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SIGNS OF
THE TIMES
"Copper
Surplus Presents Puzzle"
- Wall
Street Journal, September 11
"US Median
Income Lowest Since 1995"
-
Financial Times, September 12
The number is down 4.1% since Obama
took office. Table follows.
"No one will
speculate against the unlimited power of a central bank. This is what
stabilizes currencies of countries where investors know that. One wouldn't
gamble against the Federal Reserve, for example."
- European
Central Bank Governing Council, Bloomberg, September 13
This boast could soon be another
example of hubris. Wikipedia has a nice definition:
"Hubris often
indicates a loss of contact with reality and an overestimation of one's own
competence or capabilities, especially when the person exhibiting it is in a
position of power."
An earlier example occurred with the
boast about a "Dream Team" of economists in December 2007.
"Fed's
Facebook Poll Finds Public Anger at QE3"
- Mortgage
Orb, September 18
Perspective
Last week's comments included that
the action was becoming compulsive. That would be for assets on the upside
and the USD on the downside. On the decline, momentum on the USD continued
down to 19 on the daily RSI. Last week we noted that it was approaching the
level that would limit the move.
It's there, and in going the other
way narrowing credit spreads (junk vs. treasuries) have reached 78.5 on the
RSI. This is the highest since early 2010 when that level exhausted the play.
Conditions are getting stretched and
one wonders about what the elastic modulus of a financial bubble is. In 2000
this page invented the term "gossamer" limit. Whatever - practical
instruction is not too far away.
Credit markets
There are times when market prospects
can be downright daunting. Like now, and the emotional side can be compared
to standing at the top of a Double Diamond ski run, or in a whitewater kayak
going into a rapid that is a grade more severe than your comfort level.
Another analogy is driving a sports car at the end of a long straight and
going into a hair-pin turn. A big adrenalin rush goes with trying to brake
later than the other guy.
Typically over hundreds of years, if
something bad is going to happen it will happen in the fall, and recent
financial action has been outstanding enough to be followed by a setback.
This has been accompanied by convictions within and without the Fed that
intervention can boost the markets, whenever needed. Many technical and
sentiment numbers suggest that this attempt is in the market.
That the Fed and ECB have talked up
their hopes so much suggests a new school - Rhetorical Economics.
As noted above, junk bonds and
spreads have been very exciting--along with the dreadful sub-prime mortgage
bond. The later has soared in price from a panicked 38 last fall to 61 two
weeks ago. Looked like panic buying. After a two-days
of no change, it has dropped to 59 today. A distinctive drop - looking like
the "Eiffel Tower" pattern that ended the long bond rally in
June-July. Quite likely the Fed will have little problem in buying $50
billion per month.
They might have to buy more, after
all the Fed generously exceeded its authority to buy bonds in the 1929 Crash
- by a factor of six!
Long treasuries have firmed a little
as other asset classes are stalling out. This could continue, but they are
vulnerable to disappearing liquidity this fall.
Most other classes of bonds are very
vulnerable.
Commodities
Soybeans took out the 1700 level on
this week's decline to 1630. This dropped the grain index (GKX) down to 492,
taking out support at 496. This one is technically vulnerable.
Base metal prices (GYX) have recorded
the sharpest rally in a decade. Sharp approximates straight up and the last,
but less vigorous, example occurred in early 2008. This one has recorded a
huge swing from oversold to very overbought at 84 on Friday and is offering
some perspective.
The cyclical high in 2007 set a big
"Head and Shoulders" pattern, with the Head at 537 in 2007, the
Left Shoulder at 490 in 2006 and the Right Shoulder at 527 in 2008. The
crash-low was 187 in early 2009.
The next and likely cyclical peak has
been focused with the Head at 502 in 2011, the LS at 430 in 2010 and the RS
at 428, earlier this year. For us, the cyclical peak was confirmed by the 346
low in early August.
This summer's surge is virtually
exhausted at the 400 level. As noted, this is part of the overall rise, with
the Fed and the ECB accelerating it to a compulsion that is measurable.
Crude oil joined the party and a
couple of weeks ago accomplished a Sequential Sell pattern. Ross thought it
could run for a few more bars - and it did that and then some - the high was
101.4 Friday.
Tuesday's 4-dollar drop in 30 minutes
was an alert to change. Crude often rushes up and then suffers a sharp hit on
the way to an intermediate decline.
Yesterday's ChartWorks
updated the pattern.
Ampersand
A number of items recorded a reversal
on September 14 and then today brought a setback to global equity markets.
Perhaps related to news of European commercial banks losing deposits.
Technically, the action over the past
three weeks has been impressive in forming so many excesses in so many
different items. Ross is working on the review and it definitely is a cluster
of signals.
Often a number different price-series
get excited at the same time - just before a change.
In September 2008, we published our
"Cluster Cluck" cartoon. It could be appropriate now and it
follows.
First published November 13, 2007
The essay that went with the cartoon
can be linked here: http://www.institutionaladvisors.com/whats-new.html
Income decline as
the money is devoured by government
 
Slowdown!
Bob Hoye
Institutional Advisors
The opinions in
this report are solely those of the author. The information herein was
obtained from various sources; however we do not guarantee its accuracy or completeness.
This research report is prepared for general circulation and is circulated
for general information only. It does not have regard to the specific
investment objectives, financial situation and the particular needs of any
specific person who may receive this report. Investors should seek financial
advice regarding the appropriateness of investing in any securities or
investment strategies discussed or recommended in this report and should
understand that statements regarding future prospects may not be realized.
Investors should note that income from such securities, if any, may fluctuate
and that each securitys
price or value may rise or fall. Accordingly, investors may receive back less
than originally invested. Past performance is not necessarily a guide to
future performance.
Neither the information nor any opinion expressed
constitutes an offer to buy or sell any securities or options or futures
contracts. Foreign currency rates of exchange may adversely affect the value,
price or income of any security or related investment mentioned in this
report. In addition, investors in securities such as ADRs, whose values are
influenced by the currency of the underlying security, effectively assume
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Moreover, from time to time, members of the
Institutional Advisors team may be long or short positions discussed in our
publications.
This essay is part of Pivotal Events that was published for our subscribers August
16, 2012.
Copyright © 2003-2008 Bob Hoye
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