14 March 2012

THE MISERABLE SHAPE OF THE US ECONOMY - PART II

Hi Friends,

This is in continuation of the Previous Post.

The following article is Excerpted from the recent issues of Elliot Wave Theorist & The  Elliot Wave Financial Forecast published by Elliot Wave International (EWI) the world's largest Market Forecasting Firm.

Just Read On -

Some things  "can't be ignored at all. Figure 2 is not based on dollars; it's just numbers. It shows that manufacturing jobs in the U.S. since 1979 have decreased nearly by half. When adjusted for population growth, they have fallen by more than half. This decline isn't as bad as that of stock prices in terms of gold, which are down 87%, but it is still a disaster. Jobs expanded in the area of services, especially financial services, and government.



But an economy can't live on services. If no one produced goods and everyone just wanted to provide services to each other, everyone would be dead. Manufacturing creates real wealth and keeps people alive.


Notice that the steepest plunge in manufacturing jobs began in 2000. I have said that the depression started in 2001, following on the heels of the peak in real stock prices in 1999/2000. Figure 3 is another among several charts that support this case. As you can see, the number of food-stamp recipients began to soar at that time, and it hasn't stopped. This is another statistic that can't hide behind inflation.



The politicians and central bankers can't hide behind Figure 4, either. This graph shows that housing starts have fallen so hard that they are back to the level of 1922. But wait. Three times as many people live in the U.S. today than lived here in 1922. So housing starts per capita are at nineteenth-century levels.





Another Flagging Economic Measure
- Excerpted from the January Elliott Wave Theorist -



This chart of U.S. Domestic Investment shows the severity of the underlying economic weakness. Domestic investment made a series of lower highs through the course of the Cycle-degree bull market from 1974 to 2000. A still-lower high occurred in conjunction with the Dow's all-time price high in 2007, which EWI label Cycle wave b. Then, after falling strongly with stocks in 2008, domestic investment during the wave 2 (circled) rally of 2009-2011 failed even to approach the levels of growth registered at any time over the course of the last half-century. Its meager recovery has, in all likelihood, already turned down after the wave 2 (circled) peak in stocks last April. This underperformance is in line with the tepid bounces in GDP, industrial production, capacity utilization and employment. Taken together, they argue that the transition to outright economic collapse is imminent.
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What About the Unequal Distribution of Losses?
- Excerpted from the December Elliott Wave Financial Forecast-


In time, the OWS movement will probably become more confrontational. For one thing, it will lose the "we are the 99%" impetus that gave rise to the protest in the first place. To understand why, we return to a chart showing the percentage of wealth held by the top 1% of U.S. citizens.



It is no coincidence that a version of this chart was first popularized in late 1999, which was just months before the end of the Grand Supercycle Bull Market. EWFF twice identified an outbreak of concern over a top-heavy distribution of wealth as a sure sign of a Financial top. The first was in November 1999, two months ahead of the 2000 peak, and the second was in December 2006, when Financial stocks were two months from their all-time high. Both times, EWFF noted that the 1930s Bear Market "solved" the problem naturally, "but apparently, at a trend change as big as this one, people just cannot wait to get in there and lend a hand."


This must be one huge Financial top, because the battle of the haves versus the have nots is back and bigger than ever. The current outbreak started in early 2011, when riots broke out in many parts of the Mideast. In February, EWFF noted, that "an unfair distribution of wealth is contributing to open unrest." Noting that there was no such violence at the front edge of the Stock Market's topping process in 2000, EWFF concluded, "the Bear Market is more developed, so upticks in negative sentiment produce immediate social unrest. These negative Bear Market manifestations will not stay on the periphery of the financial realm. In developed countries, the wealth destruction will take its usual form of falling Financial prices, but it will also be openly expressed in the culture." Occupy Wall Street fits this forecast to a T.


The share of wealth held by the top 1% of Americans is lower today than it was at the major Market peaks of 1929 and 2000. Yet the impetus to redistribute wealth is far stronger, because social mood is less positive. Ironically, tempers are flaring just as the most powerful phase of the Bear Market prepares to "even the playing field" naturally by destroying most of the wealth created in the preceding Bull Market. As EWI said in 1999, the Bear Market will take care of the distribution-of-wealth "problem." EWI's suspicions are confirmed by NYU researcher Edward Wolff, who has shown that the current wealth disparity is caused by a heavy concentration of stocks and other investments in the hands of the rich and super rich. A rise in the percentage of wealth held by the top 1% in 2008 and 2009, despite the stock market's decline from its 2007 peak, is due to the corresponding decline in housing. "While stock prices fell more than house prices, houses were a much larger share of the gross assets of the middle class than stocks were of the rich," says Wolff. As the middle class exits the housing and stock markets, this line will fall fast. The true relationship is displayed by the bottom line on the chart, which shows the income share of the top 1%; it rose dramatically with the Bull Market from the early 1980s, and fell hard with stocks from 2000-2002 and 2007-2009. As the Bear Market intensifies, the rich will get poorer faster, and the concentration of wealth will follow income downward.


- Elliot Wave International


Well this sort of Information is much more Important than Technical. As Chart patterns May fail at Times.




Happy Minting.


Thanks & Regards,


Harsh Dixit

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