Technical Mayhem

Last night I listened to a speech by a veteran chartist, which was essentially a derivative of Goldman Sachs mid 00’s contention about the shifting axis of the world. Nevertheless what he said was fascinating; no doubt reflecting his 43 years experience in the industry. According to him we are tottering off a deep recession into a Great Depression, which will peak (or trough according to one’s perspective) in July 2011.

Essentially his contention was that there are three governing market cycles, which had first been noticed (or adapted) by Joseph Schumpeter in his book “Business Cycles”. First there is the 10yr super-cycle, in which markets in every country of the Western world crash in the first part of the decade (00s, 01s and 02s). Secondly is the four-year Presidential cycle, which used to Britain’s four year Kitchen cycle in its hey-day, which is that in the first 100 days of the Presidency the markets give him a honey moon period (known as the 100 daze), following which the second year of the presidency is always when bad news filters through. Then because the President, and his party, want to be elected the news flow shifts in the 3rd and 4th year to a more positive tinge. Obama’s 2nd of year of presidency is going to be 2010, which corresponds to the Supercycle (the 4year and the 10year cycle coincide every 20years as they will do in 2010 and 2011). Finally there is the seasonal cycle, “sell in May and go away”. We have tested the bottom of the market of March’09 and according to him this bear rally we’ve been having is a classic technical season trend.

I very much enjoyed his technical wizardy. He further made the contention that the BRIC (Brazil, Russia, India & China) are in a secular uptrend whereas the Western economies are in a consistent down-trend. Furthermore he was of the opinion that commodities (I took it he meant oil as well) and gold were also on their way up (though he clarified he wasn’t a gold bug in that gold was always consistently up and away). While he was reeling all of this I seriously thought whether I should have a debate with him but then my simple question alone foxed him; I asked, “What would you do if you were Bernanke and wanted to avoid this technical nightmare headed our way”. He had no reply showing that Master Technicians are too caught up in their predictions to realise the laws of natures and markets can be and are consistently broken. After all wasn’t it his guru Joseph Schumpeter who taught us “creative destruction”?