[A-List] McKillop, Part 4

["bon moun" <sherrynstan@xxxxxxx>]

Posted: Sunday, July 13, 2003
By: Andrew McKillop
1929-style Stock Exchange crash likely this October 2003? - Part 4
THE TRIGGER(s)
We didn't even define what constitutes a bourse "crash"
Lets try: At least 50%-60% loss of nominal 'value', measured by the
index number on Day 1 falling to one-half the Day 1 figure, in no more
than 10 days.
A real good, fast-acting crash like 1987 can erase nearly 60% in 5 days.

This underlines the 2000-02 'correction' was only a crash by stock
market capitalization loss, not at all by its rapidity.  But this brings
us back to what was said in Part 1:  1929 was very different to and from
the 1987 and 2000-02 crashes
Why and how ?
. . . .the 1929 crash transmitted through the various outer sheaths or
layers of the Real Economy, impacted it, and through 1929-35 or 1929-36
in some countries of the "civilized world" there was unremitting falls
of economic activity in 'key sectors'."
These falls easily attained 60%-90% cuts in activity over 1929-36, by
sector and by country.
This did not happen in 1987, and only weakly happened in 2000-02 (e.g.
airlines, tourism, some insurance companies). The Real Economy kept on
sputtering along, sucking down 78 Million barrels/day of oil, in a
miracle of de-connection with the paper bourse ! Gosh, could it be they
ain't connected at all, really?
Note also the role of world trade, which fell like a stone in 1929-31 at
the beginning of the crisis. In 1987 there was little or no fall in
world (physical trade) volumes. Ditto for 2000-02.
TRIGGERS
Quite often there is NO precise, single trigger at all. This was the
case in 1929, 1987 and 2000. You can check out all the books on 1929
that you like - you will find many trigger explanations, and even
descriptions of many so-called 'triggers' ... but no one of them stands
up to further examination as a worthy candidate for The Trigger.
J. K. Galbraith in 'The Great Crash', Houghton Mifflin, 1961, sets up 5
different triggers for 1929, and knocks each one them down as totally
inadequate, by itself, to explain all.
Conversely, the Oil Shocks of 1973-74 and 1979-81 brought on substantial
losses of notional 'value' on world bourses - but were not crashes on
our definition of 'at least 60% loss in preferably less than 2 weeks'.
Note the key month of OCTOBER. Web searches on this will give you
thousands of good, bad and ugly 'explanations' for exactly why bourse
crashes tend to start in October.
AN OIL SHOCK IN JULY-SEPT '03 COULD BE A HANDY EXCUSE FOR THE CRASH OF
OCTOBER 2003
That is, say an Oil Shock hits by October 2003. The bourse crashes - but
it was already Kondratiev-timed to melt down! The crash didn't need the
Oil Shock trigger ... it had full functional autonomy, it was timed for
Oct 03, by a mysterious conjunction of subtle, multivalent factors, just
like 1929 or 1987 or the 2000 kick-off to the slowest crash in a long
time (given new impetus, of course, by IX/XI). On cyclic grounds, the
2000-01 should have stopped by mid-2001, it was 'timed' to stop (on
cyclic grounds) by about July-Aug 01. It in fact got overridden by the
CIA and a Bearded Loony.
This proves what you all know deep down, any kind of random event can be
used to talk down bourse numbers, as well as talk them up. This is the
finest, most scientific and rational management of the economy that is
known. If you are against it, you are for Pol Pot or Stalin. So, if
there is an Oil Shock around October 2003, and the bourse crashes,
nobody will ever believe you, and even less me when or if we waste our
breath suggesting that "the Oct 03 crash could have happened anyway,
without an Oil Shock trigger".
Oil Shock trigger ... what would be needed?
It has to be big, usually gory, anti-American, and cut oil supplies much
more than 5%, preferably for several months.
One great candidate for all 4 of those would be The Fall Of the House of
Saud. The House of Saud is on shaky foundations, subject to saltwater
intrusions like the Ghawar field, and pumping like crazy. It could go
anytime, but why this October?
Simultaneous outage of Nigeria + Venezuela. Nigeria doesn't need any
help to 'disappear' from the oil pumping fraternity for a while, but
Venezuela would need plenty of 'help' to repeat last winter's strike -
it is highly doubtful the neo-Nazi clowns around Bush would go for the
Chavez Ouster number a second time around, those Gulf region States with
refineries needing Venezuelan crude will quickly let the Bush Bunch know
about that.
Iran being regime changed, by those same sparkling strategy boys
(Perle-Rumsfeld-Wolfowitz) might crank up oil prices quite a bit, but
not certainly and surely to Oil Shock levels. That said, a few thousand
Tomahawks and a few hundred thousand grunts offloaded into I-ran would
likely push oil prices up at least $10-a-barrel. We are looking for $20
plus.
Definition of Oil Shock - a rise in oil price by at least 75% in under 2
weeks from the date on which The Market stops listening to cheap oil
counter-propaganda, and starts cranking up prices by $1.50 and $2-a-day.
>From a $30 per barrel base this would give $52-per-barrel. In fact, for
wall-to-wall hysteria, $50 will be fine.
One other interesting 'supply pinch' potential, with a low body count,
would be a steady rising number of small incidents and outages, with no
remittance or recovery, extending over the rest of this Summer, to Oct
03. This could include accidents, some sabotage (in Iraq for sure),
maintenance and upkeep problems or incidents, maybe hurricanes and
quakes, etc.
TOTAL LOSS OF SUPPLY NEEDED IS ABOUT 3.75 - 4.5 Mbd FOR AT LEAST 1
MONTH, and for real impact preferably 2-3 months.
Real Impact of Oil Price Rises
As is getting a little better known, or at least talked about (since
price rises are inevitable) oil prices around $50-$60/bbl will explode
the lead hood of deflation that drags DOWN economic growth! But the
stimulus will take 6 months to 1 year to start acting. This will give
plenty of time for a clean out of the bourse casinos.
Can an Oil Shock PREVENT bourse crash?
This is a fascinating question! No way can it be thrown out from
discussion. The price level attained, how long prices hold up to high
levels, the political chemistry surrounding the price rise - all these
things will decide yeah or nay.
Say oil prices only edged up by smallish day increments (just $0.50/bbl
a day, several days each week, for several weeks and without many
fallbacks).
Also say the movement stopped around $49.95/bbl, it didn't crash the
psychological barrier of $50-per-barrel. Nor did prices fall back.
In such case it would be hard to call if the hooray henry's would feel
sufficiently justified, completely gung-ho sure of their destroying
mission and tear down the temple, pulling the rug on those stolid and
solid oil Consumer Citizen-Investors of Suburbania. Maybe the bourse
would just go sideways (like it is right now, around late June '03), the
NYSE would be 'trimmed' to say 5000 points over a few weeks, (not by 5k
or 6k points) then start inching back. The real Fear & Loathing level
for the DJIA, about 4000 points (or 3999) would be avoided. Wall to wall
panic wouldn't be necessary.
In terms of impacts on the Real Economy there is no problem at all to
state, formally, that oil price levels up to $50/bbl would be good and
hardly even inflationary.
1929-style Stock Exchange crash likely this October 2003? - Part 5