Professional Documents
Culture Documents
Joel Hewish
• 26 April 2010 marked the end of a 13 month cyclical counter trend rally which forms
part of a larger degree secular bear market and the commencement of Part 2 of the
Global Financial Crisis.
• Very High probability of another wave of debt deleveraging most likely on a scale
larger than GFC Part 1.
• Very High probability that global share markets will continue to fall significantly over
the next 3 months.
• Very High probability that global share markers will decline below the lows of March
2009 before the end of 2012, but quite possibly much sooner than that.
• Expect most commodities to decline inline with global financial markets including
GOLD during this same period.
• Expect the USD to APPRECIATE significantly against major currencies during much
of this same period.
Wealth Management
BOTTOM LINE…………………
BUT………….
Approximate level of US
Total Debt which
contributed to the 1930’s
Great Depression
300
Percent of GDP
250
200
150
100
50
0
1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
90 180
40 80
30 60
20 40
10 20
0 0
1975 1980 1985 1990 1995 2000 2005 2010
But Australia’s
different right?
150
1890’s Depression
125
1930’s Depression
Percent of GDP
100
75
50
25
0
1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
(University of Western Sydney Associate Professor Steven Keen,
www.debtdeflation.com/blogs/)
Debt Contribution to Demand &
Unemployment
Debt Contribution to Demand & Unemployment (Australia)
20 0
Debt levels begin to influence
demand in the economy
15 2
10 4
5 6
0 8
5 10
Debt-driven Demand
Unemployment (RHS)
10
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
(University of Western Sydney Associate Professor Steven Keen,
www.debtdeflation.com/blogs/)
Household Debt Relative to Gross
Income
Accumulation of US
housing debt increases
Accumulation of
Australian housing debt
increases
Keeping the bubble alive appears an unlikely options next time. At some stage deleveraging will
be needed, orderly or not.
Decline in GDP would be much worse if it wasn't for the extraordinary level of stimulus
(Source: Federal Reserve, US Department of Commerce – Bureau of Economic Analysis, Congressional Budget Office; as cited in Grant’s
Interest Rate Observer)
* As estimated by James Grant in Grant’s Interest Rate Observer
Graphing the stimulus
Concerns of a debt induced deleveraging deflationary crash between 2000 - 2003 after the dotcom bubble lead to fiscal and
monetary stimulus which appears out of proportion to other past crises. It now appears that given the size of the past stimulus
and the current levels of debt in the US economy that debt saturation appears as though its likely here.
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Aug '29 - Mar May '37 - June Nov'48 - Oct ' Nov'73 - Mar July '81 - Nov July '90 - Mar Mar '01 - Nov Dec '07 -
'33 '33 49 '75 '82 '91 '01
(Source: Federal Reserve, US Department of Commerce – Bureau of Economic Analysis, Congressional Budget Office; as cited in
Grant’s Interest Rate Observer)
US Government Exposure
(Source: Federal Reserve, Congressional Budget Office; as cited in Grant’s Interest Rate Observer)
All this from a government that is collecting just over $2.0 trillion dollars in revenue a year, is spending
approximately $3.5 trillion and has ran 4 budget surpluses since 1970.
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
-2,000,000
-1,000,000
1970
1971
1972
1973
1974
1975
1976
TQ
1977
1978
1979
1980
1981
Outlays
Receipts
1982
1983
1984
1985
Surplus or Deficit(−)
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
(Congressional Budget Office)
2010 estimate
Just 4 budget surpluses in the past 40 years!!!
2011 estimate
2012 estimate
2013 estimate
2014 estimate
2015 estimate
US Government Fiscal Position
US Government Debt Position
Gross Federal Debt (‘000,000)
$25,000,000.00
$20,000,000.00
$15,000,000.00
$10,000,000.00
$5,000,000.00
$0.00
Technology Bust 2000 – • Interest rates lowered to record lows. Resource Bust 2008 – • Interest rates lowered to record lows.
2003 • Record fiscal deficits 2009 • Record fiscal deficits
• Shallow recession • Shallow recession (3rd qrt 2008 and 1st
qrt 2009)
Stimulus Induced 2003 – • Low interest rate fuelled housing and Stimulus Induced 2009 – ? • Low interest rate fuelled housing and
Housing Boom & 2007 consumer lead recovery Housing Boom & consumer lead recovery
Economic Economic
Recovery Recovery
Sub-Prime Lead 2007 – • Record defaults by borrowers who First Home ? • Risk of default by highly indebted late
Housing Bust 2009 were suspect from the start Buyer Lead Gen X’s early Gen Y’s.
Housing Bust?
AREN’T WE???
So why is the Money Supply
Contracting?
Significance of M3 Contracting
By Ambrose Evans-Pritchard
Published: 9:40PM BST 26 May 2010
Telegraph.co.uk
Why is the Money Multiplier
falling off a cliff?
Because US Banks are hoarding
cash!!!
Maybe because no one can afford
to borrow!!!
Number of new mortgages
declining rapidly
And the second wave of mortgage
resets has just started
WE ARE HERE
Economic Cycles Research
Institute
Since 1968 a reading of -8.3% has
ALWAYS been associated with a
recession!!
Baltic Dry Index
Major Bottom
Major Top
Major Top
Major Top
OR
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
Global Gross Domestic Product
2008 Gross Domestic Product - Published by the World Bank 7
October 2009
United State
Japan
25.1% 23.4%
China
Germany
France
(elliottwave.com)
Basic Theory
Elliott Wave Theory
• Markets are patterned
• Those patterns subdivide into fractals (self-similar patterns appearing at every
degree of trend) or degrees of patterns and are reflective of changes in social
mood (investor sentiment).
• Markets are the best indicator for a change in social mood
• Social mood can be measured in waves, 3 waves up with 2 counter trend
waves between.
• Social mood and changes in social mood dictate economic conditions NOT the
other way around.
• Extremes in optimism indicate a change in social mood to pessimism is likely
and vice versa.
3 Basic Rules
• Wave 2 never retraces more than 100% of wave 1.
• Wave 3 is never the shortest wave.
• Wave 4 never enters the price territory of wave 1.
(elliottwave.com)
Elliott Wave Theory
3 Guidelines
• Long - Short Term AUD Cash, Short Term Government Debt, Short Term Bank Bills.
• Long - Short Term USD Cash, Short Term Government Debt.
• Refinance property to enable extraction of equity for potential opportunistic purchases.
Take advantage of high property prices.
Aggressive Investors
• Long - Short Term AUD Cash, Short Term Government Debt, Short Term Bank Bills.
• Long - Short Term USD Cash, Short Term Government Debt.
• Short – Australian shares – covered short sales where available, long put options.
• Over Weight Short – US shares – covered short sales where available, inverse etf’s, long
put options.
• Refinance property to enable extraction of equity for potential opportunistic purchases.
Take advantage of high property prices.
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