2012 Year Of The Dragon

Happy New Year to all my readers.

As the new year dawns, we can reflect on several interesting coincidental themes between the economy, public mood, and astrological cycles.

In Chinese astrology, which is based on both calendars and astronomy, each year has an animal assigned to it in a twelve year cycle.  In 2012 (beginning January 23rd) the animal is the mythical dragon, the only mythical creature of the cycle.

Part of Chinese astrology is the Wu Xing which is often translated as the Five Phases or Elements.
The word Xing literally translates as 'changing states of being', 'permutations' or 'metamorphoses of being'.  Rather than the western view of elements being made of matter, the Chinese view is that of changing forces which have interactions between different phenomena.

What is of interest to us, is the coincidental nature of phenomena ascribed to this year's Dragon which is the Water Dragon.

Consider the following intuitive connections with Chinese cosmology & medicine for this year:

Color:               Black
Planet:             Mercury
Direction:        Descending
Season:          Winter
Development: Dormant
Country:         Japan

Mental quality: Spontaneity
Emotion:             Fear
Smell:                  Putrid
Life state:           Death

All the above descriptions of the year of the Water Dragon fit the Kondratieff Winter cycle well.

The connection between astronomical events and market events is an interesting one we have examined before.

Consider this from an earlier blog post regarding a conjunction between Mercury & Uranus.

A conjunction between Mercury & Uranus is anticipated for March 9, 2011. In Greek mythology Uranus is the chief god of the underworld and in Roman mythology Mercury is the god of commerce.
Mercury - God of Trade, Profit, Merchants and Travellers. His main festival, the Mercuralia, was celebrated on May 15 and on this day the merchants sprinkled their heads and their merchandise with water from his well near the Porta Capena. The symbols of Mercury are the caduceus (a staff with two intertwined snakes) and a purse (a symbol of his connection with commerce).
Uranus - He was the personification of heaven and the sky. When Uranus was born with his other siblings, he decided to banish the Cyclopes and the Hecatoncheiris into the depths of Tartarus. In Greek mythology Tartarus is a deep, gloomy place, a pit, or an abyss used as a dungeon of torment and suffering that resides beneath the underworld.

What is significant in this, is the apparent coincidence of the March 9th conjunction, and the March 11th earthquake and tsunami that struck Japan.  The economic damage was significant, and the human loss devastating.

A 2 year chart showing the impact of the tsunami on the Nikkei index follows:

The chart shows Japanese stocks never recovered from the disaster, and are now again probing the lows of March 2011.

As a proponent of the Kondratieff cycle theory, it is my view that we need to closely watch developments in Japan as well as the evolving European crisis to continue to make changes to protect our portfolios and influence our friends and family.

As I explained in my 2012 Forecast, the first wave of difficulties should appear in the Japanese bond market this year.

I expect US treasuries to do well for at least the first half of this year, cash looks attractive, shorting copper and Japanese bonds could be profitable.  Gold will probably do very well later this year once it finishes consolidating to its Elliot Wave low, perhaps around $1480, although the Dec 29 inter-day low of $1524 may complete gold's correction - we will just have to wait and see.