Thursday August 15 2013
Mark Hulbert notes the VLMAP indicator is back near its Fall 2007 high. Whle this is not a precise indicator, it speaks to what we have been writng five years out from the last top.
The Big Picture
The main chart is the price of JUNK the EFT for lower than investment grade bonds. Notice that fund was introduced just in time for the 2008 crash, amid the highest stock market ever to that point in late 2007. Investors promptly lost half their money. But JUNK has now nearly tripled from that low. It is easy to see why. The FED lowered the ten year yield shown in gray to below 1.5%. Investors piled into stocks and JUNK which is just first cousin to dividend paying stocks. Now ten year yields have dramatically risen. RSI and MACD for JUNK are beginning to weaken.
In times of trouble, Investors turn to the US Dollar
While the gold bugs have been claiming the dollar is in decline, it looks more like a normal correction to me. The last few days we have stocks and bonds down against a rising dollar.
It seems reasonable to conclude that the thirty year bull market in bond prices is ending. Now conect the dots
six Hindenburg Omens in the last two weeks.
the VMLP indidcator back to 2007 levels.
Has gold bottomed before stocks ala 2008?
Macy's a lead retailer (but not exactly my idea of back to school shopping indicator) dropped over 4% yesterday.
Taken together it is time for extreme caution in the markets.
Political Front
Yesterday I attended a two hour presntation on the Affordable Health Care Act. I have no idea if anyone is gong to get more affordable or any health car out of this. What was obvious to this CPA is that this is the biggest tax increase in history. All investment income, passive income will be taxed at 3.8% to pay for this, sounds like a French idea to me. This will kick in along with more Dodd Frank regulations this fall. Affordable Health Care is loaded wit numerous penalties of considerable financial consequence, a mine field waiting to explode. This tax on all things investment oriented is coming right at a market top. Coupled with the Hindenburg, a five year reversal in rates, a potential top in JUNK, a change in FED chairmen ( the last two preceded a market crasch, remember Greenspan and 1987), we have plenty of fundamental reasons for additional caution. Note how companies are converting full time jobs to part time jobs further eroding incomes.
As Art Cashin puts it, stay nimble.
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