Anything Goes

By: Bob Hoye | Thu, Sep 24, 2015
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The following is part of Pivotal Events that was published for our subscribers September 17, 2015.

Signs of The Times

"Auto Assemblies Hit Record high"

- The number was for July and headlined in Transplace, August 25th.

"Goldman Sachs Remains Bullish On US Stocks"

- Business Insider, September 8.

"The vast majority (85 percent) of Canadian Investors didn't panic during the recent sell off."

- CIBC Asset Management, September 8.

"Improving market sentiment has Chinese banks and companies restarting their offshore debt engines."

- Wall Street Journal, September 9.

"Chinese Ministry of Public Security arrested nearly 200 people at the end of August for 'spreading rumours'."

- The New York Times, September 6.

The Shanghai market reflected the genius of the state on the way up.

Blameworthy perpetrators must be identified and punished on the way down.

But hey - not to worry.

"The European Central Bank will ensure its policy stance remains accommodative as needed."

- Wall Street Journal, September 10.


The stock market has not been the only boom. There has been the US mania in financing run-a-way buying of used and new cars. Both on the "never-never".

It seems to be similar to the frenzy in houses in 2006-2007.

Manias are momentum driven and can't survive stalling out. Financial plateaus just don't happen. The Auto Assemblies number for August marks the sharpest decline since 2008. This type of plunge has only occurred at the start of or within a recession.

Quite likely, this is the peak in US auto assembly. It was preceded by car sales in China peaking in May and recording three consecutive months of decline. In 1929, US car sales peaked in that fateful April.

And then there is the boom in real estate. We intend to update the story about the $500 million spec-house being built in Los Angeles. In the meantime, the following WSJ headline is a big caution.

"A shortage of glass is taking a toll on the nation's commercial building boom, adding millions of dollars to the cost of new skyscrapers."

In 2011, the big concerns in base and precious metal mining were shortages of supplies such as tires for huge trucks. Diamond drills and drillers were also scarce. No problems now.

Stock Markets

Risk On, Risk Off Switch

The author of Anything Goes was Cole Porter. The author of this week's financial excitement is Janet Yellen and her thesis might just as well be "Anything Goes". Produced in 1934, the plot is about a young stock broker and the lyrics include:

"The world has gone mad today
And good's bad today"

Which pretty well sums up central bank policies and anticipation of FOMC wisdom has sparked the markets. Well actually, the Communists juiced the market in the last hour of Shanghai trade. As Zero Hedge put it:

"China Plunge Protectors Unleash Berserk Buying Spree in Last Hour of Trading"

That was going into the Wednesday open in NY.

And as we like to repeat. At important market turns since the 1873 bubble the senior central bank has been months behind the critical turns in market rates of interest. So there is little point in one conjecture, let alone conjecture without end.

What has been needed has been the rebound from the initial hit to put on some momentum. Yesterday's ChartWorks updated the CCI on the S&P and it reached the target number.

Once rolled over, the target is Black Friday's low at 1867, which needs to be tested.

Our July 23rd edition concluded that the bull market had ended.

Taking out the August lows would set a cyclical bear market.

The summer set peaks for most stock exchanges.

TSE Industrials (ZIN) and Shanghai (SSEC) set their highs in June. US banks (XBD) set the high on July 23. The S&P set its high in May.

For an overall view we have charted the NYSE Composite with the Vanguard All-World Index. The correlations on the major swings is impressive and prompts a question. Is this due to brilliant coordination by the senior central banks, or does it indicate that there is no such thing as a national economy?

Our outlook was for the hottest exchanges and sectors to complete speculative surges around June. After the initial hit some recovery into September was possible.

Providing some help this week, crude and copper would likely rally into mid- September. Also, out of the August 24th panic credit spreads were likely to find relief for two weeks, at least. This is Week Two.

Credit Markets

Monday's attempt by credit spread ETFs to reverse did not make it. Instead, the street choose to get excited about the FOMC Circus. Attached is the "P.T. Barnum" cartoon we commissioned a few years ago. Policymakers continue to be so gullible about discredited theories.

On the actual spread, the widest was 224 bps on August 24th. It narrowed in to 221 bps last week and Monday's number was 222 bps. Now it's at 220 bps.

Will the relief last for another week?

This is uncertain, but this correction could be similar to the one in September 2007 and 2008.

Seasonal forces accomplished the reversal in June as well as the key breakout in July. This relief could also be seasonal. Overall, the reversal has been likely to be cyclical. As was the reversal to the good stuff in the first part of 2009.

Junk's failure was from 39.62 in late April and the low was 35.83. The jump was to 37.11 last week. Of interest that this week's "Risk-On" button is finally hooked up for JNK.

But Junk could soon test the August disaster.

We have been out of lower-grade stuff since June 2014. Our ideal position has been in 3 to 4-year US higher-grade corps. The pickup in yield from a firming dollar could kick in towards the end of the year.

The long bond (TLT) spiked up 128.64 on August 24th. Over fifteen years, this "flight to quality" game has worked three times. We have considered that it might not be the same outstanding game on the next slump in the stock markets.

The advice in August was that traders should flatten positions.

The lyrics for Anything Goes are rather tricky and Sinatra's recording of Nelson Riddle's arrangement is outstanding:

US Auto Assemblies

US Auto Assemblies

Concept of a National Economy is Elusive

NYA Weekly Chart

Ecstatic Homebuilders Index

NAHB Housing Market Index


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Bob Hoye

Author: Bob Hoye

Bob Hoye
Institutional Advisors

Bob Hoye

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