Is Elliott Waving?

Decades before fractals became fractals, or at least were recognized and named fractals, Ralph Elliott discovered and published The Wave Principle. Elliott spent his career as an accountant in Latin America, filling various positions, private and public, finally returning to the United States when debilitated by an intestinal tropical parasite. Initially, the Elliott wave, as it became known, was applied to the stock market, but later to any number of natural phenomena.

Elliott extracted from the seemingly random market excursions repeating patterns that had five waves upward, followed by three waves down. That pattern is both a part of larger patterns and contains smaller, similar patterns. As can be seen from the adjacent diagram, the five waves upward are actually three waves upward with two “corrective” waves downward. It is not unlike the adage of two steps forward, one step back, except here it is three steps upward with two steps back. The three waves down similarly contain two waves downward with a single “corrective” wave upward. Note the “impulse” waves, as Elliott called them, the wave moving in the direction of the major wave (waves 1, 3, and 5, of the larger upward wave, and waves A and C of the downward wave) have five imbedded waves while “corrective” waves (waves 2 and 4 of the upward movement, and wave B of the downward movement) have three waves. This will be important in interpreting.

The real world, of course, is not quite some simple. The adjacent graph of the Dow-Jones Industrial Average (DJIA) for the 20th century shows the five upward waves, peaking with wave five in the year 2000. The initial wave 1 ended in 1929, wave 2 in 1932, after the market deteriorated 89%. Wave 3 ran from 1932 until 1965, when wave 4 began and moved the market sideways until 1982. This wave 4 was a sideways or “flat” variation of a corrective wave. Wave 5 ran until 2000, ending with the “dot-com” or “tech” bubble bursting.

The ABC corrective pulse began in 2000 and continues through the present. The DJIA shows another Elliott variation, where the B wave peak is higher than the wave 5 peak. The Standard & Poor’s 500 shows a peak equal to the wave 5 peak, but this index was only started in1957, so cannot show the entire 20th century. It would initially indicate another sideways or flat correction like the 1970s, but there is a rule stating that correction types alternate. Since the 1970s were flat, the 2000s cannot be.

Even more indicative is the NASDAQ Composite, which shows the traditional ABC formation. The currently in-progress C wave should carry below the downward excursion of the A wave in 2002-03. The other indexes already have.

A study of the various corrective patterns shows that corrections can never be fives. Only impulse waves can be fives. In other words, an initial five-wave movement against the larger trend is never the end of a correction, only part of it.

That means that this downward movement should end the ABC correction and a new 5-wave upward move should start. Yes!

If the movement off the C point goes up, then forms another leg downward, the entire ABC correction since 2000 is actually an A impulse wave down of an even larger ABC correction. Oops!

Like most things, Elliott better interprets the past than the future, but two alternatives are far better than infinite. The HiLo index from the previous essay, “Being on the Right Side,” will guide you profitably in either case.

The point most applicable perhaps comes from the 1932-37 market. After dropping for almost three years from 1929-32, the market bottomed and began the greatest bull market in history until the 1990s. This 1930s bull was in the midst of the Great Depression, and the market appreciated from a low of 42 to a peak of 187—over 400%—in five waves.

Personal POV

Since I seem determined to come down heavily on a few sacred cows, I should explain where I’m coming from. I am neither liberal nor conservative. I have a deep disgust for politicians, suspecting their performance, intentions, and ethics. They’ve earned it.

In my humble opinion, government should indeed be run for the benefit of the people. Its responsibilities include the education and welfare of its citizens, and my government has performed admirably in its accomplishments and abominably per its potential.

Admirably, liberal democracies have rid themselves of slavery, though it took over 600,000 lives, 2% of this nation’s population at the time. One hundred years later, in aftershock, this nation rid itself of segregation with minimal loss of life, thanks largely to non-violent leadership by ML King. We celebrate him with a national holiday.

Religions in comparison tend to conserve institutions including horrendous ones like slavery, while considering themselves the bastions of morality. Even today they continue gender suppression, although they have embraced other equalities.

Abominably, our democracy has failed to live up to its potential in some rather obvious ways. It has failed to educate its citizens, as indicated by the H1B program, where we have to import foreign workers because we do not have those qualified to perform the same work at the same skill level. States using lottery proceeds have taken up much of the responsibility by paying college expenses for any of its citizens who perform at a prescribed level. I've addressed education in other blog entries, and shall do so again.

Another example is health care. We supposedly have the best health care system in the world, and definitely the most expensive. However, it doesn’t cover at least forty million who cannot afford it. The government has increased this acuity by requiring hospitals to treat those who cannot pay, thus inflicting a silent tax on those who must pay extra to cover that cost.

Examples of politicians’ ethical lapses include the “shrieker of the house.” In her first 100 hours, the Congress passed an increase in minimum wage, except for Guam. Guam has a tuna processing plant, its largest minimum wage employer. Star-Kist’s headquarters is in guess-who’s political district. Nice lady.

Of course, observing Congressional approval ratings were 1/2 George W. Bush's at his worst, I would venture to say I'm not alone. Obviously, the most prevalent crime in America is Contempt of Congress!

Educational Frost

Perhaps the best investment the government ever made was the World War II GI Bill. It wasn’t intended that way, but 15-million returning GIs, plus probably an equal number of laid-off defense workers looking for jobs at the same time would not prove politically pleasant. The obvious solution was reward the GIs.

The WWII GI Bill differed from subsequent GI Bills because it paid the cost of school, plus books, etc., plus living expenses. In other words, one could go to Harvard on the GI Bill. Later GI Bills paid a flat rate increased only by how many tax dependents one had. These bills worked well for GIs attending community colleges at night, while having a fulltime day job. They worked less well for regular college, and not at all for Ivy League costs.

Attention came to the WWII GI Bill when news reported someone calculating its cost vs. the increased revenues enjoyed by the government, especially when those increases were projected until the anticipated retirement dates of those veterans. Perhaps the press popularity sprang from the government doing something right for once, even if it was inadvertent. It spurred an interest in financing more students, thus increasing anticipated future revenues.

Unfortunately, that would have cost the government money, so they substituted student loans instead. Nice. Students could get their education, repay the loans, plus pay the increase in revenues. All the government needed to do was guarantee private lenders the return of their investment.

A number of students soon discovered that some degrees did not pay a good return on their investment of borrowed funds, so they sought shelter from bankruptcy. The government retaliated by placing student loans on par with owing money to the IRS and judgments for wrongful death. They were no longer absolved in bankruptcy.

So, a student who, for example, attends a one-year culinary school for $40,000, but cannot find a job paying her more than $7 per hour on graduation, gets hounded day and night by creditors.

Basically, the members of society least able to make informed decisions are at the mercy of the most sophisticated, unprincipled marketing, enforced by government sanction. Seems the government has kicked over the seed corn and gone directly to cannibalizing the children—ah, for their benefit, of course.

Financing the Future

These are written as unneeded suggestions to our government to finance the future it envisions for its citizens. As the current presidential chief of staff has stated, “No crisis should go unexploited.” This one seems an extraordinary opportunity.

First energy: Currently energy generation prices at 9 to 11 cents per kilowatt-hour, where alternative, green energy comes in at 15 cents per kilowatt-hour. To level the playing field for green energy, one can pay for alternative energy by capitalizing alternative generation without subsequently charging recipients the extra 50%. The tax credits for solar and wind does just that, but this costs the government revenue.

The other manner is to create a carbon tax that raises the conventional generation expense to 15 cents per kilowatt-hour, thereby destroying the advantage currently held by conventional generation. This generates over $600 billion, which coincidentally equates to the estimated cost of universal health care. The basic problem is the label: “carbon tax.“

If instead “carbon tax” can be labeled cap-and-trade, one can generate the needed revenue without the onerous label. However, it must not be run as true cap-and-trade, since that becomes an capital outflow as detrimental than the funds sent abroad to import oil. An example of true cap-and-trade is provided by German coal-fired energy generation. There, the carbon credits for coal-fired power generation are purchased from China whose carbon credits are generated by hydroelectric construction the Chinese government was already constructing. This lowers the cost to the Chinese government at the expense of the German power consumer. The German consumer pays 150% of the true cost of generation with the extra funds not capitalizing any alternate generation he will benefit from.

If cap-and-trade revenues go to our government vs. being disbursed abroad, “we” have a continuous funding source useable for other objectives. Carbon credits can actually be printed more easily than money. Funding for alternative energy would be offset by increased power to support new electric vehicles, thus carbon credit revenues should increase. The government has created a new “sin tax” by whatever name that will continue indefinitely, and converts to consuming national commodities (coal) while decreasing imported commodities (oil).

A portion must be used to double the alternative energy generation every few years. At the current level, alternative sources generate 1%, thus moving to 2% by 2012 should not deplete the incoming revenues since 50% of power generation is coal fired. The carbon tax also includes natural gas increasing the revenue-generating percentage, and the 20% nuclear power generation could be labeled a toxin, enabling a toxin tax in lieu of a carbon tax.

Second, personal finance: Because of market decline, most 401Ks and IRAs have decreased to approximately 50% of their October 2007 levels. Because of the stimulus plan will not stimulate the economy in the short term, the chance of the market going down further seems likely, and can be talked down if policies don’t induce that effect.

Once the despair peaks, government can “rescue” both 401k and IRA retirements by valuing them at the October 2007 levels, promising a 3% return on investment, and requiring a universal 5% of earnings investment each year from employee-employer contribution. Taking over the trillions in retirement funds instantly benefits government, plus government immediately realizes a 10% increase in tax revenues (5% from employees, 5% from employers, 10% from self-employed), with the 3% return on investment offset by a 4-4.5% inflation rate. The CPI is already constructed to disguise the true inflation rate to less than real inflation of goods and services—so to limit social security and federal retirement increases. It works here, too. The 5% from employee and employer are actually less than the typical 6% 401K contribution with 6% matching by the employer. The government more than makes up the difference because it no longer defers taxes on funds the government doesn’t receive.

Initial valuation of investments at the October 2007 levels is not a problem since social security is a legal Ponzi structure, paying future benefits with future inflows, the initial valuations are merely a book entry. The funds taken in provide trillions immediately and obligations are to be paid from future revenues. By removing these funds from the market, depressed market values into the future substantiate the taking action.

Summary: These two changes provide tremendous advantage to government revenues, funding new opportunities to service and protect the populous. They deserve it, right?
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The above was written tongue in cheek (I hope). Its purpose was to alert against exactly the happenings described. There are active interests who would nationalize retirement accounts, adding monies for those who cannot. The description of the German coal-fired cap-and-trade is true, leading to not to replacement of the coal-fired plants but export of the capital needed to do so. Insanity and ulterior motive are indeed alive in the world. Our recent example was attempting to convert 30% of our food supply to replace 3% of our fuel.

I am encouraged by the administration starting now to work on how to implement universal healthcare. We pay 2.5 times as much for healthcare as other industrial countries, yet receive less results. Critics wishing to resolve the economy before attending anything else indeed miss the point that healthcare and especially the 48 million without it poses a major economic problem.

Hopefully an overall energy plan will also be considered and implemented. Energy also poses a major economic problem and our past performance has lacked sanity. After the 1974 oil embargo, some countries have implemented tremendous plans, Brazil is now an energy exporter, France generating near 80% of their power by nuclear, and profiting from recycling nuclear wastes into new fuel, and Denmark with major wind-power generation.

The United States started down an alternative and efficient path, but abandoned it when the crisis and its memory waned. Although the recent stimulus package has some first steps in energy, we still lack an overall plan, yet such a plan could indeed play a major role in an economic recovery. Hopefully, the administration will put something forward—and soon.

T. Boone Pickens proposed a bridge plan, but with no longer- range plan, it becomes a bridge to nowhere economically.

Aches, Pains, and No Plans

John and I finally finished moving the stuff out of Mom’s apartment, late Tuesday afternoon. The apartment storage and a storage unit remain full. John will be getting that stuff as he can, and I’ll help as needed. Initially, we need a few days to recoup energy and sanity. Even our thought processes are less than rational, much less efficient.

Today is the first day I’ll be uninvolved, although I still need to empty one carload and still have stuff out on the deck, in the cold. That will only require an hour or so, and then I can think about what to do. At this point, that prospect seems blank, indicating the exhaustion. Best thing to do is not push it and by all means, don’t take it personally*. I may go by the grocery to pick up some vegetables for the crock-pot, get some coffee and people watching while I’m out, then post this to the blog. I'll keep life simple for a few days. The rest of my life will return.

The other thing to do is walk. It is said one cannot walk and be depressed. It does work, at least for me. I also would like to resume daily exercise to recoup some physical conditioning, which has been lost this last two years, both because of the recovery from surgery and the stress eating of mom-care. Now, I’ll eat more vegan and exercise often—and keep life simple, awaiting the return of the rest of life. It’s obscured here some place, probably in one of the many boxes stacked in my room. This is my best at the moment.**

*Don't Take Anything Personally. Nothing others do is because of you. What others say and do is a projection of their own reality, their own dream. When you are immune to the opinions and actions of others, you won't be the victim of needless suffering. ~ Don Miguel Ruiz

I find Ruiz' excellent advice applies doubly for self-critique, which I am very active at.

**Always Do Your Best. Your best is going to change from moment to moment; it will be different when you are healthy as opposed to sick. Under any circumstance, simply do your best, and you will avoid self-judgment, self-abuse and regret. . ~ Don Miguel Ruiz

Stargazing

Liz suggested I go stargazing—often. I agree. I’ve long been one, even back in high school when I did my science fair project on observing variable stars (won second place, too). Later, I loved midwatches (12-4 a.m.) on the diesel electric submarine, when we were surfaced and laying to in the Gulf Stream. Even at sea level, stars are bright in the no-light areas of the ocean.

Since moving to the mountains, I've spend days wandering the Blue Ridge Parkway, enjoying the mountains in the day and the heavens at night. It is tremendous for the soul.

Now that mom-care is over, I shall resume the practice. It provides, as Liz points out, a healing influence. With spring rapidly approaching, lying out all night becomes an attractive thought. Watching stars rise and set hours on end provides some kind of devout contemplation that sets aside and renders harmless all cares of the mortal world. It is stardust observing stardust.

Thanks, Liz.

Last Booking

The book mentioned in the previous post has been inscribed and placed in the Smith Phayer Hospice House. The inscription reads:

“I was honored to be the primary hospice nurse for Dr. Doris Cox. An avid reader, always with 2 or 3 books going, Dr. Cox was the first female Ph.D. in library science here in the United States. She is entirely responsible for getting me “back to the library” after a long respite! I first borrowed this book from her, because she was enjoying it so much. Later, Dr. Cox wanted me to have it. This book belongs here at Smith Phayer Hospice House—donated in her honor and memory: A very dear friend, a wonderful role model, and a fellow reader.” ~ Barbara Tousey, RN, CHPN