The following is part of Pivotal Events that was published for
our subscribers January 23, 2014.
Signs Of The Times
"It's been so cold it's forced the liberals to keep their hands in
their own pockets."
- Anon
"Firms that use borrowed money to lend to the smallest and riskiest
companies are attracting cash at the fastest pace since before the crash."
- Bloomberg, January 15
"U.S. state revenue isn't rising fast enough to keep up with the cost
of funding pensions, health care and public works projects."
- Bloomberg, January 14
"Newport Beach, California, where four ranking lifeguards earned more
than the town's $109,677 median income, may partially disband its municipal
ocean rescue to deal with pension costs."
- Bloomberg, January 15
Undisciplined state and local budgeting has been riding the Wall Street bubble,
which eventually depends upon the prosperity of business.
"It feels totally different to be a small-business owner in America
on Main Street than on Wall Street, where they're popping Champagne corks."
- CNBC, January 6
Undisciplined governments have been accompanied by unreal policymakers.
"Our financial system is still in a risk-averse mode."
"I don't think that the low interest rates were an important contributor
to the housing bubble."
- John Williams, San Francisco Fed, Wall Street Journal,
January 14
Credit Markets
In looking at the last observation, one can't help but wonder if central banking
causes amnesia?
Typically a boom can run for some 12 to 18 months against rising long rates.
Long treasury yields increased from July 2012 to the end of December and that
counts out to 18 months. If long rates were to turn down with the economy it
could show up in the next month or so.
In more normal times, the term "boom" would include a "booming" economy, but
not during a lengthy post-bubble contraction.
However, for a number of obvious reasons, lower-grade bonds became a huge
play. The Merrill Lynch High Yield Master went from 23% to 5%. The run from
calamity to certainty has been outstanding and the yield is now trying to turn
up.
Junk (JNK) has soared in price from 16.69 in 2009 to 40.97 this week.
The Daily RSI (momentum) has made a huge swing from 12 in 2009 to 83 on Friday.
This compares to the best reached at 79 on May 6th.
That was just before the "Mini-Panic" that ended in late June. The Fed was
heavily buying sup-prime mortgage bonds during the week that the price rolled
over.
It is worth noting that at the all-important high on May 1st 2008, the RSI
reached 82.
Lower-grade bonds have had a fabulous run and have reached a momentum level
that last occurred in 2008 and are primed for a price decline of cyclical proportions.
The long bond future can rally further. It is not overbought and there is
resistance at the 107 level.
Stock Markets
The senior indexes (S&P) have reached momentum levels seen at the cyclical
peaks in 2007 and 1937. As with this bull market, those came out of a monumental
crash.
Sentiment numbers are not available for 1937 but the numbers reached recently
haven't been seen since 2007.
On timing, the 1937 example ran for 249 weeks as did the 2007 example. This
one is at 255 weeks and getting very stretched.
Other timing includes the probability of a January peak. Previous examples
include gold in 1980, the S&P in 1973 and the Nikkei in 1990.
"Japanese firms' massive equity financings will push up stock price.
Instead of causing oversupply they will invest the newly raised funds
in the stock market. The Nikkei target is 46,000 in December."
- Sanyo Securities, January 1990
With topping action so visible, who would really want to set a target for
the S&P at 4 PM on December 31st, 2014?
Link to BNN Headline January 24, 2014 with Howard Green and the panel of Willem
Hanskamp of Heward Investment Management, Bob Hoye of Institutional Advisors
and Stuart Freeman of Wells Fargo Advisors:
Part 1: http://watch.bnn.ca/headline/headline-january...14/#clip1065604
Part 2: target="_blank" http://watch.bnn.ca/headline/headline-janu...14/#clip1065606
Credit Spread Reversal 2008
- The reversal to widening in May 2008 was the warning on the stock market.
- The S&P rolled over in June and crashed.
