Signs Of The
"Fed's Lacker says oil prices
"Oil price changes could have the
potential, if they were very large, for slowing the economy, but we have a
lot of experience and a lot of data on past instances, and I think it is a
~ Reuters, February 27, 2011
This reminds of the assurances that the problem in
sub-prime mortgages was "isolated". Then when it became more
noticed, the establishment boasted that it could be "contained".
The worst financial calamity since the 1930s followed.
Beyond "whistling in the dark", there is an
error in this thinking. Rising oil prices, as with all strong commodities, do
not "cause" a business expansion to end. More correctly, sharply
rising prices are part of the end of a business cycle.
"China Gets Tough on Property
~ The Globe And Mail, February 28, 2011
The Nikkei Bubble completed at the end of 1979. Going into
the top policymakers were trying to talk the mania down - gently. It did not
"Get Ready for a Growth
~ Wall Street Journal, March 2, 2011
The article reviewed a study by Standard Chartered bank.
This included a critique that similar conclusions about Russia could have
been made in 1990.
A 1989 edition of the National Review pointed out that
best-selling economics textbooks in 1989 praised the wonders of central planning
in the about to collapse Soviet Union.
Our view is that the main conditioner of the future of the
economy continues to be radical financial speculation - by both private and
public participants. Sadly, policymakers have become financial adventures.
The Big Party Continues
The surge to a speculative blow-off sometime around March
continues. When our Momentum Peak Forecaster turned straight up in November
it indicated a huge speculative market. The count to the end begins when the
Forecaster stops going up. That was at the end of December and the climax
typically occurs one to three months later. There was only one example of the
one-month lead, and that was in the US housing index in 2006 when the signal
occurred in May and the index peaked in that June-July.
The ChartWorks has a couple of independent technical tools
that suggest an important reversal sometime around March.
We have been repeating this theme since November and we
will stay with it until the surge concludes.
Some participants have faltered with interesting setbacks
to cotton and the S&P. The possibility of not all items peaking at the
same time was introduced in our February 17 edition.
However, the Chartworks has crude oil on a seasonal rally
that could run into April. With the Middle East rebellion this can be
volatile, and it seems that on strong days for crude, stocks will sell off.
And as with today - quite the opposite.
Beyond crude, gold and silver are back into the
Construction Zone and the ChartWorks has had a target of 40 plus for silver.
This page's conservative nature has the target at 39 and until the move
completes silver will outperform gold.
The latter as plotted by the silver/gold ratio will be one
near-term indicator on the end of the game. It continues to make new highs
for the move, which is constructive. The recent surge in momentum took the
RSI to 80, and up to the mid-eighties would be a warning.
Should chief investment officers be looking at something
as weird as the silver/gold ratio?
Why not - it's been a reliable guide to booms and busts
for more than 400 years, which predates the Leading Indicators or the Philly
Keep in mind that the party is still dancing on a snow
The establishment has been suffering from the SUV complex.
The acronym for Sports Utility Vehicle represents an unsupportable conviction
that nothing can go wrong.
SUVs are heavy vehicles with a high center of gravity
intended for off-road use. For some strange reason they have become popular
for urban use. They first appeared on the road to Whistler Mountain or many
other ski areas around thirty years ago.
The four-wheel drive feature provided a sense of security
that proves hazardous. On any bad snow day most of the cars in the ditch were
SUVs - unintended off-road excursions.
This is still the case as too many drivers continue to
believe that four-wheel-drives are invincible - until they have to call a
With the crash, startled policymakers immediately called
for a tow-truck in the form of a super agency with more omnipotence and
omniscience than the old ones.
With the first business expansion out of a classic
post-bubble crash the financial establishment has regained full confidence in
Since the advent of the Fed, each generation of investors
has increased its confidence in policymakers. This became even more so on
each great bull market. In 1929 investors were convinced that the
"new" Federal Reserve System would be better than the old Treasury
System against any contraction. Nothing could go wrong.
This was the conviction on the next great financial bubble
as it completed in 2007. That December, the establishment boasted that there
was a "dream team" of economists at the Fed and nothing could go
As mentioned, the 2008 Crash was a classic in
demonstrating that even under the Fed things can go very wrong. In so many
words, the Fed is an SUV that provides false confidence.
There is another nuance - many portfolio managers still
consider that with timely interest rate cuts the Fed can prevent bad things
from happening. And yet they believe that no one can "time" the
The stock market can remain in the play for some weeks
yet. It may not be the strongest participant.
Having accomplished outstanding momentum and bullish
sentiment, global stock markets are becoming vulnerable to the end of this
magnificent speculative surge.
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Copyright © 2003-2008 Bob Hoye