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Andrew G. White, CFA
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Andrew White, CFA, is the founder of Timeous LLC in Ridgefield, CT. Timeous provides consulting services and investment management via a quantitative market-neutral fund. Prior, Andrew was a Global Equity Strategist at UBS in London, co-managing $400 billion. He also worked for Citigroup and... More
  • Strap yourself in. Your frame of reference just changed. 0 comments
    Aug 16, 2009 6:31 PM | about stocks: SPY, IEF

    This inaugural article establishes where we are and where we're going.  My second article will detail how to still profit amidst the continuing whipsaw volatility still to come - with transparency, but without unusual risk.  Then, we'll start having fun.

    P.S. I perfectly called the 2008 crash 14 hours in advance - and can prove it.  Luckiest call ever, but still.  Might be worth reading this call then, as it is far punchier (didn't think that was possible).   Thanks.
     


    Summary: Learn to Let Go of That you Most Fear to Lose
    Obama’s right about era of irresponsibility.  BUT it’s not dogma.  It’s a HUGE credit bubble – that's NOT over. From “irrational exuberance” inaction, into Y2K overheat, flowing into housing, and now into federal debt. Asset class is larger with each incarnation.  A bubble of this magnitude and duration WILL end in US dollar collapse - the largest global asset.  We are merely in the eye of the hurricane.  Don’t mistake cyclical "rebound" for structural bull.  No long-only asset will save you now.



    Double Top from Hades
    I'm well versed across methodologies.  Therefore, I'm not a technician, but it does has its uses.  Don't stop reading as this article is more than technical.  The majority of our careers - certainly the memory of most investors - has existed in a bubble called a double top reversal pattern.  Undertstand it to know what comes next. 

    Usually, double tops are intermediate-term cyclical patterns. However, this one is structural stretching 12 years!  Think about that - and why.  We are now merely experiencing the end of a reaction rally (and a fairly insignificant one at that).  Feels good short-term, but it is actually just the inflection point of true ruin.


    S&P500: 1991 - Present



    What's Yo Dream?

    Bull case arguments boil down to (1) economic rebound and (2) irrelevance of unemployment/consumer deleveraging.  Great!  I’ll make it even more compelling.  Here’s the S&P500 since the 1950s (log chart to see long-term trend better). Trend looks well established and stocks currently a screaming buy, huh?

    S&P500: 1940 - Present
     

    Whoopsie!  Here’s the Dow Jones Industrial average since the 1930s (again, log).  Notice the distinct pop out since 1997 and the double top?  FYI - you can repeat this exercise as far back as you want; you won't a more "encouraging" chart.  Still feeling good about the recent “1/3 loss” market rebound?
     

    Dow Jones Industrials: 1928 - Present


    Bear Market Breakout or Target Practice?

    S&P500: Last Two Years

    The 2007-09 “crash” has been shorter and less painful than most others.  Interestingly, though, it is well correlated.  The next leg of the bear will potentially result in an additional -50% taking a year or more - incidentally also the implication of the top double reversal pattern.  Such a decline would take S&P500 to about 400 and the Dow to about 4,000.  Ouch.

    100 years of Market Crashes

     
    Decline is not destined, but are you feelin’ lucky?
    Nothing MUST happen, but often does despite ourselves - often over a longer period than expected as everyone hates taking medicine.  To “avoid worse than death,” US government is monetizing the credit bubble as (taxpayers’) debt - both borrowed directly and Fed-printed.  Sound familiar?  It is: Japan 1990s. 

    Here are optimistic projections for annual US federal deficits (not including state and local red ink) and the Fed Reserve’s own borrowing:

    Projected Federal Budget Deficits (aka Every US family now owes $1 million debt)

    Deficits so big, it makes a century’s borrowing look flatline:

    100 Years of Federal Reserve Borrowing


    The (Boogy) Man who Wasn't There

    Problem is, deflation never happened. Super-inflation is on the way.
     

    Deflation NEVER happened

    Unsurprisingly, bond bubble is bursting off all-time yield lows.

    Bond Bubble Bursting

    And rising bond yields (and unemployment) are not going to help housing – which remains 20% overvalued and eerily correlated with 1990s bull/early 2000’s bear stock market valuation history.

    Valuation: Real Estate vs. S&P500 Bubbles


    Game Over

    And so the problem keeps worsening until eventually it can do so no more: no more taxes possible, no more borrowing possible, no more assets available.  Game over.  Currency breaks.  FYI – I am NOT calling for the currency to drop now.  Flight to perceived safety amidst panic remains a powerful drive – until perceptions change.  All the same, keep up on the state of US Dollar short futures trading.
     

    Trade-weighted US Dollar: 2005 - Present


    Moral of the Story
    We are merely in the eye of the hurricane.  Don’t mistake cyclical "rebound" for structural bull.  You haven't seen anything like what's coming.  No long-only asset will save you now.  And this ruin’s volatility will floor you.

    This inaugural article has now established where we are and where we're going.  My second article will detail how still profit amidst the whipsaw volatility still to come with transparency, but without unusual risk.  Then, we'll start having fun.  Good luck to us all.

    Disclosure: No positions...yet.

    Cheers,
    Andy
     

    ANDREW G. WHITE, CFA

    President

    Timeous, LLC

    Registered Investment Advisor

     

    All data is as provided by Timeous, LLC and is not audited or independently verified. This material does not constitute a solicitation nor a recommendation to buy or sell securities. No investment in Timeous, LLC managed trading programs or funds should be considered before a careful reading of the relevant Disclosure Document or Offering Memorandum. Investment programs are inherently risky and suitable only for sophisticated investors of substantial capital. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

     

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