i-d-r: institute of dynamical reasoning

08/12/2016

How Safe is Our Money

Filed under: Articles — trudd @ 5:21 pm

Author: Terry Rudd  ruddcommodities@hotmail.com

Most commodity traders, like myself, are very concerned about our investment money.   It sounds as if our banks may face closure and our margins lost.  What to do?

The run on banks, we fear — has already happened.  While the media was asleep last November, a financial Pearl Harbor occurred as Wall Street investment firms drained financial banks to the point where, then secretary Hank Paulsen,  demanded the government bail them out immediately or the nation would be lost.

This didn’t seem possible, because in the last Great Depression of the 1930’s there were numerous financial crashes occurring and lines of people were withdrawing their money before the banks closed.  This time the run happened internally — so most of us were not aware.  The banks were operating in the dark.  They made great fortunes this way.  But their money was stacked in an extremely tall pile of debt … $550 trillion!!!   When it could not be piled any higher (envision water shooting out of a hose held straight up)  the debt pile spilled over and crashed back down.   (Refer to our last article; “The Real Estate Bubble”.)

Being my own investment advisor, it was my duty to find out how bad the economic situation was and whether to close my trading accounts or not.  George Pruitt and John Hill / Futures Truth said other traders and the public in general would also be interested.   In essence, what I found is that money in futures trading is relatively safe for the time being, but ultimately everything in our economy is not. Technical analysis finds a massive storm of rogue waves just beginning to thrash our economy.  Like worrying about fire in a brick theatre, commodity traders have little to worry about for the moment.  But with the rest of the “town” on fire …

I could first describe my research into the safety of our commodity trading funds, but what for?  If the rest of our economy is on the brink of disaster, shouldn’t we be aware of and be preparing for the big picture?  So, that’s where I’m beginning.

What I found out is that we can prepare for the big picture and still trade safely.  At first I was shocked that our economy is worse off than the calamitous news is reporting.  There has always been doomsayer’s projections, though we’ve never found them very dependable.   But what I have found dependable is technical analysis of chart patterns.  The chart patterns I’m presenting show huge rogue waves in every facet of our economy, with the most dangerous part of the patterns occurring now.

Since not everyone understands chart patterns, permit me to condense their importance.   Every item in our economy, whether a slice of bread or a gallon of gas, is bought and sold by someone.     Whether grocery markets or futures markets, buyers and sellers exchange goods on the basis of price.   Written prices are usually shown by date and time on a graph.  Since there are usually a number of prices within a given time frame, a small vertical line showing the range of prices is shown.   These lines make random, but sometimes recognizable patterns as they cycle over the days or weeks, whatever time period is being studied.

As indicated on the following graph of the Real Estate Index (IYR-ARCX) the weekly price ranges of years 2001 to 2009 are shown.  The price of the index from 2001 to 2005 was 40 to 50 (shown on right) then popped up to almost 100 in 2007.  After climbing up a parabolic “J” curve, prices didn’t stay long at the top and began to fall back down to where they started from by 2009.   It’s this crashing pattern in real estate that has devastated the housing market.   Note, how farmland did the same in the 1980’s.

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Next, look at what the NASDAQ did from 1991 to 2000.  After ranging below 500 for years, prices climbed to nearly 5000 by year 2000 — but also couldn’t hold there.  The crash back down to below 1000 by year 2003 demolished the internet world and many of the companies that were headed for the “moon”.  The market did climb back, but nowhere near the previous levels.  This displays the two great problems of rogue waves: the devastating crash from a top and often delayed recovery period.

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Note a similar pattern in the DJIA (Dow) climbing from 1921 to 1929 … again, a top that the market couldn’t sustain.  The bottom in 1932 took nearly 20 years to totally recover.  The next Dow chart shows a much larger peak was actually forming at the time, wherein the market bounded up from 1985 to a peak in late 2007.  The decline since, as you can see, has been as dramatic as the others.  The recovery remains to be realized, as were still in the crash as of today.

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The NIKKEI chart shows Japan’s giant rogue peak near 45,000 in 1989.  It’s similar to what happened to Hong Kong (Hang Seng Index) in late 2007.   I sold the NIKKEI crash with Solomon Put Warrants.  It really frustrated the Japanese seeing Americans profiting from their demise.  Apparently General MacArthur’s Wharton business school geniuses (at the end of The Second World War) forgot to warn Japan that rogue waves can visit you, particularly when you’re doing well, very well.  For that matter, they forgot to tell America, if they knew.  Japan has tried numerous fixes since 1993, but with little progress to date.

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Even oil, wheat, and commodities in general (see the charts) both in the U.S. and the world are crashing.  Sure, cycles always rebound, but how much time is required — especially when rogues all occur at the same time?  Real estate generally requires a 9 year cycle down cycle.  We’ve only started and yet leaders are calling for its end tomorrow.   It’s as if everything is going over Niagara Falls in a barrel … without the water.

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Other charts showing we’ve been under rogue spells before are the Tulip Mania 1636 and the South Sea Bubble 1720 (charts courtesy of Robert Prechtor / Elliott Wave International).   Note that very tall peaks appear to call for just as long and steep declines.  In the South Sea Bubble there were so many other “bubbles” that the name sticks to this day.  Otherwise these “J” formations look more like killer rogue waves in the ocean.

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In water, a rogue wave can be born by several means; waves robbing from each other propelling higher and higher peaks; opposing waves sloshed together in the bathtub;  major ocean currents pitted against each other like the Alguhas Current which runs southward along the east coast of Africa.  Storm waves moving upwards from the Cape crash into Alguhas where rogues can reach heights of 190 feet.  Just since 1990, twenty ships have reported rogue wave strikes in that area.  Another source are land slips like the one in Alaska’s Lituya Bay, which in 1958 splashed two fishing boats over a 1500 foot high mountain and back down.  One boat landed perfectly while the other was never seen again.

I investigated rogue waves because they don’t seem logical.  I thought buyers and sellers ran the markets.  But in these wild trading sprees, trust me — forming chart patterns is trader’s least concern.  Escaping or profiting is all we have in mind.   Since rogues are found at the nuclear and quantum levels, as well as in the populations of other animals such as wolves and lemmings, our actions may only mimic cyclical forces set in motion eons ago.  I’m wondering what sort of a wild “Toads” ride nature has in store for us.  I doubt any worldly power can thwart the current storm of deadly rogue waves.

The conventional view of financial markets is that extreme cycle patterns are produced by various means such as perceived commodity shortages, inflation scares, and more subtly, cumulative adjacent energies.  The “J” rise in the rogue pattern is not the dangerous part; it’s actually exhilarating.  The problem is the overpowering crush down.  Price cycles mimic their oceanic cousins as they rise on extreme buying pressure met by opposing selling resistance.  But such massive bullishness is only a fleeting perception based on crowd psychology.  Eventually this changeable logic reaches a point where opposite perception suddenly rushes in — panicking speculators into retreat.  Prices are then slashed in primordial liquidation.  Buyers anticipating the drop in prices stand aside, or sell short as in commodities, and the market crashes to levels few thought possible.

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We presently appear to be in a perfect storm of rogue waves.   The charts portray a major event of epic proportion to be unfolding.  Never before have so many economic bubbles broken over our heads at one time, except maybe during the Dark Ages.  This rogue bubble storm may take down much of what our civilization has achieved over the past 500 years.  Like the North Tower in 9-11, when all the floors above the impact level started falling — the floors below collapsed in domino fashion.  As we sadly know, no lower floor was able to withstand the combined weight of all those above.  A similar financial convergence could be awaiting both the U.S. and the world alike.

Perhaps if we were reminded as we climbed the economic mountain, that all productive successes are only borrowed and would have to be given back — we may not have attempted the climb.  So, our ignoring the past may be the requirement of future success after all.   If we can’t escape the rise and fall balance of nature, just how much do we have to give back?  That appears to depend on the length and height of the front side of the “J” formation.  With so many economic waves turning down and the biggest tsunami of all, population, about to (next article) — we may have to give back more ground than any of us can imagine.

Note the 1000 year uptrend of inflation just completing its blowoff peak and breaking the 1000 year trend line to the downside as well.  That means we’ll have less to spend, yet need to work harder.  This is not going to turn around in just a few years.  Robert Prechtor’s book “Conquer the Crash” www.elliottwave.com is an excellent source on this subject.  Already the Economic Long Wave has shown its downside.  Remember that all forecasting is still limited to 50/50 success overall.   However, technical analysis pushes this equation and formations with head and shoulders patterns are above everything else.

We can’t blame civilization for having to suffer crashing waves, unless we want to blame us for living.  We are made to climb mountains.  That is what’s made life so great.  But there’s little air, food or good weather on top; so we’re compelled to come down.  If we expected such and mentally and physically prepared for these descents (maybe future generations will)  the trip may not be so bad.  But with all the blaming going on instead of preparation … the climb down may become a disastrous fall.   No nation, state, city, or community has made adequate preparations for what could be coming.

We’re disappointed when these extreme peaks don’t continue higher.   But, how can they?   Time has run out for them.  Look on the lower “time” line of the graph.   The graph is not the market, of course, but it accurately portrays the price and lack of time available.   In a “J” curve climb, no one knows how high prices could ultimately reach.   In theory they could go to infinity.  But lack of time is the limiting factor. The pattern of a “J” is too steep at the top to allow much time.   In theory, prices could move sideways or slowly drift off, but usually they come down as steeply as they rose … like the other side of a mountain peak.  Further problematic is that the trip down, as from Mt. Everest, is generally more dangerous.
In the early days of ocean shipping, captains would come back with preposterous tales of giant waves standing up to 100 feet and falling on their ships.  Many were disbelieved.  Others didn’t come back.  Recently the European Space Agency began searching the oceans for rogues with their radar-equipped satellites and found more than anyone thought possible.   Huge waves have also nearly sunk many huge ships in our time.  Even the Queen Elizabeth with 10,000 troops on board, was nearly rolled over near Greenland in WWII.  Recently a program on the History Channel interviewed a Coast Guard captain who had publicly discounted such stories until he was caught by a rogue in the middle of a calm ocean.  The crew didn’t even have time to close the ports or windows.  His search and rescue ship was sunk and the crew barely escaped.   Also,  the Edmund Fitzgerald may have met its doom at the hands of a rogue wave.

Financial commentators are pressing the question about our economic dilemma … is it nearly over yet?  But as Yogi Berra once said; ”It’s not over, til it’s over.”  And in coming down the mountain, you’re not down — until you’re down.  And that’s basically where we started from.  Plus it can take as long, or longer to come down as it did to go up.  Peaks tend to drop much faster from the top; but they can then drift disastrously thereafter.

If our future is to be a mirrored dive from the financial mountain, it could last a very long time.  So we need a serious plan.  More than serious, we need a revolutionary plan that will position us to survive and prosper … which could be many years away.   The plan that allows me to sleep at night is one that prioritizes life — starting with the basics of survival first, and then “Working Backwards” with everything else.  Like the popular “paying forward” concept, the essentials of life get “bought forward”.  By investing in essentials first there is a much better chance that the requirements of life will be there when we need them.   They are inexpensive now and still available … but may not be later.

When preparing for a business trip, I used to leave many of the must do’s to last; work files, equipment, packing, etc.  I’d continue with what I was doing, assuming I had plenty of time.  This left me working into the night or being late for the meeting, because I failed to prioritize.   Now, I concentrate on the “must dos” first.  Then work backwards with whatever time is left.  This leaves me with a good night’s sleep;  and I’m usually on time.

My suggestion is to do the same with our financial lives.  The most important future requirement is to exist, eat, a secure place to eat in … and protection from things that want to eat us.   I believe we should devote approximately one-fourth of our capital to this first pile.  If we don’t use these items, they should still have good resale potential.   Already the things I’ve stored have multiplied in value.  I then suggest a second pile, with another fourth of our assets in original forms of money:  gold, silver, platinum, diamonds and additional physical  items for barter.

Then, maybe we can relax while concentrating on our third pile to include existing forms of paper money, safely stored capital like government debt instruments to buy things when the down drafts are over;  when everyone gives up.  That’s when bottoms seem to occur.  With the final fourth pile we can then return to our futures trading accounts, stocks , bonds, and printed balance sheets at the banks, where if numbers get erased — our future is still secure with our first three piles.  We should also feel safe enough at this point to continue with our present investment strategies, businesses, and living standards.  This way we’re not missing out if these projections turn out to be wrong.

Now, back to where I started — before being blown away by the big picture:  How Safe Is Our Futures Trading Money?  Initially, I was barely able to sleep, worried over what would become of our funds in this slow motion collapse of the banks.  I contacted the CFTC, NFA, FIA, SPIC, FCMs, CMEs, CBs (clearing banks), the Fed, OCC, US Treasury, Congress, the White House, and of course the FDIC.  I received a variety of answers, but the only one that seemed logical, other than the Pearl Harbor last November, was the reply from FDIC.  Though we still need to be vigilant, we don’t have to be the first out of the “burning theater”.

What I found out agrees with what we’ve been told all along: commodity futures funds are well protected and not to worry.   It’s true we have many safeguards.  Our funds cannot be used for investment or deposits by the brokerages or banks except in customer segregated funds.    They have very detailed laws governing the handling of our funds by brokerage firms, clearing houses, and commodity exchanges.  I could only find one large company, REFCO, that collapsed in recent years. Trading resumed the next day, except for foreign currencies.  Of course, the capital behind REFCO saw an 80% loss in their stake.

But the leash on banks is not so tight, nor is our money insured.  In fact, our bank funds are typically in brokerage and exchange ownerships, and don’t belong to us traders, as they only represent the imbalances of the offsetting trading accounts.  Commodity trading funds must, by law, be treated as customer segregated funds by the introducing brokers (IB), clearing brokerages (FCM), trading exchanges (CME), and clearing banks (CB).  None of our trading funds can be comingled with any other accounts of the firm; either deposits or investments.   Investors in those institutions are at risk, of course, but our potential losses are limited to our trading loses only (which are enough for sure).   So, what is not covered? … the financial network itself.

Futures trading is a zero sum game, as most know.  Trades are always balanced between buyers and sellers because it takes both to make a contract.  The net result is generally zero and the books are balanced twice per day.  Though we can trade on market action through indexes and options on futures — futures contracts aren’t really an investment in the stocks or bonds of the companies that make up the markets.  Two good things come out of this.  We can cheer for the stock market when it’s going up, like stockholders … and we can also cheer when it’s going down, though most stockholders can’t.

Commodity traders are mentally and financially trained to expect every market, commodity or equity, to go both ways.   We feel no need to be dumbfounded or hateful toward those involved in the current economic crashes.  In fact, we don’t call them crashes.   To us they are corrections, reversals, down trends….normal and simple balancing of the upsides.   In fact, we can only have up trends — if we have down trends.  Otherwise, there wouldn’t be a lower point from which to  come up.  Still, the uniformed may think they’re being punished for the world’s great excesses.   Walking under tall buildings may not be safe for a while.

Still, another major bank collapse could reach our pocketbooks if the banks involved undercut the exchanges or brokerages.  After more than 30 conversations with every brokerage, bank, exchange that I’m involved with and a similar number of calls to all the government agencies overseeing them and being met with vague answers and little enthusiasm,  I only feel moderately  informed by the FDIC.   They are charged with straightening up banks in difficulty or paying the insurance.  They’ve decided on the former, and do so by moving the patron’s accounts of failing banks to stronger banks.  And they’ve done this without raising much public concern, so far.

However, the FDIC must be preparing for major problems since they’re building a huge office complex in Orange County of all places.  (Don’t things come full circle; remember Orange County’s BK?)   Already 46 U.S. banks have failed, costing $20 billion so far.   The FDIC has $19 billion in reserves to cover about $5 trillion in deposits.  One expert leaked that they expect 600 or more bank closures this year.  Of course, Congress will expand funding, but how long can the U.S. carry everyone?  Note the rogue wave in the U.S. “credit star” 30 Year T-Bonds.

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FDIC usually enters a troubled bank at closing time on Friday night to spring their plan; the movement of accounts to new banks and terminate the employees before they can take evasive action.  This may be a little rough, especially when they threaten borrowers to pay off certain loans, or else, but their funds are limited and serious times require serious action.  They also check into local accommodations under non-agency names, using nondescript cars and attire.  (I appraised for the first billion dollar firm, Metropolitan Mortgage, to go down in the credit crash, but not knowing the big picture, the state of Washington’s actions worsened the debacle.)

By now America was closing most banks in the 1930’s.  We aren’t doing so except in slow motion; probably due the $250,000 insurance policy on bank accounts by FDIC and $500,000 by SIPC on stock accounts, even though we just barely scraped by the second “Pearl Harbor” last November.  That’s when Paulsen demanded our wallets, “or else”.   For further news about banks we have Clain Brandt, www.crebbonline.com and Martin Weiss, www.moneyandmarkets

Permit me to return to the “Working Backwards” program because there’s a lot more to it.  First, in storing future needs, it’s not like we’re wasting time … just doing things today that we’d do later anyway.  And hopefully, we’ll be ready for disasters rather than being ambushed by them.  Plus we can still live the good life until then.  With a diversified spread — some things we pack may be wrong, but having covered all the bases, the right things should more than make up for the losses.   We can also avoid the aggravating day-to-day worrying by which the news media loves to jangle our nerves.  It’s much better to be prepared for potential disasters before the crush of panic. And if we plan for the worst, we might be mentally prepared for what happens … that’s half the battle.
For more detail on sorting assets, we offer additional  information in the next article: “How Safe Are We” and on our website  www.instituteofdynamicalreasoning.com 509-758-0629. As suggested before, allocate the first of four piles to long term storable foods, medicines, water, protection of all sorts, and shelter.  Stay with things we can eventually use.   The ancients did this regularly, with no complaints.   And these items could increase greatly in value without difficulty, such as the diesel I bought for 90 cents per gallon.   I can’t say I’m sorry.  And if you plan to retire, you might have a majority of what you’ll need by then anyway.

So why isn’t Uncle Sam storing food, medicines, water, and other essentials?   The FEMA cupboard is bare!!!   Ancient societies knew all about these cycles as they were forced to deal with them or disappear.  Without the grandiose successes of our recent past blinding us, the most meager country would salt away 2 to 3 years of food and life defenses.   We have done little.  The bomb shelter crackers, candy and even the stored water have long been disposed of by FEMA.  Whoa…. Not even one economist, government official or doomsayer calling attention to that????

Again, our second pile should hold original forms of money; not printed numbers on some distant vulnerable balance sheet (thought that’s still fine in a lesser prioritized pile).  The money I’m referring to is the old fashioned kind … gold, other precious metals, coins, bullion … and hide them well.  Should we have a nasty conclusion to the run on banks, vaults could be searched.   Don’t forget that the US banned the ownership of gold during the Great Depression to head off its shipment to Europe and didn’t repeal that ban until January 1, 1975.

Owning gold has never been a bad investment, except maybe when it made its “J” curve in early 1980, peaking around $900 per ounce.    Doesn’t mean gold isn’t a good investment or that it can’t rise again.  In fact, we may have just completed a giant Elliott Wave IV and starting a grand rogue Wave V to heights suggested as follows.

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If our credit bubble of $550 trillion is expected to be supported by the lesser $100 trillion of hard monies, gold could increase in value to $5,000 per ounce with other precious metals in tow.  We are planning to explain means of purchasing gold, since it’s difficult to acquire.  Some will be unique ways, such as taking delivery of a futures contract.   I doubt anyone will be sorry for investing in precious metals as things continue to dissipate.  Though I’ve made my share of bad investments, buying gold when it was just over $300 per ounce may not be one of them.

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The third stack can safely contain actual greenbacks, along with other substantial paper like U.S.Treasury debt instruments; T-Bills and T-Bonds.   Because of past inflation and perhaps other government printing disasters, like in 1927 Germany when it took a wheelbarrow full of money to buy a loaf of bread, many consider cash to be trash.   But today nothing could be further from the truth.   Look at the ratio of supply and demand if we were forced back to paper money.

In today’s environment we haven’t been using greenbacks to any appreciable degree.  Though we see a few all the time, there really aren’t that many out there.  We’ve pretty much been a cashless society. There’s only about $850 billion in greenback currency in existence compared to over $50 trillion in balance sheet zeros and $550 trillion in world debt to cover.  This suggests a $100 bill could eventually be worth $6,000 at the bank.  To cover the world debt (if possible) that same bill would need to be worth $60,000.  (Refer to our first article on the “The Real Estate Bubble” included in the December Issue of the Futures Truth Magazine.)

Large US currency is already in great demand because of our excellent protection of its use and reputation.   Foreigners already hold about 65% of our 100 dollar bills.   This means there may only be about $550 billion for use in the U.S.   This divides up to only $2,000 for each one of us!    What about all the money we spend, invest and use daily?  It’s mostly phantom zeros on checks, bank balance sheets and distant repositories that can vanish rather easily, as they have in the past.

Other ways of looking at how scarce greenbacks are is to divide our GNP of about $15 trillion per year by the $550 billion available.  Every balance sheet dollar we produce would only give us back a nickel.  If we had to use cash alone, a gallon of gas would only cost a dime and a loaf of bread — a nickel.  So where is all the cashless money today?  You and I have it, and it’s held in basically two camps:  big creditors who have most of the positive accounts and the rest of us who have the negative, borrowed money.

We’ve started serious deflation.  But, if inflation is bad, why isn’t the reverse good?  It can be, but we don’t appear to have the reverse psychology necessary to make it work; that is being happy with more work and less pay. With less true value to spend, lenders are going to be depleted and borrowers may be home free.  The Government is pouring billions into our economic machinery, but it’s not value added — only needed lubrication;  not reaching the hands of those producing goods.

As banks continue failing to lend to questionable industries and these industries discovering they’re not financeable … we could be trapped in a “Catch 22”.  No amount of money out of vogue can guaranty bread on the table.  In the 1600’s, Spain was floating in the gold they’d lifted from the Aztecs and Incas, yet they still had a serious depression.  If our phantom dollars should disappear, greenbacks and coin could become king again … as they once were.

T-Bills are now available down to piggy bank amounts direct from the Treasury.  They are secure as long as the world is, but no government has an adequate safety margin for major natural disasters.  We’ve become so accustomed to the immense successes of the world over the past 500 years; we can’t imagine Mother Nature turning on us.  But in fulfilling the rogue wave crashes, these beasts are very resourceful and have many weapons in their arsenal; wars, disease, earthquakes, volcanoes … the list is endless.   They even use us to do their dirty work.
The greatest frustration of the potential devastation is learning to mentally cope with the opposite results of previously successful actions … like the government and business leaders who were dumbfounded in the 1930’s when the fixes they attempted  worsened the problems instead.  In most big cities, people were in despair and lost all hope.   Though history credits the New Deal for the salvation, it was only time for an upturn.  The worst of the Crash was concluding when Roosevelt’s plan began.  Up to that point, nothing could have deterred the correction.

Cycles are invincible, at least in our civilization at this time.  Note Kondratieff’s Wave for which this capitalistic Russian professor in 1926 spent the rest of his life in a Gulag.  His rogue wave is the combination of the world’s economy and its down cycle is long overdue and beginning with a vengeance.
Government efforts today to head off the crash may be too early and in fact may facilitate the inevitable factors.  Applying fixes today, by what appears would have worked in the 30’s Depression, is also no more valid than trading “today” on yesterday’s “news”.  The cycle’s invisible hand (a term coined by the Austrian economists of the 18th century) is known to use everything available including our greatest minds and biggest benefactors in achieving its results.  Our best analysts are baffled as reasoning in tumultuous times seems to reverse logic.  Instead of “cause” preceding “effect”, effect appears to travel hand-in-hand with cause, calling up disasters that would otherwise be considered coincidental — in fulfilling its cyclical requirement.

Our fourth and last stack can now remain pretty much like it is now.  We’re no longer at the mercy of all the potential disasters — if we’ve covered our future as best we can.  Instead of shock if our bank closes, or investments crumble, we can smile knowing that what we “bought forward” should be going up in value … maybe more than what we lost.  We can continue to live as normally as possible, and should since no one can perfectly predict the future.

Back to real estate a minute, recovering investments may take much longer than one is led to believe.  The down cycle only began nationwide in mid-2006.  Overall, this cycle could last until the end of 2015.  There’s a bell curve range to everything in life, including real estate markets, so some areas are still doing ok while others have long been trashed.  Also, the 2006 blowoff was a 6 year extension of the previous up cycle which could have ended in 2000;  so the downturn was way overdue.   The 18 year cycle (9 years up and 9 years down) is never perfect due typical dispersion throughout nature.

While property values could be headed much lower to fulfill the down cycle, we still need the use of real estate.  Don’t be afraid to hang on to what you really need.  And dare I say that borrowed money may have some merit since future debts may not have to be repaid.  If a property you bought is dragging you below the waves and you don’t think you can hold on till an “Alle, alle auch sind frei” German for “Olly, olly, oxen free” (everybody is free) — then you may have to let go.  But remember, the ancient Jewish Jubilees.   All debts were forgiven every 7×7+1 = 50 years.  Will we see another?   How could the entire world’s debt be covered otherwise?

Even further, how could lenders foreclose on a potential 35 million residential living units that might go under?  This number is based on a worst case scenario wherein half the price gain in homes from 2000 to 2007 could be reclaimed by the real estate tsunami.  Even the most conservative number is 20 million homes.  Who could buy this many … except at Great Depression Penny Auctions?

Much of the residential mortgage money came from Chinese savings which were used to blow the greatest housing bubble the world has ever experienced.   How could the world’s investors in mortgages, like the Chinese, get here to claim their foreclosed investments?  Already it’s reported that it costs banks 30% and higher of the outstanding loan balance to foreclose on a home.  With lost payments, taxes, utilities, maintenance, restoration costs, legal costs and sales commissions — banks can’t foreclose profitably on many homes at all.   Later it may be impossible.  Banks are already treating home owners in pending default much kinder.

Allow me to switch back to equity investments,  I see no reason to close commodity trading or even stock market accounts, though hope you are watching reliable indicators, highly-rated advisors, or using good managed accounts, like those rated by Futures Truth (George Pruitt and John Hill)  futurest@bellsouth.net 828-697-0273. Also, consider Phil Newman cribroker@aol.com Charles Maley charles@angusjackson.com and for equity and fixed income: Brian Sisto brian.v.sisto@snithbarney.com.   They can take the nightly stress out of bad trades and let us go about other business while prices affecting our financial well-being are constantly varying.  We would also like to exchange rogue wave techniques with other traders www.instituteofdynamicalreasoning.com 509-758-0629.

Why not keep our businesses as long as possible.  Ask your employees, or be prepared if you are one, to salary reductions, contract on production basis, or whatever will allow your business to stay open until things turn around … as cycles always do.  I sold my business prematurely during the last part of the 1980’s real estate crash, just before the 1990’s upcycle.  I didn’t realize that spreading the pain worked well in the 1930’s.  Maybe this way we can continue living as normal as possible, which should be our main objective.

We should never let any problem discourage us from enjoying the best life possible.   W.D.Gann, the world’s wealthiest trader twice, said: “It’s living your life that counts, not the various junctures in between and definitely not the beginning or end.”  He started as a bucket trader and reached the financial peak only to descend again.  With borrowed money he made it to the top again, only to decline to his death.  His legacy was his whole life … the living of it was the objective, he exclaimed.  The investor who bought all Gann’s papers and books upon his death (my first trading partner), never learned this lesson and blew over half a million dollars from the resale of Gann’s heritage in the S&P pit.  Sadly, he subsequently shot himself.

Before closing — to let you mull this over, what about the changes that could come over our country if things get really, really bad.  The German people were every bit as capable as our selves when, after the 1st World War, they were saddled with repatriations.  Near starvation, they allowed a very bad form of socialism to take over — the Nazis. Guns were collected via the previous registrations and those who didn’t produce them (like my grandparents neighbors) were never heard from again.  Nor could there be any dissention, though there was considerable, because there was no power to resist with.  Are we headed for the same?

In the next article we’ll explore the largest and most compelling rogue wave of all, which began about 10,000 years ago.  In these coming times, don’t be afraid to let your imagination become the outer limit of suspicion. We think we have collective control, but again the individual is only like a traveler on a cruise ship.  The direction of that ship may have already been pre-destined, per the invisible hand.  But, we can still load our room with life vests.

Everyone seems to be holding back on financial, business decisions, acquisitions, purchases, developments, etc.  Far be it from me to argue with this, but doesn’t everyone know this is self fulfilling?   Bless those that continue with their plans because this gives us footholds on the way down the mountain.   But on the “working backwards” path, you can calmly look at all the impending doom and gloom with calmness and objectivity.  You can then listen to news statements like: “Stocks fell today on economic news — that stocks fell yesterday”, then laugh when the reverse is reported as reason tomorrow.

You may wonder why I am so convinced of the tsunami crashing patterns.    I accidentally found them when looking for dependable trading patterns.  Looking also to a scientific reason for their existence, I found they have been observed at the at the quantum level.  If we had a nuclear microscope, we could see them along with other patterns of cycles and chaotic movements explained in Schrödinger’s Wave Equation.  At the trading level I found them to be of similar overall formation.  Their conformity is almost scary.  Instead of looking for intelligence in the galaxy, we may be missing the real story underfoot!

Though the front “J”s in tsunami chart patterns appear randomly (please contact us if you can predict this), they complete their downsides in an uncharacteristically predictable fashion.  Who could orchestrate such perfection?   We humans can’t, that’s for sure, particularly when the prices that make these patterns are not a cooperative or engineered endeavor. In fact, prices are produced from just the opposite: diametrically opposed parties of buyers and sellers clashing from different directions to establish price and thus chart patterns.  Everyone who buys or sells anything in the free enterprise system knows that a perfect chart pattern is the last thing on their mind.

In the markets, I noticed “J” curves in gold, silver, and other precious metals at the beginning of the 1980s.  If I had only known what that portended, I could have made a fortune and not lost two real estate businesses plus having to walk away from a great ranch.  Interest rates spiked and I was way over invested.  At the beginning of the 1980’s, I was headed for the “moon” as the hawkers bantered.  Instead, rural America was crushed by the ‘80’s tsunami leaving me bleeding in the ditch.

I also found “J”/tsunamis in commodities like Sugar, Bellies, and Oil.   I thought I had a bead on oil in the mid ‘80’s, only to find out the peaks are harder to time than they first appear.   I still managed to grab a bite after it crashed from $34 per barrel, though I came in too late and floundered around the bottom.   So why didn’t I short the recent Oil tsunami (see charts)?

But my appetite for tsunamis was certainly whetted when a friend of mine turned me onto the Japanese NIKKEI.   It made a J curve peak near 45,000 in 1989.   I did fairly well off the Solomon Put Warrants.  It really frustrated the Japanese (we were told) seeing Americans profiting from their demise. Apparently General MacArthur’s Wharton business school geniuses (at the end of The Second World War) forgot to warn Japan that not only does the Free Enterprise system have its down cycles, but disastrous tsunamis occur sporadically, as well.  For that matter, they forgot to tell America, if they knew.

Other tsunamis I was able to ride down were back to back “J”s in Lumber (only a year apart).  I’ll never forget the day when a close friend of mine walked in the office exclaiming I shouldn’t have sold the rest of my timberland.  Immediately I realized I could be “the last man in the street” and grabbed a chart of lumber.  There it was — a J curve in Lumber prices already headed down from a tsunami peak.   I was still a little timid and opted for the put options (down bet).  They did ok as the price of lumber plummeted (see chart).  The broker I was dealing with called again in a year and said another bubble had formed.  This time I sold futures.   Prices did almost the same thing, but I made almost twice as much.  Maybe my entry and exits were different, but it stuck in my mind that futures gave the biggest bang for the buck.

Before closing to let you mull this over, this may be a good spot to talk about the changes that could come over our country if things get bad…. really, really bad.  The German people were every bit as capable as our selves when after the 1st World War they were saddled with repatriations for war damages.  They let a very bad form of socialism take over — the Nazis.  Eventually, they persecuted everyone with any plan other than their own.  The guns were collected via the previous registrations and those who didn’t produce them (like my grandparents neighbors) were never heard from again.  Nor could there be any dissention from Hitler’s regime, though there was considerable, because there were no guns to resist with.  Could we experience the same???  Check our current path.

Still, we should never let any problem discourage us from enjoying the best life possible.   W.D.Gann, the world’s wealthiest trader twice, said: “It’s living your life that counts, not the various junctures between and definitely not the beginning or end.”  He started as a bucket trader and reached the financial peak only to descend again.  With borrowed money he made it to the top again, only to decline to his death.  His legacy was his whole life;  which the living of it was the objective, he exclaimed.

The investor who bought all Gann’s papers and books upon his death (my first trading partner), never learned this lesson and blew over half a million dollars from the resale of Gann’s heritage in the S&P pit.  He subsequently shot himself.

In the next article we’ll explore the largest and most compelling tsunami of them all, which began about 10,000 years ago.  In these coming times, don’t be afraid to let your imagination become the outer limit of suspicion. We think we have collective control, but again the individual is only like a traveler on a cruise ship.  The direction of that ship may have already been pre-destined per the invisible hand.  But, we can still choose the safest room and hope it’s not the one crushed by the iceberg.

The front end of the learning curve in futures trading can be disastrous with 90% of traders losing their stakes.  However, due to stringent book balancing, few commodity brokers have had major problems with trading money per se.  To my knowledge, only one large company, REFCO, collapsed in recent years. Trading resumed shortly after, except for foreign currencies.  Of course, the capital behind REFCO saw an 80% loss in their stake.

By now I was curious about the stock market itself.  Was it making a J ?  Before that I had found the biggest J of all in earth’s population, but I’m saving that story for the next article; “How Safe Are We?”   We’re more convincible of something new when we’ve found it previously ourselves.   Then  you’ll be able to see the tsunami Js working in other places before the one in population

Science has yet to suggest this mysterious underlying intelligence may emanate from the sub-atomic world where these patterns are everywhere.  Surely some of us question why we repeat these crystals, bubbles and hydraulic waves in our market actions, just like quantum particles.  Demeaning?  No!  This is not meant to be a judgment … just research into what we attribute the human condition, and what we can and cannot do about it.

We already know what we can do under the best of conditions; engineering the world we recently built.   But apparently it wasn’t all us.    So when it comes to downtrends, we may not be in the driver’s seat either.  On one hand this is may be a good thing.  We shouldn’t blame ourselves (or God) when things become unfixable.  My great grandfather did in the ’29 Depression.  A great many did.  People were afraid to walk under tall buildings.  So, the fixes our government is seeking may not be big enough.  Not their fault, just that the patterns may have in their arsenal whatever it takes to complete … and there are plenty of “bullets” already pointed in our direction.  So, where is our cushion for a very, very rainy day??

The problem is not that the credit banks used every hook they could lay their hands on to produce unheard of profits in the pure betting games, including the real estate tsunami and even weather alone for God’s sake, but the debt load of $550 trillion (and counting) they heaped on the world.   There’s no way we earthlings could pay that back, unless we’re all willing to work for 10 years without pay to cover just the principal.  The world only makes $55 trillion a year (and declining).  So as the musical chairs collapse, many will be crushed by the falling tsunami.  Still, some of us with foresight and fortitude can, like survivors of the Titanic, position ourselves to avoid what the bigger ship cannot.

Managed accounts with Futures Truth help me find successful commodity programs (however, for saying that – I expect them to crash tomorrow).  If your accounts aren’t doing well, you may have reason to leave.   The front end of Futures trading can be disastrous with 90% of traders losing their stakes.  However, due to stringent book balancing, few commodity brokers have had major problems.  To my knowledge, only one large company, REFCO, collapsed in recent years currency account

Some term the front end of bubble formations “J” curves.   Ancients termed them bubbles, because they burst, like the “South Sea Bubble”.  I’ve heard of traders who claim they can predict the rise ahead of time.  Please bring me these people!  I found the “J”s formation to be of great significance because when their peak collapses (and it can be very abrupt) profiting from the downside can be the best I’ve experienced.  The prices can also collapse slower than the rise, or form different configurations, but the general trend is definitely down..  I used the wheat chart as an example because it so perfect, with shoulders on both sides of a peak.  This is also a bonanza for wave counters like Elliot Wavers.  Other grains may have made similar patterns.  It’s the only time in trading that I felt like I had better than a 50/50 advantage.

By now I was curious about the stock market itself.  Was it making a J ?  Before that I had found the biggest J of all in earth’s population, but I’m saving that story for next time.   We’re more convincible of something new when we’ve found it ourselves.  At least you’ll be able to see the Js working in other places before the one in population.

Back to the market DOW:  In 2000 it still didn’t look as if it had formed what’s called wave 4.  (And it hadn’t, but in 2001 it made up for lost time).  However, the NASDAQ looked as though it had all the right stuff:  swept up from the late 1980s and made all 5 waves quite nicely.  Maybe it was ready for the tsunami/fall side.  And in March of that year — down it came with a vengeance.  But, first it made a dido right at the top and scared me.  Also, my son was on vacation and the computer went down.  No one knew how to fix the charts that were running.  Sadly, I shied away from the New York Exchange after I lost $15,000 in the first 12 minutes of trading futures.   So I went back to my previous broker shorting the stocks themselves.  Instead of making a killing, I had to wait for the DOW in late 2007.  (Refer to chart).

The Market is on the tsunami downside of the DOW at this writing and starting a bear bounce.  We profited on the decline, except that I deviated from my initial plan.  I’m also worried that this statement will cost us somehow.  I’m not superstitious; just believe when you feel confident enough to make a statement — that’s often a contrarian turning point.

All our economic factors are also combined by analysts to produce the economic long wave.  It’s usually 55 years long, or so. But it’s is some 25 years LATE and also formed a giant tsunami as well.  The nasty downside is just now beginning its crash on our heads (see chart).    I’ve heard of perfect storms…. maybe three at a time like the movie … but every facet of civilization is now in a crashing tsunami.  It’s raining tsunamis.  They are all normal and should be expected, but all at once ?????     We’re not even including the potential of natural disasters of which many are peeking around the corner. Nor have we talked about population’s tsunami, which is whole article of its own.

It’s like the “North Tower” where all these collapsing tsunamis are falling from floor to floor —with no lower floor able to stand the collapse of all the floors above.  It doesn’t take much imagination to see we’re in a serious trouble.  Oh, I forgot to mention that production of everything and their prices is deflating as well.  Note the 1000 year uptrend of inflation breaking to the downside as well.  That’s not going to turn around in just a few years.  Also, see Robert Prechtor’s  2002 book on deflation.

While some, unfortunately, view these downward moves as punishment, or like me plead for the survival of the free enterprise system, it’s outperformed every other economic program man has invented.  But when you’re up to your neck in alligators, it’s no time to worry about draining the swamp.  The down cycles will turn up, but his time will we care?

The Communists predicted in the 1920’s that capitalism would crash for good.  But their most famous economics professor, Nikolai Kondratieff (refer to his chart) at the University of Moscow, presented considerable history of recoveries after every crash.   Of course, he paid for that in a Russian Gulag.  We could at least have a little faith in his sacrifice.  But Probability always has a twist to everything.  So just when Russia converts to capitalism ….. Maiden voyages, like the Titanic, can start on the down side.

My father was working for an attorney in New York when the Great Depression hit.  He was taking script for pay.  But when faith in script ran out and he had to hobo his way across America to find a job on Boulder Dam.  He and my mother had little training or education about the free enterprise system and how it works.  They decided to live anyway and surprised me with life.  I’d be a hypocritical  Boulder Dam/Depression baby to say nothing good can come out of such.

Dad was scared into a life of government employment.  I had to learn all the lessons of free enterprise the hard way (probably better).  My take is totally different than the glossed over version taught in most institutions.  Instead of relying on charity to overcome the initial sacrifice of putting a stake together, I found free enterprise can arise from sacrifice of itself as well as others, like the slaves of America.

Instead of bitterness about slavery, I thank all the Africans, farmers, and factory “slaves” which gave this country a chance to live while producing the machines that made all our stuff possible today.  The jungle animal competition that allowed the captains of industry to compete and the wonderful by-products we all enjoy could not have been created without the construction of this artificial jungle.

Like a game of football, winning player combativeness requires deception, selfishness, greed, forcefulness and all the other socially condemned means today.  The things that made all our wealth today are being criticized.  Even the derivative bankers, who were at the “wheel” of our current dilemma, were just doing what comes naturally to unregulated free enterprise.   We, the people, and our government are just the last patsies (re; clients).

Without rules and regulation, all games, like football, would become nuclear.  Competition knows no boundaries.  Like market actions, extremism always goes as far as it can, often too far like tsunami waves.  We forgot this principle in allowing the banks to go to any extremes in their profit endeavors.  That’s what got us into this spot.  Still we can’t condemn those who climbed up Mt. Everest; we just needed to be expectant of the trip down — blindfolded.

Please stop the congressional bickering over the billions for bandages  and that and put away some serious supplies of food, fuel, medicines, machinery and other important things we may need later.  It won’t be a loss, like many of the taxpayer funds being blown right now, because we can always use the necessities later.   Might even store some extra goods for sale or trading later.  Necessary physical goods may become the best money possible.  Still, there’s the risk of government absconding and theft.  We’ll have more on this in the next article and a website for details.

Even though the steps may lead downwards, with this plan it can still enjoy a living.    I’ve proved that to myself.   Even if the steps lead down, we can still make the most out of the time available.  It’s all perception.  Otherwise, some would opt for a cyanide pill on first appearance on earth   In the short geologic time we’re here, death is too near to be rushed.

By now I was curious about the stock market itself.  Was it making a J ?  Before that I had found the biggest J of all in earth’s population, but I’m saving that story for the next article; “How Safe Are We?”   We’re more convincible of something new when we’ve found it previously ourselves.   Then  you’ll be able to see the tysunamisJs working in other places before the one in population.

As man graduated from hunter to gatherer, we started out trading things.  Though we still barter, r the most part we evolved into very sophisticated forms of credit money.   In the early days, we had something in hand.  Today, our money has coaxed us out on the edge of a weak financial limb with only notices on paper telling us the score.  Cave men would be dumbfounded

For those, and there are too many, who don’t believe we are constrained by a jungle of universal laws — look at what investing really is.  It’s giving money and goods from someone to get more from the next guy, hopefully sooner, but later ok.   However we think we’ve earned it — it’s still a game of just plain taking.  Whether hunter or gatherer, we need something within our reach to sustain us.   The huge rise in population over the last 10,000 years has actually been the enaction of that face to perfection.   Unfortunately, we’ve done this so well we may have peaked in that tsunami, the biggest of all.

Stock brokerages prospered on the way up the DOW’s tsunami riding the declaration that buying stocks always produces profit eventually.  While this has been the main engine of our credit world … and WHAT AN INCREDIBLE RIDE IT HAS BEEN … it still depends on profit.   Profit (something for our efforts) has been the essential element of the free enterprise system.  The Golden Rule has not been the driving philosophy, just necessary to population’s tsunami.   Instead, every gain is balanced by a loss somewhere.  The underlying desire of every investor is to buy something cheaper than what someone else will pay.  That’s the Canon of the free enterprise system.  Buy low and sell higher.   But probability won’t let anyone do that perfectly.   Many, like myself too often buy high and sell low.

Poor, unsuspecting stock owners have been led to believe they aren’t relying on stealing money from someone else to make their investments work.  But, just follow the money; investors buy in hopes of selling higher to someone else.  Sure, if markets went up forever ……. but commodity traders know (and stock traders should) that NOTHING goes up forever.  The deception has been that the stock market did generally rise from 1857 to 2008.  That’s long enough to make nearly everyone forget there’s always the return trip.  And politics are always committed to trying to stop the inevitable balancing.

Still, we achieved the most incredible economic advance known to history and money ranks right up there as the means of how that was done.  But this new money, like every other commodity,  has its cycles and occasional tsunami waves.  These crashes generally follow massive climbs, like going down Mt. Everest.  The way down is often just as steep and can even be  steeper than the way up..   Who now looks at the steep climb of this massive industrial buildup and wonders why?   and why now?   and why to us??   Explaining this to anyone but a futures trader, one who believes in chart patterns, may be an impossibility.

The news media, government, industry and plenty of people who should know — keep asking when will the DOW and real estate stop declining?  Generally tsunamis stop falling when they reach the bottom of the mountain, duh.  Of course, no one knows exactly where that is but it’s usually near where they started.  The stock market may have begun in 1857.  But, counting inflation along the way the bottom might be near 2000.  The problem is time.  After 150 years of an up J climb, it will take more than just a few years on the downside.

We know that when you climb tall mountains like Mt. Everest, which every facet of our world has done, the other side of the mountain is often as steep and many times steeper.  Since most of the world does not yet believe in the formations of tsunamis, we’ve basically climbed the mountains blindfolded being told by our group leaders that things can only continue up, till that last step ……

Few investors have been advised that up and down waves is just how everything moves.   Cycles always have an equalizing down side.  Futures traders are taught to take advantage of them,  not to be afraid.  But the many are completely panicked by them, and may lose not only their fortunes, but faith in the free enterprise system, and even themselves.  It happened in the 1930’s.

to do about all the debt that can’t be repaid?  Ancient Jewish communities declared Jubilees (7 x 7 + 1) every 50 wherein all debts were forgiven.  They realized we tend to extremes and push debt too high.  Debt forgiveness may already occurring as many who cannot make their house payments in states like Arizona are being allowed to stay in their homes as long as they don’t trash them.  And with 75% of the 116 million homes financed, there could be over 30 million homes destined for foreclosure.  There isn’t a big enough market to buy these homes at any kind of a reasonable price.  During the Great Depression, farms in the Dust Bowl sold for pennies.   Though many were friends trying to help, can you just imagine the number of Chinese who’ve invested heavily in our treasury securities that would need to come here somehow —  to live in the homes  they basically paid for.  If you owe, hang on.  You could get a free pass.

Like a game of football, winning player’s combativeness requires deception, selfishness, greed, forcefulness and all the other socially condemned means today.  The things that made all our wealth today are being criticized.  Even the derivative bankers, who were at the “wheel” of our current dilemma, were just doing what comes naturally to unregulated free enterprise.   We, the people, and our government are just the last patsies (er, clients).  Without rules and regulation, all games, like football, would become nuclear.  Competition knows no boundaries.  Like market actions, extremism always goes as far as it can, often too far.  We forgot this principle in allowing the banks to go to any extremes in their profit endeavors.  That’s what got us into this spot, still we can’t condemn those who climbed up Mt. Everest, they just needed  to be expectant of the trip down  blindfolded.

So, though normality should return to the free world, what do we do now?  Holding the latest form of money is certainly at risk.  Perhaps we should covert as much to whatever we can.  Paying forward and working backwards might mean we should start at the end of the line first…. The very food and goods money was intended for.  And if the Huns come to the door, we don’t want it left wide open.  But this stuff I’m talking could be wrong;  unfortunately, not all.   Using the bell spread, perhaps the forth of our capital should be allocated to long term storage of foods, water, medicines, entertainment (we want it to be worthwhile) defensive means and shelter.  There are websites for this and we plan to offer one.  We need this, not only on a personal level, but neighborhood, city, state, and national.

Please stop the congressional bickering over the billions for this bandage and that and put away some serious supplies of food, fuel, medicines, machinery and other importants we may need later.  It won’t be a loss, like many of the taxpayer funds being blown right now, because we can always use them later.   Might even store some extra goods for selling or trading for other things later.  Necessary physical goods may become the best money possible.  Still, there’s the risk of government absconding and theft.  We’ll have more on this in the next article and a website for details.

Continuing backwards in planning, the second forth of our funds might be best aimed at more solid forms of conventional money like precious metals; both coins and perhaps bullion, should the country once again ban ownership.  History repeats itself, but never exactly the same, which is why the broadband approach may be best.  Most countries of the world have moved away from such coinage because its expensive to produce (someone has to pay the miners and minters – and that is the eventual users).  It’s also more difficult to hide increases to cover government shortages; hence why paper has become popular and better yet, paperless zeros on a balance sheet.  And because gold coinage is so difficult to fake, it could be an excellent investment.  I ran some numbers that if we shrink 10 times in credit money ($550 trillion in credit bubble expansion vs. only $100 trillion global hard money) gold could rise to $5,000 per ounce, with silver, palladium, diamonds, etc. similar.

The next forth of our capital might be the hardest to accomplish, acquiring actual currency.  Only $850 billion of U.S. dollar denominations exist in the world.  And the world uses a lot of our currency.  In fact, it’s said a much as 65% of our larger bills, like 100’s, are held by foreigners.  Because of America’s achievements, both in building world confidence in both our history of servicing our debt and defending the free world, such as the 2nd World War, our money has great esteem.   But you wouldn’t realize that from all the badmouthing cash as trash for years.  The problem is misconceiving cash to inflated paperless money.  With over $10 trillion in paperless money on the books, currency could be king on a low supply and potential high demand for it. Of the $100 trillion that we think America is worth, only $1 in $100 is actual cash.  Therefore, I think it could become an extremely valuable form of money.

If the world were to consider the $540 trillion as the burden of the United States, $1 might  represent $540 in “credit” dollars.  Hopefully the U.S. won’t do like Communists did in 1988 Russia and outlaw all the higher denominations of the ruble.  This ruined countless lives of pensioners and hopeful investors, plus putting a spike in the coffin of Communism.   The  U.S.  already distrusts those who save currency because of the drug problems.  Hopefully this will wane.  Maybe the lack of money will hurt that industry.  For now it’s difficult, unless you have a cash business, to acquire currency from the bank as they have to report withdrawals over $10,000.  This is probably for tax reasons also.  Zeros on paper accounts are much easier to police.  Since we have nothing to hide, I’d make the withdrawals anyway.  Like the Nazis however, the government will have a list of where to come looking for those who don’t surrender their cash, should such an order come down.  Also, we could well poised for investment when the tsunami storms are over and other forms of money might not survive.

The last forth of our capital should probably be left right where it is now unless you see clear danger.   I see no reason to close commodity or stock market, or high rated bond accounts (if there still are such), and good managed accounts.  (Or is it that I found managed futures and hate to give them up?)  They take the nightly stress out of bad trades and let us go on with other business when prices affecting our very existence are constantly varying.  Fixed income capital should probably favor government securities, though bank savings should be good till FDIC can no longer function.   For that we have Clain Brandt, www.crebbonline.com and Martin Weiss, www.money and markets.com.   This way we can sleep at nights knowing major disasters won’t ruin our lives.  And if things turn out calmly, we can still continue decently.  I use this working backwards when planning for a trip.  That way if I run out of time, the lesser things can be set aside.

Also keep your business as long as you can.  Ask everyone to suck it in including salaries or tie to production.  I sold my business prematurely because I didn’t understand asking for concessions from them.  We certainly were giving plenty to our clients.  It apparently worked well in the 1930’s .  And this way you’ll be ready to resume when things return to normal and cycles always do.  Everyone seems to be holding back from making financial and business decisions, acquisitions, purchases, developments, etc.  Far be it from me to argue with this, but doesn’t everyone know this is self fullling……..Bless those that can continue with their plans because it gives us footholds on the way down this “mountain”.It’ slife’s path that counts, not the points of change, though it doesn’t seem like it when things happen.

contrarian reversals can be quite accurate.  This time we might revisit medieval times, so don’t be in a rush.

It’s hard to ignore the current news as last reasons.  I’ve learned, and you may find success in categorizing those reasons as fitting the technical patterns of tsunamis and Elliott waves, and cycles, so that you can time what’s occurring.  It’s like having a radio controller on a toy airplane instead of being jerked one way and another by news events which that industry is simply using to their benefit and calling it the causes.  Nothing could be further from the truth.  It’s those jerking movements as in trading the markets that cause both financial, mental and medical problems to us.  If we can properly categorize things as they occur, no matter how calamitous, I would keep all the real estate you need, like your home, office, farm, ranch, etc.  For everything else underwater, hope for an Ollie Ollie Oxen Free.  If you have equity you can squeeze out, why not.  Try to keep your business going as long as possible.  When I sold mine in the later 1980’s after so much difficulty, I should have simply asked for concessions from everyone; employees, creditors, etc.  People aren’t bashful about it right now and it worked well in the 1930’s.  Plus you’ll be ready to take off again when things resume.  And if they don’t, you’ll still have the first three bases covered.

Watch for contrarian thinking to signal the turnaround.  I remember the Tri-City Herald to this day when the printed the article about kissing our rears goodbye in 1990, when the real estate market turned around.  That’s when bullish consensus trading kicks in.  Between the two extremes, going against the crowd is not generally successful.  However, at the extremes, we’ll achieve the balance we need for all times, both good and bad.

In the next article we’ll explore the grandest tsunami of them all, which actually began 10,000 years ago.  In these coming times, don’t be afraid to let your imagination become the outer limits of consideration.  We think we have collective control, but again the individual is only like a traveler on a cruise ship.  The direction of that ship has already been pre-programmed.  We can only choose our room and hope its not the one crushed by an iceberg.  Instead of worrying about our balance sheets, we need to worry more about our bread and butter sheets.  Life;  live it;  love it;  leave it — actually, we do them all.

This is not meant to be a doomsday article.  The suggestions here are aimed at a variety of future events.  Most I hope will not come true, or can be fixed.   But if not, why be unprepared and thus at the mercy of potentially significant disasters?   Sorry I couldn’t make perfect forecasts, but then would I be writing this?   By the way, I’m not doing this for pay or recognition (unless forced on me).   I’m writing this 2nd article on our dilemma in recognition of the excellent job George Pruitt, John Hill, staff at Futures Truth and other commodity researchers who have advanced what we know about free market price actions and thus the movements of the universe.

These crashes generally follow massive climbs, like going up Mt. Everest.  The way down is often just as steep and can even be  steeper.   Who now looks at the steep climb of this massive industrial buildup and wonders why?   and why now?   and why to us??   Explaining this to anyone but a futures trader, one who believes in chart patterns, may be an impossibility (but I’ll try).

We are facing a perfect storm of massive declines, a convergence of tsunami crashes: world economy, equity markets, real estate, and perhaps the biggest one of all —- population.   I’m saving it for the next article “How Safe Are We”.

The fundamental slowing of the momentum that we are now seeing doubling every few years was doubling every 50 years at that time and will soon be doubling every few months.  That will be the point when the folding paper cannot be folded one more time.  There’s even further proof of our civilization topping in the rise and decline of fundamental scientific concepts, to be presented again in the next article.

The only worry I have about fire in the theater is that panic kills more people than the fire.  Still, I think, keeping our ear to the ground with the best people that our accounts are being held in the best banks and we’ll still have time, I believe, to see how the collapse is proceeding before pulling out our funds produce a profit towards other needs in our lives, now and present.  The equities industry has been a huge detriment to the country at this point in time but convincing them that investing is not a zero sum game like playing poker.  It’s very obvious in futures trading, because the books are balanced twice a day and we know the only money coming into the game is someone else’s trying to do the same thing to us.  The majority of the country that was caught up in purchasing stocks and bonds, and even simple bank depositors, thought that the money was coming from some other place on earth where it wasn’t needed and not from real people in real places and ultimately balanced with only the additions of our endeavors.  The enticement of the equities world has been similar to a logging boss at camp in the upper woods of Idaho saying:  “Now boys if we all play real carefully, we can all make some money”.  It’s like hamburger lovers complaining about hunters.  They simply haven’t though society through to its jungle basis.

Again, the advantage of diversifying and keeping our current occupations in investments as well, is that probability is often a fooler.  Even though it’s repeating history, it does so in a bell curve spread that can only be hunted with a shotgun rather than a rifle.  So in addition to the lack of perfect prediction, each of our experiences may vary based not only on our different locations, but the incongruity of life’s experiences as Einstein explained.  Since our outcomes will differ, you may view what I think differently and do better as a result thereof, so much the better.

But what worries me about the charts rule over our life is that regardless of what action we are able to take, mother earth will use all the tools in her arsenal to see to the down trend completes, including numerous surprises of the bullets that are already whizzing around us.

I believe the charts will provide the best long range of what’s coming our way as the current news is composed of only current reasons, not the real cause.  Like all the noise that we traders incur instead of panic (I hope) over the beginning of a good trade starting bad.  Just as we hedge our bets over longer term, we should prepare for the very worst so we won’t be out of the game when things return.  Tsunami waves are often many years apart, with the market DOW over 150 years, but the lumber market tsunami J’s less than 2 years apart in 1992 and 1994.  If nothing else, you awareness will allow you to keep your head with others are losing their’s.

Another reason that news is unreliable is that since most of us are the last people in the street to hear the really good news, it’s very difficult to beat the crowd.  And we are in a giant game of trying to beat the crowd.  We’re also entering a giant game of musical chairs where the seats are folding at light speed.  Nor can we listen to the doomsdayers, which have been with us forever.  And though they may be right like the broken clock being right twice a day, most of their forecasts don’t have a solid basis like the commodity charts.  And if we take action now, we’ll have time to do things that when the game comes up short and things become really obvious, there may not be time.

Try to be everything the situations call for.

And while news articles only repeat news of the trend, technical analysis gives us a rough idea of where a bottom and a new beginning may be.

You may wish to leave the theater earlier, but I may be wrong but still want to see as much of the picture as possible.  There are some excellent down trends that can provide the best source of direction.

I realize a vast number of people support Congress and the government’s efforts to stop the crashing of the tsunami waves.  But since it is an immense earth force, it would be like trying to stop all the tsunami waves in the oceans.  Better that we recognize what’s occurring and prepare for the outcomes.  Trying to recruit industry and government coaches won’t work because they have not been, except in a few cases, the real players.  Better that we have let go like Sweden so we can begin a new then Japan which has never rectified the 80’s real estate crash and the fall of the Nikki from near 45,000 to below 20,000 and now even below 10,000 with 20,000 being the bank’s line in the sand.  Like football, we need to see the whole game even though our team is losing, or the games will fail.

There’s also a big misconception of money as being real wealth.  When saddled with World War I debts of the French and others, the Germans simply printed money in the 20’s but soon took a wheelbarrow full to buy a loaf of bread.  The same happened to Spain with gold.  You wouldn’t think that having so much gold could cause a depression there, but it did.

Free enterprise was a much better understood economy during the revolution of America.  Initial Congress was made up of people who were individual business owners, as were many people in the country at that time.  Today, there are too many government employees, who never have real exposure to business and many others working for corporations who don’t want the employees to learn it since lower wages mean greater company profits.  Remember that everyone’s perception of the future from the mid-2000’s being up;  don’t worry about buying to big of a home, you can just sell it for a profit attitude to where everyone now is cautious and waiting to see what’s going to happen.  How low will prices go.  The cat is out of the bag.  We know that the government can’t bail out all of the bank’s problems because at $540 trillion, it’s almost 40 times greater than our GNP of $15 trillion and declining.

People are asking where they can purchase gold.  One of the trades that often thought of making because it’s a true hedge is to buy gold futures and expect to take delivery.  If the price of gold were to drop, you may lose except that you were willing to pay it at the price you purchased the futures contract.  If it goes up, you’ll save by paying less.  The gold must be delivered to you by the Exchange from a depository licensed by the Exchange.  Complete delivery rules and provisions are detailed in Chapter 113 of the Exchange Rule Book.  I have talked with brokers who have witnessed the event.

Remember that the tsunami crashes of the prices of real estate, our market, etc. mean they are working properly, not God’s punishment.

Meanwhile, the fed is pumping as much money (not greenbacks but the other kind) into the economy, to avoid the shortage of money that occurred in the 1930’s Depression.  This gives them something to do and makes the rest of us feel like … we are avoiding the problem.  The controllers in the last depression actually thought society was bad and needed being punished, which could not be further from the truth.  Due the lack of our educating everyone to the cycles in the free enterprise system of the economy, money, availability of goods and even employment—our lack of preparation will again be repeated.  The cause and the cycles fulfillment will not be thwarted, but the reasons will change as the bell curve of dispersion always allows.

The Fed could give the money directly to the public where it would appear to do the most good, but they fear the business engines would sputter.  Regardless, big government and big business always start at the top.  For instance, AIG is buried deep in the $550 trillion of debt and in no way can be made whole.  It might be saved and we know Congress will take every effort to do so, not so much because of its need by the public, but their pension funds are insured by them.

We also need to be aware that the moderate to small investors are protected in the stock and equities markets by SIPC which carries $600,000 of insurance, like the FDIC, per account.  And what may save most moderate to small investors in regular bank accounts is the $250,000 of insurance by FDIC.  That’s due to a change at the end of 2009, and if able, the government will no doubt try to double that again.  What then will the cycle causes throw at us in the way of last reasons to complete their patterns?  There is a plethora of natural events just waiting to do such.  Again, I’ve saved this for the article, How Safe Are We?, and even if the public were totally educated about how cycles and tsunamis return to their starting places and so much we give up all the valuable ground that we thought was permanently ours, no amount of correcting the economic system where it be free enterprise, communists or whatever, are more powerful than the waves that Adam Smith referred to as the invisible hand.  I don’t think he was talking about the market actions so much as the advancements in the economic system when the forefathers of free enterprise were discussing the improvements to our economy.  As they were contemplating them, they occurred, which appeared very mysterious to them.  What he called the invisible hand were the cyclical actions of the market and we’ve been building a giant economic tsunami since the 1500’s.  And now the reverse image of the invisible hand will continue to baffle those that believe mankind’s power is greater than the movements of the universe.  We think that free enterprise is in jeopardy now, but wait until unemployment hits very high numbers and starvation begins again, as it did in the Great Depression.  People were then calling for a new economic system, a new government to pull them out of the doldrums.  Again, the lack of education about how free enterprise really works, not the we can fix everything in a very soft, cuddly social manner.  Like sausage, we certainly wouldn’t enjoy the making of it, but we enjoy the final product.  And so too for the free enterprise system which has produced the greatest economic bubble the world has ever known, not as an objective but as a by-product.  The advantages of the system begin with being able to spread out entirely within the bell curve buying lumber that we make here in the Northwest from Georgia and selling them pulp which they make there just as well.  It’s the differences from person to person, with each of us being the center of our universe, is one of the reasons it’s been so effective.  But that may be thrown away as it’s already in jeopardy and we’re just beginning the problems.  Other countries have temporarily taken over the banks, fixed them and turned them loose again.  But nothing will work until the cycle is complete.  How to hurry them along, now that’s a subject for scientific research.

Other trends and thinking stem from the current critique of certain individuals that led the charge up Mt. Everest and their selfish, undisciplined or regulated desires that now stand out like coral reefs in low tide.  But the fact is that most of us enjoyed and tried to take advantage of the huge economic rise.  Many of us were able to store up various forms of money and goods for the way down the mountain.  Unfortunately, most of us did not and now are complaining bitterly when they ignored the little voice in their head saying they should have when it was possible.  Well now is the time for the rest that can to do rather than waiting and complaining later.  Complaining, except by rebellion, will probably be of only limited effectiveness later on.

There is also a lemming fever beginning in public which may thwart the revival period when the cycles have finished bottoming.  I would like to save that for the next article where disastrous natural events may occur to fulfill the technical patterns.   Life is what occurs while we’re busy making other plans.  Otherwise we’d be told at birth – don’t bother — in geologic time you’ll be dead.   Always live life to the fullest.  Damn the torpedoes  …. they could miss.

And it may be that various events will reward those who now know to seek tangible money and eventually tangible goods as the floors of our economic building continue collapsing.  At the present time, it appears that stock prices have reached a supportable level, but remember this is still a very high shoulder of the mountain that was put in just after the turn of the century with more than nearly 150 years before that all at much lower prices.  This doesn’t account for inflation, however, which would greatly reduce this difference, but still there has been a massive increase which has been fueled by people’s general belief that every engine of the world industry must increase in value as it increases in production.  That’s true until the top of the termite pile is reached.

There are renowned speakers calling for our payment of personal debt.  Again, the bell curve dispersion applies wherein those with very little debt, for instance on a house with $200,000 owing $20,000 or less, could probably benefit from eliminating the potential risk of default in case of disaster.  On the other hand, trying to pay off such a home when you owe over $100,000, is just the reverse.  Based on the law of the jungle, the banks are far more desirous of foreclosing on a house with far less debt than its worth than a home with a mortgage balance of $200,000 and only worth $150,000.  In anyway we can, I think holding onto what capital we have and converting it to tangible assets and actual goods is the second best policy, other than the more secure investments like T-bills and customers’ segregated funds.  Third would be accounts both in securities and banks that are within their limits of protection.  Still, letting it all hang out and continuing to do what you’re doing may be the best situation for you as we all vary in this bell curve dispersion of events.  Just remember that the majority are going to have to suffer no matter what it takes.

The experts claim we can’t do without the dealmakers who ran themselves over the cliff.  Excuse me; we may need the outfits, but new blood should be welcome.   From my knowledge, I doubt many could snake out rimrocked cattle or jerk a choker setter out of the bight of the line better than a logging boss.  Yet, they might have to before this is all over.  Commodity trading is difficult enough without the worry of losing more money to the very derivative brokers that buried us.   Let free enterprise work.  That’s cold, but many of us have already been through similar.  And if Congress must, spend those funds on the small entrepreneur’s projects.

On the physical front;  the crashing markets, job losses, hemorrhaging banks, and credit troubles are things we should be able to fix.  But there’s a big problem we’ve only faced a few times before.  There simply aren’t enough funds in the world to cover the contractual promises the Wall St. Banks set in motion.  Of course, like conventional leveraged banking, there never really needs to be a table clearing payoff.  A Fed Banking system can allow the traded “can of sardines” to be in perpetual motion, but only if they had been informed.  Banks found more profit in deception.  True, a good capitalistic maneuver, but now the problem can’t be fixed.  There simply isn’t enough money in the world to do so.  Who could have fixed the Titanic in the middle of the Atlantic?

Even if the Feds poured trillions upon trillions into the money pot, it would take 10 times the world’s GNP to just match the derivatives debt and that won’t touch interest.  Ironically, those that know, like the Fed and Treasury, can’t say anything except to continue attacking the nearby problems.  If they were to announce what we presented in the last article (The Real Estate Bubble)  they’d be stoned like the Chinese postmen who were shot for bearing bad news.

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