Backing To The 2009 Origin

Introduction

“[the National Bureau of Economic Research] [NBER] clearly ‘sabotage’ the global economy and the investments…

Contents

IntroductionThe FocusMarch 2009 and June 2009 versus March 2020What happened for those miserable times are:The Global Credit and Bank SystemInflation, Energy, and HousingOil/Natural Gas and InflationThe Weekly Update of the Current Uptrend as of May 19, 2023Where Does the Current Uptrend Stand Now?Conclusion

No institute or individual can do the errorless work. The NBER isn’t an exception. They must admit their misstep early enough to minimize the damages…

The NBER Recessions have not been changed from the beginning to date. The “No Change on the NBER Recessions”, nonetheless, has not been written on the stone.”

(From “Too Provocative?” May 15, 2023)

The Focus

The Wrong Pandemic Recession [WPR] has permeated deeply and widely in the global economy, the monetary policy of central banks in the world, the fiscal policy of the worldwide nations, the financial system and markets.

Whether the NBER announces their mistake on the WPR or not is not important. Because it seems to be too late. The NBER’s positive decision on the WPR, however, may boost the global economy marginally at best.

As a consequence, the article will search for the best way to come back to the origin which was the current Bull Market and the current Expansion, after the great recession [GR].

March 2009 and June 2009 versus March 2020

The GR (the longest and severest since the Great Depression) in 2007 to 2009 was due to the default of the U.S. subprime-mortgage derivatives. In March 2009, the current bull market started, and in June 2009 the economy hit a trough and the NBER declared the current expansion.

The sequence of business cycles and market cycles were normal:

The bull market (which is one component of leading indicators) was first in March, and an expansion of GDP (which is one component of coincident indicators) followed in June, three months later.

Three years and two months have passed since the wrong pandemic recession [WPR] and the wrong bear market [WBM], starting in March 2020.

What happened for those miserable times are:

No clear “recession” and no trustful “bear market”.

No comment or no action for “correction announcement” on the “WPR” from the NBER.

The reliable uptrend has been since the end of March 2023, and has been strongly confirmed three times on May 5^th , May 12^th, and May 19^th.

The principal elements to determine the underlying economic condition are:1) The global credit and bank system, 2) The nature of inflation, 3) The energy markets, and 4) The housing soundness.

The Global Credit and Bank System

From the mid-1980s when Paul Volker’s inflation-fighting work was done) up to 2007 (when the GR started) were largely prosperous, with rising GDP, low inflation, and two mild recessions.

This period was called the Great Moderation, which refers to the belief that the traditional business fluctuation had been overcome in favor.

By the spring of 2008, the U.S. mortgage derivative turned into a full-blown credit crisis. Banks started charging high interest rates to lend to other banks and institutions. In turn the global credit/bank system was frozen.

It was especially disastrous for investment bank Lehman Brothers. In fact, of the $600 billion in debt owed by the firm, $400 billion was supposed to be covered by a credit default swap [CDS]. Unfortunately, by that point, the debt was worth almost nothing. A CDS is a financial derivative that allows an investor to swap or offset their credit risk with that of another investor.

When Lehman collapsed, declaring bankruptcy on September 15, 2008, panicked banks stopped lending almost completely and the entire global banking system became short of funds. The stock market plunged steeply.

To combat the onset of the global GR and market crash, the group of 20 (G-20) was organized in 2008. The G-20 has pursued the coordinated macroeconomic policy among major twenty economies.

Since 2008, Ben Bernanke, the chair of the Federal Reserve [Fed], has led other countries by launching easy-money policies. Other central banks have followed suit. The enormous amount of liquidity has been injected globally.

The NBER WPR induced an over-stimulus-fiscal policy, escalated inflation (headline as well as expectations), and tied up the Fed’s monetary policy to raise interest rates aggressively, and to mop out the overflow of liquidity in the financial system. But, as explained next, the WPR made the Fed’s position much weaker to resolve the bank-default problem.

Before and after the WPR in March 2020, we luckily didn’t have any outright problems with the global financial system, although recently we encountered two serious problems in the banking area: 1) the CDS-default case of Credit Suisse, and 2) the failure of the U.S. three large Banks (Silicon Valley Bank, Signature Bank, and First Republic Bank), but they seemed to turn out not to stir the global credit/bank system:

The former was merged by UBS, backed up by the Swiss National Bank, and the latter was helped by the Fed. The dramatic “takeover” of Credit Suisse by UBS has highlighted Switzerland’s rather distinctive approach to bank capital.

Therefore, any big market crash like the crash after the GR would not be expected in a couple of years, but the WPR would be the derivation for this concern because the WPR was an original source of the higher and stubborn inflation for the past three years.

Inflation, Energy, and Housing

The Housing sector, Energy, and Inflation affect each other. Housing, in particular, has been closely related to any problem in the financial system as seen in the financial crisis in the GR. Fortunately, in the recent years we didn’t have that connection.

Oil/Natural Gas and Inflation

“The shale oil companies extract crude oil and natural gas more efficiently and less expensively. Increased production of U.S. oil and gas has lowered costs of related industries tremendously through the input-output networks domestically and in the world. This is a horizontal effect by oil as a final product. As a result, the oil-importing counties such as Japan, India, Germany, and South Korea can boost growth without triggering inflation.

On the other hand, cheap oil also works out vertically through a supply chain: crude, refined oil, chemical products, (i.e., pipes, auto parts, plastic bags and bottles, fertilizer), and the products of homebuilders, car makers, food processors, and farmers. The interconnections of various industries and companies are quite extensive.” (From “A Newborn Baby Bull Market And The ‘LESADA’ Hypothesis” Dec. 20, 2018)

U.S. shale revolution has made America the top producer of oil and natural gas in the world since the 2000s. This revolution not only make America energy-independent, but also make OPEC + less powerful compared to in the 1970s, 1980s, and 1990s.

Consequently, the shale revolution has worked as one of the most important inflation reducers. Think about the OPEC-oil embargo in 1974.

My “PPO” Approach demonstrated a clear track on the coming up-/down-momentum and up/down trend which has not been detected by clever algorithms (i.e., moving average) or sophisticated graphics or charts.

The “P” is a plus or positive and the “m” refers to “minus” so the S&P 500 daily closing prices are classified by either “P” or “m”.

The Weekly Update of the Current Uptrend as of May 19, 2023

Click to enlarge

Click to enlarge

Where Does the Current Uptrend Stand Now?

The seven-weeks-old uptrend, beginning on March 31st, has gained stronger footing – as of the third week of May as:

Table 1 counts 1) 1”m”/1”P”was 12 vs. 5 (“m” had EDGE), 2) 2”m”/2”P” was: 3 vs. 6 (“P” had BIG EDGE), 3”m”/3”P” was: 1 vs. 4 (“P” had BIG EDGE), and 4”m”/4”P” was: 1 vs. 1 (EVEN).

“P” added another BIG EDGE on 2”m”/2”P (3 vs. 6) on the top of one BIG EDGE on 3”m”/3”p” (! vs. 4), making 2 BIG EDGE.

In Table 2, “P” had 3 votes out of 5 in March, 3 votes out of 4 in Apr., and 1 vote in “W1” of May. While “m” got 2 votes out of 5 in March, 1 vote out of 4 in Apr., 1 in “W2” of May, and 1 in “W3” of May.

In sum. “P” vs. “m” was 7 vs. 5.

As a result, “P” had not only a significant EDGE over “m” but also still favorable votes (7 vs. 5) over “m”.

Since $3,970.25 on Feb. 28, the S&P 500 Index has steadily advanced to $4,109.31 on Mar. 31 (+3.50%), $4,169.48 on Apr. 28 (+1.46%), and $4,191.98 on May 19 (+0.54%).

Check this outstanding performance of the S&P 500 Index with Yahoo Finance. In your brokerage account, view this week’s S&P 500 on a five-day chart. Thursday (May 18) you can see a BIG SPIKE.

In an ordinary economy, which has not been distorted by GR and PR, a recession is a healthy part of business cycles to do a needed adjustment of any disequilibrium that had occurred during an expansion process.

We call it as a garden-variety recession [GVR], which starts at a peak of business activity, or real GDI, and ends at a trough, and then an expansion starts. When we would not expect a GVR due mainly to any external shocks, it would be impossible to forecast recession.

A typical business cycle starts a bear market (which is a major component for Leading Indicator), and we expect a recession in about six months, and then a recession that sustains for anywhere between six months to one year.

Conclusion

What do I accomplish in this article? The answer is that it’s a Lot:

First, no more Mumbo Jumbo on PR or WPR or BM or WBM. You know the first two. The last two are “Bear Market” or “Wrong Bear Market”.

Second, the mind-set of investors is crucial: Find the origin, getting back both the Great Bull Market, starting in March 2009, and the Great Expansion, starting in June 2009.

Third, no longer on “Inaction” but “Action” Always, buying/selling any equity/bond or their ETFs.

Fourth, reevaluate the Strength and Diversity of the S&P 500 Index and SPY which is the global darling, not just in America.

Fifth, admire again the Shale Revolution which was set back temporarily in 2020 and 2021, but now go with Green Energy.

Sixth, the proper-investment-time horizon for investors younger than 65 is 3 to 7 years. The younger the less year and the older the more year. Because the younger the more room to complete more investment Packs:

A well-designed group of the Investment Packs (after each Pack Completed its Accumulation Period one by one) Grow All Together Month after Month (as Each Pack Makes its Automatic Gains each Month Independently, through the entire time of the Performance Period). (For “AP” and “PP”, view “Money Makes Money?”)

Finally, God Bless America.