index ... introduction

The Brexit EOW Cycle

by Roger Bourke White Jr., copyright March 2020, started August 2017


Update March 2020

It's late, and it's being attributed to the coronavirus/COVID-19 scare, but The Hangover has finally arrived. The Bear is roaring. This 11 Mar 20 WSJ article, Dow Jones Industrial Average’s 11-Year Bull Run Ends by Akane Otani and Karen Langley, desribes the ending.

From the article, "The longest-ever bull market for U.S. stocks ended Wednesday."

"The Dow closed at 23553.22, down 20.3% from its record of 29,551.42 reached Feb. 12. That ended the bull market that began March 9, 2009, one of the bleakest points of the crisis."

Update January 2020

It appears the Brexit pattern is not going to complete -- no Brexit Hangover. Higher profile current events, such as the US China trade war in 2019 and the Iranian general assassination in Baghdad in January 2020, are pushing aside the instinctive thinking needed to complete the Brexit pattern. Brexit will complete, but it will happen with a different pattern than I have been predicting. Ah well... such is real life.

Update December 2019

The UK has gone through a decisive election in December, and the result was a decisive win for Boris Johnson, the current Prime Minister. This means that Brexit may get back on track to becoming something predictable and something that happens soon. If so, it is heading towards becoming a non-event again, and The Hangover may finally happen. It may... but we clearly aren't there yet, and it is far from clear that the non-event pattern will resume.

Update September 2019

Brexit is continuing to break out of pattern.

It is leaving the pattern by becoming a big, complex and uncertain event rather than staying a calm and predictable non-event like the Hong Kong Turnover was. This means that how the "hangover" will unfold is also getting uncertain. I'm still predicting one, but when, the style, and the magnitude are now much more uncertain. That said, I'm still predicting stock market and economic declines starting within the next three months. I have been predicting a small and short recession, but things are getting so out of pattern that a Japanese-style "lost decade" is getting in the possibility window.

Update August 2019

This 15 Aug 19 WSJ article, Stocks for Income, Bonds for Speculation Buying bonds at such stupidly high prices isn’t a way to keep your investment safe—it is speculation by James Mackintosh, warns that for this cycle it may be bonds, not housing, that is the center of speculation mania.

From the article, "These yields can’t be justified on the basis of holding the bonds to maturity. To make sense, investors would have to think both that the world will have extremely low interest rates and no inflation for decades and that governments won’t respond by borrowing and spending. That might be true for a while, but to believe in both lasting without a political upheaval—until 2117 in the case of Austria—is to deny history."

Is the Bear's Roar beginning? Trump and China's decision to continue the tariff bickering may be the trigger that is finally kicking in the Brexit Hangover bear market. There have been three big down days following the Fed's decision to lower bank interest rates on Wednesday, July 31st, then a full week of wobbling up and down. Trump and China's taking the tariff war to the next level seems to be the cause.

This 2 Aug 19 WSJ article, Stocks Fall as Tariff Threats Outweigh Jobs Numbers by Steven Russolillo, Corrie Driebusch and Lauren Almeida, talks about this.

From the article, "U.S. stocks fell again Friday, as investors overlooked an in-line jobs report and focused on earlier threats by President Trump to extend tariffs to essentially all Chinese imports."

The article reports 2% losses in major markets around the world and bond yields have fallen too.

And another article: This 2 Aug 19 WSJ article, Tariff Fight Costs China Spot as Top U.S. Trading Partner by Paul Kiernan and Anthony DeBarros, talks about the magnitude of the change in trade volumes.

From the article, "Escalating tariff disputes between Washington and Beijing cost China its position as the U.S.’s top trading partner in the first half of the year, as exports and imports between the two largest economies fell sharply.

U.S. imports from China fell 12% in the first six months of 2019 from a year earlier, while exports fell 19%, the Commerce Department said Friday in a monthly trade report."

Trump seems to have provided the trigger. Now lets see how loudly and longly The Bear roars.

Update July 2019

The Brexit drama is intensifying with the election of Boris Johnson as PM. (this Economist article talks about it) This is taking it out of pattern by threatening its ability to transform into a non-event. This means The Hangover is also moving out of pattern and into uncharted territory. The lesson here is that history has patterns but they aren't always followed. We are now in "We shall see... We shall see..." mode.

The market is going into strange places. This is a sign of dream changing, which is a sign that the bear and a recession are coming soon... soon meaning within months. This 14 Jul 19 WSJ article, Oxymoron Alert: Some ‘High Yield’ Bonds Go Negative by Paul J. Davies, talks about high yield bonds actually giving negative returns.

From the article, "In the latest sign of financial markets going into uncharted territory, more than a dozen junk bonds, which usually carry high yields, now trade in Europe with a negative yield.

It is a stark illustration of how ultraloose monetary policies have turned debt investing into a choice about how to lose the least amount of money."

Another leading indicator has popped onto my radar: foreigners buying US homes has declined dramatically. This 17 Jul 19 WSJ article, Foreign Buying of U.S. Homes Suffers Record Drop by Laura Kusisto, talks about how foreigners are buying fewer US homes. The foreign discretionary money is getting worried.

From the article, "Foreign purchases of U.S. homes have dropped by half over the last two years, a fresh blow to the top end of the market in New York City, Miami and cities in California. ... “It’s quite striking in terms of the magnitude of the decline,” said Lawrence Yun, the Realtors’ chief economist."

Update June 2019

The Bear has been growling, but not yet roaring. The markets have been wobbly -- going up and down with wide daily swings. Nasdaq reached "contraction" (down 10%) but not "bear" (down 20%) -- and that was just for a while, it is back up now. So the mania remains hot, and I'm still waiting for the bear side to kick in. It now looks like it may take reaching the current Brexit deadline (Oct 31st) before the bear side seriously kicks in.

I'm not alone, there is lots of writing now about the long bull and when it will end. This 14 Jun 19 WSJ Intelligent Investor article, What Yogi Berra Would Have Said About This Bull Market by Jason Zweig, has a nice chart of historic bull markets showing their rise and duration.

Update May 2019

It is impressive just how much Brexit is disorganizing British politics. Instead of just two sides on this issue there are now many, and there are many choices for a party and party leader to back, and many choices for who is going to replace Teresa May as Prime Minister. This is going to go down as a very confusing time in British social and political history. This is also not part of the pattern, this is a new twist. This new twist is being caused by the distinctive dream changing that is coming with the unfolding of this issue. History has patterns but the unfolding of each situation is distinctive. We are now moving beyond the pattern and into exciting new territory. This 30 May 19 Economist article, Britain’s constitutional time-bomb, gives some feel for the magnitude of this dream changing.

The Bear is starting to growl. Four of the first five days in May have been down days. If this continues it's kind of freaky: the timing I predicted two years ago is actually coming to pass -- the Brexit "can kicking" does not seem to be affecting the timing of The Hangover. Now we get to see just how The Bear will growl, and how soon it will pass, and when it does then I can get back into the equity investing I so enjoy. The current reason the media is giving for The Bear is US-China trade negotiations, but the timing is perfect for a Brexit Hangover.

Update April 2019

The can has been kicked again: Brexit deadline is now 31 Oct. The EU has agreed to this. This 10 Apr 19 WSJ article, EU Leaders Agree to Delay Brexit Until Oct. 31 by Laurence Norman and Max Colchester, covers the details. This delay is long enough that Hangover should kick in well before this new date. I'm now holding my breath.

Another indication that a downturn is coming soon. This time, it is British businesses hoarding. This 4 Apr 19 WSJ article, Fearing a No-Deal Brexit, British Companies Hoard Like It’s Wartime Stockpiling of materials and supplies risks crimping growth—a problem that will continue even if there’s an orderly exit from the EU by Jason Douglas and Alistair MacDonald, talks about the stockpiling going on, which will be yet another reason to go bearish when this starts to resolve and cool down.

From the article, "For 46 years, British manufacturers have built their supply chains and export markets around free trade with Europe. On April 12, that could come to an end, rupturing one of the world’s most advanced, cross-border assembly lines.

To get ready, British companies are hoarding at rates rarely seen outside of wartime."

As this situation resolves there will be a downturn as these businesses unload this precautionary inventory.

Update March 2019

This 31 Mar 19 WSJ article, ‘Fear of Missing Out’ Pushes Investors Toward Stocks by Amrith Ramkumar, is talking about another force pushing the markets up. That is good news for my forecast because this force is a temporary one, and when the market does dip it will evaporate quickly.

LoL! It looks like the Meuller Report is taking the place of Brexit as March's high-profile non-event. So we do have a non-event, now we get to see if The Hangover will come about as forecast.

As of mid-month Brexit is breaking out of the pattern that Hong Kong Turnover and Y2K created. It is breaking out by becoming a messy, for-real event, not a smoothly transitioning non-event. How this will effect the bear market "hangover" is something I can't forecast... except that what comes won't be due to a mania hangover, it will be caused by different feelings. It is also breaking out of pattern because a stock market downturn is now widely forecast and expected -- it will be no surprise when it hits. For now, I'm forecasting that the bear market will still happen, but it will be short and sweet because it is so widely anticipated. The following recession will be short and sweet, too, but it will still be a time of dream changing, so what prospers on the far side is still something I'm watching carefully for.

Almost time for the climax. But the mania seems to be back in full swing. This 5 Mar 19 WSJ article, Money Pours Into Russia, China, Uzbekistan as Markets Roar Back Yield-hungry investors pile into emerging-market assets as global central banks turn cautious by Ira Iosebashvili, Asjylyn Loder and Julie Wernau, is describing the mania as being in full swing.

From the article, "Fueled by a cautious shift from the world’s central banks and easing fears over global trade, portfolio managers are snapping up everything from Chinese equities to the Chilean peso in a world-wide hunt for yield. Investors have piled around $86 billion into emerging markets stocks and bonds this year, more than in the last nine months of 2018 combined, data from the Institute of International Finance showed."

Update February 2019

Maybe it will stay a non-event. This 22 Feb 19 WSJ article, Bankers Don’t Flee London, Despite Exodus Predictions by Georgi Kantchev, seems to indicate little change is coming.

From the article, "LONDON—A month before the U.K. is set to leave the European Union, a long-feared exodus of financiers from London hasn’t yet materialized."

More indication of mania in progress. This 18 Feb 19 WSJ article, Bad News Is Good News for Stocks Again by Mike Bird, talks about stocks recovering while economies languish.

From the article, "The recovery in global stocks has come despite disappointing economic data from powerhouses such as China, Germany and even the U.S., alongside a broad-based deterioration in company earnings outlooks."

Brexit Mania has kicked back in. The stock market is thriving again. This 10 Feb 19 WSJ article, Market Indicators Turn Bullish After Flashing Red Last Year Investors look to technical signals as they try to reconcile a dizzying December swoon with a dramatic January recovery by Amrith Ramkumar, talks about what I think is the Brexit Mania kicking back in.

From the article, "Major U.S. indexes have crossed or are nearing their 200-day moving averages and the number of stocks setting 52-week highs is on the rise, among other indicators favored by portfolio managers and investment gurus trying to divine the market’s next move."

Now only two months to the beginning of The Hangover.

Update January 2019

Here is a forecast for what is coming after The Hangover. This 24 Jan 19 Economist article, The steam has gone out of globalisation A new pattern of world commerce is becoming clearer—as are its costs, forecasts how the dream will be different.

From the article, "Today’s trade tensions are compounding a shift that has been under way since the financial crisis in 2008-09. As we explain, cross-border investment, trade, bank loans and supply chains have all been shrinking or stagnating relative to world GDP (see Briefing). Globalisation has given way to a new era of sluggishness. Adapting a term coined by a Dutch writer, we call it “slowbalisation”.

The Brexit Hangover is coming, but the markets and economies are skittish already, months earlier than I expected. This makes me wonder at the magnitude of The Hangover. My feeling this week is that it will be larger and longer than what I've been anticipating -- there are a lot of other worries that are mixing in with the Brexit EOW instinct. For example, Brexit is trashing UK parliament procedure as well as adding so much uncertainty to the economy.

That said, this 27 Jan 19 WSJ article, Stocks Start Off 2019 With a Bang But some investors are skeptical of the global rally, citing the challenges that continue to confront financial markets by Michael Wursthorn and Akane Otani, may be describing Brexit Mania kicking in and giving markets a last quarter boost.

From the article, "Stocks around the world are rallying at the fastest pace in months, the latest sign that the fears investors grappled with late last year have largely subsided."

Boy, oh, Boy! This is getting even messier than I thought possible. It is also turning into a Big Event, which I was not forecasting, either. How this will effect the Brexit Hangover I'm forecasting is hard to predict. My prediction now is that it will be even bigger than I was forecasting.

This 15 Jan 19 WSJ article, U.K. Parliament Roundly Rejects May’s Brexit Plan by Max Colchester, is some of the latest news.

From the article, "LONDON—The British Parliament overwhelmingly rejected a proposed Brexit deal Tuesday, delivering a setback for U.K. Prime Minister Theresa May and further stoking the extreme uncertainty around the U.K.’s exit from the European Union in just over two months’ time."

This 17 Jan 19 WSJ article, Corporate Europe Faces ‘Unbearable’ Uncertainty Over U.K. Exit by Denise Roland and Robert Wall, talks about the level of gloom business is feeling.

From the article, "With the deadline just weeks away, many big companies find themselves making contingency plans for disaster."

Update December 2018

This is a WSJ article on Brexit investing mania, When to Pounce on a Brexit Buying Opportunity by James Mackintosh 18 Dec 18. It is dealing with conventional doom-and-gloom scenarios, it doesn't talk about a Brexit Hangover.

Ah... to be at the start of a bull market with a bunch of money and the personal admonition to "invest this wisely".

Sadly, I think I'm going to have to wait nine months or longer for this condition to come about this time. This Brexit situation is staying messy, which means it may not be the non-event that the Hong Kong Turnover was. If it's not, if it's a real and messy event, the market reaction is not going to be as cleanly predictable or as swift.

On the good news side, the world economic slow-down is happening now. This means it should end next year so when the bull does start it will have a solid foundation and lots of oomph behind it. The issue then becomes "How have the dreams changed and how to take advantage of it? What will be the and what will be the Amazon?" Right now it's looking like the memorable bubble, the, is going to be cybercurrencies.

The stock market sure has been weird. This constant up and down is both not what I anticipated and not what I can explain. (I notice I'm not alone, the WSJ reporters can't explain it well, either.) This makes figuring out what comes next, in the first part of next year, harder than ever.

What I am seeing in The Economist articles is a rising profile on Brexit, and that profile is a scary one. How it is going to actually happen is staying hard to figure out and explain. But the rising profile is what I expected. So... I'm still expecting some kind of Brexit Hangover. But these days I'm far from sure what form it is going to take and what parts of the world economy are going to be most dramatically affected. This is especially so with all this high-profile populism now mixing in -- the French "gilets jaunes" riots as the current highest profile example.

Update November 2018

Well... the stock decline is now with us... six months early. Now the big question is how long will it go on for? Is it going to take six to nine months to end, or is this current decline going to incorporate the Brexit hangover, even if it ends before Brexit does? Another possibility is two declines with a brief mania rise in between.

I'm now watching to see when, and where, the turnaround begins -- markets all around the world have been declining. And I'm also watching for how dreams will change: who are going to be the early winners when the bull market starts again? It may not be tech stocks, that may be part of the dream change.

The second half of the month the Brexit issue is getting deliciously uncertain on both sides. On the UK side prime minister Teresa May is submitting a plan to the UK parliament that she and her EU negotiators have worked out. It is so controversial that she is loosing cabinet members right and left. On the EU side Angela Merkel, Germany's Chancellor and a pillar of EU stability, has had some bad election results and announced she will not run for her party's leadership in 2018 or for Chancellor in 2021. All-in-all, deliciously uncertain, which is keeping the doom-and-gloom side of the mania intense.

And the profile is getting much higher. This means the mania is building as well. But that means the uncertainty of the relation between this month's US market gyrations and the Brexit hangover is also growing as well. What is the hangover going to look like? Can it be big if these pre-hangover gyrations also get big?

The market is doing more gyrating as it did in October, in fact, even more than it did in October. This keeps the two big questions at the forefront:

o Is The Bear upon us? Is it coming earlier than I planned?

o Will Brexit bring more bear/hangover in six months?

Which once again leads to the tactical question I brought up in October: is it time to start looking for the replacements that will begin the next boom, or should that still wait until spring of 2019?

And another big surprise, this time on the Europe side. Angela Merkel is stepping down in Germany. This is adding even more uncertainty than the Italians electing their Euro skeptic government six months ago.

Update October 2018

More Ouch! More tumble! The correction seems to be starting now. It's six months early based on my EOW pattern prediction. This means that something other than Brexit is powering this tumble. It also leaves the quandary of will there still be a Brexit tumble? If so, we are in for six months of tumble. Wow! A long one.

Ouch! The market is getting touchy! There were two sharp drop days on Wednesday and Thursday of this week (of Oct 8th) followed by a sharp rise on Friday. The bull market is definitely getting touchy. That plus the world markets outside of the US have been falling all month.

So... the big question now is: Will the mania last until Brexit or is it going to end sooner?

Business is still booming in the US, so in theory the US stock market can support more bull market. But the world situation is not as robust as it was this time last year, so downward contagion is a lot more likely.

Fingers crossed at this point...

Ah... an article indicating the mania is still alive and well. This 13 Oct 18 WSJ article, In China, a Dot-Com Déjà-Vu Welcome to the land of ‘unicorns’ and super-cheap meals. The rewards are rich, as are valuations. And the risks are rising. How it will play out depends upon whom you ask. by Phred Dvorak and Liza Lin, talks about the vigor of the unicorn marketplace in China.

From the article, "We’ve seen it before: the crazy spending, the stratospheric valuations. Twenty years later, it looks like the dot-com boom all over again, but this time the players are much bigger—and Chinese."

Update September 2018

Another September Surprise is how much media and social media attention the hearings for Brett Kavanaugh as Supreme Court justice are getting. This attention surge indicates that MeToo is turning into the next moral panic. The social effects of this panic are fairly easy to predict: one is we are creating a "social burqa" for our teenagers -- they can't predict what effect touching today will have thirty years in their future. What the business effects will be over the next few months is harder to predict.

The summer market has been shaky. But soon come mid-term elections and Brexit is close, just six months away now. Mania should be strengthening.

Recessions are times of dream changing, so the question of what will emerge from the Brexit Bust is still an interesting one. As of now I'm reading a lot about Big Data and AI. There has been lots of hype, but I've also been reading about obstacles. The big one for AI is it not being as innovative as people have imagined. If it is not, then there will still be lots of human involvement in getting it to pay off. Likewise, if AI can't pay off by itself, then Big Data won't be able to, either -- the tool that makes Big Data useful is AI.

So what the post-bust dreams will be -- what will be the hot items that emerge, and what forms they will take when they do -- is still way up in the air.

Update July 2018

More rising profile. This 12 Jul 18 Economist article, A new Brexit plan creates fresh depths of chaos, is the lead article in this week's issue. It talks about two of May's ministers resigning in the controversy over how to handle the exit.

But conflicting with this is a US stock market that is pausing and dipping. As an example Facebook has now dipped twice in the last six months. This pause-and-dip is coming too soon. Is it replacing the Brexit crash I'm envisioning, or just competing with it, and this current pause will be replaced with more mania rising over the next nine months?

I don't know yet. I'm watching carefully.

Update June 2018

Good. Brexit is rising in profile again. Now that the distractions of Trump Trade War and Itexit are moving on Brexit is getting more attention. This 14 Jun 18 Economist article, Brexiteers fear being stitched up by the establishment As hopes of a hard Brexit fade, the stab-in-the-back theory gains currency, is one example.

From the article, "Ambrose Evans-Pritchard, a pro-Leave journalist, says that “the quixotic bid for British independence has failed”. On the Remain side, Jonathan Powell pronounces hard Brexit “dead”, killed by the conundrum of the Irish border."

More Brexit concerns that are describing the mania. Why Hot Money Is a Problem for Britain at Just the Wrong Time U.K. has long relied on foreign investors, but its funding is becoming less secure

From the article, "But recent changes in the type of inflows Britain is seeing—and the kinds of assets foreigners are putting most money into—have left the country more vulnerable to tightening credit conditions, the Bank of England warned this week."

Update May 2018

Ouch! This developing Italian election crisis is so much like Brexit that it is overshadowing the Brexit pattern. This is a surprise. What it means to the Brexit pattern will have to be watched for. Here are two articles on the crisis. This 28 May 18 Economist article, Italy’s new government collapses before even getting started, talks about the government crisis, and this 29 May 18 WSJ article, Italy Sparks Global Fear of Fresh Euro Crisis by Jon Sindrew and Mike Bird, talks about the stock and bond market responses.

This 6 May 18 WSJ article, Why Stocks Can’t Wait for the Midterms to Be Over by Mark Hulbert, describes a possible amplification to the Brexit EOW mania. It is the uncertainty of the November mid-term elections in the US. If these two harmonize, the November through April period will be real boomish, followed by the Brexit hangover starting in 1Q or 2Q in 2019.

From the article, "They found that ever since the Dow Jones Industrial Average was created in the late 1890s, it has produced an annualized gain of just 1.4% in the six months before midterm elections, in contrast to a 21.8% annualized return in the six months thereafter."

This 10 May 18 WSJ article, Economists Think the Next U.S. Recession Could Begin in 2020, is talking about predicting the next recession. No mention of Brexit or Brexit mania, so little thought of a 2019 beginning.

From the article, "As for the most likely primary cause of the next downturn, 62% selected an overheating economy leading to Fed tightening. Other options picked by at least 5% of economists surveyed were a financial crisis, the bursting of an asset bubble, a fiscal crisis or disruptions to international trade."

It also points out how hard recessions are to predict. They are always surprises.

A revised thought: If the Feb/Mar wavering and contraction is replaced with going back to more steady rise in May/June then the Brexit EOW pattern is back in place.

Update April 2018

The markets may not have waited for Brexit. There have been the wild daily gyrations for the past month that have had markets going both plus and minus over 1% on many days. Now another sign of dream changing has come.

This 12 Apr 18 WSJ article, Bitcoin’s Hype Vanishes Just Like That: ‘We’re in the Boring Phase’ Daily trading volume is 70% lower than its most active days, and the virtual currency is fading from social-media feeds by Steven Russolillo, talks about interest in Bitcoin declining.

From the article, "The 30-year-old from Nashville told them he had bought bitcoin and litecoin last fall but recently sold most of his holdings. The discussion quickly shifted to another subject.

“Months ago, they would’ve been genuinely interested in how to invest in [cryptocurrencies], how it works, and where I [thought] the price was going,” he said. “Now it’s something that’s the brunt of jokes, like I had invested in comic books or baseball cards.”"

Bitcoin is the iconic new financial tool of this market's boom mania. If interest in that is moving on, the mania is moving on as well.

Update end of March 2018

The market gyrations of February and March have been wild, several days have seen 1%+ stock moves, both up and down. They have also been remarkably contained in their range, as in, the wild crashes have been followed by wild recovery rises.

I envision this as being a result of two forces. One force is an attempt at a market correction, as in, ending this long bull market. The other force is Brexit EOW mania which is keeping the market buoyant. If that boyancy mania stays strong, the boom lasts for almost exactly another year now.

The other thing to keep in mind is that recessions are the result of dream changing, as in, what has been working has stopped working and communities are searching for a replacement that does work. So far, the current economy is working just fine, and working fine all over the world, so if a recession happens it will be the result of people getting scared by the wild market gyrations, and a for-real long-lasting plunge that becomes part of them. The crash will start the recession, not vice versa.

Update Feb 2018

A manifestation of mania in China, the rise of Ponzi schemes. This 3 Feb 18 Economst article, Pyramid schemes cause huge social harm in China Ponzi schemes cause huge social harm in China. Crackdowns may not be working, describes the current rise in their popularity.

From the article, "THE authorities call them “business cults”. Tens of millions of people are ensnared in these pyramid schemes that use cult-like techniques to brainwash their targets and bilk them out of their money."

Update from Jan Cyreenik Says

Crypto currencies are still in their infancy

Crypto currencies are now a white-hot destination for get rich quick investing. But the concept is brand new and as a result is still filled with lots of live-and-learn glitches that will get corrected over the next few years. Will get corrected, but they aren't corrected yet.

This 23 Jan 18 WSJ article, The Programmer at the Center of a $100 Billion Crypto Storm How a top source of bitcoin data contributed to a sudden plunge in digital currencies by Paul Vigna and Jim Oberman, illustrates just how capricious they still are.

From the article, "The globe-rattling move can be traced to one address: An apartment in a new residential building across the street from a local union headquarters in a gentrifying section of Long Island City, Queens.

It is the workplace of Brandon Chez, the 31-year-old computer programmer behind, a website that is a top source for data on bitcoin and hundreds of other cryptocurrencies. Mr. Chez’s site, which went live in 2013, has become one of the most heavily trafficked websites in the world."

Crypto currencies are a wild and wooly place and at the center of the EOW Brexit investing mania that I think we are experiencing. If I'm right, the investing bust will come in the first quarter of 2019 as Brexit transforms from frightening into a non-issue, and crypto currencies will be the most memorable part. This will be following the pattern of the Hong Kong Turnover in 1997 and the Y2K in 1999.

Irrational exuberance is upon us

The US and world economies are booming, so are the stock markets. The booms in the US markets have been going on many years now. Is the end near? Are we in the mania phase?

There has been lots of discussion of this in the business media streams I read. Here is my forecast -- I base this on the patterns I see in history.

The dramatic rise in interest in bitcoin and other crypto currencies is an indicator that investing mania is upon us. With mania upon us, the big questions become how will this boom end and when? It will end as a bust, the details of which I can't forecast, but when I can.

I see this as an End of World mania that is being spawned by the Brexit issue. The pattern being followed here is the one that evolved around the Hong Kong Turnover to China back in 1997. The concerns about the turnover lead to an investing mania in office building that spread around the Pacific Rim from Vancouver to Calcutta -- "All those Hong Kongers will leave and need new places to carry on their businesses. Hmm... I can build one here for them." This mania was followed by the Asian Flu bust in 1998 when the turnover turned into a non-event. The Y2K mania --> dotcom bust also fits this pattern.

If the current mania follows the pattern it will continue into the first quarter of 2019. That's when Brexit will complete and transform into a non-event. As that happens the mania will end and the bust will come.

So, bust in 1Q 2019, this is my forecast based on the patterns of history.

Update 26 Nov 17

This 26 Nov 17 WSJ article, Will Investors’ Low-Rate Mistake Kill the Stock Market? New research shows a behavioral quirk may be leading investors to take excessive risk by Justin Lahart, talks about instinctive risk taking. He attributes the high market to the low interest rates on bond-style assets and talks about a psychological study that supports this.

From the article, "But how much more? A series of experiments conducted by economics graduate students Chen Lian, Yueran Ma and Carmen Wang show that when rates are low, investors’ appetite for risk increases beyond what seems logical."

This isn't the same as, but it meshes well with, my Brexit mania theory.

Update 1 Nov 17

This 1 Nov 17 Economist article, The Phillips curve may be broken for good Central bankers insist that the underlying theory remains valid, may be another example of Brexit EOW mania. The Phillips Curve relates unemployment to inflation in an inverse way. The article says it applied well in the 1970's and 80's, but hasn't applied well in the 2010's. This could be mania, but it may not. It may not because the breakdown started happening years before the Brexit vote happened.

Update 5 Oct 17

This 7 Oct 17 Economist article, Asset prices are high across the board. Is it time to worry?, is their current take on the boom. They see it and they see high ratios, but they don't see an end coming. Things are going up but this time doesn't look like the euphoria of 1929 or the "Things are different this time." of the Dotcom Boom of 1999. While the ratios are high, this time things are booming all over the world and inflation is staying low, and that's why this looks sustainable. And in 6 Oct 17 WSJ Intelligent Investor, Income Investors: It’s OK to Be Sad, But Don’t Get Desperate by Jason Zweig, a perennial bubble warner.

Update 20 Sep 17

In an EOW mania cycle it's not that people don't see the bubble coming, it's that powers that be can't discover good ways of stopping it from continuing to grow. This 11 Sep 17 WSJ article, China to Shut Bitcoin Exchanges Authorities to ban commercial trading of all virtual currencies by Chao Deng and Paul Vigna, describes China trying to contain the Bitcoin Bubble. After reading it I'm reminded of Alan Greenspan complaining about irrational exuberance during the Dot Com bubble. We will see how this Bitcoin Mania evolves. My prediction, it will continue to bubble.

And another example of bubbling: This 20 Sep 17 WSJ article, It’s Not Your Typical Stock, But It’s Up 143% Shares in the Swiss National Bank have surged this year by Brian Blackstone, describes the Swiss National Bank stock surging mightily for no reason.

Update 14 Sep 17

This 9 Sep 17 Economist article, Keeping calm and carrying on, talks about the magazine's surprise that the British economy is doing as well as it is in the face of the upcoming Brexit. They are surprised, I'm not. This is part of the EOW Brexit Mania that I am predicting. My prediction is that the boom will end in 1Q 2019 as the Brexit issue is resolved and becomes history, and the mania attached to it subsides.

Update 3 Sep 17

Here is a good article 22 Aug 17 Fortune article about Blockchain Mania by Chris Joslin and Robert Hackett. It covers both the uses and the mania surrounding this emerging financial technology. This is important because this will be the high-profile bubble technology for the Brexit boom coming over the next twelve months. This is the "dotcom" or CDO for this mania. And this related article The 21st-Century Bank Robbery by Jen Wieczner is about the spooky aspect of cybercurrency -- the stealing. It is spooky because it reports there is a lot of it.

Update 30 Aug 17

The bust will have an iconic bubble item. In the case of the Asian Flu bust it was new office buildings built around the Pacific Rim, in the case of the DotCom bust it was internet-related technology companies, in the case of the Great Recession it was Collateralized Debt Obligations (CDO) as part of the housing price bust. I'm predicting that cryptocurrencies (Bitcoin, Etherium and others) will be the iconic bubble item for the Brexit bust.

The interesting implication here is that they will be mostly booming up until the bust -- which means a possible profitable investment.

Another item may be a boom in business buildings in Europe to house The City financial people when they have to move out of London to keep doing business in Europe. This latter item is identical to the Hong Kong Turnover thinking.

Update 29 Aug 17

I've had the "Ah-Hah": I'm seeing that Brexit is going to evolve like the Hong Kong Turnover did. Wow! This is so unusual to see both a familiar finance pattern ready to unfold, and be pretty sure about the timing of when it will unfold. Now I get to be thinking hard about how to take advantage of this insight.


End of World (EOW) thinking cycles are important because they can have a strong influence on economic cycles. This is about my forecasting for the upcoming Brexit EOW cycle. This one began in June 2016 with a vote, got real serious in March 2017 with an invoking of Article 50, and will climax some time in 2019 -- March 2019 is now the official leave date. Between now and then there are lots and lots of details to be worked out -- as with the Hong Kong Turnover there is lots of exciting uncertainty about how things will really work out.


The two previous cycles that brought this pattern to my attention were the 1997 Hong Kong Turnover leading to the 1998 Asian Flu Bubble bursting, and the year 1999 Y2K mania leading to the 2000 DotCom Bubble bursting. This upcoming Brexit pattern strongly resembles the Hong Kong Turnover in its foundation -- its about a prosperous business region changing its political affiliations. This is what Brexit is about and it is filled with just as much commercial and social uncertainty.

Here is how the US markets reacted:

o S&P: no drop in 1998 -- in 2000 it was 1450->800=45% and the same in 2008
o Dow: no drop in 1998 -- in 2000 it was 11000->8000=28% in 2008 it was 13000->7000=46%

Here is my first discussion of the Manias and Markets concept, way back in 2003.

The Plan

The current plan is to move my equities into bonds over the 2018 year, quarter-by-quarter.

1Q (Feb) move my weakest performing 25% of stocks/funds into treasury or equivalent bonds.

2Q (May) move my weakest performing third of stocks/funds

3Q (Aug) move my weakest performing half of stocks/funds

4Q (Nov) move the rest of stocks/funds

Wait for the dip. I'm anticipating this for 2Q or 3Q 2019

Following the dip look at how "dreams have changed" and start moving back into good performing equities to take advantage of the next boom cycle.

This plan presumes that Brexit is going to happen smoothly and quickly become, in essence, a non-event, like Y2K became. The market dip will be a hangover from Brexit EOW mania. If the Brexit starts to get seriously rocky or surprising then this plan needs to get reexamined.



--The End--


index ... introduction