Weekend August 17, 2013
The Big Picture
Stock are not done yet with more highs to follow into the early fall.
Bond yields continue rising. Coupled with rising billion dollar pension obligations in the municipal sector, teh big surprise may be just how fast rates rise, see the LQD chart later in this post. Gold and silver are probably enjoying a fourth wave bounce before the low is recorded in October. If I am wrong I am wrong by two months. Crude oil looks to be ready to embark on another historic parabolic rise. The long term chart exhibits higher lows. There is no lack of qualitative terror in the mid East to support nervousness over oil shipments.
XLF Banks
Wave five looks incomplete. Wave One lasted nearly four months moving from 13 to 16. Wave five should then last perhaps into late September. A higher high also seems possible.
Summation index
Actually August is usually a pretty good month for stocks. If our analysis is correct, the summation index should turn at -100 early this next week indicating another leg up in the market.
5 Year Yield
The five year note yield has tripled since last July. And it has broken the downtrend from the 2007 high at 5%. As other blogs and sites are suggesting, the genie is popping out of the FED Bottle, and there will be no putting him back in.
Investment Grade Bonds LQD
LQD fell back hard at the attempt to penetrate the 87 day MA. This is more evidence that it is not merely a matter of risk but a changing perception on the direction of rates.
MUH A Closed End Muni Fund
Chasing yield in low yield environments always ends badly. The uptrend has been broken. At this price closed end MUH yields 7.2%. At next support of $10 MUH would yield 10%. I do not rule out a return to hte price of $5. Notice the vertical free fall into that price in 2008. MUH looks to be in a third wave down now.
Gold and the Dollar
This chart demonstrates the inverse relation of gold, orange line, and the dollar, red and black line. Unlike gold bugs proclaiming the Dollar is in collapse, I suspect it is making a higher low here.
An Elliott Wave Count for gold
As I have said there are other sites that count Elliott waves in far more detail than I am able to . I have seen sites claiming THE LOW is in while others are looking further out. If one goes back to the 2011 high, this seems a logical count to me. Large Wave 4 in blue would end at the previous 4th wave of large Wave 3. While this bounce hs many excited, which is what fourth waves in a bear move do, I suspect a fifth wave down in to October awaits. And I would note that Central Fund is still trading at a -1.7 discount on the close Friday. If gold and silver had truly bottomed two months ago, it seems to me the price of CEF would be positive relative to NAV by now.
Crude Oil in 2008
While two periods cannot always be compared and expected to do the same thing, it is worth remembering that crude oil topped after stocks in 2008. The final run from 100 to 145 took less than six months, say February to June shown above in red black bars.
Long Term Crude Oil Chart - Geo Politics Supportive for Further Price Rise
Crude oil is now exhibiting the same sort of consolidation pattern on the chart that it did prior to the run upm in 2008. Notice that now crude has broken out of the pattern, generating a parabolic buy signal on the long term monthly chart. Adding in the qualitative factors, we have
Chaos in Egypt-Egypt straddles the all important Suez Canal. in the 1957 war Nasser sunk ships in Suez rendering it impassable.
Jordan is likely to come apart next over run with refugees from Syria and a King with increasing trouble on his hands. But no one thinks governing a poor country surrounded by Israel, Syira, Iran, and Saudi would be easy.
Lack of leadership and influence by the USA to do anything at this point
Iran still working on a nuke
Russia is winning the day in Syria
All of that is supportive to a higher price for oil. CCI shown in the bottom panel could certainly rise a lot higher. The 2008 collapse aside, this chart continues to exhibit a pattern of higher lows which goes all the way back to 1999. The last high was 113.11 in May of 2011. Taking that price out on a monthly close will project much higher prices. At that point the oil price could go parabolic to the upside as it did in 2008. And then we did not have the entire Mid East on fire with violence as it is now.
Unfunded Liabilities - The Socionomic Balance Sheet
Even San Antonio, TX is feeling he burden of unionized pension costs. One would hard pressed to find an eeconomy in better shape than San Antonio. A diversified combination of high tech medical, the UT Medical School, the Eagle Ford Shale, NAFTA traffic, Military, Tourism, multiple Universities, SA has it all. But a contract from 1988 means the police and fire budgets are 2/3 of the total city budget. At this rate it will be 100% bt 2031. The Mayor of course has appointed a task force which is a lot easier than telling some stakeholder group no all by himself. My point is that Meredith Whitney's original prediction of municipal woes just needs to be expanded. which group will be denied, tax payer citizen, bond holders, or pensioners. This is already playing out in bankrupt CA cities as well as Detroit. Houston, TX has a $2 Billion underfunded pension. Look for lots more problems politicians have yet to own up to.
We continually compare this era year 2000-2018 to 1966-1984. Above we are about to re live fiscal instability in cities and states, though on a much larger scale this time. A topic of concern on WSJ TV this weekend was the ruling against stop and frisk in NY. The judge examined a mere 19 incxidents then declaring that stop and frisk violated the rights of New Yorkers. Well as the panel on the WSJ observed not like rights were violated in the 1970s and 1980s when the murder rate was well over 2,000 a year. The prediction was that if a Democrat is elected, this ruling will not be appealed, leading to more opportunities for criminal sot carry guns.
In a related matter, the Attorney General wants to return more drug offenders from prison. The panel noted it was the Charlie Rangels who wanted drug dealers off the streets as they were ruining black neighborhoods - NYC today is 23% black.
So the stage is set for a return to lawlessness of the 1970s. A societal break down would be an appropriate backdrop for a bear market. The WSJ noted it has been Mayor Bloomberg supporting the Police Commissioner that has the murder rate back to 1960s levels. Police note that Operation Crew Cut designed to curb gang violence has been quite a success.
Consumer Confidence Lower than in 2008
While Consumer Copnfidence has improved since 2009. it is still much lower than pre 2008.
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