Wednesday, January 15, 2014

Charts 01-14: Waiting for the wedge to complete

I'm just annoyed at this point for not buying Monday's low.  Waiting for new lows in VIX and completion of the large bearish wedge here into next Thursday's massive financial data day.




T.Berry said...

CG,is the jaws of death cue you referred to in previous post to 1625 as drawn in your spx chart?

Christian Gustafson said...

The Jaws of Death is Bob McHugh's model for a giant megaphone on the indexes that runs back to the 2000 high. He especially watches the Dow.

When the JoD completes, a horrible depression arrives, it makes landfall like a category 5 hurricane.

Now, the question is, how does that play out? Do we get a long, slow decline, or a 2008-style crash?

For now, I'm in the deflationary crash camp, and I want to see us return to the lows at the trendline that connects the 2002-2009 lows. In other words, the lower edge of the megaphone, by next June, SPX ~560.

After that, the international system breaks down and the $USD hyperinflates. The Treasury bond complex dislocates, faith is lost in the system, the Dollar loses its petrodollar status, and it all dies a fiery death.

That's the plan, at any rate. So get some geese.

T.Berry said...

how accurate is this JoD you speak of? S&P 560? is this guy for real? no offense but this is one of the nuttiest calls i've heard. personally i'd give it less than 1% chance. i'm of the belief we'll never go below 1500 S&P again. plan here is to sell half my longs (about 90% invested)shortly and wait for a correction and get back in. you must be short up to your eyeballs-lol. good luck man.

Christian Gustafson said...

McHugh has a study of megaphones here.

The 560 target is my own, based on a return to the bottom of the megaphone on a 2008-style crash pace. You're in Deflation Land now, we're Austrian, and we don't believe QE is "printing" at all.

Good luck on your own speculations. I covered shorts on Monday and am flat until next week.

1leone said...

With regards to your scenario and more specifically your USD view.
If you believe the dollar will crash (I assume that by hyper inflating you are implying that it gets debased) following the "system breakdown" against what do you expect this to happen? It can't just happen on it's own....

Christian Gustafson said...

My thesis is that we get a deflationary downdraft that sends the $USD through the roof and equities back to the lower trendline of this mega-megaphone since the 2000 highs. For now, that target is SPX 560.

When we reach the bottom, the US economy will be a complete wreck, and we will see that the many $T in debt we piled up was a waste of effort. But the debt remains. Treasury default will take down the $USD this time.

Dovetailing the deflation theme is real energy scarcity and Steve Ludlum's triangle of doom. I see the triangle as signalling the end of the petrodollar and the current international system.

If crude oil is scarce, brutally scarce, and no longer available in international markets, at that point you can no longer say that the $USD is informally "backed" by oil. It will lose its value overnight, as international $USD holders dump this trash for anything real and physical that can still be bought.

Deflation smashes the waste economy, but hyperinflation of the Dollar is the crisis of faith that takes us to the next stage in world history, most likely a new Time of Troubles or new Dark Ages.

So is this too much to ask by June, 2015?

E pluribus unum said...


Mr. Gustafson is referring to the petrodollar, which replaced the bretton woods system in the mid 70's. The inflation caused in the 70's that always gets blamed on the arabs is only partly true. The United States had been printing copious amounts of money all throughout the 60's and 70's. Foreign countries were attempting to turn their excess dollars into the treasury in exchange for gold, which was the agreement at the time. Since the United States does not value gold, it decided that they would default on the agreement and close the gold window. After this Kissinger went over to the middle east and brokered a deal where only dollars could be used to purchase oil from opec. Hence the petrodollar which artificially stimulates demand for dollars by forcing other countries to buy oil with them. Now if you've been paying attention the past five years, you'll realize that the US has been mismanaged for the past 40 years or so, and other countries will not take this lying down. Mr. Gustafson is implying by hyperinflation that the rest of the world will repudiate the dollar. Hence the dollars flow back to the US and get dumped on our lawn, but are utterly worthless.

Christian Gustafson said...

This ^^.

I know that Kissinger is hated out in ZeroHedge land, but his brilliant play here bought us 40 years of time.

Nixon's opening up China fit with this, too. After choking on it initially in the late 70s, we exported our inflation out to Asia, and built the new financial world on top of it.

I've spent my entire life in this world. Credit expansion and debt is like water to a fish, all around us, and do we even notice it any longer.

My bet is that we will very soon.

E pluribus unum said...

@ Christian Gustafson

I do not hate Kissinger, nor do i hate Nixon. The past five years have been a crash course for me with regards to economics. I understand why things were done, what i hate is the lying. The endless lying, like i'm not smart enough because i don't have a PHD in economics to be able to handle the truth. These days most of the laymen who have been teaching themselves this past few years have a better understanding of economics then our current priests of the wordly religion. Enjoy your blog sir, and will continue to read.

E pluribus unum said...

Zerohedge was great at the beginning, a place you once went to read articles and comments. The comments are utter garbage now, and zerohedge feels like the drudgereport of economics.