"The
European Central Bank has reached the limit of its mandate, especially in the
use of non-conventional measures... In the end, these [efforts] are risks for
the taxpayers.
"It's like
morphine, the LTROs provide relief from the pain, but are not a cure for the
illness."
~ECB Governing Council member Jens
Weidman, May 25.
We have often thought that
interventionism is the opiate of the intellectuals.
"Investors
pulled $3.05 billion from junk-bond funds globally in the week ended May 23,
the most since August."
~Bloomberg, May 25.
"Home prices
drop 2% to post-crisis lows."
~Case Shiller,
May 29.
"Consumer
Confidence Plunges in May"
~Yahoo! News, May 29.
The Conference Board number for May
is 64.9, down from 68.7 in April, which is the biggest hit since October. The
consensus was for 70. February's 71.6 was the
highest in a year.
Note that junk-bond withdrawals and
consumer confidence have quickly moved to numbers seen at the culmination of
the last crisis--away back last fall.
Does this suggest that current
distress is culminating?
Not likely, but it is poised for some
relief.
Last year's problems began to be
revealed last May and culminated in late September.
Currencies
The dollar has progressed to new
highs for the move, as the sovereign debt crisis resumes. The short squeeze
on the DX, which is one of the features of a post-bubble contraction,
continues. We had thought that the action would briefly pause at the 81 level
reached in January. It only spent a few days there and with some drama has
popped to almost 83.
And this is the story--drama as the
world discovers that last year's "stimulus" is not working. Well,
the global economy has been rolling over.
And yet, the establishment continues
in its fanaticism that intervention will make a normal post-bubble contraction
go away. Unfortunately, the rise in the dollar as well as
yields in Euroland insist that it is not
going away. Chart on Spanish bond yields follows.
However, last week we noted that the
daily RSI had reached 77.7, which was a level that could limit the move. This
is now at RSI 80 and that ended the last big rally, which was to 88.7 (for
the index) in 2010.
This fits with the Euro now
registering a daily Downside Capitulation.
Stability in the Euro would make most
everyone think that the pressures are over and Ross's model has been reliable
in signaling a rally.
This would fit with our outlook for
choppy financial markets through the summer.
As instructive as it is, let's call
it a mini-crisis that is close to ending with the dollar at a daily RSI of
80. A major crisis, as in 2008, could culminate with a weekly RSI out at the
80 level. Possibly later in the year.
Commodities
Last week we noted that the CRB was
getting as oversold, with an RSI at 22, as at the double bottom last fall.
That was at the 281 level and it has dropped to 275 with an RSI at 21.
Mainly, this seems to be due to this week's extension of weakness in crude
oil and the fresh hit to natural gas. Cotton and sugar have seriously
extended their 52-week lows. Cotton has plunged from 115 a year ago to 71
now. Sugar has dropped from 27 to 19.5.
This really confirms that a cyclical
bear started from our "Forecaster" signal in 1Q2011.
However, base metal prices (GYX) at
363 have yet to take out last fall's low of 356. At an RSI of just under 30
it is getting oversold enough to limit the move.
The grain's index (GKX) has dropped
to 397 and is testing last December's low of 397. Who cares if it takes out
the low, but where are the inflation bulls when you really need them?
It seems that most commodities are
beat down enough to expect choppy action through the summer.
Stock Markets
Last week, the S&P got down to an
RSI of 23 which could be the momentum low for the move. With this week's
pressures the index has slumped to 1311, which we take as testing last week's
low of 1292.
This will likely hold and general
stock markets could be choppy through the summer. Perhaps another new
paradigm is developing - - the "All-One-Chop" model?
Other than that, we are looking for a
"Typical" summer. Pundits will describe each rise as a
"Typical Summer Rally" and each set back will be a "Typical
Summer Doldrum".
Gold Stocks Relative to Bullion
- Gold's
have generally underperformed since the economy and orthodox investments
arose out of the crash in mid 2009.
- Base
metal mining stocks outperformed the rise in base metal prices. That
ended in 1Q2011.
- The
gold sector is preparing to outperform most every sector--on the planet.
Gold's Relative to S&P
Spanish Bonds
Bob Hoye
Institutional Advisors
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Copyright
© 2003-2008 Bob Hoye
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