Wonderful Party

By: Bob Hoye | Sun, Apr 2, 2017
Print Email

The following is part of Pivotal Events that was published for our subscribers March 23, 2017.

Signs of The Times

"The flood of retail money into stocks shows no sign of relenting. Tenth straight week into ETFs and out of mutual funds."

- Zero Hedge, March 10.

"I believe the US 10Y bond yield will ultimately converge with Japanese and European yields well below zero - in other words, buy the 10Y bonds!"

- Zero Hedge, March 11.

"Hedge-fund trader loses big on oil bets that ignored the second shale revolution."

- Wall Street Journal, March 13.

"Analysts Confident On OPEC Extension"

- Oil Price Intel, March 17.

"Liberal Protesters Boost Trump's Economy As Sign-Making Supplies Sales Soar 30%"

- Zero Hedge, March 18.

"A continued environment of ‘OK' growth and low inflation, which allows central banks to keep the party going."

- Morgan Stanley, March 19.

"As long as the music is playing, you've got to get up and dance. We're still dancing."

- Charles O. Prince, Citigroup, CEO, NYT July 10, 2007.


In the fateful month of May 2007, the Treasury curve reversed and in that fateful June, credit spreads reversed. Both forced the dramatic failure of Bear Stearns in early June, which marked the start of the worst contraction since the 1930s. Our presentation in early June included a slide of a crashed train. The caption was that "The Greatest Train Wreck in The History of Credit" had started.

Today, a Morgan Stanley researcher seems confident that central bankers can "keep the party going". In 2007, the same boast would be accomplished through cutting the Fed rate. Short rates increase in a boom, and this has been a financial boom. Short rates decline in the contraction.

Stock Markets

Back in December, we had thought that the positive stuff would run into March. But some items became tired in late February - early March. As noted last week, base metals made it to March 1 and rolled over. Crude oil stayed firm until the end of February. Credit spreads narrowed until the middle of March and as of Tuesday, this has reversed. Essentially, there has been little change in the yield curve since December.

The action in December became sensational enough to suggest that a Big Rounding Top was possible. This was confirmed by even greater technical excesses being accomplished more recently. These were accompanied by very strong sentiment readings. Both only seen at or near cyclical peaks in the stock market.

To back up just a little; with the explosion in November we called the action "Rational Exuberance". Rational because it was discounting the change from the most anti-business administration in history to what could be the most pro-business. A few weeks ago, we noted that the action had left "Rational" behind and was just "Exuberance".

Which continued to this week when a setback from a speculative surge began a correction. It has been earned and fits with the ChartWorks "ABC" correction, which could have declined to a "Springboard Buy". This is a distinctive break in a flat or rising market and it registered on Tuesday. So, we watch for the bounce and how far it goes.

Out there will be the first drop in expanding margin on the NYSE. The actual report is a month behind and is considering a lagging indicator. With this and a MACD Sell on the S&P would confirm that the Big Top was in.

As we await the full development of the big Rounding Top, we can review some critical items.

One is the discovery that when the action in HYG (High-Yield) soars enough to drive the Daily RSI to close to 77 an important top was set by the S&P some 3 weeks later. The high RSI was set on February 27 and the S&P set highs at 2400 on March 4 and 2390 on March 15.

It could take a number weeks to see if the pattern worked as it did in 2007 and at the lesser high in May 2008.

Another relation that Ross has been working on is the action in the Treasury curve. The 2's to 20's need to take out a key low. While not that far away, the take-out is uncertain.

Precious Metals

We find comfort in reviewing gold shares divided by the bullion price, which has been in a basing phase, essentially since November.

The first low on the ratio (HUI/Gold) was 142 in November and the next at 142 in December. The first rally was to 180 in early February which was overbought enough to conclude a decline for the sector.

The next low was 149 in early March, which was tested a couple of weeks later. At 161 now, it needs to get above the 50-Day to complete the bottoming process.

GDXJ slipped from 43 in early March to 33 a couple of weeks ago. At 36 now, getting above the 50-Day would be constructive.

The bottoming action in December 2015 set up what we have been calling a cyclical bull market.

The "Cyclical" call was based upon the bottoming of gold's real price as deflated by the PPI.

The Cyclical Peak was set at 9.27 in 2011 and the bottom was a double bottom. The low in October 2014 was 5.63, which was tested at 5.63 in July 2015. The high was 7.36 in July last year. The next low was 6.02 set in January. The latest posting is for February at 6.39, which is constructive.

A rising real price is a sign of improving operating margins for gold miners. It also enhances exploration prospects.

China House Prices

China Houes Prices
Source: Zero Hedge

San Francisco House Prices

San Francisco House Prices

US Y/Y Loan Creation

US Y/Y Loan Creation

US Shale Oil is Killing OPEC

US Crude Oil Exports

"At the peak of the 2014 boom, the break-even cost of U.S. shale oil was $60. Today, the figure is nearer to $30. In some places, the breakeven cost is just $15 a barrel."

- The Times, March 20.


The Round Trip

The Round Trip

Check out the following:

My Bed

The art piece, "My Bed" was originally sold by the artist for £150,000 in 1999 to an art dealer, for display. In 2015 it was sold at auction for £2.5 million.

Small Business Optimism and Real Earnings

Post Trump Optimism versus Real Earnings

Setting Up For a Classic Triple Top

Lumber Futures

Auto Loans, Owned and Securitized

China Shadow Bank Liquidity Premium
Source: Zero Hedge


Link to March 31, 2017 Bob Hoye interview on TalkDigitalNetwork.com: http://www.howestreet.com/2017/03/31/government-takes-too-much-economic-credit/

Listen to the Bob Hoye Podcast every Friday afternoon at TalkDigitalNetwork.com



Bob Hoye

Author: Bob Hoye

Bob Hoye
Institutional Advisors

Bob Hoye

The opinions in this report are solely those of the author. The information herein was obtained from various sources; however we do not guarantee its accuracy or completeness. This research report is prepared for general circulation and is circulated for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance.

Neither the information nor any opinion expressed constitutes an offer to buy or sell any securities or options or futures contracts. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report. In addition, investors in securities such as ADRs, whose values are influenced by the currency of the underlying security, effectively assume currency risk.

Moreover, from time to time, members of the Institutional Advisors team may be long or short positions discussed in our publications.

Copyright © 2003-2017 Bob Hoye

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com