Tuesday, June 2, 2009

Coppock update and Chimerica speculations

The blogosphere is rich with content this morning, so I am just going to confirm that the Coppock curve has indeed sent a buy signal (as have Coppock curves around the world; see this):


With P/Es over 100 a retest of the recent lows—or a false signal as in 2001-2002—would seem to be in prospect, as I view the current apparent stabilization of the economy and upturn in “animal spirits,” while real, to be merely an interruption of the U.S. economy’s descent into depression.  The fundamental problem has not been solved:  because of the inequality of the income distribution, most households simply don’t have enough money (and many have too much debt) to sustain a true recovery.  See this for my take on the really big picture.

George Friedman of stratfor.com thinks that China faces as great a problem with inequality between the coasts and the interior, pointing to a recurring pattern in Chinese history of opening up to the West, experiencing rapid growth along the trading coasts and relative stagnation in the agricultural interior, and a final turning away from outside engagement as social tensions force a turning inward.  If depressions are caused by massive income inequality, China is at risk. 

Niall Ferguson compares the Chinese-American relationship to a marriage between a spendthrift and a saver here.  China faces risk of depression over the next ten years if a collapse in export demand cannot be made up domestically in short order.  But China resembles the U.S. in 1930 in being the world’s greatest creditor.  It could emerge from the ~2020 crisis we anticipate in far better shape than the U.S.  But they would have to pull off the miraculous equalization of the income distribution that America experienced in World War II to have it happen, if our hypothesis is correct.

This is research, not investment advice.  You invest at your own risk.


  1. Dear Sir,

    Do you think that the coppock indicator has become less reliable due to money printing by the Fed and Fed lending to prime brokers that speculate in the futures market?

  2. Yes, as evidenced by its first post-WWII false signal in 2001-2002.