The following is part of Pivotal Events that was published for
our subscribers March 6, 2014.
Signs Of The Times
"Hedge Funds Place Largest Bets on Commodities Since 2011"
- Reuters, February 23
"China's credit-market gauges are triggering alarm bells, as banks
grow cautious in lending to each other."
- Bloomberg, February 23
"Those who torment us for our good will torment us without end."
- C.S. Lewis
"But danger also lies in the acceptance of a totalitarian outlook
by intellectuals of all colours."
- George Orwell
One of the most elegant criticisms of climate hysteria was made by a member
of the Labour Party in England.
"In the twenty-first century what sort of person seriously believes
that natural calamities like floods can be blamed upon allegedly 'sinful'
behaviour?"
- Ed Miliband, Spiked, February 17
Global warmers have become tribal shamans.
Stock Markets
Big forces are in play.
Stocks have recorded sentiment and momentum numbers only seen at cyclical
peaks.
Central bankers continue their unprecedented recklessness. And then the Left
is getting highly agitated.
Prince Charles compares climate sceptics to "chickens with their heads cut
off". Senate leader Harry Reid calls Americans displaced from their healthcare
insurance "liars".
Putin sends thuggish troops into Ukraine whose "uniforms" have no insignia.
In August 1939 Hitler send troops into Poland dressed in Polish uniforms prior
to declaring war.
The trumped up issue was access to the port city of Danzig.
We have noted that there is no easy way out of the cyclical excesses accomplished.
Speculation has continued with Biotechs (IBB) and the Internet Index (FDN)
heading for the parabolic. Tesla has soared from 136 to 265 in six weeks.
A few weeks ago we mentioned the "Silly Season" that can erupt in April.
Notwithstanding the weather, "Spring" seems to be arriving early.
The S&P had a setback with the initial hit to credit spreads and has recovered
to new highs. Ross has had a target in the 1885 region.
The bull market run is well beyond the probable 249 weeks and is becoming
a very longrunning example.
As with the culmination of every speculative move, we watch the action in
credit spreads, which deterioration is coincidental with political distress
in Ukraine. The chart follows.
Credit Markets
Over in China, the central bank does not appear too successful lately. Credit
spreads have widened - the most distinctive on data back to the carefree days
of 2007.
As noted last week, spreads reached their best at the end of December and
reversed.
Emerging (EMB/TLT) spreads widened the most in taking out the 200-Day ma and
on the latest recovery stalled out at the 200-Day.
It makes sense that the Emerging would reverse with some drama. Spreads for
junk, munis and investment-grade are in the pattern but not dramatic. The lid
on the rebound was the 50-Day, one line above EMB/TLT.
The pattern in spreads is not healthy and close to failing.
A chart follows.
Price action in JNK, for example, soared into this week and reached a Weekly
RSI of 77 on Tuesday. Last week this was 76 and at the precarious high last
May it reached 79.
Then "mini-panic".
The bond future slipped from 134 to 131.71 on the rebound in spirits with
relief in Ukraine. This is at support and we have had a target of around 136.
Commodities
The big "Rotation" turned out to be very good, with some outstanding winners,
such as coffee and more recently wheat.
Agricultural prices (GKX) had set a double bottom at the 41 level in January.
The rally made it to 381 last week with the Daily RSI at 82. The latter compares
to 83 reached with the "Drought Rally" of 2012. Today it is at 84.
Outstanding rally.
The Weekly RSI is up to 69 and the best with the drought was 69, so the action
is becoming impetuous. This sector was the most dismal and we thought it would
have the best chance for a good move. With some corrections the GKX could make
to the 450 level. It is at 400 now.
Base metals (GYX) jumped from a multi-year low of 330 in early December to
362 six weeks later. And right back down to 331 in early February. The bounce
made it to 347 from which it slipped to 336 last week.
At 346 the rise is working on the resistance level.
Will it break out?
It could, but as we pointed out years ago the real price made exceptional
gains to 2011, which prompted significant increases in capacity. And Chinese
speculators as "investors" are still in the game.
We had been looking for copper to reach a seasonal high in, or around March.
Natural gas enjoyed a fabulous rally. The expiring contract made it to 6.40
and it has slumped to 4.50 as the market contemplated the end of the "Great
Cold".
Some traders have been looking for a hot summer, but it is best to remember
that most of the US last summer was unusually cool. This summer could also
be on the cool side.
After running on fumes, gasoline ignited and joined the play. As noted the
action became overbought at a Daily RSI of 81.
Crude oil rallied from 91 to 105, which level had many of the characteristics
of a brick wall. The drop to 100 is at support.
Sometimes crude can set a key high in March and that was behind our "Peak
Oil" special of February 19th. The next leg down would be another step towards
the "New Paradigm" for crude oil prices. This would be crude's version of the
decline in natural gas prices from the "old" level to the "new".
We'll look at the real price as deflated by the CPI.
In the bubble era that climaxed in 1873 crude's real price reached 129, and
in the Great Depression that ended in 1895 it fell to 18. In the bubble era
that ended in 1929 crude reached 42 and fell to 5.
In the second energy crisis crude soared to 115 in March 1980 and plunged
to 23 in March 1986. The rise included the Iranian Hostage story that Ronald
Reagan ended. Of course the action became extremely overbought on an outstanding
boom in commodities.
The nominal price crashed from 39.50 to 10.40.
With the expressed goal of defeating Communism and the "Evil Empire", Reagan
deregulated the domestic oil markets. Also a deal was worked with the Saudis
not to support prices on the way down. Petroleum exports were the main source
of Russia's cash
flow and the Soviets went broke. It ended that empire. Putin, in a counter-reformation
move is trying to restore it.
In real terms, crude has been relatively high for long enough to build a lot
of capacity.
Then there is the innovation of fracking. Prices seem eligible for an extended
decline that could significantly reduce Russia's cash flow. This could be assisted
by reduced or no attempts at price support.
Makes sense.
Coffee has been our bell weather and it has soared from 1.01 to 2.05, reaching
86 on the Weekly RSI. This is the highest since 86 was reached in July 1994.
That rally took six months and made a bigger gain. This one is in its fourth
month.
Coffee is in the GKX and has been hyping the gain. The ETF trades as "JO" and
nimble traders could short a little. Only enough to support the habit for a
year.
Most policymakers still do not understand inflation in financial assets and
its dangers.
However, they do understand inflation in hard assets and the CPI. Soaring
commodities could shift the ideological struggle at the Fed towards those who
want to curb the reckless behaviour.
Around March has been our target for the commodity rally and this we have.
Overall strength has been remarkable. Speculation is becoming precarious and
on a spike like this it is difficult to call the exact end.
Credit Spreads: S&P
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Note the spread reversals in 2008, 2010 and 2012.
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Worthwhile trades followed.
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Reversals in 2007 (not in chart) and in 2008 were cyclical.
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Taking out .375 sets the reversal, which after five years will be cyclical.
Link to March 7, 2014 Bob Hoye interview on TalkDigitalNetwork.com: http://talkdigitalnetwork.com/2014/03/gold-to...ty-markets-peak
