The 'Big Rollover' is Officially Here

In what can only be described as the largest unwinding of the excesses of the past 50 years, we are now facing what Nick Russo calls, "The Big Rollover".

I first wrote about the The End of the Grand Supercycle back in September of 2006 and re-posted it on November 22, 2007. In that post I described what the Big Rollover was and noted that it was to begin in mid-2008. Then, I listed various things one can do to survive the coming storm.

2008 is here and now Nick warns that we are facing the greatest trainwreck in history. He calls it a "period of cleansing" that will last 10-15 years as a corrective cycle.

He claims that CNBC is nothing more than "Infotainment", because people want to know what happened yesterday and what's happening right now. But, what they are missing is a repricing of the entire planet. Hard money is trump. The public is just waking up to that notion. Gold is the new copper and food is the new oil.

We must a approach this coming storm with a postive mindset. He doesn't believe people are prepared to face this situation because:

1. Housing will not come back.

2. We don't want to hear negative things.

3. We are (only) programmed to believe that everything will be ok (because they always have been after a crisis since World War 2)

4. We don't know how to handle a negative event.

5. We tend to think "In the end, someone will bail us out".

This period of unwinding will be much more extreme than what we faced in the Great Depression. That's because of credit and demographics. The fact that everything is highly leveraged will mean the unwinding will be excellerated on the way down.

Deflation is the bread and butter for Treasury Bonds, both short-term and intermediate-term. But, the key will be timing. Rates will go up to defend the dollar. Tips (inflation protected bonds) will also become good places to "hide".

All of this is happening in the 8th year of the bull market in commodities that, according to historical cycles, will run 9 years (every 30 years for the past 200 years) and end around 2010. (prior starts - 1911, 1941, 1971, 2001). Why isn't gold at $1500 when it should be? I don't know, but the big moves don't happen overnight. Expect 80% of the move to happen in the last 20% (2 years) of the cycle. Expect gold and silver to continue up and with each Energy correction, view it as a time to step back in as we are in a global energy crisis.

Expect another shock to the system, such as an event like 9/11 which will push us faster into the rollover. Do things to protect yourself and cocoon yourself in order to ride it out. This means a couple of huge things to me: reduce debt everywhere in your life and create sources of income.

The higher stocks went up over the years the more shock it creates going down. And, with all the leveage in our financial lives, people simply don't have the "cushion" for a prolonged downturn in the equity markets.

Personally, I have hedged my equity accounts and continue to write covered calls on long stocks. I own a long-short fund, many gold and silver mining stocks, some physical gold and silver, PowerShares Water Resources ETF (PHO), DB Multi-Sector Commodity Master Trust ETF (DBA), Precious Mining funds, the Permanent Portfolio, short and intermediate taxable and tax-free funds. I also maintain about a 1/3 debt to real estate equity position so that my RE income stream is all positive.

Comments

[Sebrock:]

While I do believe we could be in for a lot more pain, the assessment that we are going into a financial abyss does not take into consideration the human evolution/survival factor. We are programmed to evolve and improve and fight when we are up against the wall. We have gotten through worse over the last 50,000 years and we will get through this as well. The worst case scenario is that stocks and investments finally get priced based intrinsic value. And yes, CNBC is absolute garbage.

2008 Jan 10 09:07 AM

[SmartGuySto...:]

Although these points are valid on some level, you must appreciate the entrepreneurial and consumerist zeal in the US. End of days talk is nothing new. I'm sure the first humans were worried about it too. But, as sebrock noted, it's human nature to survive through challenges. And in 2007, the US has incredible resources to find more ways to produce, sell, and consume goods and services. People want their TV, cellphones, and computers, and as a group we will do what it takes to keep them ...

As my grandfather who was a child during the Depression said, "Those times are over. Only an invasion of the US could cause something on that scale."

2008 Jan 10 04:42 PM

[stocks2051:]

The article: "The Big Roll Over" reveals simplistic thought regarding human nature and recent history. It's message of dooms day econmics has a religious zeal used by so called prophets to bring fear into people's lives. The article sounds like a script for a new Mad Max movie where chaos reigns and the worst of people is brought out for the audience's entertainment.

It is simplistic to believe that people don't want to hear negative things---and that most people are programmed to believe that everything will be ok nor has the world been free of crisis since world war II. The average American has experienced crisis and most people do not want a bail out.

The economy may be tired and housing may not come back for awhile but things are not hopless. William Faulkner when asked in the 50's about the chance of humanity being destroyed by the bomb: stated. "I not only think that humanity will survive but I think Humanity will thrive"

If Faulkner as an artist sounds to optomistic, people who think along the lines of this article should stand in front of a great work of art which simply says about the world: It Works!

2008 Jan 10 10:11 PM

[jg53:]

If its as big as this blog states then his 1/3 debt to to equity won't mean anything as all his tenants will be broke also and the taxman will keep right on taxing assets.

2008 Jan 11 07:23 PM