Seeking Alpha

David Knox Barker's  Instablog

David Knox Barker
Send Message
David Knox Barker is the founder of Market Cycle Dynamics, LLC, and the publisher and editor of The International Market Cycle Dynamics Letter. Barker is one of the world's foremost experts on market cycles and the global economic long wave. He is the author of The K Wave; Profiting from the... More
My company:
Market Cycle Dynamics, LLC
My blog:
MCD Weekly Briefing Blog
My book:
The K Wave; Profiting from the Cyclical Booms and Busts in the Global Economy - eBook
View David Knox Barker's Instablogs on:
  • The Commodity Price Rollercoaster and the CRB Golden Ratio Failure
    Commodity prices have been on a rollercoaster ride as central banks have pumped trillions in liquidity into the global system, trying to prevent a deflationary long wave debt collapse from delivering the economic coup de gras, and driving the global economy into a natural Kondratieff (aka Kondratiev) long wave winter season bottom. Commodities are the ingredients of global economic production; they go into almost everything you buy. Investors in commodities, stocks, bonds and gold should all take note of the most powerful resistance line the CRB Index has encountered since the 2009 bottom.

    The 362.38 price target in the CRB is the golden ratio of the entire 2001-2008 commodity price edifice. It is extremely important that Mr. Market’s golden ratio just repelled the liquidity driven assault sponsored by the central banks of the developed world. Commodities ultimately have an impact on all global markets, including equities and bonds, so they will have a major impact on the global economy, for better or worse.

     RollerCoaster

    The goal of the central banks is rather straightforward. They are trying to cajole the global economy and commodities away from the global debt driven deflationary abyss and into the arms of inflation. Their objective is to inflate away the value of the mountains of debt. Debt is an albatross hanging around the neck of the global economy. Excessive debt threatens the stability of national governments, states, municipalities, businesses and individuals that took on too much of it over the past few decades.

    In recent months, it has appears as if the central bankers have succeeded with their inflationary objectives. Deflationists would be less than honest if they try to convince you that their deflationary convictions have not wavered a bit. The inflationary arguments are very convincing and the markets have been agreeing with higher prices. Commodity prices have surged, driving the cost of goods higher for producers and manufacturers world over.

    However, after this weeks market action, the score is now the Fibonacci golden ratio 1, the central bankers zero. The commodity rally was turned back. Deflationists have been dining daily on humble pie as inflationists have taken the wheel of global markets, since the rally in commodities off the 2009 low at 200.16. From the 2001 intraday low at 181.83 to the 2008 intraday high at 473.97, global commodities have ridden wave after wave of central bank injected liquidity, but now the commodity rally suddenly looks fragile.

     CRB

     Unfortunately, in all the central banker’s calculations, they forgot about supply and demand and the fact that labor supplies are abundant, food not so much, so inflation flowed into the food prices of the emerging markets where it can be least afforded by workers. Inflation is threatening to flow down the entire global economic food chain, except for labor rates and housing prices, and spill into your gas tank, cereal bowl, and even pop out of your toaster. A mouse jumped out of our toaster the other morning, but that is another story that comes with the joys of a hundred plus year old farmhouse, and a fat cat that is a slacker. The moral here must be that when fat cats are slackers troubling things can happen.   

    Where the economic food chain is short, such as in most emerging countries, commodity price increases flow rapidly through the real food chain and onto dinner tables. In developed economies food processing and labor costs mute the affect of the rise in commodity prices. The anger resulting from the central bank’s inflationary objectives has now spilled into the streets. The central bankers have set the political world on fire.

    It is rather odd that while hundreds of billions are being pumped by the central banks, everyone seems to need more money, but from street vendors in Egypt to the commodity pits in Chicago this week, money is increasingly in short supply. Even with central bank liquidity supposedly pouring into markets, the actual amount of money available appears to be shrinking. Global debt is a great sponge, soaking up all the liquidity the centrals banks can pump and more.

    The stresses produced by the great commodity price boom engineered by central banks, and laid on the backs of hard working bread winners world over, threatens the very foundations of civilization. Of course, theory only goes so far, price is where the rubber hits the road and all the theory puts up or shuts up with prices paid, and the CRB golden ratio just sent a massive heads-up signal as the inflation vs. deflation battle rages around the globe. The central banks may be able to pump trillions more and breach the golden ratio in their battle against forces of debt deflation. If they do, inflation is back in the driver’s seat. Observing the CRB, investors and traders in commodities have a front row seat in the fight of the century. Mr. Market, on the advice of his manager the Kondratieff long wave, just landed a hard right to the inflationary policies of Chairman Bernanke.   

    The inflationist’s arguments are brilliant. Money supply, multiplier affects, electronic printing presses, the death of the dollar, they all make so much sense. What I can’t seem to figure out is how after all that pumping, all the trillions, why did the CRB just recoil from the golden ratio like it had touched the third rail of inflation theory. The 2008 high is still miles away.

    Just remember that Mr. Market has the last word and he speaks in the language of markets called price. Right now, he is standing on the Fibonacci golden ratio in the CRB and telling the central banks and inflationists to go ahead and make his day. Inflation may yet take Mr. Market down and leave him bleeding in the back alley of some emerging market, where struggling entrepreneurs are just trying to earn enough profit to feed their families. They are fighting against the fat cat slackers that are trying to take the easy way out and slowly make all the debts go away, but they just keep getting bigger. Just watch price, especially in the CRB, this is where all the theories of inflation and deflation meet reality.

    Speaking of price, if you are not observing the Fibonacci grids in the market in which you invest and trade, along with time and sentiment, you are investing and trading blindfolded. You create Level 1 grids by identifying the most important high and low in any market or security. Drilling into those grids to the next level between any two adjacent Fibonacci grid targets and on down, you can observe a detailed roadmap of intraday market action. A reader recently recognized the drill-down Fibonacci grids are “the holy trading grail” for day traders. Long-term investors are more interested in the Level 1 and Level 2 moves, like that failure that just occurred in the CRB at the golden ratio. The CRB tried to break into the Frenzy range but failed.

     Level 1

    Until the central banks can reload their QE canons, which is now questionable due to the rising political opposition expected at this stage in the long wave winter season, the inflationist better have a Plan B. A commodity price crash is not out of the question, since the attempted breach of the golden ratio has failed. A retest of the floor of the Normal range at 293.41 is now in the cards.  

    Political revolts have begun sweeping the globe, freedom and liberty from central planning is the cry, including freedom from the failing market manipulation efforts of the central banks. The age of human design is ending. Human action is stepping up to the challenge and filling the void, creating order out of the chaos created by human design.

    It is only now coming into focus, but objective reason is winning the day. The Internet is triggering human action and spontaneous order is trumping the chaos of human design; you are observing the objectivation of the world unfold. The looters are on notice. Ayn Rand would recognize what is occurring, as the chaos in the cities is growing and darkness threatens. Unlike the novel Atlas Shrugged, the prime movers remain hard at work, they did not leave the scene of the looters crime and head for the mountains of Colorado. Atlas is refusing to shrug. He has dropped into the heart of the action and is fighting back.   

    Listen to Mr. Market, who speaks the language of price, he can be manipulated, but he never lies. A modern day Jubilee has come to Wall Street. The unfolding global debt collapse will force the old order to pass away. The central banks want inflation, but their objective of global inflation has just failed a major test. A new economy will rise on the other side of the global debt disaster that looms.

    Price convulsions indicate that major global change is in the wind. The central bankers are keeping their options open. They have stopped selling their gold. They are now gold buyers. Digital gold currency (DGC) is in its infancy and ascendency. The global economy is convulsing into something new. The Great Republic is dawning. All the world is the stage, enjoy the drama, and have a great weekend!

     



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Tags: CRB
    Mar 11 9:58 PM | Link | Comment!
  • The Pricing Mechanism of Markets: S&P 500 1344.07 and US 30-Year $117.09
     Evidence is mounting that the pricing mechanism of global markets creates spontaneous order out of the chaos of billions of people pursuing their self-interested purpose. Arriving at a price for products, services and financial assets is the heart of this process. There are successes and failures in every round of pricing, which are priced into the next cycle of human action in global markets.

    Unlike the unemployment rate, CPI, GDP and other numbers reported by governments in the U.S. and around the world, the trades of financial assets in financial markets are real numbers, done deals, not adjusted government statistics. That is why so are compelled to study financial market prices to figure out what actions they should be taking to execute their plan, improve their lot and insure their future.

    There is innately a greater trust in the pricing numbers produced by the free market activity by investors and traders than government statistics. The intent here is not to belittle government statisticians, they have a role and serve a purpose, but to understand what is going to happen next in the world, you have to study market prices. Market prices are the real McCoy in human action.

    If you are looking for rhyme and reason in your business or financial life, like what is coming next, government statistics are not the place to start. Market prices contain the keys to discovering value and forecasting the future. Sure, the Federal Reserve may supply liquidity to markets that impact prices, even trillions in liquidity, but buyers and sellers still have to agree on prices for stocks, bonds, commodities and gold to make the trade. Prices in markets are the crumb trails of human action in pursuit of the discovery of value and self-interested purpose.

    Studying trades at exact prices between buyers and sellers in financial markets provides the ability to understand how the price mechanism of markets directs the destiny of the greater global economy. Markets confirm what is valued and what is not. Markets are the fingerprints of the invisible hand that directs buyers and sellers to come to terms. Price plays an important role in discovering the future for businesses, individuals and the global economy.

    In a recent article, The Edge of Chaos, I examined the thinking of free market Nobel economists Fredrick Hayek for insights into markets as complex systems that provide spontaneous order out of the chaos of human activity. Hayek’s ideas are important because they suggest that free markets create a stable domain between the worlds of anarchy on one hand and the sure decay of central planning on the other, two extremes that currently threaten to tear the world apart and hamper your ability to discover your destiny. Yes, you do have a destiny, and smooth running free markets help you discover it. Central planning that distorts the pricing mechanism of markets is the enemy of peace and prosperity. Central planning promotes chaos, not order.

    If you buy Hayek’s reasoning, then the questions concerning how markets produce spontaneous order are reasonable. What exactly does spontaneous order look like? Any observer of market price movements that has studied stock, currency, commodity or bond markets has likely marveled at the influence Fibonacci ratios exert on price discovery in markets.

    Fibonacci ratios clearly exert a force on the pricing mechanism of markets as market participants engage in recurring rounds of trading around the globe. New discoveries of Fibonacci ratio price relationships reveal the pricing mechanisms of markets. In fact, Fibonacci ratios appear to be the heart and soul of the pricing mechanism of markets. Market participants innately or directly use Fibonacci ratios to determine when prices are too high or too low. Investors and traders that are not aware of the Fibonacci grids that guide price action in markets are handicapped in their investing and trading. 

    The concept to the Fibonacci Dynamic Web in markets comes from the work of the late market timer PQ Wall. However, PQ did not utilize Fibonacci ratios. He would begin with zero as his baseline price and then pick an important market high. He divided the entire market move by three, i.e. three 33% moves, and then drill into the sub-levels of the market prices, dividing each third or by three again. The three sections of any level he labeled as Solitude, Normal and Frenzy, to describe the character of the market in these ranges. PQ would drill down to deeper levels of this Dynamic Web in any market. He used this method to describe the Dynamic Web of price action in markets.

    The 33% ratio is a Fibonacci ratio, since both 1 and 3 are Fibonacci sequence numbers, but 33% is far from the most powerful Fibonacci ratio. PQ did not use 33% with the intent of applying it as a Fibonacci ratio, but as a reflection of this view of the inherent threeness in market activity. He viewed market price as struggling between these three ranges of Solitude, Normal and Frenzy in perpetual disequilibrium. 

    Searching for a more functional Fibonacci Dynamic Web method that produced more “hits” on market turns, I took the most important intraday market low and the most important intraday market high produce the Level 1 price range in the Fibonacci Dynamic Web grids. Instead of dividing by three, I created a grid with all the Fibonacci ratios between 0% and 100% and include their compliments, i.e. the 23.6% ratio produces the 76.4% compliment ratio. The 76.4% target is 23.6% short of the 100% target. The method produces a balanced grid of the entire price move. The ratio compliments prove to exert just as much force on the market as the actual Fibonacci ratios. The results and the insight this method provides into the market pricing mechanism are stunning.  

    In our Fibonacci Dynamic Web work at LongWaveDynamics.com, the price range of 0% to 38.2% is the Solitude range, 38.2% to 61.85 is the Normal range, and 61.8% to 100% is the Frenzy range of prices at all levels in a Fibonacci Dynamic Web grid drill-down into a market. Note that the golden and inverse golden ratios divide the ranges instead of 33%. When you take any two adjacent Fibonacci ratios in the grid and make them the 0% and 100% targets in a new grid, you can generate a Level 2 price grid. Prices in financial assets, such as individual stocks, commodities, bonds and gold, consistently turn at key levels in the Fibonacci Dynamic Web price grids. This is true from Level 1 down to the smallest relevant range of Level 4 or lower. In our work, we drop the 50% to generate the next level of grids, since it is not in the sequential ratios, but print the 50% since it is a Fibonacci ratio and exerts an influence on market prices.     

    Any student of market prices and the power of Fibonacci, and you should be if you are an investor or trader, will be amazed at the power of this method of analysis. Clearly, the Fibonacci Dynamic Web of price activity is central to global markets functioning to produce spontaneous order from chaos. This spontaneous order in market prices sends messages to investors and producers, informing them how best to deploy their resources to meet market needs.

    Below, the S&P 500 demonstrates the Fibonacci Dynamic Web drill-down method. It is important to use the most important low and high for the Level 1 grid. In the grids presented, the intraday low in 1982 and the intraday high in 2007 produce the Level 1 grid. The most obvious features on this chart are the March 2009 low at the 38.2% target and the July 2010 low at the golden ratio 61.8% in the Level 1 grid. 

     

    Reviewing the Level 2 grid above, the most relevant observation is that the November high was at the low in the current Level 2 grid at 1228, which is also the 76.4% Level 1 target. More importantly, right now the S&P is struggling to stay above the 1310.32 golden ratio target in the Level 2 grid. When golden and inverse golden ratios fail in a Level 1 or Level 2 grid, cycles are typically in an important transition phase. This one is in danger of failing when the Fibonacci times cycles are indicating an overdue date for a cycle ending in time. This Level 2 grid is also important because the low in this grid at 1228 is a candidate to stop the decline of the current Wall cycle. When 1228 caves, the post March 2009 rally will be in trouble.

    Contemplating the Level 3 grid below, it is worth noting that Mr. Market was not able to break out of the Solitude range, over the 38.2% target, and into the Normal range. It failed between the 23.6% target and the 38.2% target in the Solitude range of the Level 3 grid. The Level 4 grid is of interest because the market failed two cents shy of the golden ratio in the Level 4 grid. It could not break into the Frenzy range of the Level 4 grid, and make a run for the Normal range in the Level 3 grid.

     

    The Fibonacci Dynamic Web ranges reveal a great deal about the price progress of a given security or market. The Fibonacci Dynamic Web drill-down grids reveal a portion of the spontaneous order that lies under the surface of markets. Fibonacci ratios are somehow central to the pricing mechanism of markets as complex systems. Markets forge order out of chaos. Investors and traders can track the price of any stock, index, commodity, bond, currency, currency pairs or even gold using the Fibonacci Dynamic Web drill-down grid approach.

    The price turns governed by the Fibonacci targets in these drill-down grids will change your view of market analysis forever. Technical analysis can be combined with fundamental analysis to determine the right price and time to make the right investment. The objective is to use the Fibonacci Dynamic Web grids for entry, exit and stop loss strategy. The Fibonacci Dynamic Web approach can be combined with other methods, providing actionable information to investors and traders.

    The Fibonacci Dynamic Web drill-down grid approach can also be used to generate price projection grids into the future. If a market, such as gold, is hitting new highs, there is not an important high price to use in the Level 1 grid. In this case an important past move can be used as a Fibonacci ratio of a future move. Taking that full move you can then drill into those grids and observe the grid price action.

    Another example of the power of the Fibonacci Dynamic Web method is that the U.S. 30-year bond rallied in January off the exact 85.41% target in the Level 2 grid at 117.09, and has rallied back over the next Level 1 target at 119.21. The Level 1 grid low comes from the 1981 low, the Level 1 high is the 2008 high. The colossal U.S. debt market holds the key to the resolution of the current Kondratieff long wave winter season. If the golden ratio in the Level 2 grid at 113.67 caves, and the U.S. 30-Year drops out of the Frenzy range of the Level 2 grid, then the central planning of central banks  that is attempting to highjack the pricing mechanism of markets, and inflate away the global debt problem, may be working. Of course, the downside is that it is spreading chaos around the globe. If the 30-year bond keeps rallying, the risk-off global deflationary scenario remains in play.

     30-Year Bond Chart and Grids

    Fibonacci ratios are also active in the cycle time grids. The long wave, long wave season, Kitchin cycle and Wall cycle, are also guided by Fibonacci ratios in time as well as price. Combining Fibonacci ratios in time and price will open your eyes to the power of market cycle analysis.  Tracking market cycle dynamics in price and time allows investors and traders to reduce their risks and improve their returns.

    Feb 25 10:41 PM | Link | Comment!
  • The Edge of Chaos

    Nobel economist Friedrich Hayek’s most enduring legacy is his defense of classical liberalism and free market capitalism. The Road to Serfdom is Hayek’s case against central planning, something he viewed as a product of human design as opposed to human action. Hayek and his mentor Ludwig von Mises were the preeminent writers and thinkers of the Austrian school of economics and political economy.

    Hayek also made major contributions to complex systems theory, specifically related to what he called the spontaneous order of markets. He does not always get credit for his advanced thinking on complex systems theory. This oversight may change in the future, as the recognition that global markets are dynamic complex systems is certain to experience a renaissance in the near future.

    Complex systems theory is an approach to scientific problems in any field of endeavor that studies how the individual parts in a system give rise to the behavior of the whole system. Understanding how central banks pumping trillions of dollars into developed markets that in turn trigger food inflation and food shortages around the world, and the resulting revolutions, is a matter of interest for complex systems theorists.

     Complex Systems

    Spontaneous order is the natural emergence of order out of seeming chaos. Complex systems and spontaneous order go hand in hand. These two concepts explain progress and setbacks in economic growth and development in both the developed world and emerging markets, i.e., the global system. Our understanding of spontaneous order in markets and the complex systems it produces is in the early stages.

    The fact that the complex system of global markets came close to total meltdown in 2008-2009, and that major systemic risks remain and are likely building, means keeping an open mind regarding markets as complex systems is an imperative. There is a growing hope that the central planners and human designers at the central banks in both the developed and emerging world have the situation under control, but the growing number of spontaneous revolutions around the world suggest it is a bit early to make that call.  

    This is where things get interesting for those interested in a global system of human freedom and liberty. Hayek proposed that in a free market spontaneous order emerges out of chaos based on self-interested human action. Trillions of self-interested human decisions produce the activity in global markets on a daily basis. Hayek recognized that this spontaneous order is part of complex system development. Spontaneous order emerges from chaos.

    The crisis of 2008-2009 revealed that the price mechanism of markets is greatly distorted by the interference of human design. Fiscal and monetary interventionism produces malinvestment. Overvalued homes around the world and the bad mortgage debt they spawned are one example. The price mechanism failed and was unreliable for effective human action. Chaos is only a few trading days away in a complex system distorted by human design and interventionism when confidence heads south.

    The free market domain of the spontaneous order of human action lies between the error prone realm of central planning by human design on the one hand, and chaos and anarchy on the other. Central planning is not self-interested; it is falsely presented as representing the collective interest, but in fact typically just watches out for special interest, most recently the big banks that continue to leverage their zero interest money, pushing up the price of commodities and food around the world.

    Clearly, free markets have suffered a major setback, and there are a growing number of examples of central planning that trades self-interested human action for anarchy around the globe. Free human action produces a dynamic stable system of risk and reward at the edge of chaos. Central planning by human design produces global crisis and anarchy.

    In a true free global marketplace, a self-interested supply of human capital and financial capital determines whether ideas and investments are worth pursing. Entrepreneurs must calculate their costs in the limited resources that are available. If the ideas become products or services, the pricing mechanisms of markets work their magic. Fast-paced free markets determine which products and services are winners and which ones are losers, whether cars, houses, i-Pads, hamburgers or art. It sometimes looks like chaos, but spontaneous order emerges. One way of looking at the rapidly changing domain of spontaneous order in markets is that it is a dynamic force, always on the edge of chaos, always changing, producing healthy competition.

    No one person or organization can allocate the resources of such a large complex system as the global economy, but there are invariably those that believe they can. Central planning that steps in and takes control from the free market, prevents the natural spontaneous order that allocates resources by rewarding those that most effectively fill market needs with the right mix of price and quality in their products and services. A study of history suggests that the outcome of central planning is not order, but is in fact chaos and destruction of everything we hold dear. Central planning prevents the price mechanisms from working, and the complex system breaks down, imploding from the weight of its contradictions.

    The regimes that have recently experienced revolution, like Tunisia and Egypt, were states dominated by the central planning of dictators. The dominoes are lining up for the failure of central planning everywhere around the world. Yemen, Bahrain, Iran, Saudi Arabia and even the citizens of Wisconsin realize the complex system of the global economy is in a state of flux. The consequences of central planning in the developed world are destroying the pricing mechanism for commodities, labor and financial assets in global markets. The world has become destabilized; global spontaneous order rooted in the free markets of the developed world has been compromised.  

    Decades of the suppression of human freedom and liberty has undermined spontaneous order in the global economy and is making many countries far more unstable than their leadership or analysts realize. Chaos is the result of the inherent instability of central planing. Fortunately, the complex system of the global economy has created new information technology in the form of the Internet and social networking. New forms of connectivity are triggering the spontaneous organization of the lovers of human freedom and liberty everywhere. There are great risks. These movements could rapidly turn failed unstable central planning into chaos. Free markets must be allowed to flourish to counter potential anarchy. These movements will not settle for new regimes of central planning.  

     The Edge of Chaos

    The battle lines being drawn between chaos and spontaneous order in stable complex systems brings up the economic calculation problem, first proposed by von Mises, but effectively expounded by Hayek. In short, the economic calculation problem is that central planning simply cannot know how to allocate resources. The reason is that central planning does not have a valid pricing mechanism. A good example is that the market cannot properly price risk when central banks step in and arbitrarily purchase bad debts, injecting billions into global markets. When politicians and their appointees play favorites, picking winners and arbitrarily determining the losers, any notion of market price and real value go out the window. 

    Hayek directly connected his thinking on the necessity of the price mechanism for a functioning market and economy and his ideas of the spontaneous order of markets. The search for price in a free market is what produces the spontaneous order. Financial markets serve as the pricing mechanism of financial assets. When the U.S. central bank takes on a third mandate to force prices of financial assets higher by maintaining a zero interest rate policy and quantitative easing in order to produce a virtuous circle, they are greatly distorting the pricing mechanism of markets for debt and equities. They are effectively destroying the critically important feedback loops and the pricing mechanism of markets. Spontaneous order is no longer spontaneous when the pricing mechanism is highjacked by human design.

    It is important to recognize that technical analysis of stocks, bonds and currencies is the study of the pricing mechanism of markets. Hayek recognized that the pricing mechanism was critically important to a functioning and dynamic economy. Once you recognize that markets are the product of spontaneous order, it must also be recognized that technical analysis of financial markets is the search for order in the pricing mechanism, and recognizes that the pricing function can be tracked and analyzed.

    Anyone that has studied market prices and the Fibonacci ratios in market prices recognizes that Fibonacci ratios exert a powerful influence on the pricing mechanism. In many respects, Fibonacci ratios appear to be central to the pricing mechanism. Fibonacci ratios are known to express the growth and decay of living things. This applies to the ebb and flow of national, regional and global markets.

    Regarding the spontaneous order of markets and market cycles, the late PQ Wall put forward a rather bold proposal. What he essentially claimed was that the spontaneous order of markets and the complex systems they reflect produce recurring market cycles that fit together like a puzzle. He was essentially proposing natural law for the pricing mechanism of markets. What this reasoning suggests is that Hayek’s spontaneous order in markets can actually be identified, quantified, and successfully tracked using the tools of technical analysis in the price mechanism of financial markets.

    PQ’s proposed framework of cycles has been analyzed using new Fibonacci methods to study his family of cycles in price and time. Extensive research has uncovered that the cycles in his framework have “ideal” lengths. These ideal lengths are expected to reflect the natural forces of the spontaneous order in markets. They represent a framework for the complex system of cycles in a free market economy. PQ Wall’s approach to cycles, when combined with the idea of “ideal” lengths, with degrees of freedom governed by Fibonacci ratios, represents natural law in the spontaneous ordering of markets. Cycle analysis using Fibonacci methods in price and time opens a Pandora ’s Box of cycle tracking tools for investors and traders.

    Market cycles are simply a reflection of the spontaneous order that exists in markets on the edge of chaos. The Kondratieff (Kondratiev) long wave, the long wave season, the Kitchin cycle (aka business cycle), and the Wall cycle (aka 20-week cycle) are all examples of the spontaneous order produced by human action in markets. The Wall cycle is a miniature Kondratieff long wave, both of these cycles are ignored at the peril of investors and traders.  

    Recent years of global crisis have witnessed the greatest efforts in human design since the New Deal. In many respects, human design implemented by the U.S. Federal Reserve, ECB and Bank of China in recent years make Roosevelt’s New Deal look like child’s play. The third mandate of keeping markets rising is striking at the very heart of spontaneous order that depends on the pricing mechanism of markets.

    The economic calculation problem suggests that central banks cannot know what equity prices should be, but their goal is to keep them rising. Stock prices can no longer be completely trusted as a reflection of true market forces. Sophisticated investors and traders are taking their chips off the table and going home. The complex system of the global economy is being strained to the breaking point. The human design and central planning of zero interest rates and quantitative easing are confusing self-interested human action. By manipulating the pricing mechanism of markets, the central planners are pushing global markets from stable human action driven complex systems on the edge of chaos toward anarchy, which is always the inevitable result of central planning.

    A violent feedback loop in the complex system of human action is unfolding globally. However, the impending global debt collapse has the potential to produce a modern day Jubilee. There is evidence that the violent global convulsion of human action we are in the midst of will accelerate into 2012, and central planning and human design will meet their just demise.

    Beyond the unfolding global crisis, a new golden age of spontaneous order and global prosperity will dawn. A global human action driven free market revolution has begun. It is sweeping the world, and appears to have now arrived in the United States. The central planners are doomed. The edge of chaos will give birth to The Great Republic.

     



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Feb 19 11:33 PM | Link | Comment!
Full index of posts »
Latest Followers

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.