Home > Uncategorized > 2011/11/15: Quick Post: Cycles Accelerating: Hippies to OWS to Europe to US

2011/11/15: Quick Post: Cycles Accelerating: Hippies to OWS to Europe to US

© 2011 ROHR International, Inc. All International rights reserved.

The first media seer, Marshall McLuhan (who essentially invented the science of media’s influence on culture), famously noted back in the 1960’s that electronic media would destroy established social structures. And all he had to guide his perceptions was incipient developments in cable TV. Wonder what he would have said if the development and ubiquity personal computers was anything more than futuristic bit of imagination. [Although in the Dick Tracy comic strip they actually had wrist radios and TVs; forerunners of the PDA?]

But now we have an entire galaxy of information whizzing across everyone’s screens at the speed of light. And while the social structures of the 1960’s were reduced to rubble, society will always be reborn because it is a necessary cycle. However, there is little doubt the only real constant remains ‘change’, and it does seem to be accelerating.

Consider the turn of the cycle from the height of the Hippies to the end of that attempted utopian solution. After the 1967 San Francisco ‘Summer of Love’ it took two years to degenerate into the Manson murders and the Weather Underground. For the uninitiated that last group is a faction in the previously aggressive yet peaceful SDS (Students for a Democratic Society) which shifted to the pursuit of violent revolution. They had given up on peaceful pursuit of change and reverted to violence, because it seemed obvious to them that nothing was going to change. (Hence the group’s name, from the Bob Dylan lyric, “You don’t need a weatherman to know which way the wind blows.”)

Fast forward to Occupy Wall Street and what do you get?

Well, it seems that what took two years in the 1960’s has been compressed into a shift from peaceful disaffection to violent resistance in two months. Compressed by a factor of 12. Hmmm. We have noted in quite a few previous reviews of culture and markets that these social endeavors seem to still seem to conform to a key principle of physics: Entropy. That is the observed phenomenon that ordered systems which are not controlled by sufficient energy tend to devolve into chaos.

The Hippies and every other utopian society that attempted to rely on the goodness of human nature devolved into chaos (and in many cases violence) instead. So what does this have to do with the markets. It explains a lot about how we got to where we are, and why it seems to be getting worse instead of better.

There was a perfectly reasonable credit function built up in the current Super Cycle out of the massive post-1929 deleveraging. And not to bore anyone because we have all heard it for several years now, it classically extended into excess once again… as the wholly predictable “it’s different this time.” That took 72 years to the 2001 defunding of the Dot.Com Bubble.

Yet the most recent bubble after that took only six years to develop into a secondary distended Credit and Housing Bubble. Compressed again by a factor of 12, which is truly shocking insofar as it not only didn’t skip a generation; it didn’t skip a decade.

And where does that leave us on the more recent European Sovereign Debt Crisis?

It would seem the cycle is once again accelerated. After the May 2010 initial flare up of the Greek Sovereign Debt Crisis things calmed down for about a year prior to exploding once again. Now it seems that the series of recent ‘ultimate solutions’ with details to be announced about a month later only leave us with the next crisis each 30 days over the summer. That pesky factor of 12 once again… more or less.

And now that seems to be degenerating into every couple of days or so, as the failure of the US Congressional Fiscal Reform Super Committee (as we predicted) is compounding the strains on confidence from Europe. So now it would seem we are entering a cycle of every 2-3 days of brinksmanship spinning out from all of the alternating missteps in Europe, and whether the CRAs (credit rating agencies) will hit the US with another debt downgrade in the wake of the (very likely) failure of the Super Committee negotiations.

How will it end? Anybody’s guess, but likely not well… and not soon. It will still take a lot of creative inference and intense effort to figure out how the various phases across many months will evolve. What we know is that entropy is now at large in the global financial markets. After the lack of requisite energy (regulation, oversight, common sense, etc.) being applied by officialdom (governments and industry alike), what else could we expect other than devolution into chaos?

After all, the Sovereign Debt Crisis is Europe’s equivalent of US Subprime. The difference is its banking system is that much more Brobdingnagian compared to its GDP, and the debt is that of governments and not some asset that can be readily written down to zero on a default.

General Market Observations

There is quite a bit of divergence now between the specific swings in the equities and classical intermarket influences flowing from those into the other asset classes. That said, there are also no mysteries on why govvies are strong in spite of the equities bid, the US dollar less so, and the energy market a bit better than expected when equities are weak. This has all been covered in the background discussions and General Market Observations and EXTENDED TREND IMPLICATIONS in previous posts. We refer you back to Friday’s “Quick Post: Santa Claus is Coming to Town… Maybe” for the still relevant latest iteration.

The bottom line is that even allowing for the somewhat interesting divergence, the next major decision on extended trends in the other asset classes likely rests with generally which way the equities come out of the December S&P 500 future mid-1,200 area. And that would be allowing a broad berth up to the 1,270 Tolerance of the resistance in this area. On the downside the bears must allow that any failure back below 1,240 would only look sustainable if the market also dropped back below the lead contract 1,230 top of the August-September basing range.

Other than that, we refer you back to previous analysis or the current Key Levels and Select Comments.

Thanks for your interest.

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  1. John S Gilbert
    November 16, 2011 at 3:45 PM

    BRAVO, Mr. Rohrbach!

    • November 16, 2011 at 5:01 PM

      Thanks John. Good to know you found it interesting perspective.

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