Depressions Compared and "Are We There Yet?"

On the subject of inflation, I listened to an interesting audio interview by Jim Puplava of Financial Sense Network a few weeks ago. Jim has some very good interviewees in his podcasts. The link is available at the end. I recommend it as worth a listen, and hope readers will find it worth their time.

The interviewee in this one was Ronald Marcks. Marcks was a practising lawyer during the 1970s and is better known under his pen name Jens O Parsson, as the author of the excellent book “Dying of Money”. His comments about reservoirs of inflation are very interesting. Marcks considers that Milton Friedman did not look at all of the places in which inflation could be “stored” rather like water accumulated in a reservoir, and from which it would emerge later.

Dying of Money is one of the really good books that gold bugs should consider as required reading. It will not help you trade any better, as it is not about the markets as such. It is a fine economic book about inflation in the modern era, and that’s a big compliment to its author, because he wrote it back in 1974, the last major depression-inflation phase. Well worth reading, whether you get a copy or find a pdf on the internet.

The inflation period that brought his book back into everybody’s awareness was back in 2010. Stagflation, or financial repression as it is also called, followed that inflation. But what will follow the stagflation we are presently in, and when?

Looking back, our present depression phase began back in 2000 and we are 13 years in now. So we have had stagflation pretty much since 2000, certainly since 2009. If this period is examined closely it can be seen to be alternating pulses of inflation, followed by deflation, and then inflation again. The powers that be are hoping that time will heal the economy while we all run on the spot for all our worth. And time really does heal things. But here is the problem, if the depression is artificially made shallower by QE money printing, will the time required to complete the bear market be extended? This remains to be seen.

So while we are in financial repression/stagflation necessary goods rise in price and costs rise, but incomes are held down reducing our ability to pay these rising costs. Capital may wish to flee to places with a nicer financial climate - if there is one - but controls are being installed, and interest rates are kept below the inflation rate so that the loans of the indebted sovereigns and banks will shrink under inflation, and creditors gains are stolen as a result of artificially low returns.

The taking of investment capital and savings by government during stagflation also destroys growth potential and that is where the stagnation in the word stagflation comes from.

A look at US stocks shows a giant trading range clearly on the monthly chart:

The red one is the 1970s bear for comparison. As you can see, a certain form or generalized pattern looks to be repeating but the present day version (the black chart) is incomplete.

Trading range markets are to be expected where inflation rises faster than stocks are rising. However if the bull swings are traded and other markets used for the bear swings, then money can be made during this period. Unfortunately the Fed and Central Banks have countered this strategy by increasing misinformation with “a strong guidance policy”. Basically this means that they switch on and off their monetary intervention at unexpected times to prevent the markets from exploiting their actions.

But if inflation is only half of the time what do we do about the other half? We endure deflation that’s what, and we see a decline of real assets during those periods.

  • We can observe the actions of the insiders via mandatory disclosure, but this is of limited value because their actions tend to be disclosed at about the time that they reverse their investing strategy anyway.
  • Inventory study, like the COT reports are one of the semi visible manifestations of insider s trading the realtime Fed policy. But unfortunately those are a broader guide and are not good for precise timing.
  • Looking at CB balance sheet growth is another way.
  • Range trading the markets is possible, being careful to not let a deliberately mal intentioned monetary pulse catch our trades on the wrong side.
  • Margin levels are another metric that seems to work around now, due to the banks and exchange members wanting to take the players money, and operating their margin levels as an expansion-contraction scam. They raise margin requirements and cause retail longs to dump and flee. Then they pick up the disgorged assets cheaply. High margin levels warns they are about to change the rules and do it again.

Here is the 1930s-1940s depression period:

The 1930s-40s depression ended with a similar series of rising lows after a trading range, but before that it faked a recovery but then sank back for another few years in the depression trading range before it eventually built a genuine rising trend towards new highs and exited the trading range for good.

So what happens as the present period moves towards its end? We currently have a trading range in stocks which has lasted for a decade, and are rising to the exit, or a fakeout moment. The trading range in Japan was a declining range. Japan printed less money than the US at the start, but are making up for it now, whatever that may bring as a result!  Usually the stagflation trading range contains a severe down-leg at some stage. That is a deflationary crisis. That may have been the one seen in 2008 but it is possible that a second dive may be still to come. The exported inflation begins to return home in rising living costs but wages are held down due to poor business conditions  and it morphs into stagflation. The stagflation bites and people find it hard to pay for food, transport and energy.

Over time, labour mobilizes, strikes and protests will rise as middle class and working class people find it difficult to survive and demand wage increases. (See McDonalds and Walmart strikes already.) They agitate for change and more pay. That is when more people become angry and try to get their public representatives to actually represent them.

During the stagnation phase, the politicians realize that their personal income and career prospects are eroding. The politicians develop a concern about a possible end of their career within a luxury segment of society. They realize that the masses are mobilizing and uniting and require real respect to some degree, so they become motivated against further taxing of “their subjects”. Then they may begin to turn on those they previously served as power-business partners. Bank executives will lose their power when this stage arrives. Power beats money when the going gets tough.

Severe declines in stocks cause leaderships to order the Central Banks to open the money printing presses to a greater degree than before. This will cause inflation assets like stocks to rise permanently into higher trading ranges.

At some point genuine green shoots of growth appear and Central Banks will pull some stunt to “mop up the excess capital”. Sudden rule change warning! Gold bugs beware, and real estate owners watch your property taxation valuations, they may exceed the resale valuation by a large margin. The CBs will try to capture new personal wealth for their political bosses.

Here is the current trading range (SPX) with the broadening or megaphone trading range. Every high, and every low so far was a false breakout as you would expect in today's markets. The exit trend looks very steep, and more like the false breakout trend of the 1930s, than any of the genuine breakout trends  seen in the charts above.

This particular view of the next 3-5 years is not really a forecast in the usual sense of the word. It is merely my recounting of historical events that happened in the 1930s, 1950s and1970s which were similar economic periods to now. I have recast those historical events in the modern context of the way that recent events are being currently handled by those in charge. Out of self interest the different social groups in society can be expected do the exact same things now as they did in previous waves of the same cycle, but in the context of the modern situation there will be differences. The time gaps between these bear markets is very long to attempt comparisons at all, but what I've done here is hopefully useful for readers.

A major issue would be if this is an 18 year bear instead of a 13 year bear, in which case it’s not finished yet, but has 5 years more to go!

At the moment stocks are building an extremely steep rising trend to find out if they can find the exit. If there is more stagflation to endure first, the S&P will fall back from this breakout and re-enter the range for another period before trying again. It did that in the 1930s.

argentus maximus

You can find the Jens O Parsson interview I described here: http://www.financialsense.com/financial-sense-newshour/guest-expert/2013/08/24/jens-o-parsson/dying-money

The author posts daily commentary on the gold and silver markets in the TFMR forum: The Setup For The Big Trade. More information about the author can be found here: RhythmNPrice

59 Comments

Silverivalist's picture

Furst? Never in my wildest dreams!

Never thought little old me would be first at anything, now to read the article.

Dyna mo hum's picture

a

deuce

Mr. Fix's picture

3

smiley

oneagleswings's picture

second

Second, 

One first,  now one second.  Dying of Money.  We are witnessing first hand.  I just spoke with a woman who was in the Congo on a research type visit for academia.  There were a dozen people killed in the city she was in by rebels while the UN peacekeepers were all over the city.  How about the dying of a continent in Africa?  How about the implosion in the middle east?  How about Syria?  Money schmuney.  I think we are heading toward an implosion of the world as we know it.  Of course I have been reading and hearing about said implosion since 2008.  Might read the book. I thank God I am in America when I wake up because if not here where?

Gramp's picture

Well Shoot,  I did learn

Well Shoot,  I did learn something today!

Great write up Argentus, Many thanks

Green Lantern's picture

It almost seems like the fed

It almost seems like the fed has secretly decided to deliberately copy the Japanese stagflation.  Their hope may be that instead of taking the shakeout all in one fell swoop and creating  a deep depression, they can keep the shakeout mild, with unemployment staying below 10%, if they stretch it out over a long period.  Trying to thread the needle between high inflation and Doug Casey's greater depression.   The thing is it won't work because the strategy is so inherently fragile that eventually something unforeseeable will push us through the upper or lower boundaries of the channel.    A misstep could create a political crisis overnight and they know that.   A million American's screaming on the White House front lawn will not be allowed and it's not looking like we won't return to the Constitution and a new American golden age of peace, liberty and abundance anytime soon.  

So until that historic turning point and that X factor enters the system (when nobody knows), might be quite a few opportunities to buy low and sell high. 

significant news on the Fed -Summers is out.  Interesting timing.  It always is

http://www.usatoday.com/story/money/business/2013/09/15/summers-fed-bernanke-analysis/2817101/

bullion only's picture

So much for Andy McGuire and

So much for Andy McGuire and the Jpm whistle blowers. 

Green Lantern's picture

@bullion only

U know something the rest of us don't?  Is there a complete thought attached to that statement floating around someplace that hasn't found it's way to the keyboard yet?

Dr Jerome's picture

@ bullion only

Please post a link.

Jerome

DayStar's picture

Harvey's Up!

Harvey: The Comex registered or dealer inventory of gold rises slightly tonight. It is now well below the 1 million oz mark, and also is well below the 700,000 level recording at 665.242. oz or 20.69 tonnes . With no gold entering the dealer side it seems almost impossible for the bankers to settle upon longs once the December contract hits. The total of all gold at the Comex (dealer and customer) tonight rests just above the 7 million oz barrier resting at 7.021 million oz or 218.60 tonnes. JPMorgan's customer inventory falls tonight at 246,327.488 oz or 7.66 tonnes. It's dealer inventory remains constant at 214,144.712 oz or 6.666 tonnes. The total of the 3 major gold bullion dealers (Scotia , HSBC and JPMorgan) in its Comex dealer account again remains constant in gold inventory tonight and its resting inventory is 16.686 tonnes of gold. Brinks continues to record a low of only 3.549 tonnes in its dealer account. Today, GOFO numbers are in the positive for all months. We lost a huge 6.01 tonnes of gold from GLD. We had a huge loss of 2.12 million oz of inventory at the SLV.  

Harvey: Greg Palast, a journalist, gets a copy of a secret document whereby major CEO's of banks met in secret with Larry Summers, planning their moves. All this and more on...

The Harvey Report!

http://www.tfmetalsreport.com/comment/350902#comment-350902

DayStar

bullion only's picture

Green Lantern,  Have you not

Green Lantern, 

Have you not read all the endless posts about the importance of the Maguire JPM whistle blowere?

Have you not heard how gold rocketed 21$ on the news released at King World?

Have you not read the endless cheerleading that this was the game changer?

How asia now was going to come in big time and buy?

Well maybe you should and maybe you too are blinded by hopeium.

You are the mindless one around here.

Show me a big gap up and until then you can bug off and go back to reading comic books.

Green Lantern; what a joke of a post.

RT

bullion only's picture

Jerome, Post a link on

Jerome, Post a link on what?

Look at Kitco. 

As I type we are up a lousy 1.50$

Yep that JPM whistleblower stuff sure made a difference.

I'm just tired of every excuse for gold to go up and yet for two years we are still 600$ off the high.

RT

bullion only's picture

Finally the only persons I

Finally the only persons I take seriously these days is Pierre Lassonde and Paul Craig Roberts.

Even Santa has been a big dissappointment with his promoting of Bo Pony.

That's just crazy.

Lassonde says hat we could be sideways for another year and a half or two. He should know. Check his credentials.

Jerome you can listen to him on KWN broadcasts.

Roberts on KWN said recently that we are still fighting deflation and exporting inflation and that util China devalues their currency we will not have inflation hit our shores. That will be the time when gold goes to new highs.

Could be two years out he says.

The rest are cooks or cheerleaders or both.

RT

ag1969's picture

Bullion only

I'm just tired of every excuse for gold to go up and yet for two years we are still 600$ off the high.

I hear ya there, I think we all are tired of that.  What you call "excuses for gold to go up" I call "fundamentals" and it certainly is frustrating because it flies in the face of truth and reason.  Watching criminals manipulate a market in broad daylight without any justice is a bitch.

bullion only's picture

Sorry Green Lantern,  Pent up

Sorry Green Lantern, 

Pent up frustration from reading too much this weekend.

Didn't mean to take it out on you.

Please accept my apologies.

There really wasn't a complete thought attached to that statement as you so accurately pointed out.

Perhaps my own hopium that it would make a difference and the reality that it will not.

Again my apologies for my rude behavior and inconsiderate post.

Maybe a wake up call for me to use my time more creatively and to spend less time here.

I'm taking a break for the rest of the year. I

I don't trade so it dosen't matter.

PS Green Lantern is a cool name.

RT

Green Lantern's picture

bullion, slow your roll. I

bullion, slow your roll. 

I asked you what you are talking about.   You went from a nebulous statement into a defensive tirade and throwing flames.    Somebody needs a little chamomile tea. 

So what you meant to say is that you don't believe the Andrew Maguire means anything and that everyone who accepts the story is smoking opium (you lumped me into that crowd even before you heard my opinion) and a bunch of stuff about comic books. 

guess you didn't read my friday post where I said the price movements in gold were related to the Jets/Pats game. 

How about next time, you wait to hear my thoughts on a subject before you tell me off?  Talk about putting the cart before horse.

maravich44's picture

bullion only....

that is funny as shit. my rounds and eagles didn't jump around either...this is confusing..yes. I'll explain because i believe in superhereos.

bullion only's picture

ag1969 thank you for your

ag1969 thank you for your understanding. Yes the fundamentals is what got me in and kept me in way back at $400 so I shouldn't complain I know. It is the frustration that in the face of fundamentals that this corruption and manipulation can go unabated for so long. I suppose it is the dissapointment in my own government that I'm really frustrated by. Then again that's the reason I'm in gold. What a dilema.

Thanks again and I know we will one day have our due.

RT

¤'s picture

The Dying of Money

Thanks AM....hope this link helps...it's a free Google book...

>>>Dying of Money ~ Jens O. Parsson<<<

transcript-img14.jpg

Yes...those are stacks of money.

hyper_inflation.jpg

1baf725b1e8a.jpg

bullion only's picture

All you guys and gals here

All you guys and gals here are too kind.

Thank you

And again my apologies. 

BTW the tea did not work. I'm walking over to the wine rack.

RT

Green Lantern's picture

Ok, Bullion. No hard

Ok, Bullion. No hard feelings. 

Ag1969, I am in no position to speak for the group or gold bugs in general.  But I think, it's time for people to recalibrate.  Nobody throw tomato's.   Reconsider some of their postulates and move into a higher space of awareness.   I recently went back to KWN news and read some of the blogs and headlines between 2010 and 2011.   There was indeed a certain amount of misinformation or information that wasn't well supported.   I like many accepted some of it.  i call it the postulate investing.  You accepted certain postulates.   That's different from a model investor.   I plan on writing a little about it.    My point is that there is an invitation to be smarter moving forward.  

Andrew Maguire situation is right now just "information"    I don't see any need to rush to judgment on what will happen with it.  Like many things I'm sitting and watching.  As an investor, there is absolutely nothing for me to act on.  

Yes, I grow weary too some days but generally can shake it off and move on.   I'm not selling my gold and I'm not going to letting the news get me down.   Why?  Because screw them.  

¤'s picture

It would make for a Slow Ride

Green Lantern's picture

Before the show "Planet of

Before the show "Planet of the Apes"  there was a show called "Planet of the Horses"  where the humans did the hard work.  And the horses supervised.   It was taken off the air after the 1st episode.  You folks probably missed it.

ag1969's picture

GL

You are right, we can be smarter moving forward, and my apologies for speaking for the group.  I was just trying to diffuse a something going ugly, there seems to be an awful lot of "fighting" here this weekend as I review what feels like thousands of comments that I missed today.  As always, I will look forward to your next article.  yes

Edit:  LMAO at Planet of the Horses, and yes, I missed that one.

DeaconBenjamin's picture

Dying of money

It is a good book, and a good interview.

Hammer's picture

Summers' withdrawal letter.

Summers' withdrawal letter.

http://apps.washingtonpost.com/g/documents/business/larry-summers-withdrawal-letter/586/

Temporarily  good for au and stocks no doubt. Shorts will no doubt wait for the buying strength to dissipate and then attack but at what point ? Today later, tomorrow.......? After that ? We shall see.

Hammer's picture

Some commentary Summers'

Some commentary

Summers' withdrawal followed growing resistance from critics, including some members of the Senate committee that would need to back his nomination.

http://abcnews.go.com/Business/wireStory/summers-withdraws-fed-consideration-20263797

Dyna mo hum's picture

Summers withdrawal

I feel certain that this guy would avail himself for the fed job. His resume is fine except for a small misunderstanding with the former MF Global outfit.       yes

stealthbear's picture

For anyone expecting Mr. Chilton to make any difference

Here is a sampling of his most recent speech available in its entirety here: 

http://www.cftc.gov/PressRoom/SpeechesTestimony/opachilton-94   

I hope his attempt at humor was as impressive as his 80's mullet.  Here is a snippet:

Since Jim didn’t give any instructions—again—this time, it’s off to the races—maybe the ratings races—television ratings; yeah, really. Actually, reality: re-al-i-ty, as in reality television. I’m serious, why not?

You guys watch reality TV, right? There are hundreds of reality shows out there. There are multiple websites devoted to covering these shows. And, there’s actually been a great deal of research on this topic. Here’s what they found: ONE: Viewers feel good when compared to some of the reality personalities. Aren’t you glad YOU aren’t on Wildest Police Videos or Tattoo Nightmares? Glad we don’t have to do one of those Dirty JobsTWO:Viewers want to feel that they are a part of what they are watching; that they are connected and have some ownership in the process and are part of the action—not just looking at it through the window.

Do we get to vote? Can we vote? Can we, can we? How many times can we vote? Oh, it costs money to vote. Sure thing; we don’t care. We wanna vote for that singer on The Voice, or X Factor, or the best couple onDancing with the Stars.

Say what? Ah, alrighty then, I can tell there are a couple folks who want something on commodity markets. There’s a new reality show called Farm Kings. Oh, fine; well, financial markets are getting along alright, I mean, when they aren’t plagued by computer glitches and such—don’t get me started. But, they are nearly bearable, I suppose.

DeaconBenjamin's picture

Summers' withdrawal

Evidently he didn't want to be part of the F'ed Reserve.

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