Free Market Commentary 5/10/07:

The Bradley siderograph & the hyperinflation

The Bradley siderograph was discussed the last time on October 5, 2006, so it's time to dedicate an article to this "darling" of many readers (Bradley introduction on http://www.amanita.at/e/faq/e-bradley.htm). To make my arguments understandable, I have to start with some general or even long-term explanations first. Let me stress that since 2006 I am probably THE biggest stock market bull on the planet. To my knowledge, no one else has given similar (let alone higher) price targets (that means in nominal terms). This radical re-orientation was caused by a research project in 2006 that examined the astrological and cyclical signifiers of inflations and state bankruptcies of the past 2,000 years. The super-bullish market environment since 2006 was anticipated by few and during the quick correction in March 2007 even dyed-in-the-wool bulls threw the towel and prepared for a "healthy consolidation". Needless to say that since March the indices have been skyrocketing. Admittedly, the bears have excellent fundamental reasons why the equity markets should turn down soon. According to the official numbers, the US economy has grown by only 1.3% in the 1st quarter 2007, in the preceding 3 quarters not much more than 2%. Of course, you have to take into consideration that the official US statistics are massaged heavily, according to the top analyst John Williams the GDP growth rate is overstated by more than 4%, so you know that the US economy has been in a recession since the 2nd quarter 2006, since early 2007 even in a very serious recession. Without doubt, the widely discussed collapse of the US housing markets contributes a lot since almost all of the "honest" growth of the largest economy of the world has been contributed by the

housing sector. The ongoing recession is no surprise, I warned already of the Jupiter-Pluto depression cycle due in 2007/8 as soon as 2005 (see below). This cycle has worked like a clockwork since the 19th century and always indicated very hard times for the economy. With high odds, 2006 was the onset of a depression in the US, e.g. some (less manipulated) leading indicators are in a worse shape now than in 2000 before the serious recession (and stock market crash) began. Frequently, fundamentalists also look at the technical situation (especially sentiment) where some of them make a catastrophic mistake in their assessment that can be summarized as follows: "all others are bullish, I am the only 'lonesome' bear that remains rational". Even worse,

sometimes top forecasters with an admirable track record are counted as "contrary indicators",

and in the end these claims are marketed as an "analysis". This fairly typical error in sentiment analysis is explained in the article "A criticism of the contrary approach" (http://www.amanita.at/e/reading/05/e-0504-contrarians.htm). We must accept that the human perception is so error-prone that you have to rely primarily (or even exclusively) on

quantitative-statistical indicators. Anecdotal stories (e.g. "forecaster X has turned bullish, so the markets must go down soon") are nice to read and often quite revealing but they must never be the focus of sentiment analysis.

I track a large number of statistical sentiment indicators and have to state that I have almost never seen a monster rally being accompanied by such a pervasive skepticism. Sentiment indicators have to be always interpreted in the light of the market action, and if a series of new all-time highs in the Dow Jones isn't able to turn the crowd bullish, then I don't know what will do it... At any rate, such an extra-ordinary set-up is very reliable, it's really a textbook example. I'd

like to present a small sample of sentiment indicators used :

• The popular AAII indicator (American Association of Individual Investors) has the number of bulls close to the lowest number in 15 years. • The odd lot short ratio at a 13-year high tells us that the dumb money is shorting as if tomorrow would be the end of the world. Odd lots of less than 100 shares are a very reliable sign of small speculators and so this ratio works as an excellent contrary indicator historically. In comparison, during the 2000-2003 bear market the odd lotters were primarily found among the buyers. • The public to NYSE specialist short sales ratio at an all-time high is confirming that the dumb money is shorting as hell while the smart money (specialists) is accumulating. • Calls are traded at a rather low premium compared to puts. • The number of CBOE puts traded in March was as high as never before in history, not even after 9/11 did we see such a huge demand for puts. • The latest Gallup polls show a rapidly deteriorating investor sentiment despite the ongoing explosion of stock prices; in 2000 the indicator was at circa 180, now it's only about 70. • And last but not least, Mark Hulbert from "Hulbert Financial Digest" detects a very large

number of bears among the editors of market letters . I could continue that list but I think my point is clear: this monster-sized rally is approached with an incredible skepticism, which of course is super-bullish from a contrary perspective. Still one should take into consideration that the notion of a "powerful bull market" is only true using nominal prices not adjusted for inflation. Using the true (unmanipulated) inflation numbers, the benchmark S&P 500 is in a bear market since January 2004, which is hardly noticed by anyone. Now the 1-million-dollar question is how to reconcile the super-bearish fundamentals and the super-bullish sentiment indicators? I am convinced that the real reason is that we are in the early stages of a hyperinflationary depression. According to the "Privateer" edition #576, the Fed is

already buying almost 20% of the US government bonds, a typical sign of a hyperinflation. Astute market observers recognize that the world financial system is on a journey with a "one way ticket only", we get deeper into irreversible territory every year. The key to understand the situation is that in a hyperinflationary depression the stock indices

rise faster the bigger (!!!) the economic problems are - because liquidity has to be created to "fix" the problem (presumably also over the offshore/ Caribbean activities of the Plunge Protection Team). To my knowledge, this paradox logic has been recognized by almost no one so far, let alone applied to forecast the markets. That's why the ongoing Jupiter-Pluto depression sends stocks higher almost in an "up-crash". Discussions with leading researchers in alternative

medicine and healing have been offered me an explanation for the "global switching", i.e. what was formerly bullish is now bearish and vice versa... I am working on an article connecting many different areas, it appears that electromagnetic radiation plays a key role in this process. So what has this got to do with the Bradley siderograph? Due to the hyperinflationary forces,

the market has seen only one intermediate-term or longer-term trend in the past year: UP, of course. In almost 12 months there was not a single correction that lasted much longer than 1 week. Something like that has almost never happened before in the history of the markets. Without doubt, these are symptoms of hyperinflation stage #2 where the powers that be are still successful in driving the excess liquidity into the "right" direction, i.e. to the stock markets (and

partially also bond markets) which are driven higher and higher and higher and... The actual inflation calculated with the formula "monetary expansion minus GDP growth (or shrinking in this case)" already yields 2-digit inflation numbers for the US (somewhat lower in Europe). Then, in the final stage #3 the markets get out of control and rise almost daily. A historical example: at the end of the German hyperinflation in 1923 money bills were used to heat apartments simply

because their monetary value was zero (50-billion mark notes were issued). Unfortunately, as long as the stock markets don't return to the normal mode which they left in 2006 (as my statistical calculations show), intermediate-term market timing as supported by the Bradley model is of limited or no meaning whatsoever. The turning dates of the siderograph have to be interpreted with a standard window of +/- 4 calendar days and sometimes you have to give or take a full week, so it's clear that the Bradley can only be applied successfully for intermediate-term trends of 1 month or longer. In the current situation, trading is only meaningful on an intraday basis or very short-term (2-3 trading days) which requires intraday entry & exit signals - that can never be delivered by the siderograph. Stage #2 of the hyperinflation has a very important impact on the markets: the totalitarian-fascist gleichschaltung (synchronization) on the political level emerging mainly from the US can also be detected in the markets that more and more dance to the rhythm of liquidity, the individual market cycles are waning. The good thing about that is that since 2006 the Bradley has started

to work better (!) for the other markets than for the stock indices. I believe the reason is that the other markets are still "normal" and not "crazy" and therefore have good trends in both directions, not just up.

Analysis of the past:

(1) Bradley turning point 11/28/06: this was the most powerful turning point in 2006, yet it

didn't produce anything in the S&P 500, the benchmark for the Western stock markets. In

contrast, the other 5 markets (precious metals, oil, currencies against US$, bonds, grains) all set

intermediate-term tops holding for months in the days after 11/28/06.

(2) December 06 - February 07: no meaningful reversal in the siderograph, so the standard

model was of no use whatsoever for a pretty long period of 3 months. This is a reminder that the

Bradley can only be an assistant in market timing but does not perform a full job.

(3) Bradley turning points 3/5/07 & 3/14/07 (since these 2 dates are just 9 days apart and

overlap, they are taken together): the SPX closing low 07 was exactly on 3/5/07; however, the

only meaningful top so far this year (2/20/07) did not show up in the standard model (it was

present in the other models though ). In precious metals & grains we had intermediate-term tops for months on 2/26-27 (deviation: 6-7 days), in

the debt market there was a double top on March 7th & 13th (deviation: 1-2 days), and in

JPY/USD a multi-month high was printed precisely on 3/5/07.

(4) Bradley turning point 4/20/07: in the stock indices no reaction whatsoever but in oil an 8-

months high and in the euro a 2-year high on 4/27/07, in wheat a 4-months high on 4/26/07

(deviation: 6-7 days); on 4/16/07 a 2-months bottom in bonds (deviation: 4 days) and on 4/20 an

intermediate-term precious metals top

(5) Bradley turning point 5/4/07: it's too early to make a reliable judgment but precious metals

& currencies could form an intermediate-term bottom and stocks, bonds & oil an intermediateterm

top (grains are mixed)

For 2007 only 4 key dates are left, please note that the amplitudes in the siderograph are larger

for these turns, so they are more important on average (bold in the chart) then the dates of the

first 5 months 2007 discussed above:

(1) 6/14/07

(2) 8/26/07

(3) 10/17/07

(4) 12/22/07

Jupiter-Pluto Depression cycle (12/2005)

The great seer and healer Edgar Cayce mentioned a depression cycle of about 24-25 years that I analyzed, I found out that it is clearly astrological in nature, defined by the conjunction of Jupiter and Pluto (both planets are at the same spot in the sky), that’s why the exact length is 24.2 years (depending on the orbit eccentricity of Pluto). Pluto symbolizes destructive energy that apparently is reinforced by the expansive Jupiter. It’s strange that only every 2nd conjunction is important (data source):

Ø conjunction 9/1857: very serious recession 6/1857-12/1858 (18 months contraction)
Ø conjunction 2/1882: depression 3/1882-5/1885 (38 months contraction)
Ø conjunction 7/1906: serious recession 5/1907-6/1908 (13 months contraction)
Ø conjunction 10/1932: serious depression 8/1929-3/1933 (43 months contraction)
Ø conjunction 7/1958: recession 8/1957-4/1958 (8 months contraction)
Ø conjunction 12/1981: very serious recession 7/1981-11/1982 (16 months contraction) – last deep recession
Ø conjunction 12/2007: start of the Kondratieff winter depression 2006-8?

On the average the economy contracted by almost 2 years which is a lot. Please consider that with today’s fraudulent US government statistics a GDP growth of less than 3-4% is already a recession because the GDP growth is stated way too high. The trigger for the economic contraction could be the exploding oil price and perhaps also a natural disaster in 2006. I do believe that a depression starts between mid-2006 and 2008 that lasts a few years.