Financial Aquarius?
Essay Posted October 9, 2007 by James E. Nelson
When things line up in a row, hope springs eternal that something special will happen. “When the moon is in the seventh house, / And Jupiter aligns with Mars, / then peace will guide the planets, / and love will steer the stars.” That was The Fifth Dimension’s theory of how it might work out back in 1969. Of course their prediction was a pretty safe bet since know one that we considered sane was actually conversing with the stars about whether love was steering them or not. We do know it didn’t work out so well between humans.
While I’m skeptical about the astrological mumbo-jumbo, not all alignments happen in the heavens. Monetary alignments, for instance, seem to have a weird effect on North Americans. There have been two of them in recent history. Back in the early 70s the Canadian Dollar and the American Dollar (we’ll call them Loonies and Washingtons so we don’t get confused) were aligned, or trading at par, to use the technical term. In the last six years the Federal Reserve has been printing money (for no apparent reason other than the Administration wants it) at a breathtaking rate.
Of course the inevitable result is that all this new unbacked currency waters down the value of the currency already in circulation, so the value of a Washington has been plummeting. In turn, the Loonie, measured against the Washington, has been flying high. A few weeks ago, the Loonie once again reached parity with the Washington. (The following chart is a few weeks out of date, so parity, which was reached last week, is not shown. The legend is also hard to read. It shows prices from 1970 until mid 2007.)
I began this essay by contending that when things line up in a row, hope springs eternal that something special will happen. But it has nothing to do with peace and love when currencies align. The last two times it happened, a new desire for freedom and independence seemed to spring forth. Back in the 1970s the question on North America’s mind was Quebec independence, spurred on by the Parti Québécois (or “PQ” formed in October 1968).
The year before the formation of the PQ, French Prime Minister Charles de Gaulle had granted independence to Algeria and then made a trip to Montreal where he shouted “Vive le Québec libre!” to the French Canadian masses gathered to hear the speech. There is no record of the Queen’s opinion on the matter, but the Canadian government was not amused. But the outburst lit a fire under the discontent of French Canadians and the sovereignty movement took center stage for the next decade and a half in Canada.
Many believe it was the falling value of the Loonie that led to the ultimate demise of Quebec’s sovereignty movement. As separatist discussions got serious, the Loonie began to plunge. The economic problems had less to do with Quebec, though, and more to do with the Western Provinces. Like French speakers worldwide, Parti Québécois was in love with massive government bureaucracy and six weeks of paid vacation. If anything, sloughing off the francophones would probably improve Canadian output and their overall work ethic.
But the Western Provinces were also discontent. They claimed that they were under represented in Ottawa and as a result were taxed higher than the rest of the country without receiving the services that other Canadians got. The fear was that if the PQ was successful in their sovereignty bid, the Western Provinces would bolt as well. And the lion’s share of the natural resources (oil, silver, tin, bauxite, lumber, nickle, etc) were in the west. That would be an unquestionable disaster for “real” Canada (that is, everything east of Winnipeg).
So in the end, the hope of independence for Quebec sunk with the value of the Loonie.
Fast forward to a new millennium. The United States is involved in a trillion dollar war, Homeland Security is opening our mail as if they were our mother, and the word “war” is completely redefined so that we can keep prisoners at Guantanamo Bay without following the guidelines of the Geneva Convention . . . oh, and by the way, Loonies and Washingtons are once again at par. In turn, having achieved another age of monetary Aquarius, secessionists are beginning to unite. But this time it’s south of the border. AP staff writer Bill Poovey reports:
CHATTANOOGA, Tenn. (AP) — In an unlikely marriage of desire to secede from the United States, two advocacy groups from opposite political traditions — New England and the South — are sitting down to talk.
Tired of foreign wars and what they consider right-wing courts, the Middlebury Institute wants liberal states like Vermont to be able to secede peacefully.
That sounds just fine to the League of the South, a conservative group that refuses to give up on Southern independence.
“We believe that an independent South, or Hawaii, Alaska, or Vermont would be better able to serve the interest of everybody, regardless of race or ethnicity,” said Michael Hill of Killen, Ala., president of the League of the South.
Separated by hundreds of miles and divergent political philosophies, the Middlebury Institute and the League of the South are hosting a two-day Secessionist Convention starting Wednesday in Chattanooga.
They expect to attract supporters from California, Alaska and Hawaii, inviting anyone who wants to dissolve the Union so states can save themselves from an overbearing federal government.
The Middlebury Institute is liberal by typical American standards. They are Libertarian, but there are two varieties of Libertarians: socially conservative Libertarians (the Ron Paul school) and the socially liberal Libertarians. The Middlebury Institute, being socially liberal, is pro-gay, pro-abortion, and about as ideologically far from red-neck land as you can get. The fact that they’ve teamed up with the League of the South (a group that on the surface seems to have more in common with the Klu Klux Klan than Yankee Blue Bloods) can only be explained by some sort of strange astrological alignment.
Or maybe it really is this alignment of the currencies that seems to happen every thirty or forty years.
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R. N. Elliott (d. 1948) developed a theory of market movements based on Fibonacci number sequences called the Elliott Wave Theory. Elliott’s theory is not widely accepted in its totality but widely used to determine market bottoms and tops because it is so uncannily accurate. My purpose in bringing up Elliott Wave Theory is neither to explain it nor to determine the current wave pattern of the Loonie. Behind his elegant wave pattern and esoteric mathematics was a profound observation: The pattern of price movements in markets (whether the Dow Jones Industrial Average, the U.S. Dollar Index, or the Dec. 2008 Chicago Wheat contract) are an expression of social mood.
Certain wave patterns reflect confidence—a good thing—while other pattern reflect euphoria—a bad thing—because euphoria always leads to over-exuberance, which sets up market crashes. Elliott Waves provide rough pictures of society greed and fear and excess.
Let me repeat this central point, because it so fundamental to understanding markets. Market price action (whether its stocks, bonds, currencies, or commodities) are most fundamentally a reflection of societal mood. It is that societal mood, far more than market fundamentals, that cause prices to fluctuate as they do.
If only fundamentals mattered, the U.S. Dollar would have crashed years ago. Whether measured by money supply compared to national output, or money supply compared to gold supply, or balance of trade compared to GDP, the U.S. Dollar is practically worthless, and yet it’s value has remained remarkably strong over the years. Granted, it currently seems to be in free fall, but R. N. Elliott would hypothesize that the current downtrend has more to do with the world’s attitude (or mood) about the state of the American economy (which is slowly eroding over time) than about the actual fundamentals underlying its value (which collapsed years ago).
The Canadian Dollar is called a Loonie because there is a Loon stamped on the $1 coin and printed on the older $20 bill. But there is a double entendre in the name. The “Loonie” (and it’s cousin, the $2 coin called the “Toonie” or “Twonie”—no kidding, you can’t invent stuff this good!) is that other dollar, that silly dollar, that dollar from north of the border that isn’t quite real money by world standards. It’s not quite a U.S. Dollar, nor is it up to the standards of the Euro, or Yen, or Pound, or Swiss Franc. No, it’s a Loonie.
And when Loonies and Washingtons are worth the same thing, it says something profound about global attitudes as to what’s going on in North America.
In the 1970s the strong Loonie (for that is how the relationship was perceived) created a confidence in Canada that, in the context of French Canadian discontent, turned into a strange combination of victimization and hubris. The Québécois wanted out and were willing to bring their whole country down for the sake of their sovereignty.
As we near 2010 the weak Washington (for that is how the relationship between Loonie and Washington is perceived now) is creating a sense of shame in the United States which is turning into a combination of victimization and fear. The Central Government is increasingly feared and loathed even as their control over lives and their intrusion into our privacy increases week after week. (The latest example: In Feb. 2008, every American citizen will have to ask permission of the government to travel by airplane or Amtrak. Beginning then, any plane or train ticket sale will have to be cleared by the “Advance Passenger Information System,” or APIS, before the ticket is issued. Advertised as a terror prevention tool, it is simply an electronic internal passport system like the internal passports required by the Soviet Union, pre-WWII Germany and Italy, and a number of other like-minded countries. Research it using your trusty search engine and complain now to your congressmen and senators.)
As in 1970 Canada, so in the contemporary U.S., this sense of fear is leading to a remarkable resurgence of secessionist fever. This latest round of secessionist fever will fail like its predecessors, but it’s amazing what sort of bed fellows it’s bringing together.
So is this the Age of Aquarius? I doubt it, even if Bernanke’s in the Seventh House, and the Loonie has aligned with Mars. In short, this too, like the hair styles of The Fifth Dimension, will pass. But don’t be surprised if we have a wild political ride as Loonies soar and Washingtons drift lower.
Copyright © 2007 James E. Nelson (Just Another Jim). All Rights Reserved.
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