP expanded by a seasonally adjusted 0.2 percent sequentially in the fourth quarter of 2009, slower than expected due to a decline in government spending and household consumption.
Brazil is to end tax cuts on purchases of cars (effective March 31) and appliances (end of January). According to the government, stimulus is no longer necessary. This move had been anticipated.
Czech industrial production fell 2.3 percent from the November’s level, suggesting a level of production close to that in the first quarter of 2009.


While the recent correction in China has been steep and swift, history suggests buying opportunities in the medium term. In early 2004 and early 2007, when tightening fears haunted investors in a policy environment similar to the current one, Chinese stocks underwent a sharp selloff for a couple of months and yet finished the year higher as investors realized the economy was not headed for a hard landing.
The fixed-line telecom market in Mexico is likely to become more competitive after the government decided to auction the fiber-optic long-haul network of CFE (electric utility). It is expected that Televisa and Megacable will participate in the auction in order to provide triple-play services for their customers.
After the Central Bank of Russia lowered refinancing rates by 425 basis points within last 10 months to the current 8.75 percent, consumer loan rates followed. The benchmark fixed mortgage is down 300 basis points to 17 percent. These lower rates have begun to translate into an increase in mortgage lending, based on research by Deutsche Bank.


The Indian central bank’s surprise increase of cash reserve ratio by 75 basis points and hawkish language regarding inflation may in the short term reinforce investors’ perception of tightening bias among global central banks.
Lower commodities prices would be a headwind for resource-rich economies in Latin America.
The inflation report from Central Bank of Turkey (CBT) continues to downplay rising headline inflation, according to Citi. As central banks around the world start tightening, keeping rates on hold could risk the CBT’s credibility and the lira’s performance.

Leaders and Laggards

The tables show the performance of major equity and commodity market benchmarks of our family of funds.
Weekly Performance Index Close Weekly
Change($) Weekly
Change(%) Korean KOSPI Index 1,602.43 -81.92 -4.86% DJIA 10,067.33 -105.65 -1.04% Gold Futures 1,082.10 -8.70 -0.80% S&P BARRA Value 513.83 -5.68 -1.09% S&P 500 1,073.87 -17.89 -1.64% S&P BARRA Growth 551.93 -12.33 -2.19% Russell 2000 602.04 -15.08 -2.44% Natural Gas Futures 5.12 -0.70 -12.10% Nasdaq 2,147.35 -57.94 -2.63% S&P Energy 410.57 -11.99 -2.84% Hang Seng Composite Index 2,822.25 -106.38 -3.63% S&P Basic Materials 182.50 -8.30 -4.35% 10-Yr Treasury Bond 3.60 -0.02 -0.58% XAU 147.93 -10.85 -6.83% S&P/TSX Canadian Gold Index 300.37 -18.29 -5.74% Oil Futures 72.74 -1.80 -2.41%
Monthly Performance Index Close Monthly
Change($) Monthly
Change(%) Oil Futures 72.74 -6.13 -7.77% Russell 2000 602.04 -31.14 -4.92% S&P Energy 410.57 -22.91 -5.29% Nasdaq 2,147.35 -141.05 -6.16% S&P Basic Materials 182.50 -19.62 -9.71% Natural Gas Futures 5.12 -0.70 -12.02% S&P BARRA Value 513.83 -16.20 -3.06% S&P 500 1,073.87 -52.33 -4.65% 10-Yr Treasury Bond 3.60 -0.25 -6.50% S&P BARRA Growth 551.93 -36.53 -6.21% Korean KOSPI Index 1,602.43 -70.05 -4.19% DJIA 10,067.33 -478.08 -4.53% XAU 147.93 -21.54 -12.71% Gold Futures 1,082.10 -17.40 -1.58% S&P/TSX Canadian Gold Index 300.37 -32.25 -9.70% Hang Seng Composite Index 2,822.25 -332.01 -14.83%
Quarterly Performance Index Close Quarterly
Change($) Quarterly
Change(%) Natural Gas Futures 5.12 +0.05 +1.05% Gold Futures 1,082.10 +32.90 +3.14% 10-Yr Treasury Bond 3.60 +0.10 +2.89% DJIA 10,067.33 +104.75 +1.05% Nasdaq 2,147.35 +49.80 +2.37% S&P BARRA Growth 551.93 -3.35 -0.60% S&P Basic Materials 182.50 -1.48 -0.80% S&P 500 1,073.87 +7.76 +0.73% S&P BARRA Value 513.83 +10.58 +2.10% Korean KOSPI Index 1,602.43 +16.58 +1.05% Russell 2000 602.04 +21.82 +3.76% Hang Seng Composite Index 2,822.25 -105.61 -3.61% Oil Futures 72.74 -7.13 -8.93% S&P Energy 410.57 -26.92 -6.15% XAU 147.93 -14.11 -8.71% S&P/TSX Canadian Gold Index 300.37 -22.50 -6.97%

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An investment in a money market fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio. The Eastern European Fund invests more than 25% of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile. Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries. Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5% to 10% of your portfolio in these sectors. Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local income taxes, and if applicable, may subject certain investors to the Alternative Minimum Tax as well. Each tax free fund may invest up to 20% of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. Past performance does not guarantee future results.
These market comments were compiled using Bloomberg and Reuters financial news.
Holdings as a percentage of net assets as of 12/31/09:
Genworth Financial: 0.00%
Zions Bancorp: 0.00%
Travelers Cos Inc: 0.00%
Wells Fargo & Co: 0.00%
Chubb Corp: 0.00%
Eastman Kodak Co: 0.00%
Ford Motor Company: All American Equity 0.04%
Toyota Motor Corp: 0.00%
United States Steel Corp: Global Resources 1.12%
Leggett & Platt Inc: 0.00%
Qualcomm Inc: 0.00%
BHP Billiton: 0.00%
Athabasca Potash: 0.00%
Bunge: 0.00%
Vale: Global Emerging Markets 1.58%
Severstal: 0.00%
Televisa: 0.00%
Megacable: 0.00%
*The above-mentioned indexes are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.
The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.
The S&P BARRA Growth Index is a capitalization-weighted index of all stocks in the S&P 500 that have high price-to-book ratios.
The S&P BARRA Value Index is a capitalization-weighted index of all stocks in the S&P 500 that have low price-to-book ratios.
The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index.
The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.
The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
The Philadelphia Stock Exchange Gold and Silver Index is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver.
The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.
The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The Consumer Confidence Index (CCI) is an indicator which measures consumer confidence in the Economy.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The University of Michigan Confidence Index is a survey of consumer confidence conducted by the University of Michigan. The report, released on the tenth of each month, gives a snapshot of whether or not consumers are willing to spend money.
The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.
The S&P/Case-Shiller Index tracks changes in home prices throughout the United States by following price movements in the value of homes in 20 major metropolitan areas.
The Consumer Confidence Index (CCI) is an indicator which measures consumer confidence in the Economy.
The Richmond Fed Manufacturing Survey Assesses regional manufacturing conditions for the Richmond Fed District. Based on mail-in surveys from a representative sample of manufacturing plants, the Richmond Fed Index seeks to track industrial performance. The report puts particular emphasis on inflationary pressures.
The Mortgage Bankers Association Market Composite Index measures mortgage loan application volume.
The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns.
The Shanghai A-Share Stock Price Index is a capitalization-weighted index. The index tracks the daily price performance of all A-shares listed on the Shanghai Stock Exchange that are restricted to local investors and qualified institutional foreign investors. The index was developed with a base value of 100 on December 19, 1990.
H-shares are Chinese companies that trade in Hong Kong but are incorporated in China.