Correlations That Count

But small stalks in the sun
speak a harder truth—
everything unwilling to change will die,
everything that changes only dies a little

–Ray McManus, from Red Dirt Jesus

Feeling comfy with a 401k full of stocks? Might do to chew on this piece of information: The Vix (Volatility Index), commonly called the fear index, measures the expectations of traders for volatility in the market over the next thirty days. The higher the number, the greater the fear of loss. The importance to investors is this: Extreme high numbers come at buying opportunities, when nobody wants to have anything to do with stocks. And, with supreme illogicality, low numbers come when the worst thing to do is to hang on to a portfolio of stocks.

This is such a time. The Vix just dropped below 10 for the first time since the last market top in 2007. See below:

Of course, anything can happen, including a lower number on the Vix and new highs in the market. In fact, that is what I’m expecting. But the Wave count strongly indicates that, after the top is in, the ensuing bear market will be more severe, fall much further, and last longer than the ’07-’09 crash.

What to do? You decide, friend.


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Mood Trumps Trump

Did you know that stars only look brilliant
because we tell them to? That clouds are
the sky’s way of hiding the shame of its accent?

—Ray McManus

You read the news, carefully, I hope. I stare at charts to get a handle on what’s happening. Here is what I see:

I. Business is loaded with debt

II. But, suddenly, lending has fallen off the cliff, usually a precursor to a crash in the economy

III. This, right at the time investors are once again all in with stocks

The papers are full of “reasons” why the market has to go up from here. The wonky fact is that social mood drives prices in a pattern that conforms to the Elliott Wave Pattern in the market. Best bet is that there remain a few more squiggles and a new high in the Dow Jones Industrial Average and then it’s over and a bear market of generational severity ensues in the global financial system. Social mood will be down for decades and, after much loss, the papers will have “reasons” for it all.

Social mood is the unconscious herding instinct, very hard to buck. A colleague of mine, an old timer like me, says “I see what you see, Rod, but I don’t believe you!” That’s cognitive dissonance. He remains long the market (fully invested). I’m in cash, not short yet, but any day, now…



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On This Holy Week

A Sweet Lady Departs

Tuesday, April 11, 2017 at 6:50 pm Mary Constance Commagere Roth passed away after a short illness. Her legacy was to bring Maridel, David, Jack and Martha into the world and to be the nurturing influence that made them marvelous people and wonderful parents. One couldn’t ask for more. May her soul rest in peace. She will be missed.

This Easter Sunday I’ll stuff plastic eggs with cash and strew them about the back yard again. Connie’s mother started this tradition over fifty years ago. A third generation will be out on the lawn for the hunt this year.

Did I know that the Easter bunny and egg hunts are not some random marketing idea invented by Cadbury Chocolates? I did not. Maybe you knew that the Roman Christians attending the Council of Nicaea in 325 decided to hold Easter, the feast of the Resurrection, on the same date as the feast of fertility to make it easier to attract the celebrating pagans. Hence, bunny rabbits and eggs to signify fertility and new life.

Considering the Soul

Joseph Joubert wrote:

Soul.–It is a lit vapor that burns without consuming itself.
Our body is its lantern.

The flame of this vapor is not only light but feeling.

I think the soul is that ineffable aspect of humanity that offers the most promise for intuitively guiding me to a better life. Love-thinking about and caring about others more than I think about and care about myself nurtures this soul. I’m reminded that the way to do this is to be kind.

The Dalai Lama said:

Be kind whenever possible.
It is always possible.

Happy Easter! I send my love to my friends and family,



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High Confidence, High Risk

Sauve qui peut!

I used to read The Economist Magazine. Great reporting, written in prose that brought out the Anglophile in me, made me feel smart. Too bad it didn’t help me with what I most wanted, which was to know what to do about investing.

Even the best journalists are subject to the influence of social mood, and when mood is at extremes, they can’t help but “forecast,”  meaning, extrapolate the situation of the moment, either really good or really bad, out into the future. Stare at the chart of the Dow Jones Industrials below. Note the Economist’s magazine cover and comments just before the lows of 2009, and those of the current issue:



Obviously, the right thing to have done in the fall of “08, when the Economist saw only disaster was to have bought heavily.

The call by the analysts at Elliott Wave International was to cover short positions. Today’s Economist forecast is for a great advance. The March issue of the Elliot Wave Financial Forecast calls for a further decline over the short term, followed by an advance to the final highs later in the year. After that, a bear market of Grand Supercycle dimension. Nothing like this has been experienced by anyone alive. It promises to be more severe than the Great Depression of the thirties. Not something to take lightly.

The Elliott Wave Principle is the most valid method of analyzing markets I’ve found in my fifty years in the market. It is based on pattern and the math of nature: the Fibonacci series. Support for the analysis can be found in measures of investor sentiment, valuation of the market, and momentum. At extremes, they signal a change in direction. This is one of those times.

Valuation is very high, momentum has been slowing for some time, as volume declines and fewer stocks continue to advance.

Sentiment is positively off the charts, everything you would expect to see at major tops. Individual investors, investment advisors and large speculators are betting the house. The commercials, major professional firms that tend to be right, have their biggest short positions on in years. You could look it up, people. What side do you want to be on??

Right frigging here is when anyone with money in the stock market ought to haul themselves off to a mountain top to do some serious navel gazing. If this is you, take it as understood that you’re in bad company. Best bet is that you’ve got six months or less to the end of a bull market that’s 143 years old, due any moment to begin a long, painful journey to ruin.

I don’t give specific investment advice. I do specifically advise you re-read the March EWFF and make up your own mind.

Traders are calling the run up since the election the Trump trade. In hindsight, it will have been the Chump trade.



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A Perspective For The Big Picture

What has been will be again,
what has been done will be done again;
Ain’t nothing new, baby!

—Ecclesiastes 1,9

I’m taking Cindy’s mom back to Jacksonville and she asks me what I think will happen in the markets. I tell her. Now, she wants to know why I think it’s going down and what’s gonna make it do that.

Shirtsleeves to shirtsleeves in three generations is my reply.

It’s a natural occurrence. A hungry, driven entrepreneur claws his way out of poverty, starts an enterprise, sticks to it through the Ramen noodle days and, with grit and a little luck, turns it into a fine business.

When it’s time to hang it up, the entrepreneur passes a great company on to his kids, who have heretofore enjoyed the amazing life that the successful business builder proudly gave them. With far less drive, and dubious work ethics, the heirs keep the thing going, sort of, in  between trips to their ski lodge or the pied a terre in Paris, until what is left of the company passes to the entrepreneur’s grandkids and finally falls apart, leaving the third generation destitute. It is not a mystery to anyone but the grandkids.

A similar tragedy will inevitably befall a nation dedicated to democracy and free enterprise because, where free will abides, human nature is immutable.

The children of the Great Depression had little to eat and nothing to wear. they walked out of destitute households and either rode the rails or scrambled to put together an economic life that made sense. Necessity molded their personalities.

They worked hard. My dad never asked for a job. “I said I want work,” he told me. He made it clear that it was not a job or a position he was requesting. It was work. And they gave him work. And he worked hard.

They were frugal. They had seen indebted parents devastated. They paid cash or saved until they could. My dad didn’t get a credit card until he was fifty, when the company issued him a Diner’s Club card to use for business entertainment.

The middle class in his generation accumulated great wealth, resulting in history’s largest ever transfer of inheritance assets to their kids, the Boomers. That transfer was the apotheosis of the cycle. Tom Brokaw named the generation that made the transfer The Greatest Generation. I see them as the luckiest generation. People are at their best when they have to struggle. It was just accident of birth that put them in the right era to act well.

The Boomers, jeez…what can be said, except that they have played the role that was assigned to them. They started with way more than their parents, and, instead of gratitude, their prevailing traits are narcissism, entitlement and dissatisfaction. And the traits continue, of course. The average middle class American has four credit cards, five times the mortgage their parents had, and not enough saved to retire in any kind of comfort. This is not an indictment of the children of the Greatest Generation. Human beings can’t stand success, and their misfortune was to have been born on third base. Not content, they try to steal home.

The result, inevitably, is bad behavior wherever an entitled, privileged class gains power. Government now serves plutocrats and screws the working class. In business, there is  Corporatism, a relatively new word, which  means drive the business for the exclusive wealth creation of the senior managers.

Ricky Gervais’ TV show, The Office, is where we learn about the culture of corporatism. Venkat Rao, analyzing the show, divides corporate employees in the show like this:

Losers are employees who see the hierarchy for what it is: a game where sociopathic managers and their sycophants maneuver themselves into power to exploit the remainder. Instead of buy-in, losers in this case opt for pay-for-minimum-time-in, and make a life for themselves away from work.

The clueless are serious workers who believe that loyalty, following the rules and hard work will result in fair recognition and compensation. They are the majority, which isn’t properly drawn in the picture. I was one of these, and there are millions of us in America who have been screwed by bosses. And  by bought and paid for politicians.

Corruption in politics and business, always an issue, have grown exponentially this era. The result is extreme inequality in the distribution of wealth and income between the elites and their politicians (Washington, DC sports the richest per capita zip code in the nation), and the rest of us.

The ratio of CEO compensation to average worker was 20 to 1 in 1950. In 2016 it was up to 276 to 1.

Why? because they could get away with it while clueless workers plodded along without noticing what they were doing, and, only lately, are noticing that middle class income has been stagnant since 1973. Finally, millions  are mad enough to revolt. The result is that Donald Trump, poster boy for the sociopath class, bamboozles people too pissed off to think straight into the preposterous notion that he can save them. Fat chance.

The other monster problem is debt. I’ve cited the statistics ad nauseam over the last few years. Suffice it to say, it is an epic bubble and no sector, government, corporate or private will escape the mother-of-all implosions when the next bust gets underway.

Best bet for when it happens: based on the Elliott Wave Chart of the Dow Jones Industrial Average, the market is close to the top of the next to last phase of advance. Next should be a drop to correct this rally, followed by the final move to a top sometime later in the year. Following that, I look for 10 or more difficult years to unwind the market, debt and inequality excesses. It will be the 1930s all over again, of that I have no doubt. Forewarned is better.

Love to my children and friends,



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America Worst

The Zen Master would say if you want to change government, you have to aim at changing corporations, and if you want to change corporations, you first have to change the consumers. Whoa, wait a minute! the consumer? That’s me. You mean I’m the one who has to change?

–Ives Chouinard

We’re not what we used to be. Maybe we never were what we used to be. And now, I feel like a foreigner in my own land, having  never imagined that this country would elect a man like Trump to be president. Nicaragua, maybe, Moldova, sure, But The United States of America? I have friends and family, none of them the least bit deplorable, who decided that the right thing to do was vote for this despicable sub-human monster. Amazing. Not that I liked Hillary, I was just frightened at what a Trump presidency would bring. On the evidence so far, my fears were justified.

That said, this quintessential Ugly American is the perfect man for the moment. The end of a great advance in a civilization comes when the stable values that enabled it to flourish become so bastardized as to do more harm than good, and, desperate for change, we will listen to charlatans skilled  at pandering to our deepest dissatisfactions, selling themselves and their ability to make yuuge changes. Inevitably, they turn out to be bigly persuaders and lousy deliverers.

Trump won’t be the fixer. He is the Dynamic Value that brings about the collapse of America as a going concern. It will happen because his behavior is so egregious that people like me get up off the couch and call our lawmakers and express our concerns and otherwise get involved. That’s Trump’s contribution to change. Thank you, sir.

My thesis is based on three things: 1) The Wave pattern in the Dow Jones Industrial Average is tracing out what appear to be subdivisions of the final move to the top. One more small decline and another new high should cap the entire move, yielding to the next bear market. 2) Sentiment in the financial community is at or near all time highs, which happens WITHOUT FAIL at  important tops. If I were relying on a bank or brokerage firm for advice, I would stay the hell  away from them. 3)  The market run up since the election has been extraordinary, with price momentum indicators registering extremes not seen decades. Strong momentum off a bottom is bullish, and extremely bearish when it comes after an extended bull phase. Market players have been labeling this the Trump market–that’s not good. Trump comes on as a business guy who will get the economy growing again. Hoover had the same aura about him, and he presided over the worst bear market in our history.

It is a reliably consistent contrarian phenomenon at major peaks and bottoms that the expectations for the incoming president turn out to be dead wrong. Reagan was expected to put the nation into an inflationary collapse. He presided over one of our better economic periods.

There is a lot more in the financial and economic pictures to be concerned about, but this will do for now.



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At The Eve Of A Historical Turning Point

Suppose Trump fails to make America great again. His detractors will feel vindicated. His defenders will claim Force Majeure. Both will probably be half right.

The most likely outcome of forty-five’s tenure is that he is the Dynamic Value philosopher/writer Robert Pirsig talks about. Every organization, be it political or otherwise, develops a set of Stable Values which, over time, become denigrated. Entrenched interests exert enough power to prevent meaningful changes until the appearance of a Dynamic Value to shock the system into chaos. The change comes, not from the Dynamic Value, but from the collapse that it (or he) causes.

The Socionomic Theory of Finance posits that the final wave of the Grand Supercycle Bull Market that got underway in the mid 1700’s should peak this year. This wave, which began with the lows of 1932 had its most productive phase between 1941 and 1966. After the correction that ended in 1974, the fifth and final wave got underway, and as is normal in fifth waves, has been speculative, economically benefitting ever fewer people, with increasing debt and corruption.

Entrenched interests have fought to get more for themselves and succeeded. The majority of the population of the globe is fed up, now agitating for radical change. But desirable change in America is more likely to come after a bear market of a dimension the like of which no one alive has witnessed has bottomed. That bottom should be long after Trump has left office. We should be prepared for a very difficult time, and for tremendous disappointment on the part of those who believe Trump will give them what they want.



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Turning A New Leaf

We all sense it–something big is going on.

—From the jacket notes

Happy New Year!

God, yes, it has to better than 2016, the year of bombs and bullshit. If you’re like me, you’ve spent the last month watching re-runs of All In The Family. Anything to avoid reading the papers or watching the news on TV.

Like it or not, though, it’s a new year, and all the stubborn issues besetting the globe are as present as ever. So, I make this suggestion: Get Thomas Friedman’s new book, Thank You For Being Late, An Optimists Guide To Thriving In The Age Of Accelerations. It’s a very readable book. And, after you read it, take it to your book club, your school principals, your town mayor, and everyone else who can affect the community life where you live.


To save time, and because I can’t do any better at describing the force of the book, I’m quoting directly from the book’s jacket notes:

You feel it in your workplace. You feel it when you talk to your kids. You can’t miss it when you read the newspapers, or watch the news. Our lives are being transformed in so many realms all at once–and it is dizzying.

In Thank You For Being Late, a work unlike anything he has attempted before, Thomas L. Friedman has exposed the tectonic movements that are reshaping the world today and explains how to get the most out of them and cushion their worst impacts. You will never look at the world the same way again after you read this book: how you understand the news, the work you do, the education your kids need, the investments your employer has to make, and the moral and geopolitical choices our country has to navigate will all be refashioned by Friedman’s original analysis.

Friedman begins by taking us into his own way of looking at the world–how he writes a column. After a quick tutorial, he proceeds to write what could only be called a giant column about the twenty-first century. His thesis: to understand the twenty-first century, you need to understand that the planet’s three largest forces–Moore’s Law (technology), the Market (globalization), and Mother Nature (climate change and biodiversity loss)–are accelerating all at once. These accelerations are transforming five key realms: the workplace, politics, geopolitics, ethics, and community.

Why is this happening? As Friedman shows, the exponential increase in computing power defined by Moore’s Law has a lot to do with it. The year 2007 was a major inflection point: the release of the iPhone, together with advances in silicon chips, software, storage, sensors, and networking, created a new technology platform. Friedman calls this platform “the supernova”–for it is an extraordinary release of energy that is reshaping everything from how we hail a taxi to the fate of nations to our most intimate relationships. It is creating vast new opportunities for individuals and small groups to save the world–or to destroy it.

Thank You For Being Late is a work of contemporary history that serves as a field manual for how to write and think about this era of accelerations. It is also an argument for “being late”–for pausing to appreciate this amazing historical epoch we are passing through and to reflect on its possibilities and dangers. To amplify this point, Friedman revisits his Minnesota hometown in his moving concluding chapters: there, he explores how communities can create a “topsoil of trust” to anchor their increasingly diverse and digital populations.

With his trademark vitality, wit, and optimism, Friedman shows how we can overcome the multiple stresses of an age of accelerations–if we slow down, if we dare to be late and use the time to reimagine work, politics and community. Thank You For Being Late is Friedman’s most ambitious book–and an essential guide to the present and the future.

As he is reading the book now, my good friend Dave Fisher messages me:  To say “I can use this in my work” vastly understates the case. I agree, Dave.




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Data Fitting: A Scurillous Practice

Buy some good stock, if it goes up, sell it.
If it don’t go up,don’t buy it

—Will Rogers

An international brokerage firm with hundreds of thousands of fee paying clients is out with its quarterly report. The headline for the report is, Staying Invested Beats Market Timing. Inside the report, the headline’s argument is supported by a listing of the total returns for each decade, starting in the 1930s. Most decades showed a profit, some were outstanding. The cumulative return for the entire period was 10,055%, very nice, and useless, other than to keep clients invested and paying fees.

To begin with, nobody will be fully invested for eighty-six years. More likely twenty-five to forty years will be the time frame. The most important aspect of any long term, fully invested plan is the level at which significant amounts are invested. For example, had an investor gotten fully invested late in 1929, one year earlier in the data set shown, a stock portfolio would have declined 89% by May, 1932, and been underwater for 24 years. The Dow Jones Industrial Average crashed from a ’29 high of 390 to a low of 41 during that period, and did not recover until 1956. Imagine the stress!

Let’s say an average total return–appreciation plus dividends–for a stock portfolio averages 12% a year over ten years. That’s a cumulative total return of 210%. Now, say the portfolio loses 50% in a two year bear market (not uncommon). The original portfolio of $100,000 which grew to $310,584 in ten years, would drop to $155,924 during the bear market. To get back to the top at 12% would require 6 1/2 more years. OK, but this is just pencil pushing, because investors can be counted on to act emotionally, which eventually skews results negatively.

The average investor will not be comfortable enough to adhere to a fully invested plan until the market has been rising for years already. Comes a short bear market, she follows the advice. The market rises to new highs, vindicating her steadfastness. Then, inevitably, a more serious crash comes and she holds until she is almost wiped out and can’t stand the pain, and liquidates just to get relief, right when she should have been putting a cash reserve to work in a low risk opportunity (buying when most are selling).

It is high irony that the brokerage firm is touting this strategy at what looks to be an approaching top of major proportions. One that will result in losses that match or exceed the losses between 1929 and 1932.

If I owned any stock (I don’t), I would put firm stop losses below current value and I would not let a broker with no skin in my game try to talk me out of it.



I believe investors should be in charge of their own destiny. No one should consider this information to be a recommendation to buy or sell any securities whatsoever.

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A Moment of Great Significance

They came to The Netherlands in the fifteenth century. They were Sephardic Jews fleeing the horrors of the Inquisition in Spain, their homeland. They were welcomed as undocumented immigrants. They were excellent traders and merchants and, by the early 1600s, had made Amsterdam the financial capital of the Western world. Having stupidly shot itself in the foot with its treatment of these folks, Spain’s economy and global eminence went to near zero.

The developing financial market in Amsterdam, on the other hand, emerged as a method for capital allocation that is still in use today, and the birthplace of market analysis in the Western world.

Three hundred years later, empiricist Ralph Nelson Elliott observed a regularity in the seeming chaos in the price movements of stock market averages. Tracking prices across the continuum of Amsterdam, London, and New York, Elliott identified a regular growth pattern in the markets, consisting of five waves–one, three and five up as impulse waves, interspersed with waves two and four down as corrections from periods when markets get overextended.

This pattern, Elliott observed, occurs at multiple degrees of trend, from trends covering centuries, down to those completing in as little as a few minutes. He named the pattern with the greatest observable amplitude Grand Supercycle, and that is the one we need to be concerned with today.

Grand Supercycle Wave I began in about 1610, peaking in London in 1720 with the collapse of the South Sea Bubble and the demise of the Bank of England. Wave II of the pattern held the financial market and the Western commercial world in a depression for over fifty years. Grand Supercycle Wave III got underway in 1874. Within Wave III, a five wave Supercycle bull has been underway. Wave 1 of the smaller cycle topped in 1929. Wave 2 bottomed in 1932. Wave 3 climbed to a top in 1966. Wave 4 required eight years to take the market through several swings from a peak of Dow 1,000, down to the 1974 low of 574. Wave 5 of this Supercycle has been underway since ’74, and now, after five waves of cycle dimension, appears to be coming to a close.

Thursday afternoon, Bob Prechter, the most eminent Elliotteer extant, published a notice saying that he believed the Dow Jones Industrial Average was tracing out an ending diagonal triangle. this is what he saw:


To the casual observer, there is nothing special about the pattern contained by the orange lines. To an Elliott Wave analyst the pattern is a potential Ending Diagonal Triangle. The analysis is supported by considerable data providing evidence of exhaustion of the move.His comment:

I think we need to consider the market to be at or very near the end of wave 5 of (5) of V of (V) from 1932–which will also cap the Grand Supercycle rise of Wave III from 1784.

The translation from Elliottspeak is, We’re gonna fuckin’ die!

What follows is Wave IV, which is expected to ultimately bottom in the vicinity of the 1929 peak of Dow 391. Fourth waves, typically swing back and forth a bit on the way to their correction low. I do not have a graph of a fourth wave of Grand Supercycle dimension, so I’ll use the 1966-74 Supercycle graph to give an idea of what we might expect:


First, for disclosure: None of this essay is a recommendation to any one to make any investment moves whatsoever. This is an exercise in probability. I approach every investment I make for myself in  terms of probability. I rate the probability of the course I’ve overlaid in the ’66-’74 chart as follows:

December 2016 as the top of Grand Supercycle III: Very high
An initial crash to around Dow 3400: Very high
An ultimate low of Dow 400: Extremely high

The probable dates for the first and final lows in Wave IV: no assigned probability.

The levels of decline are to be found in the ratio analysis that is part of the Elliott Wave Principle, which does not say anything about how much time will elapse from top to bottom. The expected levels, together with supporting momentum and sentiment data will come when they come.

Cindy and I will hold cash until at least the interim low. If things go well, we may be able to be in stocks through the second rally. I do not expect to be alive for the trip to the final low. If we can make that one trade, or even part of it, I think we will have done all we can do. For now, the main thing, the only thing, is capital. preservation.

If we do see the end of Grand Supercycle Wave III before 45’s inauguration, we can expect him to be dealing with the worst depression since the 1700s. That, along with the 75 lawsuits presently against him should keep him busy, even as he scrambles to ship all the brown people out of the country to open up plenty of jobs cleaning toilets in seedy motels for white guys.

Maybe he’ll speed things up with an executive order to start a new Inquisition. Send Muslims to the rack unless they recant and become Evangelical Christians.

America’s gonna be great again. Can’t wait.






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