I'm going to make the weekend report available to everyone this week along with a discounted yearly subscription offer. I've decided to just unlock the weekend report on the premium site. (I'm getting too many requests to keep up with them all).
The link to Paypal for the discounted yearly subscription is in the report.
A few people have had trouble with the charts loading in the email and this will take care of that problem too.
www.smartmoneytrackerpremium.net
31 Temmuz 2010 Cumartesi
30 Temmuz 2010 Cuma
On CNBC's Kudlow Report Tonight
Tonight at 7pm ET on CNBC:THE GOP PLAN TO FIX THE ECONOMY
Congressman Paul Ryan (R-WI) will join us.
THE MARKETS…
STOCK MARKET UP 7% IN JULY, CAN THE JULY RALLY EXTEND INTO AUGUST?
WALL ST. EXPECTS BETTER TIMES AFTER MIDTERM ELECTIONS
LARRY'S OPTIMISM CHECK LIST
- Companies Highly Profitable
- Businesses Investing Rapidly
- Consumers Saving More
- Trade Taking Off
- Low Inflation & Low Interest Rates
- November Regime Change
Panel:
- Bill Baldwin, Forbes Editor
- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager
- David Goodfriend, Fmr. Clinton W.H. Official; "Left Jab" Co-Host/Air America Co-Founder
TAX CUT FIGHT
CNBC chief Washington correspondent John Harwood reports.
BEWARE THE BALANCED BUDGET DEAL
- Peter Ferrara, Policy Innovation Dir. of Entitlement & Budget Policy
THE MOST LOVED CEOs
CNBC’s Jane Wells will report.
CHINA HAS OVERTAKEN JAPAN, ARE WE NEXT?
- Joel Kotnick, "The City: A Global History" author
- Zachary Karabell, CNBC Contributor/River Twice Research President
- John Rutledge, Rutledge Capital Chairman; Fmr. Reagan Economic Advisor
THE PRICE OF BLISS: A COST BREAKDOWN OF CHELSEA CLINTON’S WEDDING
NBC’s Rehema Ellis will be live from Rhinebeck, NY.
Please join us. The Kudlow Report. 7pm ET. CNBC.
Economic Data Helps Stocks Rally Early
Global markets started the day lower, with Asian markets down overnight and European bourses lower this morning. Our markets also opened weak, but quickly bottomed and have since rallied back into positive territory on the heels of some positive economic reports.
Advance Q2 GDP came in at 2.4%, just slightly below estimates of 2.5%. But there were strong upward revisions to Q1 GDP, such that it is now estimated to have posted growth of 3.7%, which is pretty strong. Of course, the bigger questions is what growth is going to look like in Q3 and Q4 of the year, given that most analysts expect a second half slowdown.
Also, Chicago PMI came in at 62.3, above estimates for a reading of 56.3. And final Consumer Sentiment for July rose to 67.8 from its preliminary reading of 66.5.
Despite the positive economic reports, bond yields are falling, back down below the 3.0% level to 2.94%. The volatility index (VIX) is fractionally higher to 24.30.
Among the sector ETFs, materials are strongest (+0.40%) so far, followed by industrials (+0.30%); tech is lagging (-0.40%) along with utilities (-0.33%).
The dollar is bouncing today at the expense of the euro. Oil prices are lower to $77.50 and gold is up a bit to $1172.00.
Trading comment: The market looks set to finish the month of July with nice gains, to the tune or approximately +7%. But the indexes are still flat to down on the year, and the S&P is still trading below its key overhead 200-day moving average.
I have talked about wanting to see benign consolidation, or light pullbacks, in the market while it works off its overbought condition. So far this has been playing out. If it continues, I think the SPX could be in position to rally above that 200-day, which would likely bring in more buyers who are currently on the sidelines while this battle plays out.
Advance Q2 GDP came in at 2.4%, just slightly below estimates of 2.5%. But there were strong upward revisions to Q1 GDP, such that it is now estimated to have posted growth of 3.7%, which is pretty strong. Of course, the bigger questions is what growth is going to look like in Q3 and Q4 of the year, given that most analysts expect a second half slowdown.
Also, Chicago PMI came in at 62.3, above estimates for a reading of 56.3. And final Consumer Sentiment for July rose to 67.8 from its preliminary reading of 66.5.
Despite the positive economic reports, bond yields are falling, back down below the 3.0% level to 2.94%. The volatility index (VIX) is fractionally higher to 24.30.
Among the sector ETFs, materials are strongest (+0.40%) so far, followed by industrials (+0.30%); tech is lagging (-0.40%) along with utilities (-0.33%).
The dollar is bouncing today at the expense of the euro. Oil prices are lower to $77.50 and gold is up a bit to $1172.00.
Trading comment: The market looks set to finish the month of July with nice gains, to the tune or approximately +7%. But the indexes are still flat to down on the year, and the S&P is still trading below its key overhead 200-day moving average.
I have talked about wanting to see benign consolidation, or light pullbacks, in the market while it works off its overbought condition. So far this has been playing out. If it continues, I think the SPX could be in position to rally above that 200-day, which would likely bring in more buyers who are currently on the sidelines while this battle plays out.
29 Temmuz 2010 Perşembe
THE BEGINNING OF THE END?
Well the last post was fun ...but I think it's time to move on to something else.
Something significant did happen today. The dollar broke through the 82 support zone. This is the first condition of three that will tell us if the almighty dollar is now caught in the clutches of the 3 year cycle decline.
The other two are a break below 80 and the next intermediate cycle must turn out to be a left translated and failed cycle.
But let's start with the current daily action. First off a little cycle information. "Most" daily cycles (for the dollar) tend to run about 20 days but can stretch up to 30 and not be abnormally long. Also note that most left translated cycles tend to drop below the previous cycle bottom. A left translated daily cycle is one that tops in 10 days or less.
Here is a 7 month chart of daily cycles. I've marked the troughs with a blue arrow and noted the length. If the cycle was left translated I marked it with an L.
The last cycle, and it now appears the current cycle, were and are extremely left translated. Those tend to produce the worst declines. The break of 82 today not only meets my first warning sign that the dollar is now in the grip of the 3rd year cycle low, it also puts the odds heavily in favor of July 16th marking the last daily cycle bottom.
The reason that is important is because the cycle is only on day 9. There should still be 2 to 3 weeks left before the next major bottom.
One of the conditions necessary for the stock market to continue rallying is for the dollar to continue falling. Today's action is a big check mark in the continuation theory.
As you can see each one of the major impulsive moves down in the dollar sparked powerful rallies in stocks.
Something significant did happen today. The dollar broke through the 82 support zone. This is the first condition of three that will tell us if the almighty dollar is now caught in the clutches of the 3 year cycle decline.
The other two are a break below 80 and the next intermediate cycle must turn out to be a left translated and failed cycle.
But let's start with the current daily action. First off a little cycle information. "Most" daily cycles (for the dollar) tend to run about 20 days but can stretch up to 30 and not be abnormally long. Also note that most left translated cycles tend to drop below the previous cycle bottom. A left translated daily cycle is one that tops in 10 days or less.
Here is a 7 month chart of daily cycles. I've marked the troughs with a blue arrow and noted the length. If the cycle was left translated I marked it with an L.
As you can see the last three cycles have all been left translated and they all bottomed below the prior cycle bottom.
The last cycle, and it now appears the current cycle, were and are extremely left translated. Those tend to produce the worst declines. The break of 82 today not only meets my first warning sign that the dollar is now in the grip of the 3rd year cycle low, it also puts the odds heavily in favor of July 16th marking the last daily cycle bottom.
The reason that is important is because the cycle is only on day 9. There should still be 2 to 3 weeks left before the next major bottom.
One of the conditions necessary for the stock market to continue rallying is for the dollar to continue falling. Today's action is a big check mark in the continuation theory.
As you can see each one of the major impulsive moves down in the dollar sparked powerful rallies in stocks.
As we still have at least a couple for weeks before the next major bottom we should see the stock market rally at least another 2 to 3 weeks. That is going to force the current daily cycle for stocks into a right translated cycle. As I said before those tend to hold above the prior cycle bottom.
Keep in mind I'm just guessing on levels. I'm just illustrating general trajectories and time frames not actual targets.
At that point the dollar will be ready to put in a major intermediate cycle low and we should see a more substantial rally. If that rally fails and moves below the August bottom then we can close the book on the dollar. At that point there will be virtually no question that the 3 year cycle low has its hooks in the dollar and off we will go.
This should spark extreme inflationary pressures and as I've pointed out before every C-wave in gold has been driven by a major leg down in the dollar. I have no doubt the current C-wave will be driven by the dollar falling (maybe crashing) into the major 3 year cycle low.
I've said many times that Bernanke is going to pay a price for his insane monetary policy. In the world we live in one just doesn't get away scott free after printing trillions of dollars.
Heck Greenspan didn't get away with printing billions after the tech bubble burst. The end result was a housing & credit bubble that ultimately burst and sent the world into the second worst recession since the Great Depression. Does anyone seriously think Bernanke can one up Greenspan by many, many multiples and not have anything bad happen?
I can assure you that you are dreaming if you think the market is just going to "let this one slide".
There are going to be extreme unintended consequences and I'm about 99% sure they are going to come at the dollar's 3 year cycle bottom next year.
Morning Roundup
The market is slightly higher in early trading. Jobless claims came in below expectations (457k vs. 464k consensus), and that helped boost sentiment at the open.
Asian markets were mixed overnight, but Europe is higher this morning after some positive eurozone economic reports and a dip in German unemployment. That is helping boost the euro to a 2-month high, while the dollar is lower.
Commodities are higher, with oil prices up to $78 but gold prices only fractionally higher at $1160.
On the earnings front, some tech names like Akamai (AKAM) and NVDA are lower after reporting earnings, while stocks such as Altisource Portfolio Solutions (ASPS) and Green Mountain Coffee (GMCR) are nicely higher. I thought Visa (V) reported a solid quarter, but its stock is lower this morning.
Energy is the leading sector (+0.78%) so far, followed by financials (+0.75%); consumer staples (-0.55%) and utilities (-0.16%) are lagging.
The 10-year yield is higher to 3.01%; and the volatility index (VIX) is lower to 23.89.
Trading comment: The market continues to hold up well. Yesterday's selloff was relatively contained, and so far today we are not seeing any follow-thru selling. I showed the other day that the S&P had run into overhead resistance at its 200-day average. Moreover, I said that a bullish outcome would be for the market to pull back and consolidate its recent gains, and then make another stab at breaking out above that 200-day average. As long as the market continues to mull around near these levels, that scenario is still in play.
long ASPS, GMCR, V
Asian markets were mixed overnight, but Europe is higher this morning after some positive eurozone economic reports and a dip in German unemployment. That is helping boost the euro to a 2-month high, while the dollar is lower.
Commodities are higher, with oil prices up to $78 but gold prices only fractionally higher at $1160.
On the earnings front, some tech names like Akamai (AKAM) and NVDA are lower after reporting earnings, while stocks such as Altisource Portfolio Solutions (ASPS) and Green Mountain Coffee (GMCR) are nicely higher. I thought Visa (V) reported a solid quarter, but its stock is lower this morning.
Energy is the leading sector (+0.78%) so far, followed by financials (+0.75%); consumer staples (-0.55%) and utilities (-0.16%) are lagging.
The 10-year yield is higher to 3.01%; and the volatility index (VIX) is lower to 23.89.
Trading comment: The market continues to hold up well. Yesterday's selloff was relatively contained, and so far today we are not seeing any follow-thru selling. I showed the other day that the S&P had run into overhead resistance at its 200-day average. Moreover, I said that a bullish outcome would be for the market to pull back and consolidate its recent gains, and then make another stab at breaking out above that 200-day average. As long as the market continues to mull around near these levels, that scenario is still in play.
long ASPS, GMCR, V
Is Sen. Bayh a Supply-Sider in Donkey's Clothing?
Now here's a real Democratic supply-side reformer in the John Kennedy tradition. Sen. Bayh has explicitly chosen growth over class warfare. Hats off to him. The Democratic tax revolt is brewing. Unbelievable.
28 Temmuz 2010 Çarşamba
INFLATION/DEFLATION DEBATE
I thought I would post on a topic that's sure to stir some dander, mostly because I just needed something to clean the comments.
My thoughts are and have been for a while that in a purely fiat system deflation isn't an inevitability, it's a choice.
The only time we've seen real deflation was in the 30's and that was because the dollar was anchored to gold (money supply was constricted). I know many will immediately jump on the Japan bandwagon but Japan didn't really experience deflation. Prices didn't collapse like they did in the 30's (a true deflation). They stagnated (except real estate and stocks which were in a bubble), mostly because Japan funded their bailouts with internal savings. They never actually resorted to quantitative easing. If they had prices wouldn't have even stagnated
The only other time than the 30's that we've seen real deflation was in late `08 to March `09.
Many have the view that we will experience deflation first then inflation, but I would point out we already did. We just went through the deflation part of the equation in 08/09. That was true deflation. Prices for virtually everything were collapsing. It lasted for 9 months.
Just like Roosevelt did in the 30's, Bernanke stopped deflation dead in its tracks by massively inflating the money supply. If deflation is an inevitability how could that possibly have happened?
I've heard all the ridiculous theories that without credit expansion we can't have inflation (actually total credit is expanding almost exponentially as the government has taken over where the consumer has left off). I'm sorry they don't hold water. Almost across the board we have had massive inflation in virtually all asset markets since early `09. All without the banks lending. Obviously the liquidity that Ben has forced into the market has landed in the financial markets first.
Let me say this again because it's important. As long as a country is willing to destroy it's currency deflation isn't an option. The key in that statement is "the willingness to destroy the currency".
If deflation starts to get a toe hold again the government could simply print money and mail out checks to every man, woman, and child. Does anyone think in that scenario deflation is possible? Of course it's not.
The deflationist's will argue that the government can't, or won't, do that. Hey they have to make that assumption because obviously deflation isn't possible if the government just starts mailing free money to everyone.
But the fact is that they can and they will, actually they already have...twice. They were called rebate checks. Anyone who thinks it won't happen again if deflation starts to rear it's head is just kidding themselves.
In a purely fiat system deflation is a choice. I would say it's pretty clear that the government is willing to sacrifice the currency to keep deflation at bay and they have been doing so ever since 2001.
For me to buy the deflation theory one would have to explain how Ben could have stopped the worst deflationary spiral in a mere 9 months and you will have to explain to me how deflation can possibly survive another bout of free money (more tax rebates or whatever they choose to call them next time).
My thoughts are and have been for a while that in a purely fiat system deflation isn't an inevitability, it's a choice.
The only time we've seen real deflation was in the 30's and that was because the dollar was anchored to gold (money supply was constricted). I know many will immediately jump on the Japan bandwagon but Japan didn't really experience deflation. Prices didn't collapse like they did in the 30's (a true deflation). They stagnated (except real estate and stocks which were in a bubble), mostly because Japan funded their bailouts with internal savings. They never actually resorted to quantitative easing. If they had prices wouldn't have even stagnated
The only other time than the 30's that we've seen real deflation was in late `08 to March `09.
Many have the view that we will experience deflation first then inflation, but I would point out we already did. We just went through the deflation part of the equation in 08/09. That was true deflation. Prices for virtually everything were collapsing. It lasted for 9 months.
Just like Roosevelt did in the 30's, Bernanke stopped deflation dead in its tracks by massively inflating the money supply. If deflation is an inevitability how could that possibly have happened?
I've heard all the ridiculous theories that without credit expansion we can't have inflation (actually total credit is expanding almost exponentially as the government has taken over where the consumer has left off). I'm sorry they don't hold water. Almost across the board we have had massive inflation in virtually all asset markets since early `09. All without the banks lending. Obviously the liquidity that Ben has forced into the market has landed in the financial markets first.
Let me say this again because it's important. As long as a country is willing to destroy it's currency deflation isn't an option. The key in that statement is "the willingness to destroy the currency".
If deflation starts to get a toe hold again the government could simply print money and mail out checks to every man, woman, and child. Does anyone think in that scenario deflation is possible? Of course it's not.
The deflationist's will argue that the government can't, or won't, do that. Hey they have to make that assumption because obviously deflation isn't possible if the government just starts mailing free money to everyone.
But the fact is that they can and they will, actually they already have...twice. They were called rebate checks. Anyone who thinks it won't happen again if deflation starts to rear it's head is just kidding themselves.
In a purely fiat system deflation is a choice. I would say it's pretty clear that the government is willing to sacrifice the currency to keep deflation at bay and they have been doing so ever since 2001.
For me to buy the deflation theory one would have to explain how Ben could have stopped the worst deflationary spiral in a mere 9 months and you will have to explain to me how deflation can possibly survive another bout of free money (more tax rebates or whatever they choose to call them next time).
How to Restore American Confidence
Great debate last night on what must be changed in Washington to restore confidence and growth. Joining me were former Clinton senior advisor Richard Socarides and outspoken University of Maryland economist Peter Morici.
On CNBC's Kudlow Report Tonight
Tonight at 7pm ET on CNBC:IS OBAMA DOING ENOUGH FOR SMALL BUSINESS?
-Peter Navarro, business school professor at UC Irvine
-Kristie Arslan, Executive Director of the National Association for the Self-Employed
AN INTERVIEW WITH SEN. EVAN BAYH … TAXES, SPENDING & THE ECONOMY
- Sen. Evan Bayh (D) Indiana
FINREG: IS GOVERNMENT IMPOSING QUOTAS ON WALL STREET?
CNBC’s Eamon Javers reports from Washington.
4 WAYS WALL STREET WILL BEAT NEW FINANCIAL REGULATIONS
- Brian Gardner, Keefe Bruyette & Woods Washington analyst
NOT AS BAD AS IT SEEMS? (JOBS THEN VS. NOW: 1/02 VS. 8/09 RECESSIONS)
Businesses Whine, But Data's Fine?
CNBC senior economics reporter Steve Liesman reports.
DID STIMULUS STAVE OFF DEPRESSION?
- Greg Valliere, Chief Political Strategist; Potomac Research Group CNBC Contributor
- Andy Busch, BMO Capital Markets
Please join us. The Kudlow Report. 7pm ET. CNBC.
Quote of the Day
"What we think determines what happens to us, so if we want to change our lives, we need to stretch our minds."
— Dr. Wayne Dyer: Self-development author and speaker
— Dr. Wayne Dyer: Self-development author and speaker
Positive Earnings Reports Continue To Outnumber Negative Ones
The market is trading down slightly in early trading, following a weaker than expected economic report. Durable goods orders for June decreased -1.0%, vs. expectations for a 1.0% increase.
On the earnings front, a large batch of companies topped estimates once again, including Broadcom (BRCM), Boeing (BA), Comcast (CMCSA), Las Vegas Sands (LVS), Aflac (AFL), and more.
Asian markets were up sharply overnight. Japan spiked +2.7% and China rose +2.3%. But the enthusaism lost momentum by the time the opening bell rang in the U.S.
The 10-year yield is flat at 3.04%. On the chart, it looks like this Note put in a double-bottom at 2.90% and is close to breaking its recent downtrend. A move higher in yields would probably reflect better sentiment about the economy, so I won't be upset to see a little lift in yields.
The dollar is roughly flat so far, as are gold prices near $1158. Oil prices are lower near $76.85. The volatility index is +3% higher to the 24 level.
Trading comment: The chart below shows how overbought the market has become. This is a relatively short-term gauge, and simply means that the market could be poised for a pause in the short-term. I think that is a likely outcome, and have held off of new buys until we do pull back a little. The SPX 1115 resistance, right at the 200-day average, is still in effect also. And many leading stocks that have spiked higher look very extended, and also need to consolidate to present better entry points.
On the earnings front, a large batch of companies topped estimates once again, including Broadcom (BRCM), Boeing (BA), Comcast (CMCSA), Las Vegas Sands (LVS), Aflac (AFL), and more.
Asian markets were up sharply overnight. Japan spiked +2.7% and China rose +2.3%. But the enthusaism lost momentum by the time the opening bell rang in the U.S.
The 10-year yield is flat at 3.04%. On the chart, it looks like this Note put in a double-bottom at 2.90% and is close to breaking its recent downtrend. A move higher in yields would probably reflect better sentiment about the economy, so I won't be upset to see a little lift in yields.
The dollar is roughly flat so far, as are gold prices near $1158. Oil prices are lower near $76.85. The volatility index is +3% higher to the 24 level.
Trading comment: The chart below shows how overbought the market has become. This is a relatively short-term gauge, and simply means that the market could be poised for a pause in the short-term. I think that is a likely outcome, and have held off of new buys until we do pull back a little. The SPX 1115 resistance, right at the 200-day average, is still in effect also. And many leading stocks that have spiked higher look very extended, and also need to consolidate to present better entry points.
27 Temmuz 2010 Salı
S&P 500 Tests Its 200-day Moving Average
The market is slightly higher in early trading, following a nice 3-day rally. I think its obvious that the reason the market is higher this morning is that the cast of Jersey Shore was at the NYSE to ring the opening bell. I also heard that it was the first time the NYSE sold out of guest passes. Too funny.
In all seriousness, there was another round of solid earnings reports last night and this morning, and a better than expected housing report. The CaseShiller Home Price Index for May rose to 146.4, with the 20-city composite up +4.6%. Despite the positive report, homebuilding stocks (XHB) are lagging this morning.
The financial index is leading the way so far today, after banks including UBS, Deutsche Bank (DB), and Regions Financial (RF) all reported strong earnings and saw their stocks gap higher. There was also some positive news in the form of the Basel Committee saying it may ease capital and liquidity requirements.
Utilities are the next strongest group this morning (+0.81%), while energy is lagging (-0.70%).
The dollar is up a bit this morning, while gold prices are lower ($1172), and oil prices are down to $78.50. Asian markets were mixed overnight; the 10-year yield is up to 3.03%; and the volatility index (VIX) is also higher to 23.20 following its multi-day slide.
Trading comment: The S&P 500 has rallied right up to its overhead 200-day moving average. This is a key, longer-term moving average, and will likely offer resistance on this test. I say that because the market is also overbought just as its reaching this zone. A positive resolution would be similar to what we saw a couple of weeks ago when the SPX tested its 50-day average, pulled back for a bit, and then rallied again and successfully closed above it.
I've highlighted the level of the 200-day in pink below. It stands right around the 1115 level. This level is also notable because it is right where the SPX closed on 12/31/09. So it brings the market back to even on the year, and could mark a level where some participants are just happy to be back to even, and looking to sell.
So a pullback would be good here, as it would give the market chance to catch its breath. I am focusing on those stocks that reported the strongest earnings and broke out to new highs. They are likely the best candidates to add to on pullbacks, as they should continue to lead the market if the major indexes remain strong.
In all seriousness, there was another round of solid earnings reports last night and this morning, and a better than expected housing report. The CaseShiller Home Price Index for May rose to 146.4, with the 20-city composite up +4.6%. Despite the positive report, homebuilding stocks (XHB) are lagging this morning.
The financial index is leading the way so far today, after banks including UBS, Deutsche Bank (DB), and Regions Financial (RF) all reported strong earnings and saw their stocks gap higher. There was also some positive news in the form of the Basel Committee saying it may ease capital and liquidity requirements.
Utilities are the next strongest group this morning (+0.81%), while energy is lagging (-0.70%).
The dollar is up a bit this morning, while gold prices are lower ($1172), and oil prices are down to $78.50. Asian markets were mixed overnight; the 10-year yield is up to 3.03%; and the volatility index (VIX) is also higher to 23.20 following its multi-day slide.
Trading comment: The S&P 500 has rallied right up to its overhead 200-day moving average. This is a key, longer-term moving average, and will likely offer resistance on this test. I say that because the market is also overbought just as its reaching this zone. A positive resolution would be similar to what we saw a couple of weeks ago when the SPX tested its 50-day average, pulled back for a bit, and then rallied again and successfully closed above it.
I've highlighted the level of the 200-day in pink below. It stands right around the 1115 level. This level is also notable because it is right where the SPX closed on 12/31/09. So it brings the market back to even on the year, and could mark a level where some participants are just happy to be back to even, and looking to sell.
So a pullback would be good here, as it would give the market chance to catch its breath. I am focusing on those stocks that reported the strongest earnings and broke out to new highs. They are likely the best candidates to add to on pullbacks, as they should continue to lead the market if the major indexes remain strong.
HOPING FOR A BREAK
I want to discuss something that came up on the blog Friday. An anonymous poster hinted that we were going to see more gold weakness in the days ahead because Paulson was having to sell his positions. Folks, big smart money traders like John Paulson don’t sell into weakness. These kind of investors don’t think like the typical retail investor who is forever trying to avoid draw downs. Big money investors take positions based on fundamentals and then they continually buy dips until the fundamentals reverse. The fundamentals haven’t reversed for gold so I’m confident in saying that Paulson isn’t selling his gold, he is using this dip to accumulate.
With that being said there are times when big money will sell into the market and it is why so often technical analysis as it’s used by retail traders doesn’t work. They do so in order to accumulate positions. Let me explain.
When a large fund wants to buy, it can’t just simply start buying stock like you or I would. Doing so would run the market up causing them to fill at higher and higher prices. Unlike the average retail trader, smart money attempts to buy into weakness and sell into strength. (Buy low, sell high). In order to buy in the kind of size they need without moving the market against themselves, a large trader needs very liquid conditions. Ask yourself, when do those kind of conditions exist? They happen when markets break technical levels. Smart money understands how to “play” the technical traders.
If Paulson is selling it is because he is trying to push the market below a significant technical level so all the technicians will puke up their shares to him. By running an important technical level he can trigger a ton of sell stops to activate, allowing him to accumulate a large position without moving the market against himself in the process. We saw this very thing happen in the oil market recently and also in February as gold bottomed.
With that being said there are times when big money will sell into the market and it is why so often technical analysis as it’s used by retail traders doesn’t work. They do so in order to accumulate positions. Let me explain.
When a large fund wants to buy, it can’t just simply start buying stock like you or I would. Doing so would run the market up causing them to fill at higher and higher prices. Unlike the average retail trader, smart money attempts to buy into weakness and sell into strength. (Buy low, sell high). In order to buy in the kind of size they need without moving the market against themselves, a large trader needs very liquid conditions. Ask yourself, when do those kind of conditions exist? They happen when markets break technical levels. Smart money understands how to “play” the technical traders.
If Paulson is selling it is because he is trying to push the market below a significant technical level so all the technicians will puke up their shares to him. By running an important technical level he can trigger a ton of sell stops to activate, allowing him to accumulate a large position without moving the market against himself in the process. We saw this very thing happen in the oil market recently and also in February as gold bottomed.
Technical traders wrongly assume these breaks are continuation patterns but the reality is that very often they are just smart money “playing” the technical crowd so they can enter large positions. The key to watch for is an immediate reversal of a technical break. When that happens you know there was someone in the market buying when everyone else was selling. 9 times out of 10 it was smart money.
At the moment everyone is jumping on the bear side for gold. Remember we saw this exact same sentiment in the stock market 3 weeks ago. I knew the bears were going to be wrong simply because the market was way too late in the intermediate cycle for there to be enough time left for a significant decline.
The gold bears are going to be wrong also and for the exact same reason. It is just too late in the intermediate cycle for there to be enough time left for anything other than a minor decline.
I'm now waiting, and hoping for a break of the May pivot. I want to play that break if it comes like a smart money trader. That means I want to buy into the break instead of panic sell like most dumb money retail traders will invariably do.
The reason of course is that gold is still in a secular bull market. In bull markets you buy dips.
Also the dollar with the break below 82 this morning is starting to show signs that it is now in the clutches of the 3 year cycle decline. Every C-wave so far in this 10 year bull market has corresponded to a major leg down in the dollar. I'm confident this C-wave will inversely track the dollars move into that major cycle low due early next year.
Sentiment wise gold has now reached levels more bearish than at the February bottom. That means gold is at risk of running out of sellers.
And finally, and most importantly it's just simply too late in the intermediate cycle for gold to have enough time for a significant drop. This is the 25th week of the cycle and the intermediate cycle rarely lasts more than 25 weeks. That puts the odds heavily in favor of a major bottom either sometime this week or next. And don't forget gold is about to move into the strong demand season. Like clockwork gold invariably puts in a major bottom in July or August before the run up into the strong fall season.
The bears are going to be wrong again.
26 Temmuz 2010 Pazartesi
On CNBC's Kudlow Report Tonight
Tonight at 7pm ET on CNBC:CAN WE MOVE FROM FEAR TO OPTIMISM?
BUSH TAX CUTS: WHO, WHAT, WHERE, WHY & WHEN
CNBC chief Washington correspondent John Harwood reports from Washington.
BUSH TAX CUTS DEBATE:
WOULD TAXING THE WEALTHY HURT THE ECONOMY?
- Howard Dean, Fmr. Vermont Governor; CNBC Contributor; Fmr. Presidential Candidate
- Steve Forbes, Forbes Chmn & CEO; Forbes Editor-in-Chief; Fmr. Presidential Candidate; "How Capitalism Will Save Us" Co-Author
OPTIMISM FROM THE CORNER OFFICE
- Sir Martin Sorrell, WPP CEO
BYE-BYE TONY HAYWARD; NINE LIVES OF BP
CNBC’s Bertha Coombs reports.
MARKETS: COMPANIES HAVE CASH, WHY AREN'T THEY HIRING?
- Michael Farr, CNBC Contributor; Farr, Miller & Washington President
- Joe Battipaglia, Stifel Nicolaus Market Strategist
PLUS … LARRY'S OPTIMISM CHECK LIST
- EARNINGS
- ZERO INFLATION
- ZERO FED RATE
- DR. COPPER: PRICES RISING AGAIN
- WASHINGTON GRIDLOCK COMING IN NOVEMBER
HEDGE FUNDS GO QUIET IN WAKE OF FIN-REG ESCAPE
CNBC’s John Carney reports.
Please join us. The Kudlow Report. 7pm ET. CNBC.
Monday Morning Musings
The market rallied to a strong finish on Friday, and so far today is adding to those gains. On Friday, the results of the European stress tests were released. I have some complaints, in that it doesn't appear that their test were is rigorous as ours were here last May. Only 7 out of 91 banks didn't pass the tests in Europe, and they were said to be in need of raising an additional $3.5 billion in capital. That is a very small figure. I believe our banks needed to raise something like $75 billion.
But hopefully it does removed an additional element of uncertainty from the market, and that is why the market did rally into the close. Of course, Europe's bourses are relatively flat to lower this morning, so the reaction there is muted so far.
One of the things that got the market going this morning was a strong earnings report from FedEx (FDX), which also increased its outlook above consensus. FDX is looked at as a good barometer for the overall economy, so when they give strong guidance, it usually helps boost investor confidence.
Additionally, the new home sales report was just released, and it came in above expectations (330k vs. 310k consensus). That report also helped boost the market, pushing the S&P 500 further into positive territory, and just a few points below the flat mark for the year (1115).
Asian markets were higher overnight; the 10-year yield is higher to 3.01%; and the VIX is also higher so far, to 23.80.
Trading comment: Both the S&P and Nasdaq are now both comfortably above their respective 50-day moving averages. Last week, I mentioned this as a possibility and listed it as something we needed to see to embolden the bulls. The key will be that on any pullback, that 50-day average should act as support. But if it holds, it could signal that the intermediate-trend of the market has changed.
Many leading stocks reported very solid earnings reports and saw their stocks gap to new highs. I continue to think that while these leading stocks can remain strong, the leadership has narrowed, and not all stocks and sectors will participate. So look for stocks that have demonstrated leadership, and don't spend all of your time and energy looking for down and out stocks that you think should catch up.
But hopefully it does removed an additional element of uncertainty from the market, and that is why the market did rally into the close. Of course, Europe's bourses are relatively flat to lower this morning, so the reaction there is muted so far.
One of the things that got the market going this morning was a strong earnings report from FedEx (FDX), which also increased its outlook above consensus. FDX is looked at as a good barometer for the overall economy, so when they give strong guidance, it usually helps boost investor confidence.
Additionally, the new home sales report was just released, and it came in above expectations (330k vs. 310k consensus). That report also helped boost the market, pushing the S&P 500 further into positive territory, and just a few points below the flat mark for the year (1115).
Asian markets were higher overnight; the 10-year yield is higher to 3.01%; and the VIX is also higher so far, to 23.80.
Trading comment: Both the S&P and Nasdaq are now both comfortably above their respective 50-day moving averages. Last week, I mentioned this as a possibility and listed it as something we needed to see to embolden the bulls. The key will be that on any pullback, that 50-day average should act as support. But if it holds, it could signal that the intermediate-trend of the market has changed.
Many leading stocks reported very solid earnings reports and saw their stocks gap to new highs. I continue to think that while these leading stocks can remain strong, the leadership has narrowed, and not all stocks and sectors will participate. So look for stocks that have demonstrated leadership, and don't spend all of your time and energy looking for down and out stocks that you think should catch up.
25 Temmuz 2010 Pazar
HEAD & SHOULDERS TOP OR BOTTOM II
A couple of weeks ago I posted the possibility that the market might be forming a head and shoulders bottom instead of the top everyone was so focused on. I knew at the time that the intermediate cycle was in the timing band for a major low and sentiment had moved to bearish levels even more extreme than what we saw at the March `09 bottom.
Calls for a market crash were flying left and right. I'll let you in on a secret, we always hear that the market is going to crash at intermediate cycle bottoms. The reality is we've had three real market crashes in the last 100 years. The odds of a fourth following right on the heels of the third are pretty darn slim.
The first and the third crash were caused by credit bubble implosions and the second was caused by severe overvaluation in the fifth year of a secular bull market. These fifth year corrections are fairly common in long term bull markets as it seems like it takes about five years for sentiment to swing to the extreme bullish side. Then the fifth year correction serves to wipe out that bullish sentiment so the secular fundamentals can continue to drive the bull higher.
Calls for a market crash were flying left and right. I'll let you in on a secret, we always hear that the market is going to crash at intermediate cycle bottoms. The reality is we've had three real market crashes in the last 100 years. The odds of a fourth following right on the heels of the third are pretty darn slim.
The first and the third crash were caused by credit bubble implosions and the second was caused by severe overvaluation in the fifth year of a secular bull market. These fifth year corrections are fairly common in long term bull markets as it seems like it takes about five years for sentiment to swing to the extreme bullish side. Then the fifth year correction serves to wipe out that bullish sentiment so the secular fundamentals can continue to drive the bull higher.
Not withstanding the very low odds of a market crash, I knew that we were way too late in the intermediate cycle, and sentiment was way too bearish for there to be much chance of the head and shoulders top succeeding (actually head and shoulders patterns only succeed and reach their target about 27% of the time). Not to mention everyone saw it which gave it even less odds of actually playing out like everyone was expecting.
At that point it became much more likely that the market wasn't forming a head and shoulders top it was in fact probably going to form a head and shoulders bottom with the half cycle low forming the right shoulder.
No one else at the time was calling for any such outcome, as a matter of fact I took an amazing amount of abuse for my temerity to even consider such a ridiculous idea.
As of yesterday the Dow has now completed the inverse head and shoulders pattern by breaking the neckline just like I thought it would. Now will it reach it's target (11,200)? The odds say no. But it's anybodies guess at this point.
What we do know is that virtually all indexes have rallied out of the half cycle low to new highs thus breaking the pattern of lower lows and lower highs. Higher highs and higher lows is the definition of an uptrend.
This was why I'm not ready to call a bear market yet. I was confident this rally was coming and we need to see were it goes before we can say with any confidence that we are back in the secular bear trend.
We now have two clear lines in the sand. If the market breaks out to new highs then the perma-bear/deflationists were too early and the cyclical bull still has some kick left.
If the market (both Dow and transports) break below the July 1st low then yes the bear is back.
As long as the market holds between those two lines we will remain in no-mans land.
Right now the market is in rally mode just like I warned would happen. We just have to wait and see whether it turns out to be a bear market rally or another leg up in the cyclical bull market.
I for one, have no intentions of trying to guess which it is until one of those lines gets broken.
Chitty Chitty Bang Bang
Right now, I'm at my brother Doug's in Conifer, Colorado, with Mark (the writer) and Roy.
Mark took me up to Mount Evans to the spot where I had driven my car off a cliff back in 1991 and almost died. I had discussed this suicide attempt with Roy the day before, and he let cat out of the bag in his blog to the public. So now is the time to share it publicly. I had wanted to reveal it in my own time, perhaps in a special website for suicidal people and survivors, but it looks like now is the time, now is the blog, as premature as it feels. But what is, is, and the point of living this path is to completely accept what is. I choose what is, the good, the bad, the ugly. There is no greater liberation than choosing What Is. Call it Submission.
My clinical depression, with its suicidalism, is a thing of the past, and my life as it is now is borrowed time, precious time. Why not now use it to help my fellow humans out of the darkest quagmires of hell?
--------------------------------------------------------------------
I'm still in Homer, maybe going to hitch out soon. . . .
My car wreck off the cliff in Mount Evans in Colorado was a suicide attempt. I thought it would be failsafe, that in no way I could survive - but I did. And now I live to tell you about what [M's]point of view might have been. I didn't know it at the time, but I was suffering from severe clinical depression. I knew something was wrong, but didn't know it was an actual disease. One day I got up at 3AM & realized I had gone a whole month without experiencing even 5 minutes of even the least happiness, and that I was sinking deeper & deeper into a black hole, with not a single glimmer of light at the end of any tunnel, not a spark of hope. I was going weeks without sleep - except maybe 5 min or an hour per night, so my brain couldn't even function. I couldn't hold conversation, couldn't decide, and I was too tired to hardly lift myself from bed. I felt like hell was a reality, & I was in it. No matter what people said or did to help, nothing helped, nothing could help. But then I figured out a solution - finally, a solution that I thought would work. Kill myself! The idea of it was so freeing, &, strangely, and FINALLY the ONLY thought that brought me happiness!
And here's the rationalization that went through my head. The thing that had kept me from going through with it in the past was the thought of how it would hurt the loved ones around me . But I had finally reached a critical point - a point when I felt I had no more choice. I could see that all my loved ones had at least some strength to experience happiness, unlike me, and that we all die and would have to face death, of both ourselves & others. I finally had to put all of our pain in the scales, and thought that the pain I was experiencing now was way worse than even the pain my suicide could inflict on others! They could handle it, I thought, but I couldn't even now handle a moment's more pain. From my perspective then, I simply had NO OTHER CHOICE! I also felt like my whole being was in self-destruct, ready to die, like any creature that is ready to die. My brain was an organ that had sparked its last strength, just like a heart that is worn out beats its last beat. I simply could not fight it any more, could not resist death, death that we all must face sooner or later. And family & friends would simply have to deal, just as they would have to deal if I had had cancer, and just as humans & creatures have had to deal with death zillions of times over zillions of years in the past! And in 100 years all of us would be dead & gone & all forgotten anyway!
But I didn't know, until after I had been taken to the hospital, that I had an actual disease, a treatable disease. However, ironically, even though nothing anybody could have said or did could help me, I still had thought that my happiness somehow depended on people & things around me, so I was constantly reaching for something or somebody OUTSIDE OF ME to help me. Little did I realize that the problem was INSIDE ME, that I was suffering endless loops of negative thought about everything & everybody. Little did I know that if I gave up negative & judgmental thoughts, my depression would go away with them! I didn't realize that NOBODY could help me if I clung to my old thought patterns, which totally distorted my whole world view, making the universe a living hell.
After having gone through it, and found my way out of depression, I have had to assure family & friends that they were in no way responsible for my depression or suicide attempt. Nothing they could have said or done could have made it better. The responsibility was fully mine. But I also give myself slack & forgiveness, too, because, on the other hand, it was truly a disease I was suffering. It is chemical & it is cognitive. The chemical feeds the cognitive & the cognitive feeds the chemical in the cyclic nature of it.
For you survivors, NEVER even let your minds do the "shoulda coulda" thing, even for a second. That begins a cognitive disorder in yourselves, which spreads the disease. What is, is, and no amount of thinking can go back in time - so why even try for even a second? Just let this be an opportunity to love each other more deeply & more fully, more than ever before. Shoulda coulda thoughts keep our minds away from loving one another, here and now. Shoulda coulda is destructive & damning to both ourselves and everybody around us.
So there you have it.
With much love,
Daniel
I didn't really choose the publicity I've gotten. But now that it's here, I choose it. I didn't choose the praise and the hateful slander, but now that it's here, I choose it. It's all a rare tool, and I must use it well, now that it's been granted me. I've been saying for the past few months that I decided to make my life an open book, including the good, the bad, and the ugly. Whitewashed lives are no help. I'm telling Mark about it for his book, which is one of the reasons we came here, to see the site of my suicide attempt on Mount Evans.
An in-law in my extended family had committed suicide during the last time I was in Alaska (August, 2007), and I knew then that it was time to take a big chance and talk about my own suicide attempt with the extended family. So I wrote this letter to the survivors of the family. They wrote back and told me how helpful it was, and that they had even shared it with suicide support groups. I then decided I should use it in a special website. I had no idea I would put it in this blog, but here it is. (I've deleted names for their privacy, where brackets are), I decided to post it with original spelling & grammar errors:
I'm still in Homer, maybe going to hitch out soon. . . .
Please read & consider what I'm saying, and if you feel it is worthwhile, forward it to [the rest of the family]:
I'm hoping this helps you all out to tell you this. I never know how much news spreads through the family or not, and what you know about my car wreck 15 years ago, or if even I talked to you about it.
My car wreck off the cliff in Mount Evans in Colorado was a suicide attempt. I thought it would be failsafe, that in no way I could survive - but I did. And now I live to tell you about what [M's]point of view might have been. I didn't know it at the time, but I was suffering from severe clinical depression. I knew something was wrong, but didn't know it was an actual disease. One day I got up at 3AM & realized I had gone a whole month without experiencing even 5 minutes of even the least happiness, and that I was sinking deeper & deeper into a black hole, with not a single glimmer of light at the end of any tunnel, not a spark of hope. I was going weeks without sleep - except maybe 5 min or an hour per night, so my brain couldn't even function. I couldn't hold conversation, couldn't decide, and I was too tired to hardly lift myself from bed. I felt like hell was a reality, & I was in it. No matter what people said or did to help, nothing helped, nothing could help. But then I figured out a solution - finally, a solution that I thought would work. Kill myself! The idea of it was so freeing, &, strangely, and FINALLY the ONLY thought that brought me happiness! And here's the rationalization that went through my head. The thing that had kept me from going through with it in the past was the thought of how it would hurt the loved ones around me . But I had finally reached a critical point - a point when I felt I had no more choice. I could see that all my loved ones had at least some strength to experience happiness, unlike me, and that we all die and would have to face death, of both ourselves & others. I finally had to put all of our pain in the scales, and thought that the pain I was experiencing now was way worse than even the pain my suicide could inflict on others! They could handle it, I thought, but I couldn't even now handle a moment's more pain. From my perspective then, I simply had NO OTHER CHOICE! I also felt like my whole being was in self-destruct, ready to die, like any creature that is ready to die. My brain was an organ that had sparked its last strength, just like a heart that is worn out beats its last beat. I simply could not fight it any more, could not resist death, death that we all must face sooner or later. And family & friends would simply have to deal, just as they would have to deal if I had had cancer, and just as humans & creatures have had to deal with death zillions of times over zillions of years in the past! And in 100 years all of us would be dead & gone & all forgotten anyway!
But I didn't know, until after I had been taken to the hospital, that I had an actual disease, a treatable disease. However, ironically, even though nothing anybody could have said or did could help me, I still had thought that my happiness somehow depended on people & things around me, so I was constantly reaching for something or somebody OUTSIDE OF ME to help me. Little did I realize that the problem was INSIDE ME, that I was suffering endless loops of negative thought about everything & everybody. Little did I know that if I gave up negative & judgmental thoughts, my depression would go away with them! I didn't realize that NOBODY could help me if I clung to my old thought patterns, which totally distorted my whole world view, making the universe a living hell.
After having gone through it, and found my way out of depression, I have had to assure family & friends that they were in no way responsible for my depression or suicide attempt. Nothing they could have said or done could have made it better. The responsibility was fully mine. But I also give myself slack & forgiveness, too, because, on the other hand, it was truly a disease I was suffering. It is chemical & it is cognitive. The chemical feeds the cognitive & the cognitive feeds the chemical in the cyclic nature of it.
For you survivors, NEVER even let your minds do the "shoulda coulda" thing, even for a second. That begins a cognitive disorder in yourselves, which spreads the disease. What is, is, and no amount of thinking can go back in time - so why even try for even a second? Just let this be an opportunity to love each other more deeply & more fully, more than ever before. Shoulda coulda thoughts keep our minds away from loving one another, here and now. Shoulda coulda is destructive & damning to both ourselves and everybody around us.
So there you have it.
With much love,
Daniel
24 Temmuz 2010 Cumartesi
Liberal Tax Revolt Game-Changer?
The liberal tax revolt, as the Wall Street Journal is calling it, is a very important topic -- especially for investors and small-business entrepreneurs. And for new jobs.
The so-called revolt is comprised of three Democratic senators: Kent Conrad, Evan Bayh, and Ben Nelson. They want to extend all the Bush tax cuts. That includes taxes on the wealthy, or the top personal tax rate, the investment taxes on capital gains and dividends, and the estate tax.
So is this revolt a game-changer, or merely wishful thinking?
With a strong pushback against the revolt by President Obama, Treasury man Tim Geithner, and House Speaker Nancy Pelosi, right now it looks like wishful thinking. But with Democrats getting badly paddled in various polls, you never know.
When Tim Geithner told me in a CNBC interview a few weeks ago about his 20-20 rule for the top tax rate on capital gains and dividends, I blogged that this was a good thing -- in particular the story for dividend taxes, which could go to 39.6 percent. But no increase at all on investment taxes would be even better.
Let’s say you’re an investor who went long stocks in March 2009 and now has a long-term capital gain. You could sell right now at a 15 percent tax rate before it goes up to 20 percent. In a nutshell, this is the tax-hike story that has hung over the stock market this year like the proverbial Sword of Damocles. Year-end tax-related selling could still be in front of us.
So the liberal tax revolt is a very important issue for investors. It could mean a potential stock market rally in the second half of the year.
It’s also important for job seekers. Just take a look at the new Investor’s Business Daily poll by the accurate surveyor Raghavan Mayur. He notes that the average length of joblessness has soared to over 35 weeks, nearly two-times greater than the previous high for any downturn. And his polling data show that nearly one-half of households can be categorized as “job-sensitive.” That’s a huge number. These are the people who are either looking for work or fear that they may be laid off -- or both.
Regarding the direction of the country, confidence in the job market, the likelihood of a second recession, and satisfaction with federal economic policies, Mayur’s polling shows that the large job-worrying population is extremely pessimistic. Come November, that’s going to translate into votes against the Democratic Congress. And this pessimistic, jobs-sensitive group is undoubtedly thinking, along with the tax-hike-revolt Democratic senators: What sense does it make to raise taxes on anyone? Or on any business, large or small?
Then there’s the confidence-threatening war between business and the White House, which is also related to the liberal tax revolt. It’s still a battle royale between the nation’s business leaders and the administration over taxes, spending, regulation, and trade.
Treasury man Geithner made lite of this war at a Christian Science Monitor breakfast this week. A Daily Caller headline read: “Geithner Bored by Complaints from Business about Obama Policies.” White House chief of staff Rahm Emanuel also doesn’t seem that concerned. In a Wall Street Journal interview with Jerry Seib, Emanuel was a bit more conciliatory about reexamining regulatory issues, but he was still inconclusive.
There are two big things that businesses want right now: One is an across-the-board corporate tax cut, including cash expensing for investment. This is the single most powerful job-creator of all. The other is a senior business executive in one of the key economic policy slots in the White House. Neither of these requests seems to be on the table. But to conclude that the White House is burying the hatchet with business you’d have to see these conditions met.
So far it ain’t happening.
The so-called revolt is comprised of three Democratic senators: Kent Conrad, Evan Bayh, and Ben Nelson. They want to extend all the Bush tax cuts. That includes taxes on the wealthy, or the top personal tax rate, the investment taxes on capital gains and dividends, and the estate tax.
So is this revolt a game-changer, or merely wishful thinking?
With a strong pushback against the revolt by President Obama, Treasury man Tim Geithner, and House Speaker Nancy Pelosi, right now it looks like wishful thinking. But with Democrats getting badly paddled in various polls, you never know.
When Tim Geithner told me in a CNBC interview a few weeks ago about his 20-20 rule for the top tax rate on capital gains and dividends, I blogged that this was a good thing -- in particular the story for dividend taxes, which could go to 39.6 percent. But no increase at all on investment taxes would be even better.
Let’s say you’re an investor who went long stocks in March 2009 and now has a long-term capital gain. You could sell right now at a 15 percent tax rate before it goes up to 20 percent. In a nutshell, this is the tax-hike story that has hung over the stock market this year like the proverbial Sword of Damocles. Year-end tax-related selling could still be in front of us.
So the liberal tax revolt is a very important issue for investors. It could mean a potential stock market rally in the second half of the year.
It’s also important for job seekers. Just take a look at the new Investor’s Business Daily poll by the accurate surveyor Raghavan Mayur. He notes that the average length of joblessness has soared to over 35 weeks, nearly two-times greater than the previous high for any downturn. And his polling data show that nearly one-half of households can be categorized as “job-sensitive.” That’s a huge number. These are the people who are either looking for work or fear that they may be laid off -- or both.
Regarding the direction of the country, confidence in the job market, the likelihood of a second recession, and satisfaction with federal economic policies, Mayur’s polling shows that the large job-worrying population is extremely pessimistic. Come November, that’s going to translate into votes against the Democratic Congress. And this pessimistic, jobs-sensitive group is undoubtedly thinking, along with the tax-hike-revolt Democratic senators: What sense does it make to raise taxes on anyone? Or on any business, large or small?
Then there’s the confidence-threatening war between business and the White House, which is also related to the liberal tax revolt. It’s still a battle royale between the nation’s business leaders and the administration over taxes, spending, regulation, and trade.
Treasury man Geithner made lite of this war at a Christian Science Monitor breakfast this week. A Daily Caller headline read: “Geithner Bored by Complaints from Business about Obama Policies.” White House chief of staff Rahm Emanuel also doesn’t seem that concerned. In a Wall Street Journal interview with Jerry Seib, Emanuel was a bit more conciliatory about reexamining regulatory issues, but he was still inconclusive.
There are two big things that businesses want right now: One is an across-the-board corporate tax cut, including cash expensing for investment. This is the single most powerful job-creator of all. The other is a senior business executive in one of the key economic policy slots in the White House. Neither of these requests seems to be on the table. But to conclude that the White House is burying the hatchet with business you’d have to see these conditions met.
So far it ain’t happening.
23 Temmuz 2010 Cuma
On CNBC's Kudlow Report Tonight
Tonight at 7pm ET on CNBC:LIBERAL TAX REVOLT: IS IT A GAME CHANGER OR WISHFUL THINKING FOR INVESTORS & SMALL BUSINESS ENTRENPRENEURS? PLUS … WHITE HOUSE WAR AGAINST BUSINESS: WILL THEY BURY THE HATCHETT OR MORE SKIRMISHING TO COME?
- Greg Valliere, CNBC Contributor Potomac Research Group Chief Political Strategist
- Andy Busch, BMO Capital Markets; CNBC Contributor -
KILL THE DEATH TAX?
- Michael Linden, Center for American Progress Assoc. Dir. for Tax & Budget Policy
- Jerry Bowyer, CNBC Contributor/Syndicated Columnist
EUROPEAN BANK STRESS TESTS
CNBC’s Simon Hobbs reports.
THE MARKETS
- David Kotok, Cumberland Advisors Chairman & Chief Investment Officer; CNBC Contributor
- Peter Navarro, "The Coming China Wars" Author; University Of California - Irvine Business Professor
WASHINGTON OUTRAGE: SEN. JOHN KERRY SKIPS TOWN ON SAILS TAX
- Dan Mitchell, Cato Institute Sr. Fellow
Please join us. The Kudlow Report. 7pm ET. CNBC.
It's a Fiscal Problem, Not a Fed Problem
Ben Bernanke threw a curveball in his midterm report to Congress this week. The Fed view of the economy has been downgraded since it last reported in February. Although the official Fed forecast for 2010-11 is still 3 to 4 percent real growth, Bernanke sounded particularly gloomy when he characterized the economy as "unusually uncertain." And he indicated that the majority view of the Fed Board of Governors and Reserve Bank presidents is that the risks to growth are "weighted to the downside."
But here's the disconnect. With no inflation and weaker growth, including stubbornly high unemployment, Bernanke mostly talked about an exit strategy that would shrink the Fed's balance sheet by removing liquidity. This was the Fed's bias last winter when the recovery looked stronger. Now that the recovery looks weaker, the stock market was hoping to hear Bernanke hint of an easier policy that would increase liquidity if necessary. Didn't happen.
At the end of two days of testimony, Bernanke's message seemed to be this: Expect the zero-interest-rate policy to be extended for another year. Futures markets now predict free money until September 2011.
Whether the economic outlook is as downbeat as Bernanke suggests is an interesting question. The vast majority of corporate profit reports for the second quarter show better-than-expected earnings and top-line revenues. In other words, the CEOs are a lot less pessimistic about the future economy than Wall Street or Main Street. And a combination of strong profits, a zero interest rate, and a positively sloped Treasury yield curve would certainly seem to rule out a double-dip recession.
However, one year into recovery, private jobs should be growing much faster and unemployment should be a lot lower. Following a deep recession, economic growth should be closer to 8 percent than 3 percent.
But there are limits to Fed fine-tuning. The central bank can produce more money, but that doesn't mean it can produce more jobs.
Look, the Fed has already injected $1.4 trillion of new money into the economy, of which about $1 trillion of excess reserves are unused and on deposit at the central bank. Putting it another way, the economy has more liquidity than it knows what to do with. What's the problem? All that excess money is not being used. And this, I believe, is a fiscal problem, not a Fed problem.
Think of all the economic obstacles of spending, taxing, and regulating coming out of Washington. What should be done to spur growth? Keep tax rates down. And stop passing massive regulatory bills, like the bank reform Obama just signed into law.
What else? The White House and Congress should end the war between business and Washington. Listen to what the CEOs are saying. Reduce the uncertainty premium caused by massive deficit spending and 2,500-page regulatory bills. Stop the assault against entrepreneurship. Keep down the cost of new job hires. Stay focused on free-trade expansion.
And then reduce tax rates for large and small businesses across-the-board. Speed up business investment tax write-offs. And extend the Bush tax cuts for another couple of years until a true pro-growth tax reform can be developed -- one that will flatten rates, simplify the code, and get rid of unnecessary tax expenditures (which really are spending increases, not tax cuts).
In other words, since businesses create jobs, provide businesses with a new round of tax incentives. Reduce their capital costs and raise their investment returns after-tax.
Noteworthy is a move by several Democratic senators -- like Evan Bayh, Ben Nelson, and Kent Conrad -- who are calling for an extension of all the Bush tax cuts, including lower tax rates for upper-end earners, capital gains, and dividends. These brave souls are now in open revolt against the White House.
With gold near $1,200 an ounce, the Fed has done its job and then some in providing liquidity. Easier tax rates, rather than easier money, is what will spur jobs and a faster recovery.
But here's the disconnect. With no inflation and weaker growth, including stubbornly high unemployment, Bernanke mostly talked about an exit strategy that would shrink the Fed's balance sheet by removing liquidity. This was the Fed's bias last winter when the recovery looked stronger. Now that the recovery looks weaker, the stock market was hoping to hear Bernanke hint of an easier policy that would increase liquidity if necessary. Didn't happen.
At the end of two days of testimony, Bernanke's message seemed to be this: Expect the zero-interest-rate policy to be extended for another year. Futures markets now predict free money until September 2011.
Whether the economic outlook is as downbeat as Bernanke suggests is an interesting question. The vast majority of corporate profit reports for the second quarter show better-than-expected earnings and top-line revenues. In other words, the CEOs are a lot less pessimistic about the future economy than Wall Street or Main Street. And a combination of strong profits, a zero interest rate, and a positively sloped Treasury yield curve would certainly seem to rule out a double-dip recession.
However, one year into recovery, private jobs should be growing much faster and unemployment should be a lot lower. Following a deep recession, economic growth should be closer to 8 percent than 3 percent.
But there are limits to Fed fine-tuning. The central bank can produce more money, but that doesn't mean it can produce more jobs.
Look, the Fed has already injected $1.4 trillion of new money into the economy, of which about $1 trillion of excess reserves are unused and on deposit at the central bank. Putting it another way, the economy has more liquidity than it knows what to do with. What's the problem? All that excess money is not being used. And this, I believe, is a fiscal problem, not a Fed problem.
Think of all the economic obstacles of spending, taxing, and regulating coming out of Washington. What should be done to spur growth? Keep tax rates down. And stop passing massive regulatory bills, like the bank reform Obama just signed into law.
What else? The White House and Congress should end the war between business and Washington. Listen to what the CEOs are saying. Reduce the uncertainty premium caused by massive deficit spending and 2,500-page regulatory bills. Stop the assault against entrepreneurship. Keep down the cost of new job hires. Stay focused on free-trade expansion.
And then reduce tax rates for large and small businesses across-the-board. Speed up business investment tax write-offs. And extend the Bush tax cuts for another couple of years until a true pro-growth tax reform can be developed -- one that will flatten rates, simplify the code, and get rid of unnecessary tax expenditures (which really are spending increases, not tax cuts).
In other words, since businesses create jobs, provide businesses with a new round of tax incentives. Reduce their capital costs and raise their investment returns after-tax.
Noteworthy is a move by several Democratic senators -- like Evan Bayh, Ben Nelson, and Kent Conrad -- who are calling for an extension of all the Bush tax cuts, including lower tax rates for upper-end earners, capital gains, and dividends. These brave souls are now in open revolt against the White House.
With gold near $1,200 an ounce, the Fed has done its job and then some in providing liquidity. Easier tax rates, rather than easier money, is what will spur jobs and a faster recovery.
Scheduling Conflict
I am travelling today, and will not be able to write any posts. Keep the market up, and I'll be back in the saddle on Monday
22 Temmuz 2010 Perşembe
On CNBC's Kudlow Report Tonight
Tonight at 7pm ET on CNBC:DID BERNANKE CHANGE HIS TONE TODAY?
CNBC’s Hampton Pearson reports.
IS THE FED OUT OF BULLETS AND/OR IS IT SHOOTING BLANKS?
- William Ford, Fmr. Atlanta Fed President; Middle Tennessee State University
- Ronald Kruszewski, Stifel, Nicolaus Chairman & CEO
- David Goldman, Senior Editor First Things Magazine
THE MARKETS
- Jim Iuorio, Options Action Contributor; Director, TJM Institutional Services
- Robert Pavlik, Banyan Partners Chief Market Strategist
- Michael G. Crofton, President and Chief Executive Officer; The Philadelphia Trust Company
DEMOCRATS DISSENT OVER BUSH TAX CUTS
CNBC chief Washington correspondent John Harwood reports.
THE FIGHT OVER EXTENDING THE BUSH TAX CUTS
- Christian Weller, Center for American Progress
- Louis Woodhill, Chairman of Digabit; Club for Growth Leadership Council
WHY IS WALL STREET AFRAID OF ELIZABETH WARREN?
CNBC’s Eamon Javers reports.
WHAT DO CEO'S KNOW THAT WE DON'T KNOW?
- Anthony Mirhaydari, Markman Capital Insight Sr. Research Analyst; MSN Money Contributor
Please join us. The Kudlow Report. 7pm ET. CNBC.
21 Temmuz 2010 Çarşamba
DO'IN THE CRAWL
One of the few patterns that I actually pay attention to besides triangles and the T1 pattern is the "crawling pattern".
Most of the time this plays out in bearish fashion as a stock or index crawls or bumps along a rising 50 day moving average. Once the support breaks it's usually followed by an aggressive move down to test the 200 day moving average.
As you can see when support broke the dollar moved aggressively lower and may still have further to go as it still didn't move all the way back to the 200 DMA yet. I've also noted that the break down powered the rally in the stock market. As a matter of fact both legs down in the dollar powered strong rallies in stocks.
I'm pretty confident that if the rally is to continue Bernanke is going to have to keep pressure on the dollar.
Now we have this same pattern starting to develop on the S&P although in reverse form. If the market breaks above the 50 it should power a very aggressive move higher.
Most of the time this plays out in bearish fashion as a stock or index crawls or bumps along a rising 50 day moving average. Once the support breaks it's usually followed by an aggressive move down to test the 200 day moving average.
Recently we saw this pattern play out in the dollar index.
As you can see when support broke the dollar moved aggressively lower and may still have further to go as it still didn't move all the way back to the 200 DMA yet. I've also noted that the break down powered the rally in the stock market. As a matter of fact both legs down in the dollar powered strong rallies in stocks.
I'm pretty confident that if the rally is to continue Bernanke is going to have to keep pressure on the dollar.
Now we have this same pattern starting to develop on the S&P although in reverse form. If the market breaks above the 50 it should power a very aggressive move higher.
Ben’s Curveball
Ben Bernanke threw a curveball today in his midterm report to Congress. The Fed view of the economy has been downgraded since its last report in February. This is not totally new news, since the June FOMC minutes reported this downgrade. However, “the majority saw the risks to growth as weighted to the downside.”
But here’s the disconnect. With no inflation and weaker growth, including stubbornly high unemployment, Bernanke mostly talked about an exit strategy that would shrink the Fed’s balance sheet by removing liquidity. This was the Fed’s bias last winter when the recovery looked stronger. Now that the recovery looks weaker, the stock market was hoping to hear Bernanke hint of an easier policy that would increase liquidity if necessary. Didn’t happen.
At one point today stocks were down 165 points, though they finished better, falling only 109 points. Gold fell $7 to $1,184, and the greenback rallied a bit. Bond rates continued to slide lower.
But I have a different view of this story. The Fed has injected $1.4 trillion of new money into the economy, of which about $1 trillion of excess reserves are unused and on deposit at the central bank. So, in other words, the economy has more liquidity than it knows what to do with. What’s the problem? All that excess money is not being used. This, I believe, is a fiscal problem, not a Fed problem.
Think of all the economic obstacles of spending, taxing, and regulating coming out of Washington. What should be done to spur growth? Keep tax rates down. And stop passing massive regulatory bills, like the bank bill Obama signed today.
What else? Reduce tax rates for large and small businesses across-the-board. Then speed up business investment write-offs for tax purposes.
In other words, since businesses create jobs, provide businesses with a new round of tax incentives. Reduce their capital costs and raise their investment returns after-tax.
With gold near $1,200 an ounce, the Fed has done its job and then some in providing liquidity. Easier tax rates, rather than easier money, would spur jobs and a faster recovery.
But here’s the disconnect. With no inflation and weaker growth, including stubbornly high unemployment, Bernanke mostly talked about an exit strategy that would shrink the Fed’s balance sheet by removing liquidity. This was the Fed’s bias last winter when the recovery looked stronger. Now that the recovery looks weaker, the stock market was hoping to hear Bernanke hint of an easier policy that would increase liquidity if necessary. Didn’t happen.
At one point today stocks were down 165 points, though they finished better, falling only 109 points. Gold fell $7 to $1,184, and the greenback rallied a bit. Bond rates continued to slide lower.
But I have a different view of this story. The Fed has injected $1.4 trillion of new money into the economy, of which about $1 trillion of excess reserves are unused and on deposit at the central bank. So, in other words, the economy has more liquidity than it knows what to do with. What’s the problem? All that excess money is not being used. This, I believe, is a fiscal problem, not a Fed problem.
Think of all the economic obstacles of spending, taxing, and regulating coming out of Washington. What should be done to spur growth? Keep tax rates down. And stop passing massive regulatory bills, like the bank bill Obama signed today.
What else? Reduce tax rates for large and small businesses across-the-board. Then speed up business investment write-offs for tax purposes.
In other words, since businesses create jobs, provide businesses with a new round of tax incentives. Reduce their capital costs and raise their investment returns after-tax.
With gold near $1,200 an ounce, the Fed has done its job and then some in providing liquidity. Easier tax rates, rather than easier money, would spur jobs and a faster recovery.
On CNBC's Kudlow Report Tonight
Tonight at 7pm ET on CNBC:WILL BERNANKE’S PESSIMISM CONTINUE TO ROIL THE MARKETS?
- Steve Liesman, CNBC senior economics reporter
- Andrew Busch, BMO Capital Markets; CNBC Contributor
- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager
…INSIDE THE HEARING
- Sen. Judd Gregg (R) New Hampshire; Senate Budget Committee Ranking Member
STIMULUS SURPRISE: THE GOVT'S JOBS CREATION SOLUTION WAS MASSIVE SPENDING & STIMULUS - IS IT WORKING? DO COMPANIES ACTUALLY PULL BACK WHEN GOVERNMENT SPENDS?
- Joshua Coval, Harvard Business School professor
- Robert Reich, Fmr. Labor Secretary; Author, "Supercapitalism"; CNBC Contributor; Univ. of CA., Berkeley, Prof. of Public Policy
OBAMA SIGNS FIN-REG INTO LAW:
WHAT DOES IT MEAN FOR BANKS? DOES IT REALLY END TOO-BIG-TO-FAIL?
-CNBC’s Eamon Javers reports.
- Ronald Kruszewski, Stifel, Nicolaus Chairman & CEO
- Camden Fine, President & CEO Independent Community Bankers of America
Please join us. The Kudlow Report. 7pm ET. CNBC.
Strong Corporate Earnings Continue To Top Expectations
Sorry for the lack of posts yesterday. Yes, it was just that busy. The market put in a surprisingly strong session yesterday, opening lower on the IBM earnings report, but then quickly bottoming and building steam throughout the day and into the close.
This morning, the market is slightly higher once again on several stronger than expected earnings reports. Apple (AAPL) was the big one, beating estimates by 40 cents. What is most surprising to me is that a company as large as Apple can still grow top-line revenues by +60% from last year. That is astounding. And while growth will have to slow due to the law of large numbers, I think that the company will continue to post solid growth and profitability for awhile.
There were also strong earnings reports from VMware (VMW), United Tech (UTX), Coke (KO), Morgan Stanely (MS), and Wells Fargo (WFC). The strong reports from those financials has the bank index nicely higher so far, even as the overall market is stalling.
The dollar is higher this morning after weak debt auctions in Portugal and Germany are weighing on the euro. Despite this, european stock markets are higher this morning. Asian markets were mixed overnight.
Oil is slightly higher near $78 and gold is also up a bit to $1194. The 10-year yield is up a tad to 2.93%, but still below the 3% level. The volatility index (VIX) is also higher today at 24.40, which shows expectations for only moderate volatility.
Also, Chairman Bernanke speaks today. While his comments are not expected to be different from the message he has put forth recently, there is always the potential for markets to react to something he says.
Trading comment: The S&P 500 rallied strong yesterday, and today is back testing its overhead 50-day moving average (near 1086). One of these times, the market is likely to be successful in breaking above that moving average and sticking. I think the bears are fearful of this fact, and if the SPX can get back above the 1100, it will likely spark another round of short-covering by the bears. As such, I remain constructive on the market's recent action.
long AAPL, VMW
This morning, the market is slightly higher once again on several stronger than expected earnings reports. Apple (AAPL) was the big one, beating estimates by 40 cents. What is most surprising to me is that a company as large as Apple can still grow top-line revenues by +60% from last year. That is astounding. And while growth will have to slow due to the law of large numbers, I think that the company will continue to post solid growth and profitability for awhile.
There were also strong earnings reports from VMware (VMW), United Tech (UTX), Coke (KO), Morgan Stanely (MS), and Wells Fargo (WFC). The strong reports from those financials has the bank index nicely higher so far, even as the overall market is stalling.
The dollar is higher this morning after weak debt auctions in Portugal and Germany are weighing on the euro. Despite this, european stock markets are higher this morning. Asian markets were mixed overnight.
Oil is slightly higher near $78 and gold is also up a bit to $1194. The 10-year yield is up a tad to 2.93%, but still below the 3% level. The volatility index (VIX) is also higher today at 24.40, which shows expectations for only moderate volatility.
Also, Chairman Bernanke speaks today. While his comments are not expected to be different from the message he has put forth recently, there is always the potential for markets to react to something he says.
Trading comment: The S&P 500 rallied strong yesterday, and today is back testing its overhead 50-day moving average (near 1086). One of these times, the market is likely to be successful in breaking above that moving average and sticking. I think the bears are fearful of this fact, and if the SPX can get back above the 1100, it will likely spark another round of short-covering by the bears. As such, I remain constructive on the market's recent action.
long AAPL, VMW
20 Temmuz 2010 Salı
DEFLATING DOLLAR
In my last post I briefly explained the mechanics of the gold cycles. Tonight I'm going to do the same thing for the dollar.
Like I did with gold I'll start with the largest cycle, in the dollars case it is the 3 year cycle.
Before I go any further I should probably explain the concept of left and right translated cycles, as it is pertinent to the current situation we find ourselves in.
When I call a cycle left translated what I'm saying, in effect, is that the cycle topped left of center. As an example any dollar 3 year cycle that tops in less than a 18 months would be labeled a left translated cycle. One that tops later than 18 months would be a right translated cycle.
Why do we care whether a cycle is left or right translated you ask? Well because how a cycle tops will tell us more times than not whether we are in a bear trend or bull trend.
Cycles that top as left translated cycles are the hallmark of bear markets and more often than not the cycle trough, when it comes, will move below the prior trough. The opposite is true for right translated cycles.
You can see that from `95 till 2001 the dollar was in a secular bull trend. Each one of those cycles topped as extreme right translated cycles and consequently each three year cycle low bottomed well above the previous three year low.
That changed after 2001. You can see that the three year cycle that began in the fall of 2001 topped very quickly and then spent the better part of three years declining into the `04 three year cycle low which obviously bottomed considerably below the 2001 low. The next three year cycle also unfolded as a left translated cycle and it too moved below the prior major cycle low.
Now despite all the bullish talk about the dollar this cycle is also playing out as an extremely left translated cycle which means the odds are high it too will move below the previous cycle low.
Unless the dollar recovers quickly and exceeds the high at 90 it will be in jeopardy of breaking to new lows by next year.
I've said this for some time now that the market is eventually going to make Bernanke pay a terrible price for his insane monetary policy. In the real world, a world where magic doesn't work, and Santa Claus and the tooth fairy aren't real, it's not possible to print literally trillions of dollars out of thin air and not have something bad happen to your currency.
I'm sorry folks but the world just doesn't work that way. If it did we could just print and print till there wasn't a tree left standing and the value of the dollar would just go up and up.
I dare say any teenager can probably grasp the concept of supply and demand. The dollar isn't immune to the laws of supply and demand any more than any other commodity.
Now if you really believe the Fed can create a strong currency by printing the dollar into oblivion then I have some ocean front property here in Vegas I'd like to sell you :)
The bottom line is that the dollar is approaching the timing band for that move down into the three year cycle low, and unless something changes quick it is in jeopardy of crashing to new lows during that move. And when a currency crashes it is an extremely inflationary event.
Next let's move down to the smaller intermediate cycle.
The daily cycle on average lasts about 20-30 days. The recent low is just slightly in the timing band for that low. If this turns out to be the cycle low (and we will have to wait a bit before we can make that determination) then the dollar needs to put in an intermediate bottom right here right now also. If the dollar rolls over and another left translated daily cycle begins it will almost surely break through not only the 82 pivot but the long term support level at 80.
If that happens then the odds are going to be high that the decline into the three year cycle low has its hooks into the dollar and we will indeed see the dollar move to new all time lows by next year. If that scenario unfolds it will unleash severe inflationary pressures.
I tend to think the recent divergence by virtually the entire commodity sector is already giving us a warning that the market may be ready to exact it's toll for the Fed meddling.
We've already seen a mini-crisis in the Euro. It's only a matter of time until the cancer spreads to the worlds reserve currency, and our time may be up.
Chart of total debt to GDP. This is about a year old so it's actually a bit higher now. Those who think debt is contracting are sorely mistaken. The government has just taken over where the consumer has left off.
Like I did with gold I'll start with the largest cycle, in the dollars case it is the 3 year cycle.
Before I go any further I should probably explain the concept of left and right translated cycles, as it is pertinent to the current situation we find ourselves in.
When I call a cycle left translated what I'm saying, in effect, is that the cycle topped left of center. As an example any dollar 3 year cycle that tops in less than a 18 months would be labeled a left translated cycle. One that tops later than 18 months would be a right translated cycle.
Why do we care whether a cycle is left or right translated you ask? Well because how a cycle tops will tell us more times than not whether we are in a bear trend or bull trend.
Cycles that top as left translated cycles are the hallmark of bear markets and more often than not the cycle trough, when it comes, will move below the prior trough. The opposite is true for right translated cycles.
You can see that from `95 till 2001 the dollar was in a secular bull trend. Each one of those cycles topped as extreme right translated cycles and consequently each three year cycle low bottomed well above the previous three year low.
That changed after 2001. You can see that the three year cycle that began in the fall of 2001 topped very quickly and then spent the better part of three years declining into the `04 three year cycle low which obviously bottomed considerably below the 2001 low. The next three year cycle also unfolded as a left translated cycle and it too moved below the prior major cycle low.
Now despite all the bullish talk about the dollar this cycle is also playing out as an extremely left translated cycle which means the odds are high it too will move below the previous cycle low.
Unless the dollar recovers quickly and exceeds the high at 90 it will be in jeopardy of breaking to new lows by next year.
I've said this for some time now that the market is eventually going to make Bernanke pay a terrible price for his insane monetary policy. In the real world, a world where magic doesn't work, and Santa Claus and the tooth fairy aren't real, it's not possible to print literally trillions of dollars out of thin air and not have something bad happen to your currency.
I'm sorry folks but the world just doesn't work that way. If it did we could just print and print till there wasn't a tree left standing and the value of the dollar would just go up and up.
I dare say any teenager can probably grasp the concept of supply and demand. The dollar isn't immune to the laws of supply and demand any more than any other commodity.
Now if you really believe the Fed can create a strong currency by printing the dollar into oblivion then I have some ocean front property here in Vegas I'd like to sell you :)
The bottom line is that the dollar is approaching the timing band for that move down into the three year cycle low, and unless something changes quick it is in jeopardy of crashing to new lows during that move. And when a currency crashes it is an extremely inflationary event.
Next let's move down to the smaller intermediate cycle.
Like gold this cycle tends to last about 20 weeks most of the time. However when Ben cranks the printing presses up it tends to stretch the cycle. You can see that both intermediate cycles during the period of quantitative easing stretched rather long and the second was also extremely left translated.
Now however we have a right translated cycle and one that is moving into the timing band for an intermediate bottom. Since it is right translated the odds are it should hold above the prior cycle low which came in around 79.50.
Now here is the problem and it has to do with the daily cycle.
The daily cycle on average lasts about 20-30 days. The recent low is just slightly in the timing band for that low. If this turns out to be the cycle low (and we will have to wait a bit before we can make that determination) then the dollar needs to put in an intermediate bottom right here right now also. If the dollar rolls over and another left translated daily cycle begins it will almost surely break through not only the 82 pivot but the long term support level at 80.
If that happens then the odds are going to be high that the decline into the three year cycle low has its hooks into the dollar and we will indeed see the dollar move to new all time lows by next year. If that scenario unfolds it will unleash severe inflationary pressures.
I tend to think the recent divergence by virtually the entire commodity sector is already giving us a warning that the market may be ready to exact it's toll for the Fed meddling.
We've already seen a mini-crisis in the Euro. It's only a matter of time until the cancer spreads to the worlds reserve currency, and our time may be up.
Chart of total debt to GDP. This is about a year old so it's actually a bit higher now. Those who think debt is contracting are sorely mistaken. The government has just taken over where the consumer has left off.
On CNBC's Kudlow Report Tonight
Tonight at 7pm ET on CNBC:APPLE CRUSHES FORECASTS
CNBC’s Bob Pisani will report.
ARE WE FACING A DOUBLE-DIP RECESSION OR NOT?
- Gary Shilling, president of A. Gary Shilling & Co.
- Milton Ezati, Lord Abbett Sr. Economist & Market Strategist
FED ON TAP TOMORROW … BERNANKE HEADS TO THE HILL
-Vince Reinhart, former director of the Federal Reserve Board's Division of Monetary Affairs, resident scholar at the American Enterprise Institute
- Gary Shilling, president of A Gary Shilling & Co.
- Milton Ezrati, Lord Abbett Sr. Economist & Market Strategist
- Peter Navarro, economics professor at UC Irvine
WASHINGTON TAX ATTACK
Senator Jim Demint (R-SC) will join us.
UNCERTAINTY FROM WASHINGTON …
THE WASHINGTON STORY IS NOT CREATING CONFIDENCE IN THE MARKETS/ECONOMY … WHERE'S THE PRO-GROWTH MESSAGE? WILL THE UNEMPLOYMENT EXTENSION HELP OR HINDER JOB CREATION?
- Jeffrey Miron, Senior Lecturer and Director of Undergraduate Studies in the Department of Economics at Harvard University
- Richard Socarides, former senior adviser to former President Bill Clinton
Please join us. The Kudlow Report. 7pm ET. CNBC.
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