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iTulip, Inc. The Contrary Market View of the Markets Predicting your economic future since 1998 Eric Janszen Founder and President iTulip, Inc. iTulip.com iTulip, Inc.

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itulip inc
iTulip, Inc.

The Contrary Market View of the Markets

Predicting your economic future since 1998

Eric Janszen

Founder and President

iTulip, Inc.

iTulip.com

iTulip.com - iTulip, Inc © 2007

itulip inc2
iTulip, Inc.

All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Nothing appearing in this presentation should be considered a recommendation to buy or to sell any security or related financial instrument. iTulip, Inc. is not liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. See full disclaimer here: http://www.itulip.com/GeneralDisclaimer.htm

iTulip.com

iTulip.com - iTulip, Inc © 2007

history

Bill Griffeth, CNBC

History

Founded: 1998

Visitors: 7,000,000

Members: 2,200

Economic and Financial Markets

Macro Trends

iTulip.com - iTulip, Inc © 2007

what is itulip
What is iTulip?
  • March 2006: “ iTulip.com, which was restarted this week after a three-year hiatus, does not hesitate to claim credit for accurately predicting that the bubble would pop. It even got the timing right."

iTulip.com - iTulip, Inc © 2007

what is itulip5
What is iTulip?
  • May 2007 "A typical down cycle [for residential real estate] is five to seven years," says Eric Janszen, co-author of America\'s Bubble Economy: Profit When It Pops (Wiley, 2006), one of a recent crop of bubble books and far from the gloomiest and doomiest.”

iTulip.com - iTulip, Inc © 2007

other itulip firsts

Money Matters

Finance

Award

Other iTulip Firsts

Housing Bubble

August 2002: “Yes. It’s a Housing bubble.”

January 2004: “Will end by seizing up.”

January 2005: “Will Last 10+ Years.”

June 2005: “It’s a top.”

All-Assets-Up Global Credit Bubble

June 2006: “All assets positively correlated, driven by excess global liquidity.”

iTulip.com - iTulip, Inc © 2007

the model

The Model

Ka-Poom Theory of Bubble Cycles

Developed for Osborn Capital, LLC in 1999 to time stock sales, re-investment of proceeds

Application

Spring 2000: Exit tech stocks and purchase US Treasury Bonds

Sell Cisco @ $68, buy 10 year Treasuries 6.51%

Summer 2001: Purchase Precious Metals

Buy gold @ $270, silver $4.25, platinum $452

iTulip.com - iTulip, Inc © 2007

ka poom theory v1 0 1999
Ka-Poom Theory V1.0 (1999)

Monetize Debt

Inflation

US Foreign and domestic debt repudation

  • Bubble formation
  • Bubble collapse and disinflation
  • Domestic reflation to protect the economy (rate cuts, tax cuts, dollar depreciation)
  • Repatriation of dollar denominated assets
  • Global central bank cooperation to support the US dollar fails
  • Declining dollar, high inflation, rising interest rates, slowing economy
  • Go to Step 3

Classic vicious circle inflation driven by currency depreciation

Insufficient Domestic Savings

Expectations of Future Inflation

Buy on Credit

Consume Now

iTulip.com - iTulip, Inc © 2007

ka poom theory v1 0 19999
Ka-Poom Theory V1.0 (1999)

1999 Prediction

  • 2000: Crash followed by negative wealth effect disinflation
  • 2001: Fed will aggressively cut rates to prevent a Japanese 1990s deflation
  • CPI inflation bottoms ~ 0% Q3 2001

iTulip.com - iTulip, Inc © 2007

ka poom theory v1 0 199910
Ka-Poom Theory V1.0 (1999)

What actually happened?

  • 2000: Q2 crash followed by disinflation
  • 2001: Fed did not permit the CPI inflation to turn negative (no deflation… well, not much)
  • CPI inflation bottomed @ -1.3% September 2001

Disinflation

Reflation

iTulip.com - iTulip, Inc © 2007

ka poom theory
Ka-Poom Theory

1999 Prediction (cont’d)

  • 2001: Dollar depreciation part of reflation policy
  • 2003 -4: Foreign private investors repatriate dollars
  • Inflation peaks at 20%

iTulip.com - iTulip, Inc © 2007

ka poom theory v1 0 199912
Ka-Poom Theory V1.0 (1999)

What we did not expect

  • Housing bubble

Kept economy going, so no rapid exit by foreign investors

  • Price-insensitive purchasers of US debt (Oil exporters, China, UK)

Filled in for private investors

  • “China factor” influence on traded goods prices and CPI accounting

Inflation “contained”

Monetary Inflation

Education

Healthcare

Insurance

CPI

Consumer Electronics

iTulip.com - iTulip, Inc © 2007

ka poom theory v2 0 2004
Ka-Poom Theory V2.0 (2004)

Ka-Poom disinflation-reflation cycle

  • Bubble formation
  • Bubble collapse and disinflation
  • Domestic reflation policies for economic recovery
  • Cooperative currency depreciation props up US dollar
  • Go to Step 1

iTulip.com - iTulip, Inc © 2007

ka poom theory either case
Ka-Poom Theory (either case)
  • What happens in gold terms?

Global Depreciation

US Dollar Depreciation

iTulip.com - iTulip, Inc © 2007

now what

Now What?

There is a bubble in everything… all asset classes… globally.”

- Jeremy Grantham, April 2007

Reversion to the Mean

Triggered by random event

No one knows what or when

The usual suspects

War or terrorist attack

Revelation of fraud (GSEs)

Name your pin

iTulip.com - iTulip, Inc © 2007

then what

Crisis

Crisis

Crisis

Crisis

Then What?

Disinflation Phase - Risk Adjustments

Within asset classes

From most risky to least

Among asset classes

Purchasing power vs yield

Liquidity vs value

Among geographies

Local vs remote

Lowest economic and political risk

iTulip.com - iTulip, Inc © 2007

what happens to gold

What happens to gold?

Previous asset price reversion periods

Capital flight to political safety

Dollar rises, gold falls

US Government policy fights disinflation

Rate cuts, gov’t spending, $ depreciation

Coordinated global central bank policy

But unlike the 2001 version…

iTulip.com - iTulip, Inc © 2007

after disinflation

After Disinflation?

What’s different this time?

Not in 2001 “Kansas” anymore

Oil is at $60 not $20

Global inflation is high not low

US is at war not “peace”

US running huge fiscal deficit vs surplus

Dollar is weak not strong

Euro has never been stress-tested

iTulip.com - iTulip, Inc © 2007

two ka poom scenarios

Two Ka-Poom Scenarios

#1: The Last Ka-Poom: Reflation Fails

US-centric currency crisis

1997/1998 style currency crisis, except in major currencies

Dissolution of global monetary system

Sound far fetched? Greenspan was nervous enough last time to propose…

Senator Paul Sarbanes: "... is it your intention that the report of this hearing should be that Greenspan recommends a return to the gold standard!?"

Greenspan: "I\'ve been recommending that for years, there\'s nothing new about that. It would probably mean there is only one vote in the FOMC [Federal Open Market Committee] for that, but it is mine."

- Senate Committee Hearing, Sept. 1997

Crisis

iTulip.com - iTulip, Inc © 2007

two ka poom scenarios20

Two Ka-Poom Scenarios

#2: New Ka-Poom Cycle: Relfation Succeeds

The Next Bubble

Developed by markets

Encouraged by government tax and monetary policy

Alternative Energy and Infrastructure

  • “We are too dependent on imported oil from troubled parts of the world, so the question was, how would we craft something that would give us energy security as soon as possible? … we had presentations from terrific scientists on progress that\'s been made in technology and a number of alternative sources of energy — everything from solar to wind to energy to batteries and clean coal.
  • Treasury Secretary Henry Paulson
  • Feb. 2007

iTulip.com - iTulip, Inc © 2007

how to make an asset bubble
How to Make an Asset Bubble

Five Steps

  • Start with an asset that was already inflating before the last bubble collapsed (e.g., Housing during the stock market bubble)
  • Talk it up (e.g., “Ownership Society”)
  • Create tax incentives (e.g., 1997 Tax Relief Act)
  • Deregulate or don’t regulate (e.g., creative mortgage products, such as liar loans, cite the benefits of “free markets” and “innovation”)
  • Add money

(Also, take credit for “booming economy”)

iTulip.com - iTulip, Inc © 2007

the tea leaves

The Tea Leaves

Hard Assets: The Fourth Currency

Disinflation period when gold declines 25%+ during rush to liquidity (ala Feb. 2007 and Spring 2006)

If continues, asymmetric economic impact causes unexpected change in pricing relationships (outside “model”)

Hits currency and credit derivatives

Capital seeks safety from chaos while global central banks cope

iTulip.com - iTulip, Inc © 2007

itulip select
Specialist Interviews:

Jim Rogers

Martin Mayer

Dr. Jamie Galbraith

James Scurlock

Commentaries

Book Reviews

Portfolio Modeling

ShadowFed

iTulip Select

The Investment Thesis for the Next Cycle

http://www.itulip.com

iTulip.com

iTulip.com - iTulip, Inc © 2007

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