LWD Letter - October 2012

7/29/2019 LWD Letter - October 2012

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COPYRIGHT OCTOBER 2012A Publication of Long Wave Dynamics, LLC

Contents The Long Wave View

Long Wave Season Summary

Kitchin Cycle Update

Kitchin Third Evaluation

Wall Cycle Analysis

Quarter Wall Countdown

Dynamic Web Price Targets

Large Cap Value Investing

Gold, DGC and Gold Shares

Developed & Emerging Markets

Bonds & Interest Rates

Commodities

Currencies

Prices, Utilization & Baltic DI

Global Trade

Real Estate

Technology & Invention

World Systems Analysis

Perspective

Summary: Fantasy Land Between Inflation and Deflation

Both the inflationist and deflationist thought the theoretical arguments would be settledwith facts by now. There are few who fear deflation these days, but the most important

deflationists are Chairman Bernanke and the ECBs Mario Draghi. They are clearly focused onthe global deflationary forces in play. They are buying years of mistakes by the politicians andthe bankers to stop global debt deflation. On the one hand Im appalled by their actions ofcovering for the politicians and the bankers. On the other, they have actually managed to stopthe devastating forces of global long wave debt deflation, at least to date. The question waswhether there was the political will to let them do it, but the politicians caved long ago. Evenformer free market capitalists are cheering on the central bankers and begging for more. Thereis a global effort underway to push the dying long wave mistakes into the coming long wavespring. The difference in $40, $400 or $4,000 billion a month to Chairman Bernanke is onlydecimals. He is clearly willing to do anything to defend his Ph.D. dissertation, even at the riskof torching the global economy with inflation in the coming long wave spring season.

Market data through October 4, 2012

Chart of the Month (see page 15)

Honk Kongs Hang Seng on a Golden High Wire

Tracking Market Cycles for Global Investors & Traders

The International

Long Wave DynamicsLetter


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Page 2The International Long Wave Dynamics Letter October 4, 2012

Long Wave View: The 2013 Deleveraging Air Pocket Scenario

U.S. Fed Chairman Bernanke will clearly do anything required to stop deflation, as long

as he is Chairman. Market support operations are producing higher lows in the Wall and

business cycles and expanding them in time. The $144,000 question is whether they can do the

same thing to the long wave winter bottom, which would have occurred in 2009 without the

trillions in central bank intervention.In short, there is no reason to think the central banks cannot buy a higher low in the long

wave in global equity markets than would occur otherwise. They may in fact have done so in

2009. If they stop cooperating and politics get in the way of the stop

deflation at all costs agenda, it could all go south in a hurry. This

interview with Ray Dalio of Bridgewaterat a recent CFR event is worth

listening to, even if Maria Bs interviewing skills are remarkably deficient.

Dalio manages to provide valuable insights from his depth of experience.

The powers that be globally are attempting a balance between private sector deleveraging,

pumping and austerity. In the U.S. the austerity comes in 2013. It could tip the apple cart.

The key facts that need to be recognized are that the bad debts of certain parties that

were coming due have and are being made whole. Mr. Market would have cleared these debtsfrom the system with bankruptcy. Global asset prices would have been adjusted. The central

banks are circumventing Mr. Market, making bad debts and bad investments whole, and

pushing the debts out in time and onto the backs of the public. In another time it would have

been characterized as a criminal operation, today it passes for accepted monetary and fiscal

policy. I add fiscal policy, because the central banks have more than crossed the line and are

doing the bidding of the politicians

that grant them sanction. To make

matters worse, former free market

capitalists are begging for it. They

have sold their souls. There will behell to pay in one form or another.

The U.S. central bank has pumped

or loaned in excess of $10 trillion

into global markets over the past

four years, and by some estimates

over $16 trillion. The higher figure represents the U.S. GDP. There is clearly no reason to think

they will not double or triple down if required. You can add U.S. fiscal deficits to these

numbers. A long wave winter debt collapse was clearly postponed at minimum, but likely only

mitigated. A large portion of the bill for this long wave bailout will be paid by reduced

economic growth in the coming long wave spring and borne by those that did not make the

mistakes.However, life is too short to spend it dwelling on the grand theft and larceny of crony

state capitalism on steroids, where Uncle Ben takes care of the mistakes of fellow state

capitalists. Its days are numbered. But how do investors and traders react? You simply have to

factor this new but passing age of state capitalism into the equation. Investors should look for

great deals on the price of future cash flows in global companies at cycle lows. Traders should

factor the cycles into their trading strategies, even if the cycles are running shallow and

expanding in time from central bank liquidity.

DeleveragingTotal Debt/GDP
http://www.youtube.com/watch?v=SFaRazMpxcM&feature=plcphttp://www.youtube.com/watch?v=SFaRazMpxcM&feature=plcphttp://www.youtube.com/watch?v=SFaRazMpxcM&feature=plcphttp://www.youtube.com/watch?v=SFaRazMpxcM&feature=plcphttp://www.youtube.com/watch?v=SFaRazMpxcM&feature=plcp


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Long Wave Winter Season: The Deflation/Inflation Tightrope

The central banks are trying to manage a long wave winter landing that requiresextensive public and private deleveraging, between the forces of inflation from monetary andfiscal easy money and the deflationary forces of a long wave winter debt collapse anddeleveraging. The inflationists are scratching their heads and trying to figure out how in the

world all this pumping, intervention and fiscal deficit have not led to inflation. The onlyexplanation is a long wave winter debt and overproduction deflation that is producing the dragin the other direction. They are walking a tightrope between inflation and deflation. One reasonthey have been successful to date, at least at stopping the deflation, is that unlike the late 1940sand early 1950s, when capitalism was losing markets to communism, capitalism is greatlyexpanding into the emerging markets. Without these new markets coming on line the debtdeflation in the developed would be overwhelming the system already.

The problem is that these positive forces at work with emerging and frontier marketsdriving the exports of global franchise businesses, could trigger massive inflation as the globaleconomy turns into a long wave spring season. In many respects countries like India,Kazakhstan, Belarus and others have and are making the turn into a long wave spring. Profits in

the developed world indicate the forces at work in the long wave spring from automation. TheInternet is entering its next phase, being a key technology initially deployed in a long wavewinter, but really accelerates change to industry in the long wave spring. Once the developedworld makes the turn into spring, the liquidity in the system from central banks anti-deflationary efforts, will ignite inflation. Private deleveraging would have been much moreprofound without central bank intervention, and government debt would have been constrained.The single force holding the long wave in the long wave winter season of unmanageable debt, isthat the central banks have stepped in to keep the markets from clearing debt and prices.

Without Central BanksThis line would be Plunging

Rate of Change Looks more like Deleveraging


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Kitchin Business Cycle Update: The 2013 Ending?It is certainly reasonable to ponder whether the business cycle low in 2009 was the end

of Kitchin cycle #16, and the inflation adjusted low in equity markets for the long wave. Itwould be much easier to make that case if not for the fact that this is the most government debtleveraged equity rally in human history. The private sector has been deleveraging during this

business cycle. During the first business cycle of a long wave spring the private sector shouldbe leveraging up and not down. Then there is the little problem with emerging markets needingto lead the charge into the long wave spring, when China, the biggest of the emerging markets,appears to be in trouble. The objective of the central banks is to make sure 2009 was the longwave low. They could succeed, but Mr. Market likely has other ideas for 2013.

Wall #7 Running out of Steam...

Nice L2 Golden Turn?

November 2012 23.6%


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Kitchin Third Evaluation: Third, Last, and Weakest Set of Three Wall CyclesLike every 3rd Wall cycle, the 3rd Kitchin Third typically contains air pockets that

allow the herd instinct to break to the downside. Key equity markets in the developed worldappear to have full confidence in the central banks to do anything necessary to keep the marketrunning higher, but the last third of the business cycle is where things can go wrong fast. Sure,

the central banks could announce they are buying equities in the interest or price stability, butat some point here, even the most jaded of investors will have trouble living with this leveragedrally. The assumption is that the computers are not subject to the herd instinct and the rightalgorithms with large enough dark pools can always catch the market. The problem is that thequants that program the machines are not above the herd. Beware...

August 2013 will mean smallerfinal Wall cycles than lately.

January 2013 61.8% Ext.


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Wall Cycle Analysis: Stretching from Liquidity but FragileLike the Wall cycles of recent years, Wall #7 appears to be stretching from the liquidity

that engenders confidence. The problem here is that the later you are in the business cycle thegreater the air pocket that can develop under short squeezes and rallies produced by actual andanticipated QE operations. It appears as if Chairman Bernanke is growing more obsessed with

equity markets as the key to his virtuous circle. Your editor is growing increasingly convincedthat the only way to play this market globally is to buy clear Wall cycle lows in the developedworld. If you are more risk averse you sell them early. If you are young and can take morerisks, you ride them longer. This particular Wall #7 has had a nice long run since the early Junelows. As the QE in the system increases it could certainly stretch longer. The expectationremains that Wall #7, Wall #8 and Wall #9 will hit serious down drafts into mid-2013. Youmay prefer the 8-week to the 55-day slow. The Wall cycle is the alpha producing cycle.

MACD Sell

Panic when the L1 85.4%1361.08 does not hold in

coming Wall #7 decline!

The Primary Time Target


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Quarter Wall Countdown: Sentiment is the Key in QW LowsThe central bank equity price support operations, aka QE, have been distorting the QW

cycles for a long time. It is getting worse. Traders have to realize they are trading with oragainst the Fed, and add the clues provided by the QW cycles. Investors should focus on theWall cycle and leave the Quarter Wall cycles to the sophisticated traders that understand the

dark pools at the hedge funds, big banks and the Fed. Ive been bothered by the shallowness ofthe low June 25th, which ended a 38.2% short QW cycle. Notice that the only time the S&P 500has dropped under 20 in the 8-day slow stochastic since June 25 was the subdued decline intoSeptember 26. That was a 161.8% extension of a QW from 6/25. Also notice that it containswhat appear to be four smaller cycles. These are likely the liquidity distorted and lengthened 8.8-day cycles. That makes this QW3, with its life dependent upon central bankers that do notrespect markets and free actors as the legitimate price clearing mechanism.

Another Central Bank Mutated QW CycleHow about some environmental protection for markets?


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Time Cycle Forecasters: In the Age of Cycle ManipulationThe manipulators view cycles as failures of human engineering, not a form of market

natural selection of good ideas and operators. In the future manipulation will be viewed as theartifical picking of winners and losers and be abolished. Cycles will then run their naturallengths, like in the 1800s where the 42 month cycle was observed as a recurring natural

phenomenon that shook the trees of business and knocked down the dead branches. This willnot occur on Chairman Bernankes watch. He appears to have a phobia of cycles large andsmall. The day when nature is restored may be a long time coming. As long as the pumps are onfull bore, look for the cycles to run long. Even so, that 9/14 top was close to that 9/11 61.8%target for a left translated Kitchin Third. It may top early and still run its ideal length into nextsummer, producing the sort of left translated cycle expected to end a business cycle.

Romney Cycle

Obama Cycle


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Dynamic Web Analysis: Reflecting on the 1995 K Wave Forecast for a 2009 EndingThe fact that McGraw-Hill published my bookThe K Wave in 1995, which stands as a

record with numerous charts indicating a long wave ending in 2009, should probably give memore respect for the 2009 low in global markets. Maybe Im just not sentimental enough, butthe fact that the debt that produced that crash was repackaged and pushed onto loaded onto

those that had nothing to do with it still makes me suspect. However, no political will hasmaterialized, except of course Ron Paul, to stop the central banks from destroying the basicfunction of markets and shifting the risks into the future, forces me to at least consider thatBernanke & Co. bought a higher low and a long wave ending in 2009. Of course the Fed did notcome clean on their little multi-trillion dollar loan program until late 2010, when global marketshad been feeding on the central bank liquidity for some two years. If the Fed had not stepped in,that 2009 low would have taken out 450 like a hot knife through butter. The system was in factcollapsing in a debt implosion. The expectation remains for a final crash to end this businesscycle in 2013, but a few trillion or so a month could make it less painful. The 2009 low or 2013,we will all be paying for it for the next 30 years plus. Figuring out a way to proceed profitablyis the goal. Buying the upcoming business cycle and the Wall cycle lows is the plan.

What would the 2009 Low have been without over $10 trillion inCentral Bank Funding, TARP, and trillions more in deficit spending?

Likely far below 450, in a final long wave plunge.

Frenzy Range1982-200761.8-100%

The Fed willdefend at all

costs...


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Cycle Value Investing Review: Limited Value After the Wall Cycle Run

There are different approaches and styles to successful investing and trading. You haveto decide what your rules are and stick to them. If they dont work, set new rules, but if theywork, be patient and consistent. The basic approach proposed by LWD/MCD is to combine thevalue investing of Benjamin Graham, with market cycle analysis. The objective is to buy large

cap global franchise value and cash flows at cycle lows. You have two or three opportunities ayear to buy value at Wall cycle lows. Selling after Wall cycle rallies is advised late in a businesscycle, and especially in a long wave winter. However, starting next year, buying and holdingwill be advised for some companies, as the global economy begins to make a clear transitioninto a new long wave spring season. If you sell early you miss the remaining upside in a Wallcycle, but you also substantially reduce your risks. Of course making investment decisions iscomplicated when central banks are so active in providing liquidity and support activity toglobal markets. Their goal is to stamp on the cycles, but this is a passing period and marketswill return to more normal cyclical behavior in the future. Be patient for Wall cycle lows.

Pulled Intraday 10-04-12


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Individual Stock: Siemens Wall #7 Run Sitting on L2G SupportHistorically the 20-week cycle, which I rechristened the Wall cycle in my 1995 book

The K Wave, has often referred to as the traders cycle. The chart of German giant Siemensillustrates that the Wall cycle is just as much an investors cycle as a traders cycle. In June, just afew days past the golden ratio target of a Wall cycle low, Siemens was hammering the Level 1

38.2% grid, it was oversold on the 55-Daily or 8-Weekly slow stochastic, and sentiment was inthe basement, well under 20. Price, time and sentient were signaling a Wall cycle low. Siemenshas enjoyed a 15% plus rally into August and almost a 30% rally into September from the Junelows. At the June lows Siemens was a global franchise large cap sporting a solid dividend in anoversold Wall cycle low. The strategy I am proposing to investors is to use Wall cycle lows tobuy in order to manage a diversified portfolio of 8-12 global franchise large caps. This worksregardless of your long wave views, even if you dont nail the exact Wall cycle lows and highs.

Siemens Market Sheet Music

June Wall low below the early October low


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Gold: Gann 3X1 ResistanceGold is running into resistance at the Gann 3X1 and the L2 90.9% target. This price

level also shut down the rally in early 2012. If gold stalls here, and the rally looks tired, the keysupport below here has to be the L2 golden at 1701 and the Gann 2X1. Cleary the downtrendsince the top in 2011 was broken with the breakout above the Gann 1X1 in late summer. Gold is

the money, but it is also a commodity. If commodities do not buy into the central bank plan forstopping deflation, and keep their QE3 rally going, gold will continue to exhibit its bipolarbehavior between its role as a commodity and currency. Gold will play an increasing role ascurrency in the long wave spring season. First of all there is inflation in a long wave spring, alot of it at the rate central banks are printing, and international capitalism is getting tired ofmanaging around the currency wars being fought with fiat currencies. Digital gold currencymakes more sense every day as the politicians and the central bankers they sanction destroy themoney world.

Watch the L2G and the Gann 2X1 for Support

MACD Sell


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Global Gold Shares: The 519 Resistance in Price, Time and SentimentClearly a few gold stock traders are tracking the HUI grids, and recognize that golden

ratios always deserve respect. Gold shares will eventually make it over the 519 resistance, thequestion is when. In price, time and sentiment the rally up to 519 is due for a break. The clearresistance that is evident at this level means that once it manages to clear 519, then the next leg

up will be underway. A retest of the L2 golden back down at 449.01 may be in the cards, thatcoincides with a risk off move in global assets. October is the month of famous risk off movesin global markets. Recognize that using price, time and sentiment for entry and exits only worksif you are counterintuitive and invest or trade counter to the crowd. The crowd was in when theHUI tagged 519, and now they are questioning their timing, and maybe even their sentiments.

A price, time and sentiment turn?


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Developed Markets: Hiding in the DAXIf you are not sure about the safety of the banking system, you own gold, our currencys

future is in question, real estate is not an attractive asset class, and the central banks appear tobe dead set on triggering global inflation, where do you hide? One place is clearly in large capequities with global franchises that can maneuver production and core operations away from the

grasps for more even more taxes from national governments and in fading and failed era of statecapitalism. We are in a window where international capitalism is escaping the multi-decadebondage of state capitalism. The too-big-to-fail banks living off the largess of the state do notrepresent international capitalism. They are in their final years. The producers are going to winthis world systems battle for survival, not the banks and politicians. Certainly there are risk inthe equities of producers, but the alternatives have even more risks. It will soon be time toaggressively buy the cycle lows, when you can buy large cap value and future cash flows thatare slowly but surely escaping the clutches of governments that overreached and must fail.

L1 85.4% is the Wall #7 Breakdown Line

Where would it be without theLTRO and Unlimited QE?


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Developed Markets Continued: Hong Kong on a Golden High WireA review of Hong Kong is overdue. Hong Kong is a developed market, and is the

gateway to emerging Asia. Consider the capital that was laid on the line to get the Hang Seng togap up around 400 points in a remarkable leap over the L1 golden back on September 14. Itappears that someone with very deep pockets wanted to make sure the gateway to Asia stayed

in the Frenzy range of the Level 1 Fibonacci grid. My own view is that it took far more thanprivate capital to make that leap, all in an attempt to stop financial asset deflation. Yes,Fibonacci is a natural force at work in markets. They are the fingerprints of the invisible hand atwork in the global economy, but someone is trying to do the work of God.

Support produces longer cycles...

A Remarkable Gap up to the L1Golden


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Emerging Markets: Road Signs in IndiaEither liquidity provided by the central banks in the developed world are finding their

way into Indias equity market, or a Kondratieff long wave spring is underway in this emerging

market. Most likely it is a bit of both, but the liquidity has the edge. The central banks areintentionally and very specifically trying to force investors out of the safety of short-term

deposits with negative yields and into riskier investments. Investment strategists managinglarge funds around the world are throwing in the towel and moving into riskier assets. Of coursethe risks is that this just produces another round of bubbles that must burst for the globaleconomy to rebalance. Indian stocks vs. euro deposits in a Spanish bank may be the rightdecision, but there will be some serious pain before this investment engineering is over.

Never Ignore a Golden Ratio

Late in the Wall Cycle Run!


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Emerging Markets (continued): Brazil Ahead of the Pack on the DownsideIt appears as if investors in the key emerging market of Brazil are more nervous about

this Wall cycle rally than those in the developed world. Maybe they know something the rest ofthe world has not picked up on just yet, like demand from China is collapsing in the final swandive into 2013. The story from Reuterspoints to weak Chinese and European demand weighing

on Brazilian and Mexican markets. The BOVESPA is closing in on the L1 76.4% target, whichwill determine whether this Wall cycle is toast, or if central bank liquidity in the developedworld can trickle down to South America and keep the Wall cycle rally alive. A bounce islikely, but watch to see if it can clear the L2 23.6% at 59026 and the bounce.

The Upcoming Test of Wall #7 Support
http://www.reuters.com/article/2012/10/03/markets-latam-stocks-idUSL1E8L3HQ620121003?type=marketsNewshttp://www.reuters.com/article/2012/10/03/markets-latam-stocks-idUSL1E8L3HQ620121003?type=marketsNewshttp://www.reuters.com/article/2012/10/03/markets-latam-stocks-idUSL1E8L3HQ620121003?type=marketsNews


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Bonds and Interest Rates: What is the Long Bond Telling Us?It would be much easier to buy into the story lines that say the central banks have

managed to stop the global deflation and inflate the global system, putting a bid under equityprices, if bond prices were falling harder. Yes, they have sold off from the summer highs, butthey are far from crashing. The last few weeks have seen a rally. This Fibonacci projection grid

continues to indicate that long term U.S. government bonds still has the potential to go to newhighs. The first clue that the long wave winter and threat of deflation remains alive and well isthat long-term bond prices cannot mange a real selloff, and continue to rally into the face of therising inflationary expectations of unlimited QE3. A rally to new highs in long-term U.S.,German and Swiss bonds will mean the central banks are losing control of the fight againstdeflation, and the rally in equities is highly suspect.

The Projection Grid to 164 is Still Exerting its Magic

An Important Reversal?


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Commodities: Buy the Rumor and Sell the NewsThe spike higher in commodities from the summer lows was largely driven by the

conviction that the central banks will do anything and everything necessary to put a bid undervarious asset classes, including commodities. Investors and hedge funds piled in, especiallyafter the double bounce off the L2 38.2% inverse golden ratio at 267.08. The next L2 38.2%

target at 319.76 has reversed the trend. The market has rallied back up to the 309 target, whichwill determine the short-term trend. The sharp reversal from the 319 target should force theinflationist to ponder the argument that QE is guaranteed to produce deflation. It is not. Mr.Market knows that someone always has to pay the bill for government funded boondoggles andthe central bank policies sanctioned by government. Watch the CRB, it signals risk on and riskoff ahead of equities. Below 293, deflation and the risk off trades are back on in a big way.

Notice the Switch to 55-daily Slow Stochastic

The CRB Hit the L2 38.2% Wall


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Currencies: US Dollar Index and Inflation vs. Deflation

The deflationary scenario falls apart without a rallying U.S. dollar. Debt deflationrequires an unbalanced repayment of debt in dollars. If the dollar is falling then commoditiescan keep rallying, preventing deflation in the costs of goods and services. The late Septembertest of the Level 1 Fib grid of 79.18 seriously tested the dollar deflation argument. This current

final leg of the long wave decline should see a rallying if not soaring U.S. dollar. Granted thetrillions in central bank pumping should send shutters up the spine of any deflationist, but thefact is that all the pumping has only produced stagflation. Only the long wave debt deflationundertow explains it. In short, if the dollar does not rally soon, odds rise that this is a long wavespring season, weighed down by debt. This may be deflations last stand.

Deflations Last Stand?


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Currencies Continued: EURUSD Failure at the L1 GoldenThe brief spike over the L1 Golden in the EURUSD was unsustainable. It is now on the

way back down, likely to test the L2 golden at 1.2351 before years end, and then the L2

inverse golden at 1.1915. The rally back up to the Level 1 golden was a surprise, in light of theweakening economy in Europe and the promise for unlimited QE as required from Draghi. The

EURUSD clearly rallied in light of the counter to Draghi of QE3 for as long was requiredannouncement from Chairman Bermanke. Make no mistake about it, there is a currency wargoing on in place of a trade war during this long wave winter season. Europes economic

recovery will require a much lower euro to drive exports. The latest rumors are that Germanywill leave the euro before Greece. If so, the EURUSD will hit parity sooner rather than later. Itis more likely that Germany stays in, but if not, a strong deutschmark would allow Germancorporations and investors an opportunity to expand globally and acquire additional globalproduction capacity. They could expand their global franchises with foreign investment on theback of a strong deutschmark, while the rest of Europe gets their act together.

The rally attempt over the L1G. Expect failure.


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Prices, Capacity Utilization and The Baltic Dry Index

It would be nice to go all in with the optimist and believe that I actually predicted thelong wave low of 2009 in many of the charts in my 1995 book. If it wasnt for all the debt I

could almost buy it, but other key items just dont point to a new long wave spring. Capacity

utilization appears to have hit a wall, and the Baltic Dry Index is testing the 2009 lows. Trillions

in pumping and easy money and no meaningful inflation. Conclusion, its not over.

Chairman Bernanke is trying toguarantee that the plunge into 2009

was it, but a 2013 air pocket couldproduce the real low.

No K-Wave Spring! Yet.

Testing 2009 Low


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World Systems Analysis: The Struggle Continues

The current long wave winter crisis is providing front row seats in the struggle for theworld system that will dominate the future. There is some basis for the view that socialism isgaining the upper hand, such as the 75% tax rate in France. But the French producers arealready leaving, moving to where they are appreciated. Many view this as a conflict betweencapitalism and socialism, when in socialism has no chance and state-capitalism is failingmiserably. The outcome of the current global crisis will be the clear failure of both socialismand state-capitalism. International capitalism is morphing rapidly and winning. Capital is freerthan ever to flow to where it is appreciated globally. A global corporate tax cut war is brewing.

Global Trade: Election Posturing or Trade Wars Brewing

You have to ignore much of the trade war saber rattling that occurs in a U.S. electionyear, but suddenly the talk of trade wars is picking up steam. The Obama Administration isstarting a tomato fight with Mexico, who accuses the Obama Administration of pandering toFlorida farmers in an important swing state. TheNew York Timesconsiders the brewing trade

conflict between the U.S. and Mexico stemming from low cost tomato imports from Mexico.The Detroit Business News is reporting that Obama wants to avoid an all-out-trade-war withChina, leaving open the option of an almost all out trade war. Romney has promised to nameChina as a currency manipulator. The last time China loosened the trading range the ChineseRenminbi fell against the dollar, so Im not sure the

manipulation argument will fly, but it must be expected to helpwin votes. Sky News reportsthat the tit-for-tat between the U.S.and China is escalating. The most disturbing news on the tradefront is that the China-Japan island dispute is turning into atrade war that could have global implications and pull in theU.S. and others, as reported by the Atlantic Wire.

Technology and Innovation: Jamming Speech and Element 113Of course free speech is an important component of any free society, but inventors in

Japan have come up with a device that jams speech by delaying the sound of a speakers voice,causing them to pause. On a more serious note in thearea of innovation in Japan,New Scientistsreportsthat it looks like the Japanese may earn the right toname element 113. Until this only U.S., Russian andGerman labs have discovered and earned the right toname elements.

Real Estate: $40 Billion a Month Will Help

The U.S. central bank QE3 program, which is spending $40 billion a month, as long asit needs to, has multiple objectives. The first is to take bad mortgages off the books of the bigbanks and transfer them to the U.S. Fed. QE3 is close to one TARP a year until further notice.Another reason is to try and put a floor under U.S. real estate prices, when in fact it will onlyprolong the real estate depression. The idea that QE3 will create jobs is suspect. Maybe a fewmore bankers will keep their jobs and some folks at Fannie and Freddie, but not real job impact.Any jobs in construction sooner will mean less jobs later. Housing prices and sales in the U.S.have shown some firmness recently, but the housing depression is not over. QE3 will preventthe market from clearing and delay the real recovery, even if it appears it is helping.
http://www.nytimes.com/2012/09/28/business/global/tomatoes-are-ammunition-for-a-trade-war-between-us-and-mexico.html?pagewanted=all&_r=0http://www.nytimes.com/2012/09/28/business/global/tomatoes-are-ammunition-for-a-trade-war-between-us-and-mexico.html?pagewanted=all&_r=0http://news.sky.com/story/986139/trade-war-fear-amid-us-china-tit-for-tathttp://news.sky.com/story/986139/trade-war-fear-amid-us-china-tit-for-tathttp://www.theatlanticwire.com/global/2012/09/island-dispute-turning-ugly-trade-war-between-china-and-japan/56909/http://www.theatlanticwire.com/global/2012/09/island-dispute-turning-ugly-trade-war-between-china-and-japan/56909/http://www.newscientist.com/article/dn22317-competing-claims-pile-up-around-new-element-113.htmlhttp://www.newscientist.com/article/dn22317-competing-claims-pile-up-around-new-element-113.htmlhttp://www.newscientist.com/article/dn22317-competing-claims-pile-up-around-new-element-113.htmlhttp://www.theatlanticwire.com/global/2012/09/island-dispute-turning-ugly-trade-war-between-china-and-japan/56909/http://news.sky.com/story/986139/trade-war-fear-amid-us-china-tit-for-tathttp://www.nytimes.com/2012/09/28/business/global/tomatoes-are-ammunition-for-a-trade-war-between-us-and-mexico.html?pagewanted=all&_r=0


24/24


Page 24 Perspective: The Coming Caesarist K-Wave

In the Caesarist K-Wave coming up when the runaway deflation of the coming 15years runs out, the middle class will begin trading all power to the executive so that legislativeand judicial functions become mere rubber stamps. A retired major general has straightened outthe education system in Seattle. Juliani has straightened out New York City. These are proto-

Caesarist straws in the wind and you see them everywhere now. The masses demand Caesarsbecause of; a) the breakdown of law and order in the overpopulated cities, b) the tendency ofpolitics to steadily destroy the money world, i.e., to confiscate especially urban property. ...wehave stated for years that you can read the biographies of the next twelve Presidents in advancein Lives of the Caesars by the ancient historian Suetonius. Stick around for Nero, Caligula,Heligabalus. The gossip columnists little dream what awaits them. Civilization in excess bringsalways increasing addictiveness. As the I Ching, the Chinese Book of Changes said as early as2,000 B.C. Success breeds failure. Failure breeds success. But this turn of the Spenglerian

November into December coming up in a few years is an even more major watershed because itis the turn of the whole Spenglerian Season of Autumn into Winter for our whole Westernculture. Autumn (1500 A.D. to 2000 A.D.) is the Season of the workaholic ant building up the

great cities in anticipation of the coming Winter. P.Q. Wall,Destiny is Real, page 193

P.Q. Wall penned the above inDestiny is Realin 1999. The deflationary winter has beenchallenged by the electronic printing presses and bubble economics. Recall that your editor isfar more optimistic than P.Q. Wall on the prospects for civilization coming out of this longwave winter. Im a realist, not a fatalist. The rise of Western Civilization, verses civilizations of

the past, is rooted in moral law and order that may outlast the fall or transformation of Westerncivilization into a new golden age. Still, pondering P.Q.s thinking during the U.S. electionseason is worthwhile. There are certainly signs that the legislative and judicial functions arebecoming mere rubber stamps of growing executive power. The U.S. has operated without abudget for years now while executive power is rubber stamped and goes unchecked. With

Bernankes mortgage bond buying spree the central bank will own over 30% of all U.S.mortgages before 2015, and they will not hesitate to own far more if required to stop thedeflation. The $2.8 trillion on the U.S. Feds balance sheet includes urban commercial propertyas well. So in addition to government confiscation of property the government sanctionedcentral banks are buying it. Id like to dismiss P.Q.s pessimism for our political prospects, but

his accurate forecasting to date does not allow that option. The world needs game changingevents over the next year, or P.Q. may prove correct, with the Caesarist K-Wave upon us.

Notice and DisclaimerThe International Long Wave Dynamics Letter, (The LWD Letter) $144 annually, is edited by David Knox Barker and published by Long WaveDynamics, LLC (LWD) for the use of subscribers only and should not be duplicated or distributed. LWD applies Theory 144 Analytics andother analysis and methodology to provide a theoretical framework for analysis of the long wave family of cycles. The objective of the serviceis to seek to identify cyclical patterns in financial market activity, which LWD believes are essentially fields of human action. However, cycle

analysis is a theoretical exercise that is based on analytical tools subject to error and opinion, and the underlying information can changequickly. The purpose ofThe LWD Letteris to educate readers regarding theoretical cycle patterns. Although readers may formulate their owndecisions regarding their investments from such cycle pattern analysis, at no time will The LWD Letteror LWD make specificrecommendations for investments for any person or entity, and at no time may a reader or user of services imply or infer that any suchrecommendation is intended. Any value based stocks listed are based on general value based screening parameters presented and areexclusively for the purpose of example and are not recommendations for investment for any individual or entity. Investing and speculating isfraught with risk of loss to capital. Like any such market analysis service, LWD expects that market cycle analysis, although presented in goodfaith, will have errors and is not guaranteed. It is highly recommended that you ask your investment advisor to provide you with a detailedexplanation of all risks before making decisions on investing or speculating. LWD is not a registered investment advisor with the SecurityExchange Commission in the United States, or with any foreign equivalent. Your subscription and use of this newsletter and/or the LWDwebsite signifies your full understanding and agreement with this Notice and Disclaimer and the full Terms and Conditions of Useon the LWDwebsite. Please visit LongWaveDynamics.comfor more information.
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LWD Letter - October 2012

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