The Market Perspective

Wave A Bottoming? Evidence of Debt Problems Grows, What happened to Autos?

Tuesday Sept 30 2014

Hulbert compares his 200 year indicators with the present

The feeble bounce back yesterday suggests Wave A down may be ending. An example of a beat up market that is trying to bottom is oil.

USO

Oil topped in June, an exact six years from its top in 2008. It looks to be trying to bottom now. We do not have a crossover of the 13 and 34 EMAs yet. 

Update at  9 AM, apparently no bottom yet

Fundamental Update

Gee seems like just a couple of weeks ago we were reading how wonderful the auto business is again, set for record sales up from 2009. Now scan today's WSJ. 

Page B1 - Ford Slashed Profit Targets for Year, STock drops  7.5% in aftrer market

B 1 - GM  CEO looks to switch gears, stock drops 3%, now trading under post Bankruptcy IPO price

C - 1, The Debt Pyramid Continues its Collapse, Venezuela Currency Crumples

Did you catch the article a week ago about bad South African loans, more and more evidence of the mounting debt problem emerges

Hong Kong Upheaval Shakes Stocks

C4 A big Mac in bolivars in Venezuela  is $33

New Zealand Dollar hits low for year against US  Dollar 

On Page A 1 the streets of Hong Kong are jammed with protestors showing their cell phones, this demonstartes the inability of totalitaian governments to limit the news, and so things happen much faster just as VCRs and satellite dishes spread the word of the obvious failure of the Soviet Union to proivide a decent living standard

IN 2007 the investment banks drowned on sub prime mortgage leverage. This time around it is

Hedge Funds, now leveraged eight to one. And like Long Term Capital Mgt in 1998, no telling what the assets in those funds consist of. The point being that when the unwinding occurs, we may face another race to the bottom of valuations.

Negative social  mood is upon us

Social Mood Goes Negative Around the World

Monday Sept 29 2014 

I have been writing that social mood would go negative as the next downturn begins. It is here now, world wisde.

China will have the same problem that Gorbachev had trying to contatin his people once they started tasting freedom. Hong Kong was free before China took over so there is much more for people to remember. I doubt China will drop its desire to know the outcome of elections before they happen so eventually we will see some real violence. 

 

October olatility

Monday Sept 20 2014

Crashes happen at the end of a move, and the move down is just gettingstarted. 

Mark Hulbert comments on the high volatility of October.

FAmous crashes of 1929, 1987, and  2008 hav all occurred in October, as Mark notes, no one really knows why this is such a negative month. But negative it is. 

Higher Education May Be Completing Its Bull Market

Weekend Sept 28 2014

 

Thsi is my weekly newspaper column which was published today. 

A Few Thoughts on Education

Our last few columns have warned of falling oil prices as well as an impending top in the stock markets. Now on the 40^th anniversary of the Fall, 1974 low in the Dow Industrials at 577, it appears our prediction is worthy of attention. All the major indexes are falling along with that reliable indicator of optimism, junk bond prices. We will address this in the next bi-weekly column on oil prices.  Today we consider what may also be a coming bear market in Higher Education. Let’s connect the dots of these thoughts on Higher Ed.

‘Educators’ from K-12 through Higher Ed are now offering up technology as the latest cure all for an acknowledged failure to do what they are supposed to do-educate students. Entire school districts are spending hundreds of dollars each on tablets, laptops, clickers, projectors, and all manner of gizmos. These are not however new techniques in learning. These are new delivery systems. A papyrus scroll, a printed book, a televised lecture, or an article on a laptop deliver information, It is simply that the delivery systems have become more and more expensive and complex.

Which brings us to a curious paradox. On the one hand, educators have declared on-line learning  to somehow be an improved delivery system. The alleged advantage is that one does not have to be physically present in the classroom. This flies in the face of considerable evidence and academic studies indicating that 50% of communication is non-verbal. Eye movements, facial expressions, and body language all convey a level of understanding-or not. At the same time most public and private institutions sport construction cranes across the campus. New buildings are on the rise even as the cry of on-line success is trumpeted. Well which is it, do we need more on-line or more ivy covered towers?

And by the way, with you can’t see me  testing the instructor cannot know who is really taking the test or how many are simultaneously taking the test together,. Hidden from view, all  tests become open book tests as there is not one to present to deny the use of any material. Is this a real test then of real learning?  Or a who can look up the answer in the least amount of time test?

There is a demand from the President down to the Governors for more affordable Higher Ed. The $10,000 degree is being touted these days. I seriously suspect that in the next economic downturn, which may be starting now, we will se a reaction against the lavish construction of campuses since the March 2009 low of the financial crisis.

Educators, as always decry the decrease in funding from the state legislature. But the public will likely decry the construction of lavish buildings?  Where is the affordable, functional structure without extravagance which would serve the purpose just as well?

Before the GI Bill of World War II, few people went to four years of college. There were trade schools, vocational schools, and business schools. One CPA I know described how his uncle attended a business school in the 1920s. He completed the work in about nine months. Upon completion he had a trunk with all his homework. The school had him perform every known accounting entry. He was prepared to be a company accountant.

I suspect we may need to re-visit that sort of focused approach. Educators would have us believe that a well-rounded education included literature study, art appreciation, and such is a necessary component of, well, an educated person. I  agree and even more so as I have grown older. The problem is that there is no evidence students learn any of that in their first two years of college.  As an anecdotal example only one student in two of my classes could identify the origin of the phrase, It was the best of times, it was the worst of times.   We may have liberal arts requirements but there are few to no liberal arts outcomes.

My take is that the problem in education is one of motivation. Unless the students I properly paired with what he or she wants to study, nothing is going to come of the effort.  And so would be airplane mechanics need to be doing just that, accountants need to be studying accounting, and so on.

How about dispensing with the re-hash of high school, civics, basic science, and history for the first two years. This is already happening with dual credit classes in high school. Law school once only lasted two years.  A few decades back Architect and CPA certification did not require a college degree. There is no real evidence that another two years of ‘education’ outside of their fields results in better engineers or speech therapists.

I suggest we  re-think the requirements, and get, yes, back to the future of education. 

The Topping Process Gets Underway

Weekend Sept  27 2012

Japan as a model for what the USA is becoming

http://www.oftwominds.com/blogaug10/Japan-lost-generations08-10.html

http://www.oftwominds.com/blogsept14/Japan-depression9-14.html

These two articles suggest Japan is a road map for where we are headed. 

Macau hits the Wall Las vegas SAnds is down 30% after the last two years of 55%and 87% surges. The Macau group has lost 25% of its former value.

A third of Atlantic City Casinos have closed.

The story here is one of decreasing market breadth. Markets top ina process. The smaller stocks topped in March. The larger stocks are displaying less breadth as the smart money quietly leaves the stage. 

NYSE versus Russell

The Russell with 80% of the total market cap topped in March. the NYSE has been topping since July. 

NYSE versus NYSE Summation Index

The Summation Index has plunged while the price index moves sideways. This is the kind of divergence we get at a market top. 

NYSE A/D Line

The 13 day EMA has crossed the 34 day to the downside. This bears watching. With the Senate election just five weeks away, the Administration certainly does not want a stock disaster before then.So there will no doubt be attempts to hold the market up. That was clear in the violent reversals of this week. 

US Dollar, Euro in Pruple, Crude OIl in Black

Crude oil in black and the euro in purple have fallen as the Dollar has risen. Surely we will get some sort of correction at least short term.  IN that case I can imagine oil and the energy service stocks undergoing a short term bounce to the upside. But the die is cast, the Dollar is headed higher. 

EWT makes a great case that the Dollar is the deflationary indicator. 

THe collar index in red and black moves opposite the purple 
Commodity Research Bureau Index. Once the CRB falls below 275, expect much lower prices which will also be when the Dollar breaks thru 90 to the upside. This makes me wonder if oil prices are not headed much lower. 

Crude Oil and the Dollar

The US Dollar is the green line, crude oil is the reed black bars. Both the Dollar in green and crude have been mvoing sideways. That should change this fall. If the dollar gets above 90 and oil falls below 90, ti is a new ball game. 

I attended a conference on the Eagle Ford Shale boom this past week. Much was made of the money invested,economic impact of $1.5 Billion in the Eagle Ford which is the GDP of San Antonio for a year. 

No mention of course was made of falling oil prices or the potential impact that would have on exploration and production.  As always complacency marks market tops.

Europe Asia Far East

Europe Asia Far East have also begun falling. Germany is the lone stand out in Europe with France lower and Britain at another multi year top. 

Bonds or sure the FED can do anything

 

The yield on one month T Bills actually went negative one day this past week. Here is the ultimate low in FED engineered rates. Fear was high enough to push rates into negative territory as investors rushed out of stocks. 

The FED has announced the end of its various QE schemes this October. All the QE did was to put money in the stock market, it did not put money into the job market. 

REITs

Tehmove out of REITs has begun. Friday's bounce was on the stock rebound and as I say a short rally in the Euro should bring some of these markets back. I have reminded readers often that REITs were crushed in the 1973-74 debacle.  Once the occupancy falls below break even the REIT stops paying dividends. 

Las Vegas Sands

 

LVS topped in  March along with the small cap stock index, the two. Again the casinos are probably an excellent indicator of social mood.  

HDGE

Hedge is back testing its breakout on the two hour chart.  Fourth wave suport at 11.60 area shold be an accumulation area. 

The Bottom Line

There is ample evidence that financial markets have begun a topping process. 

This suggests deflation not inflation ahead. I am wondering if oil prices are not headed much lower. 

Investors should be exiting stocks and long term bonds.

Floating Rate Notes may be a great place to park money. If the race for dollars to pay dollar denominated debt really gets underway, interest rates will likely rise. In that case FRNs may offer an excellent refuge. Today the yield is near nothing which no doubt is why the Government started issuing them this pst January. Rates are liable to increase not because of inflation but from fear of default.

I attended a seminar on the booming Eagle Ford Shale Play south of San Atonio this past week. While much was made of the $1.5 Billion economic impact, no one discussed the chance of oil dropping below say $85. Complacency reigns at market tops. 

Thanks for reading The Market Perspective

Dennislelam@gmail.com

 

The Market Perspective bases its information on techniques and sources that have been found to be reliable in the past, and The Market Perspective tries to base opinions on sound judgment and research, however, we do not guarantee that future results will match past performance ands no guarantee can be made that advice will be profitable. The Market Perspective accepts no money for stock recommendations and is purely motivated by its own research in recommending any stocks.  Put another way, the responsibility for decisions made from information contained in this letter lies solely with the individuals making those decisions. The editor and persons affiliated with The Market Perspective may at times have positions in securities mentioned.  Nothing contained herein represents an offer to buy or sell securities. The Market Perspective encourages investors to be diversified, and to maintain sell stops and risk control over their valuable investment capital.  No guarantee can be made to the accuracy of text or charts.

 

 

 

 

 

 

Socionomic Sign Posts at the Market Juncture

Weekend Sept 27 2014

We hope you have logged on to elliottwave.com and entered my ewt. just create a log on name and password and you have access to several months of updates. The graphs are fascinating and confirm my prediction of a Fall 2014 high. We have expected this from the low of Dec 1974 at Dow 577. Initially I thought this would be a market low but it makes much more sense for this to be a celebrated high, forty years in the making. It is no coincidence that this long bull market in financial assets began just a couple of years after Nixon took the US off the gold standard. 

Let's look at some of th social mood indicators first. 

- Bill Gross has left the building. The high in bond prices occurred in 2012 but the social mood high is surely the exit of the bond king from the company he founded in 1971. This is the headline from the Weekend WSJ which notes that after an e mail blaming other execs for the fund withdrawals from the formerly successful Total Return fund, all said it is him or me. The right fit at the right time in my life, Gross said, remember those words.

The beginning of the end kicked off wiht El Erian abruptly leaving. Gross handled the PR poorly on that one. Then as mistakes were made withdrawals mounted in the Total Return Fund. 

Bear markets turn out badly for formerly well regarded personalities, Gross is the latest.

_____________

ABC's How to Get Away With Murder debuted this past Thursday, fittingly on the day the Dow dropped about 250 points. The first episode was a near carbon copy of the opening scen in The Paper Chase which debuted in 1973. A domineering law professors cowers the students in both instances, then it was John Houseman now a black female. but it marks an interesting socionomic anniversary from the previous period of economic stagnation, 1966-1982.

____________________

The NFL appears to be entering its own bear market. From spousal abuse to head injuries to calls for the Commission'er ouster, nothing is going well. The coming bear market will run roughshod on the debt under lavish stadiums. And if the beer companies decide social media or some such is a better venue, it's likely curtains for the revenue stream. 

_______________________

GM went bankrupt in the last financial crisis-this time around it is involved in recalls over a too cheaply constructed ignition switch. 

But, recall that auto sales plunged to 19823 levels in 2009. To get an idea of just how well sales have recovered, take in Terry Box review of the $85,000 three ton Cadillac Escalade. We have noted the ever higher prices at collectible car auctions. But a market high in sentiment should be marked by widespread optimism and the desire to display wealth. A three ton behemoth to drive to the grocery would fill that bill.The never ending craze over expensive mechanical watches is another example.

Much was expected of the new Toyota Tundra plant here in SA in 2008. It closed after three months, shocking everyone. The workers got paid not to build trucks. By moving the Tacoma production here, the plant is now producing more volumne than its original target, over200,000 units a year.

___________________________

As noted separatist movements are on the rise. Last minute lobbying kept Scotland in the UK but the separatist move continues from Catalonia in Spain all the way to China and the Ughers. 

_______________________________

?Bullish sentiment recorded by Investors Intelligence is the highest since before the 1987 stock crash. That crash occurred in October five years from its start in August 1982. We are now just more than five years out from March 2009, though the Russell topped this past March making it five years on the nose. Bears poll a mere 13.3%, a new record low. This is a contrary indicator, there are always too few bears at a top. 

_________________________________

In contrast ot the NFL, Derek Jeter retired from the Yankees. A fine athlete leaves at the top of a market, good thinking Derek. 

________________________________

No matter what the President calls it, war is the ultimate negative human emotion. Now in Syria we have not just two but three, Assad's forces, the Syrian rebels, and the IS, all figfhting one antoher. I suppose it is fitting that at a Grand Supercycle top we have multiple fronts in an ongoing war. The Mid East Islamist movement started with the US engineered fall of the Shah in the late 1970s, the previous period of economic stagnation. 

_________________________________

The Rush to Macau lasted longer than i expected. But the bloom is off the rose, this is a clear negative social mood trend, gambling is apostive social mood trend. 

 

A third of Atlantic City's Casinos have Closed.  These are probably excellent leading indiators of social mood, people cease gambling.  

 

 

 

Timing With Two Hour Charts

Friday Sept 26, 2014

It appears that a top of some significance is forming. HDGE is a stock which actually holds short positions in real compaines. This is quite different from bear funds that mush re set their position in a futures trade every month with the funds on hand. Depending on withdrawals, this can result in a negative return even if one is on the right side of the market. 

HDGE main positions are linked here.  I don't know that I agree with that as an ideal list but

the resumes of the two managers are impressive.  I note that that Brad worked for the Bass family and is a UT Austin grad as I am as well. 

So let's take a look.

HDGE

IF this is the start of THE bear market HDGE should exhibit a five wave upward pattern. That appears to be the case on the two hour chart. Support then should be at the previous fourth wave low which is near the 125 bar MA at 11.55-11.60. We suggest scaling in at that level. 

TLT Bonds

TLT has jumped aove its 50 day MA, I would expect a back test of this break out especially as the dollar pulls back, see next chart. This 114.5-115.5 area should be support. 

US Dollar versus Euro

These two currencies have reached such an extreme that w would expect a bounce in the Euro and a pullback in the Dollar. This many bring a relief rallyin oil and stocks this next week. That woudl re enforce bullish enthusiasm for the stock market. But the die is cast, we suspect the tops in stock indexes are in or will be on the next rebound. 

Important Market Juncture

Friday Sept 26 2014

We have been warning of an impending top in the markets due this fall. We based this idea on a 40th anniversary of the low in the Dow which occurred December, 1974 at 577. Such long range cycles could top over several months. Hence our newspaper column this past week suggesting that one should be out of stocks. The moment appears to be upon us. 

I originally thought we would make a low at this point but clearly we have the rule of alternation, while Fall 1974 was a low, Fall 2014 turns out to be a high. The rest of my analogy, an unpopular President bogged down by Mid East Problems, low approval ratings for politicians of all stripes, civil strife, a fascination with horror and crime fiction in print and on screen has all come true. Indeed ABC premiered its new show, How to Get Away with Murder, a fitting kick off to the new bear market insocionomic terms. 

Check out Elliott Wave's  array of publications for free. Monthly letters running over trwenty pages are abailable making the case for a high this fall. 

If this is correct various short positions over the next two to three years should be quite profitable. 

 

Iron Ore Futures Drop 40% in One Year

Tuesday Sept 23 2014

Iron ore futures continue to fall in price. It appears to me that this is par of a world wide deflationary trend. 

 As I keep saying in class, accounting is much more than debits and credits today. A professional accountant must have a global outlook. While we hear that a lot, what it means is understanding prices and trends around the world in various markets. 

Recall that the FED lowered interest rates in an attempt to get people to borrow and buy. But now prices are falling again. How do you force someone to buy?

CRB Index - INvestors, Watch for Falling Prices

Why is this a problem?  If money is borrowed against a commodity and the commodityprice falls, there is less collateral to secure the loan. But the loan balance is still on the books. Notice that the stock market is also starting to wobble up here. Small cap sock performance is trailing big caps. 

I suspect all of this is the beginning of the end of the stock market rally. 

Dow versus Russell

Large caps are 92% of total market capitalization. So small caps are 8%. Here small caps are following commodity prices to the downside. The performance of the large caps is holding the large indexes up. 

The Every Ready Bunny Rally

Weekend Sept 21 2014

The five year rally from 2009 - 2014 now looks a lot like the 1932 - 1937 rally.

 

Doug Short is an interesting read. is always an interesting read

 

Check out the article on page B7 of the Weekend WSJ by Morgan Housel

Why This Rally Can't Last and What to do Bout it

Well 2003-2007 lasted 1,132 days, so far the 2009 rally has lasted 707 days

1932-1937

 

2009 - 2014 weekly

Daily Volume

And Friday closed out on good volume to a new high. 

Summation Index

JUst another hiccup or the start of something bigger?

Divergence Between Summation Index and NYSE

 

Teh summation INdex has decisively turned down while the NYSE index is still up. This is an example of how so many tech analysts have been fooled by this rally. The indicators have not been much help in the face of market manipulation and FED Funnies. 

Bonds Correct and Bounce

Bonds have corrected and then bounced nicely Friday. IS TLT anticipating something, more FED easing, not likely or a pullback in stocks?

Dollar and Oil

The Dollar has returned to its previous high at 85 

UGA

GAsoline is still basing but looks like it could moev up if the Dollar corrects. 

Tom McClellan makes a case for gasoline here.

 

We continue to expect a top of some significance this fall 2014. Clearly the markets are still up and the FED is still suportive.

Social Mood - It's All One Market, Collectibles and Stocks

A 1962 Ferrari GTO  sold for $38 million at Bonhams auction.

 This article lists the top ten sellers during Monterey car week. And clearly the same social mood stalks the auction barn as Wall Street, this is a market that cannot go down. 

 

 

 

 

 

 

 Scotland voted to stay in the UK, good idea. But the Catalonians want out of Spain as do other Europenan groups from the Mother Country. 

Here is a socioinomic take on separatist movements.

I am persuaded that Charles Krauthammer is right. ISIS taunts the US to fight by be heading Americans and Brits, knowing the US won't directly fighting Iraq, which is where ISIS is located. And let a few Americans get captured ala John McCain, and the new demand for doing something over there will wilt. I doubt there will be any real coalition. And so the stage is set for the 34th anniversary of Jimmy Carter's experience in Iraq. 34 is a fibonacci number. Carter was undone by a kidnapping of American Embassy personnel. A rescue mission failed with helicopters stranded in a sand storm. That sent the message that America was a paper tiger. Here we go again.   I suspect this discomfort with our image will only grow if in fact we are right about a fall top in  2014 in the markets. 

I am not deliberately being political here. The malaise in the Mid East was a big feature of the continuing 18 year cycle at the end of the 1970s. The hostages were returned the day Reagan was sworn in, 19814/. But  the market would move in fits and starts not really getting underway until the summer of 1982. 

 

Thanks for reading The Market Perspective

Dennislelam@gmail.com

 

The Market Perspective bases its information on techniques and sources that have been found to be reliable in the past, and The Market Perspective tries to base opinions on sound judgment and research, however, we do not guarantee that future results will match past performance ands no guarantee can be made that advice will be profitable. The Market Perspective accepts no money for stock recommendations and is purely motivated by its own research in recommending any stocks.  Put another way, the responsibility for decisions made from information contained in this letter lies solely with the individuals making those decisions. The editor and persons affiliated with The Market Perspective may at times have positions in securities mentioned.  Nothing contained herein represents an offer to buy or sell securities. The Market Perspective encourages investors to be diversified, and to maintain sell stops and risk control over their valuable investment capital.  No guarantee can be made to the accuracy of text or charts.