[A-List] McKillop, Part 2

["bon moun" <sherrynstan@xxxxxxx>]

Posted: Sunday, July 13, 2003
By: Andrew McKillop
1929-style Stock Exchange crash likely this October 2003? - Part 2
A few theoretical asides:  No major attention is given here to
'Derivatives and Creative Financial Instruments' and their trading. This
could be a lapsus. There are unbelievable quantities of 'overhang' due
to derivatives - shadow 'value' always seeking redemption ... that may
total over $100 000 Billion 'notional.'  In some cases, e.g. derivatives
based on 'emerging country debt', these hang on a knife edge, today as
in 1998. However, concerning the biggest 'underlying security' in
emerging country debt instrument trading, the Russian economy, higher
oil prices (which might serve as trigger for an October 2003 bourse
crash) are at present high enough to prevent the Russian ruble from
meltdown. Another big 'underlying security' in the emerging country debt
market, Venezuela, is in exactly the same position.
For the moment, neither Russia nor Venezuela are likely to bring the
emerging country debt instrument market, and its own derivatives market,
tumbling and crashing.
Cyclic factors: We have to cite Kondratiev. Back in the 1980s I read a
2-volume French translated version of Kondratiev's theory. I lent the
books to somebody 'promising to return them'.
What I got out of them is this/ Kondratiev, and especially Slutsky used
scarce concealed numerology with a base 9.
Logic for this is found in the "near 10-year business cycle", or
"commodity price cycle", or any other near-10 cycle you like, except
Kondratiev and Slutsky used 9-year cycles, and multiples of 9-year
cycles.
Dating the cycles: K-cycles (Kondratiev) can extend to almost any
multiple of 9 you like, but not above (about) 395 years. The best or
reference measure is - annual economic growth trends. Kondratiev posits
a sort of Big Bang, he dates to around 1605. Between about 1550 and
about 1605, due to colonial pillage or 'vibrant exploration' in Central
and Southern America, perhaps 50 000 tonnes of gold, and 450 000 tonnes
of silver washed up on Europe's shores. Their economies have never
recovered.
This is not accepted by a certain Eric von Baranov (Editor of The
Kondratiev-cycle Theory Letter) (Internet site). He denies that
Kondratiev ever said or implied there was some initial Big Bang, around
1605, and all 'waves' started from that moment and will go on forever.
Von Baranov also says (on Peak Oil) that (I cite) "all the nuclear
wastes from a lifetime's energy supply to an average California
household today, could be packed in a match box"
Breaking technology in the nuclear field will enable the Final Wave (he
goes on to say), the ultimate Peak Growth the world economy has ever
seen, let alone imagined...
Keep that matchbox away from me.
So, major Kondratiev cycles that I count are 1924-51, then 1951-78, and
1978-2005.
Down-Up-Down. And 2005-2032 will be Up, but we could have 're-figured
secular notions of growth', and even more surely what 'wealth' means by
then...  The Final Wave will come, we will surf on that one, KFCs to the
right, Windows to the left. The cliff edge straight ahead....
Each K-cycle contains/is made up of 6 x 4.5-year cycles. These are
arranged as an 18-year Main Sequence, with 2 short cycles leading and
lagging, playing in and playing out.
So let us take the 1978-82 (July) short down-trending cycle.
Theoretically, there should have been noticeable, even large falls in
economic growth rates. Check out economic growth rates for civilized
countries in 1978-82! In this period the retrenchment and recovery
following the first Oil Shock gave way to the fantastic plunge in
economic growth brought on by the Happy Duo of R Reagan and M Thatcher
cranking interest rates into the stratosphere ('good monetary
management') as a measured response to the second Oil Shock of the
bearded Ayatollah and his cheering students taking US embassy CIA
personnel hostage in Tehran (and cutting world oil supply by about 6%
for several months).
Wiseacres (wise hectares?) will tell us:  This crash in annual and trend
economic growth rates was due to Demon Petroleum. Oil prices, in 2003
dollars hit $103/barrel in last quarter 1979/ first quarter 1980.
Growth could only fall because "High oil prices hurt economic growth."
Ask regular grade energy economics 'experts' such as the well-paid
Daniel Yergin of Cambridge Energy about that. He is really nicely paid.
He will assure you, as well as George W Bush, that oil prices above
about $40/barrel will have somber impacts on economic growth (the funny
thing is, economic growth already was pretty sickly, Germany is already
in recession, for example).
Cyclic fall in annual average economic growth rates
I suggest the fall in economic growth rates through 1978-82 was cyclic
and would ... anyway ... have happened. The Oil Panic following the
Tehran Show in 1979 (the CIA guys with designer eye-muffs or
Santana-style headbands, the yellow ribbons ... the Reagan election show
and all...) only increased it.
A very important caveat is that oil prices, themselves, are virtually
nothing at all to do with economic growth. High oil prices can enable
and speed world economic growth, surely. However the subject is a
sideshow to the present question of cyclic influences.
I will be delighted to make a paid study of the subject.
It is useful to have an idea of what can be called cyclic optimum
economic growth rates. At the time (around the 1972-85 period) these
were likely 3.75% annual real GDP for OECD countries, but have
considerably fallen from about 1985. After 1985, due to falling oil and
commodity (real resource) prices, and the Neoliberal 'sloppy economy'
context in most OECD countries, and a host of other growth-cutting
factors we will not discuss here, the capacity for economic growth has
most certainly fallen. The cyclic optimum may now be below 2% annual, in
part because we are at the end of a long down-trending cycle, of
1978-2005.
Real world average annual growth rates for OECD countries (real GDP) are
now not much above 1.5%. For 2003, growth of real GDP for some OECD
economies will scrape zero. Germany may attain 0.3% ; France may achieve
0.8% ; Japan may attain 1% (but probably will not). Italy will have
problems beating 0.5% growth, Spain may achieve 1%, optimists in the USA
can talk about 1.75% growth of real GDP on an annualized base. Oil
exporting Norway will achieve perhaps 4.5%. Oil importing China will
lkely beat 7.5%, and oil importing India will grow by about 5%.
Try this another way round:
In a short UPtrending cycle growth rates should increase
Economic growth rates should have uptrended in 1982(July) - 1987. And
they really did! In 1984 the US recorded its highest-ever growth in the
entire 1945-2003 period. This record growth surprised everyone and
delighted the backers of Ronnie Reagan in his bid for re-election!
Oil prices were $57-$65/barrel in 2003 dollars that year. Mr. Yergin and
similar well-paid 'respected' lookalikes will tell you how much "High
oil prices hurt growth". Ha ha.
There is no problem coming forward.
1987-1991 (July) was down-trending. Growth fell. Despite the heroic Gulf
War-1 and about 150 000 Iraqi dead in a great colonial adventure called
Desert Storm (some 300 tons of depleted uranium was used by the war
criminals), and the cream on the cherry pie called Cheap Oil, there was
no upsurge at all in economic growth. George W. Bush-1 was not
re-elected.
The 1991 (July)-1996 cycle was up-trending.
And economic growth rates trended up ... a bit. They were already
suffering heavy collateral damage from Neoliberal Nostrums and notions
of what constitutes good economic management. There was the
de-structuring of the world economy (called Globalization), in the
rich-world there was an aging fascist-inclined "middle class" voting for
war criminals who delivered Cheap Oil (because it "ensures economic
growth"), creating an extremist political elite of the Bush-2 type, and
their lookalikes in other ex-civilized countries (formerly called
'democracies'). Oil and real resource prices were much too low to rescue
any growth. The Clinton Boom was a classic paper (and electronic) boom,
as noted by Michael Hudson, and had no special significance because it
was 'underlain' or pegged on the vehicle of dotcom, hi-tech and other
fetish symbols of the 'postindustrial' economy.
"The bubble of the 1990s has been called a dot.com bubble, an internet
bubble and other forms of technological bubble, but technology was only
a vehicle for what basically was a financial bubble. It was not powered
by industrial engineering as much as by " financial engineering, "
manipulating corporate balance sheets in a Japanese... (zaibatsu style
manner). Investment bankers treated telecoms and kindred companies as
vehicles to float their stock, take huge cuts for themselves, and then
make yet more money on first-day stock run-ups''.
M Hudson in interview with Standard Shaefer, Counterpunch, July 2003
The boom lasted long, and the bubble took long to deflate because
governments were now raiding company pensions funds (through encouraging
so-called Money Managers to play the stock exchange with paid-in pension
funds) and also because the "Bourse for All" was given that essential
... tiny ... part of reality by 'surprising' economic growth rates of
about 2%-per-year. We can note that the Clinton Boom's paper cousin, the
10%-a-year pumping up of the paper bubble, bit the dust at the best
cyclic opportunity, that is right at the end of the next down-trending
segment or wave, in 2000, its demise being set in stone from almost the
day G.W. Bush stepped into office!
Heading for a hiding
The 1996-2000 (July) cycle was down-trending. Those who might claim, by
intelligent afterthought, that the Clinton Boom was 'especially unreal'
could compare it with equity numbers growth through 1925-29 and 1985-87.
Or they could try the Paris Bourse explosion through 1719-21, in which
4000%-per-year growth of notional 'value' was obtained, through a scam
operated by John Law ... using a 'financiarization' process to drain
real (gold) resources to the King's bankrupt treasury in return for
paper equity, on the lure of massive profits 'surely' arising from the
Mississippi Company. This Enron of the day bit the dust when major
players got too greedy and siphoned off too much in the way of real
funds.
No bubble can last too long, however, without some real growth of the
real economy. Through 1996-99 growth rates trended down, and by at
latest early 2000 were heading towards the near recession that goes with
Neoliberal no-investment economics like a hand in glove.
The current short cycle
That leaves us in the 2000 (July)- 2005 cycle, right now. This is an
up-trending short cycle. Just like in 1925-1929.
There are only a few months of error-margin in this cycle-based
analysis. Briefly, the 1929 crash happened just after the entry to a
long down-trending sequence, and we are well into the second part of a
short up-trending cycle, right at the end of a long down-trending wave.
Note that 1924-29 was right at the beginning of a long down-trending
cycle, and we are very close to the end of a long down-trending cycle.
We are still in a long downtrend. It ends July 2005. Like Eric von
Baranov trumpets, the Long Wave that is coming will be Up-trending (and
he says nuclear powered). But that is too far ahead to feedback into the
present and rescue nice clean-fingernail bourse players from an Oct '03
Crash.
It could happen - on cyclic trends.
1929-style Stock Exchange crash likely this October 2003? - Part 3