MILLENNIUM CRISIS

There is a nice expression about Crises forecasters: "From last two crises, five of them where predicted."

But about Millennium Crisis people speak already for a long time. George Soros in his book "Crisis of Global Capitalism" has told: "Crisis is like a war. When everybody talking about it, it can happen."

The purpose of this articles is not to find the answer for the question "To be or not to be", but to write down some facts about Our history.

1. Millennium Crisis Phantom 

2. Millennium Crisis Fatal Consequences

The purpose of this article is the necessity to designate the fact of an opportunity of world financial crisis. George Soros in his book "Crisis of Global Capitalism" has noted that financial market participants should be ready to any variants including by worst. And, as is known, " who is warned, that is armed ".

People speak about "Millennium Crisis" for a long time. Thus majority of the analysts converge in opinion, that main "originator" of crisis become by USA. There is a lot of reasons to think that way - overheating of the Stock Market and Economy, phantoms of inflation, extreme incomes of the virtual companies, discussion about " new economy ", growth of the national and corporate debt in USA. Really, to compare economic parameters to 1929, similarity is impressing.

In 1929 was observed low unemployment rate, about 3 %, and today - 4,2 %. The interest rate in banks of 1929 was about 4 %, today - 6 %. The inflation, in 1929 was at the same level, as today. Financial markets "Мargin trade” in 1929 prospered with the same intensity as today. The banks in 1929 actively financed operations in the Stock Market under a pledge of the shares, as well as today. In the gold market in 1929 the offer exceeded demand, that takes place and today.

In 1929 "Hi-Tech" P/E ratio (those days it was General Electric) made 56. Today, many "Hi-Tech" companies has this parameter over 100-200 annual profits.

By the way, shortly before crisis of 1929 in industrial circles of USA have begun to speak about approach of "new era in economy", and today speak about "new economy". That’s an artful concurrence.

Not only general similarity between 1929 and now is giving as opportunity to talk about crisis. There are some serious reasons for Global Crisis:

Since 1992, the shares prices of the American companies have grown on the average on 240 %. At the same time rates of growth of economy were essentially smaller - only 45 %. Thus, it observed essential break of the incomes of financial sector from the incomes of real sector. Justify such rates of growth of the share market economy of USA should to grow much faster, than now. But US economy is already overheating. It is possible to assume, that rise in share prices is caused by expectations of the market participants. Investors thinking that the companies incomes will rise. Americans prefer to invest savings in the Stock Market, instead of Bank account, and the most part of the USA population involved in this process. Price fluctuations are discussed by clerks, by programmers, housewifes, let alone professional investors and speculators.

By the way, there is a curious history about Mr. Morgan. Before the crisis of 1929 Mr. Morgan cleaned footwear and boot-maker began to be interested in millionaires opinion concerning  shares of one railway company. On a Morgans question, whence boot-maker knows about these shares, he answered, that after work he goes to the Stock Exchange and trades shares, operating his private investment portfolio. Having returned in office Morgan has ordered to sell all shares having judged, that in the market, where boot-makers operating investment portfolios there is nothing to do for professionals.

The opinion that shares prices growth are supported by money of the individual investors, proves to be true by steady decrease of Americans savings since 1992. The first disturbing bell has rung out, when savings become negative. And for today they have turned in to the debts for the sum 80 bill Dollars. Thus the rates of debts growth for last five years have increased twice. Savings are the basis of economy, they are a source of investments. For today it is possible to say that America has run out of this source as a result of mass population involving into Stock Market gamble.

Propensity to live in a debt has not bypassed neither American companies and population nor the State. Today general size of debts of individual sector makes 11 trillion Dollars, or 128,4 % GDP, + Federal Debt of 5,5 trillion or 64 % GDP. In other words, the cumulative debt is almost twice exceeds internal annual manufacture of USA. To cover these debts it is possible only from the future profits, but the most cautious investors already have doubts in it. American corporations profit growth rates are steadily reducing and considerably lagging behind rates of growth of Stock Market and credit debts.

Bank sector is also the subject of "rising anxiety". As a result of low interest rates it becomes much more favourable for banks to direct money into the Stock Market and to offer clients new forms of services in this sector. It explains a growth of risky margin operations (i.e. operations for the sums considerably exceeding really taking place on the accounts). At the present there is a "skews" of bank operations into the Stock Market. Many American banks probably will not be able to cover  losses from possible share prices fall  with profits from other sectors. So, Russian bank sector has the "skew" into GKO market and were caused by terrible collapse of Russian Bank System after Russian Ruble devaluation and Government Bond market freezing.

For today, only US Dollar is strong - whether for a long time? The analysis of Foreign Exchange Market shows, that this " Bastion of Stability " can begin to fall already by the end of this year.

Long-term technical analysis of the Foreign Exchange Market shows, that one of the most probable variants in the Foreign Exchange Market is strengthening all basic currencies against US Dollar by the end of this year.

So, the exchange rate Euro/Dollar can amplify till September 2000. In August we can see a minimum Euro within the limits of 0,75-0,80, then it can begin to grow against Dollar:

Picture1 EUR/USD

Japanese Yen also has perspective to grow against US Dollar. In the period October - December 2000 it is possible to expect new minimum of exchange rate JapaneseYen/Dollar at approximately 90 JPY for the Dollar:

Picture2 JPY/USD

Thus, it is possible to expect US Dollar fall against other currencies approximately 10-15%.

New York Stock Exchange:   The analysis of movement of the Dow Jones Index from the moment of big depression in 1929 shows, that figure 13,000 is a possible limit of index growth.

There are different scenarios of possible collapse. In the best variants it is possible to expect decrease of DowJones Index down to 40 - 60 %, which is within the limits of normal market correction. In the worse variants Index can fall down to the level of 1929, i.e. almost 90-95% of its current value. Such variant can mean long recession of the economy.

Picture 3 DowJones

What are possible crisis scenarios?

The analysis of USA economic shows, that after Stock Market collapse will follow Debt and Bank crises caused by inability of corporations and banks to pay their debts. The pressure will increase sharply by the Dollar. In such situation the financial authorities of USA can choose the following variants of actions:

1. Strong Dollar protectionism politic.

or

2. Devaluation of national currency with the purpose to reduce debt pressure on banks and corporations. Granting state loans to the banks and companies for their rescue.

After crisis in 1929 the President of USA Roosevelt did not begin to rescue bank system of USA. He has transformed it in a root. For Roosevelt it was more important to rescue a national economy.

In Japan in 1999, as a result of foreign exchange crisis the conducting investment companies were not able to pay debts. The Government went on the second variant and has lowered the interest rates down to zero. As a result, the Japanese bank system was rescued.

Today it is indisputable, in case of foreign exchange crash, that the US Government will try to keep leading position in the world, to protect the base of the US economy – US Dollar. In this case USA can fling the World into a deep debts crisis and finally into a deep economic crisis. The Crisis can cause the following chain reaction: sharp recession of consumption and, as a consequence, recession of Manufacture, decline of export-import transactions, Insurance industry will announce force-majeur and will refuse to pay insurance sums, Pension system will fail, Social programs will be curtailed completely, Bank actives will be completely reconsidered. Dollar devaluation and sharp rise of the gold price are possible. The fall of the American Stock Market will cause fall of Stock Exchange Indexes all over the world, and money removed from the Stock Markets, will begin to flow in reliable actives: gold and other precious metals, probably power raw material.

The second variant for USA Government (to rescue bank system) is improbable, because in this case America at once recognizes, that dollar has lost the status of world reserve currency. There are number of applicants for the role of world reserve currency. The most probable reserve currency (GDP level, amount of the engaged population and industrial potential) can be EURO for today.

Millennium Crisis Fatal Consequences 

Fatal event of this new millennium start is the peak of solar activity, somewhere 2000-2001 years (fig. 1). Certainly, the search of connection between solar activity and economic events is not serious. Therefore, in this case, it is better to speak not about logic connection but about fatal concurrence, as it was within solar activity in: 1905 – First Russian Revolution, 1917 - October Revolution, 1929 – USA Stock Market collapse, 1939 - beginning of the Second World War, 1979 - war in the Afghanistan, 1989 – beginning of disintegration in the USSR.

Big interest represents  analysis of Kondratiev waves, which shows our Planet economic activity cycle (fig. 2).  For the period 2000-2003 Kondratiev wave shows bottom. And after that the most unpleasant period begins - growth of economic activity connected to the world military events. Within +/- 5 years accuracy it can be said, that the threat of world military events will be increasing up to 2018, and after 2018 world military conflicts will take place, which could be finished by 2027 (fig. 3).

All of as well understand, that the world military conflicts can not arise unexpectedly. They accruing gradually. Today it is already possible to speak about character of the world military conflict. Some events already taken place in Europe, Northern Africa, Asia.

How all of this can be reflected in the world finance? Let's start from crude oil prices - primary factor of inflation for last years. The chronology of crude oil prices is about 150 years. In 1998 crude oil prices ware analyzed by Elliott Waves method. It was shown, that after achievement of 9,75 dollars for barrel (the floor price for oil was established by the market in March 1999 on a mark 9,50) price will rise sharply and an ultimate goal for the Crude Oil will be 100 dollars for barrel. The events of last two years confirms given forecast.

But how the petroleum price can reach 100 dollars for barrel? The answer is a history of our civilization - it can be only in two cases:

1. Devaluation of US Dollar

2. Wars in the Persian gulf region

Let's begin from the first case. In a near future Devaluation of American dollar is possible only in a one unique case - as a result of US Stock Market collapse. The Debt world crisis will cause US Dollar devaluation. And Dollar will lose sense as the world reserve currency.

The probable disappearance of the World reserve currency can start global auditing of financial relations between countries. Let's address to a history: Down to second half of XIX century, the role of a world reserve active carried out silver. It was widely used for stamping coins. In 1816 Great Britain has proclaimed the gold standard. It has caused demonetization of silver. So Silver has fallen in price and till now has not returned "itself shine". New world reserve active arise after British Pound was leashed to the gold.

The natural gold/silver cost ratio makes number of Newton - 16. Approximately it was true during several centuries, starting from XIV century. Later gold started to supersede silver as the standard of cost. Today gold is almost 60 times more expensive than silver.

The first attempt to get natural gold/silver prices balance was made by Hunt brothers in 1979-1980. Billionaires brothers organized unprecedented speculative bullish game. After some weeks silver futures contracts have flied up with 5 up to 50 dollars for troy ounce. This game has opened one important fact, urgent today before crisis: with silver price increase gold prices went up sharply also up to 800-900 dollars for Troy Ounce and have achieved the natural ratio. "Hunt brothers attack" has shown, that the natural ratio of the prices of gold and silver can be achieved in a unique case - in repeated increase of the prices, as on gold, and silver simultaneously.

The second case – History of increase in petroleum prices is written by blood. Let's begin from 1973 - Israel army has intruded in the Sinnay Peninsula. The petroleum embargo has resulted in rise of the petroleum prices with 2 up to 8 dollars for barrel. Iran revolution in 1979 became the reason of new jump of the Oil prices - already up to 21 dollar for barrel. In the beginning of the Iran-Iraq war in 1980 the petroleum price have reached 41 dollar for barrel sharply.

The interesting fact is: In October 1980 with the beginning of the Iran-Iraq war, not only petroleum prices went up sharply, but also gold and silver prices went up simultaneously. This fact from a history of the strategic goods prices shows only one - after Stock Market collapse it is possible to expect not only rise in petroleum prices, but also rise in prices on gold and silver.

The question is - rise in petroleum prices will result in war, or the war will result in petroleum prices increase? It is a difficult question and it is very similar to a question: what is going first: a hen or an egg? Anyway, there is possible scenario: The USA Stock Market collapse will result of Dollar devaluation, that will cause a rise in petroleum prices, and finally the high petroleum prices could start military events in the Persian gulf region by 2018.

Military events in the Persian Gulf region will touch Russia because of big Military-industrial potential.