Well, I'm back

[David Horn]

(01-21-2018, 08:27 AM)Mikebert Wrote:

(01-18-2018, 03:26 PM)David Horn Wrote: What happens if the stock market rally persists until 2030, and then there is a crash of the market?  Alternately, we get a period with no further growth but no collapse either (this assumes that there is a minimal amount of gambling going on, so maybe not).

This is what I call the Dow 36,000 scenario, after the 1999 book co-written by Kevin Hassett, Trump's top economic advisor. Basically it calls for a continuation of the bull for years after 2000.  Another book called Dow 100,000 came out in 1999 that forecast this value by 2020. In Stock Cycles I developed a model that did a good job of explaining the rising market of the 1990's.  Basically it showed that if the economic expansion continued until 2007 we would see Dow 35,000 and if it went to 2016 we would see Dow 100,000.  As I wrote then (Jan 2000): "but a 17-26 year economic expansion would have to occur for these wondrous results to come to pass."

For today it would be Dow 100K by 2026 and 250K by 2035.  If this happened this will mean a new era has truly dawned and trees really do grow to the sky. Such market rise implies Republicans would win in 2020 and again in 2024.  Trump would become a Reconstructive president and we would date the start of the 4T in 2010, when Republicans began the long recovery from the disaster of the Obama years (recall history is written by the winners). The 4T would come to an end around 2028, when the opposition party wins. The immigration issue would be resolved by implementation of a 1924-like law to restrict non-white immigrants. Harsh treatment of illegals will send many of them back to their countries of origin. Americans who manage to keep good jobs will benefit from huge gains in their 401k which new laws will allow then to tap for current spending like folks did with their homes under Bush. Other Americans will end up living in the American version of favelas edge of trash dumps survivng by picking through garbage like Freegans.

It will have been a real 4T.  In 2000, I wrote that the Dow 36,000 theory was garbage, that the market would not continue to rise to 36K by 2005 or 100K by 2020, but that a secular bear market would begin soon.  Shortly afterward it looked that this was happening.  But in 2002 I did my analysis of market cycles using generation theory, and concluded that the secular bear market would last to 2020 or so. That future is nearly gone now.  For it to happen, a bear market would have to start ths year and the Dow fall to the 6000's around 2020.  If we do stop having recessions and the market rises forever, then the concept of stock market cycles is no longer valid. There will be no crash, the world will have changed, and that change will be the structural change that is the core feature of the 4T.

This scenario is *not* what we call a "failed 4T". This will simply be one in which the Right wins. Although the end of what we had known as business cycles may seem like magic, one could say it was a miracle, the result of divine intervention on the behalf of the Republicans, the new "Party of God" after their destruction of Hezbollah (the old Party of God) in the Iran war.

Another option would be a true failed 4T. The market rises until the end of next year, then starts to drift down in 2020, but no recession begins until 4Q 2020.  Republicans win narrowly in 2020, before the recession gets underway, but lose big in 2022 and 2024. The 2010's business cycle is unusually long, but it does not destroy the idea of business cycles, the recession does eventually happen. The 3T political stalemate continues, and all the energy remains with social movements. Or the recession comes sooner, Democrats win in 2020 and screw the pooch like they did in 2009, and we have Obama II.

In either of these cases the political moment maps out as a 2T, with some 4T overtones, basically something like the Progressive era. The models are up in the air about whether this political moment will end up as a 2T or 4T, either can happen.  What the models forbid is the scenario I described above.  A 4T, according to the models, is associated with a trend change from rising to falling inequality. 

The three models would say "the Right wins" scenario is a 2T.  They would actually call for what you propose, a decline around 2030.  But a rise to 2030 would create such crazy valuations in the stock market that it would invalidate the very concept of valuation and business/market cycles. It changes everything, creates a magical new paradigm, which (if it came to pass) would truly be a very big deal, making this era truly a 4T in the S&H sense.  But such a Brave New World invalidates history, which includes S&H, so it is a self-contradictory situation. Occam's razor would say the Right wins scenario is wishful thinking.  Yet this is the stated belief of the chief architect of Republican economic thinking.  It is what they (and many here) truly believe.  But then those 19 guys who flew planes into the WTC also believed. Did their fervent belief make their beliefs correct?  As I describe above, the Republicans are our version of Hezbollah, of true believers. (Many on the Left are also true believers--which is why this turning as a 2T feels like a possibility). Many conservatives believe in an imminent Rapture, in what I call "Field of Dreams" economics, in the idea that reality is just a matter of will.  So maybe they can will themselves to victory in 2020 and then the mojo fails and the parties keep trading off every other term.

So, in short, we don't have any really good options here.  I can't buy the concept that the business cycle is totally dead, because there has to be something concrete underlying all the enthusiasm.  Yes, the buying and selling continues on Main Street, but the buyers have to be getting near the point of saying "enough".  Wages and salaries haven't been rising enough to propel an endless shopping spree, so business will have to slow at some point.  I just can't see when.

After the corporate spending spree subsides, that may signal the end of this round.  Considering the amount that will be repatriated, that may take a while.  I doubt it will be broadly shared, but it may be enough to get the GOP reelected in 2018.  If so, 2020 is still up for grabs, and the gerrymander may do the rest.  By then, we'll all be tired, and I expect that will be the last major event I'll witness.  So 2020 is still the key, and a stock market crash is still a potential triggering event.  The operative word being 'potential'.