Signs of The Times
Perspective
The Fed continues to think that monetary ease will stimulate business activity.
Sadly, for conventional economists who are stuck in some previous century,
a new financial era has prevailed. Whereby the old concept of CPI inflation
has been displaced by the reality of inflation in financial assets. They push,
hoping for GDP growth, and the wildest bond market in history results. The
one in Treasuries blew out in July. The one in lower-grade stuff is completing
now.
Commodities enjoyed a huge rally into 1920. The consequent crash was spectacular.
Shocking enough that the Fed was very easy trying to boost commodity prices.
But it was time for soaring inflation in financial assets. Which went very
bad in the 1930s.
Stocks may enjoy the great concept of limited liability, but are a highly
inflated financial asset.
The Fed's Kashkari's statement that "Stock markets unlikely to trigger
a crisis" is not quite a "Nothing can go wrong" boast.
Stock Markets
Our "Exuberance" theme continues and before it can be declared over, there
could be some more direct boasts that "Nothing can go wrong" (NCGW).
It could take some visible distress in the credit markets to prompt a boast
by the establishment that NCGW. The one in 1873 was due to the US not having
a central bank. The Treasury System, without a gold standard, was superior
to a mere central bank. In 1929 the boast was that there was a "scientific"
central bank. In 2007, it was that the Fed had a "dream team" of economists.
The public is in through massive buying of ETFs and so are the central bankers
through confusion about reserves and modern portfolio theory. Are they central
bankers or are they portfolio managers?
Outstanding technical and sentiment numbers have been achieved and seasonal
tendencies for the stock market can be favourable over the next 8 weeks.
However, one "model" has accomplished a "Sell" signal. When the Daily RSI
on the HYG approaches 77 an important high for the S&P can be set some
3 weeks later. The RSI reached 76.5 on February 27. The S&P reached 2400
on March 1st and 2390 on March 15. The low has been 2322 on Monday; setting
the sharpest decline since "Exuberance" started "Rationally" with the election
Too early to conclude on this model.
The decline to Monday was sharp enough to register a "Springboard Buy", which
is a near-term event.
Another "model" is tied to the yield curve, which needs to break down to give
a "Sell".
The action seems to be working on our call for a Big Rounding Top. The last
one was centered in 2015.
Commodities
Back in December, we were looking for a general commodity rally out to around
March. Most set highs in February and corrected in March. As mentioned last
week some firming was possible.
Industrial commodities have recovered.
Base metals (GYX) set their last low at 316 in early March. The test was at
321.75 last week. Now it is at 334 and it could make it to 339.
Crude oil dropped to a double bottom at 47 in March and has bounced to 50.
There is resistance at 53.
- In 2013, the split between regular cars and SUVs and Pickups was 50/50.
- Now almost 2/3 of sales are of the bigger vehicles.
- This is the quickest such change on record.
- These get 20 mpg. Regular cars get 30mpg.
- Affordability could become an issue.
Hmmmm
Ooooops!
