Tuesday, May 20, 2008

This Choppy Plateau


We do our best here at FutureJacked to provide a unique look at the world of geopolitics, economics and war. One of the models we use to map the actions of 6 billion people across the globe is socionomics, a useful tool that allows you to get a feel for coming trends in government, markets and society - when you are correct in measuring the trend, whether it is towards a more net positive "social mood" or if the herding impulse is being driven by a more negative stream of thought.

At this point, we are still in a choppy transition period, in my opinion. The struggle between which mood will dominate the mass tastes in investments, politicians and war is fierce. Let's review each case and discuss some potential action items that could allow you to prepare yourself for either trend.

If you want more details and investment advice, take a look at the offerings from Elliott Wave International on the side bar - they have a huge number of free reports that can help you get a perspective on current events that you won't see anywhere else. You may not always agree with the conclusions (I certainly don't always), but you will have new data points to use to prepare yourself for an exciting future.

A Net Positive Social Mood - Climbing a Wall of Worry

I must first admit that I am biased in believing that the near-term and medium-term trends will be net negative. But I have to give the positive side its due - in the face of extremely negative fundamentals in the banking and finance sector, declining real estate values (in some parts of the U.S., quite severe declines), a cratering of various niche markets in the derivatives industry, and a variety of news items that could have been used as excuses for downturns in the markets and anger in the populace, we've watched the U.S. continue to weather an incredible storm and stay positive. The equity markets have held up well, the U.S. treasury markets are in good shape, the dollar has not melted down completely and there have been no riots in the streets over high gasoline prices or foreclosures.

While I am not convinced this trend is sustainable, I do think we will make it further into the summer than many bears expect with flat to rising equity markets (DJIA fluctuating between 12,500 and 13,500), strong prices for oil, natural gas, gold and silver. Housing will continue to deteriorate, but I think that the system will continue to function reasonably well for a few more months.

Action Items
  • Until a firm trend is in place in the major equity indices, I am still wary of committing precious money to the equity markets. If you must be invested, either really do your homework or find an ETF that throws off a good dividend and has a strong international presence. This is NOT trading advice and frankly, if the U.S. tanks, the world will go with us, so the international presence might not do you much good. Tread carefully here. Do your homework.
  • Deploy any intellectual capital you might have as quickly as possible. If you are sitting on a patent or other protected material, find a licensee or get that business plan written quickly and find funding. This era of ridiculously easy credit may be approaching a close and you might want to lock in some sort of up-front money soon. Again, not trading advice, just something to consider.
  • Network. Expand your circle of friends and contacts now, while a positive and open mood is still dominant or at least even with negativity. It's easier to build networks of acquaintances and frienships in a more open and optimistic environment.
  • If you don't have a Plan B drawn up for yourself and your family (in case of being fired, property taxes spiking, onerous legislation being passed that impacts your business) - do so. It's easier to scope out these scenarios when it is more of a "game" and its impersonal, not when you are out of a job with a stack of bills staring at you.
A Net Negative Mood - Sliding Down a Slope of Hope

The fundamentals, to me, look horrid. The one aspect that truly frightens me is the credit picture. We get all these great plans for bailing out house speculators, but where is the realization that even if the foreclosures are somehow contained future demand is incredibly weak and credit standards are tough and getting tougher? In a fractional reserve banking system, it's grow or die.

When a huge overhang of inventory on the market meets more restrictive lending standards, then that is going to crush house prices and the fallout will cause commercial real estate to follow, which in turn drags down the property taxes paid out to cities and counties, causes big-ticket spending to crater when fewer folks are splurging at Lowe's and Home Depot.

While it looks horrid to me, there is no mass revulsion yet to the current situation. Sure, we are seeing more bearish stories in the mainstream media outlets, but the actions that follow negative social mood are not firmly entrenched.

My guess is that social mood in the U.S. is something like 55% negative to 45% positive (I know that the recent consumer surveys show a bigger negative figure, but I am going off of equity prices that are still firm, a bond market that is still functioning and a leading candidate - Obama - that is running a campaign based on hope, not fear and anger).


Action Items
  • If you think that we are in the early stages of a negative wave of social mood, you best be battening down the hatches. Make sure you are very liquid and very safe in the assets you hold. If you are in cash, make sure your bank is safe.
  • Network. Same advice as in the positive mood action items. Get to know your neighbors and the local politicians. Go to city and county government meetings. Don't be an ass. Listen, be respectful, learn who the players are. When TSHTF, you never know when a local politico or cop who knows you and thinks you are a decent person might come in handy.
  • Be working a skill or skills useful in hard times. Things like scrap metal work, bicycle repair, pistol and rifle repair, electrical and plubming work, bankruptcy law, etc.
  • Watch for the coming populism in politics. If the markets crash in the fall this will have spillover effects in war (maybe we wind up bombing Iran?) and in domestic politics (xenophobic legislation, draconian legislation in areas of investments and real estate, stringent "national security" laws and restrictions on movements, etc.
  • Expect a lot more local and personal violence.
  • Dust off your Plan B and Plan C.

Again, even if we do enter this period of very negative social mood, this is not the end of the world. Downturns allow for the deadwood of delusional policies the grew up in the waning days of the boom to be cleared out. It allows a lot of people who were marginalized in the old system a chance to start over with new ground rules. Downturns wipe out debt loads and allow for the purchase of productive assets at bargain prices.

Even if all about you are fearful and angry, be positive and work to secure a base of friendships and assets that will pay off for you and yours in the coming decades. After this coming Collapse, I believe we will see one last great boom and if you are positioned correctly, you'll be ready to take advantage of it.

1 comment:

Harleydog said...

Another great post. Prechter has always done fabulous work on social trends. fascinating stuff.

HD