The TNX Matters–Telegraphing 2017 Collapse?

imageA nice conversation with my friend Robin Landry Monday centered around a terribly important question:  Is the market doing an “irregular high flat four?”

Turns out it is one of the possibilities.

While we save that discussion of how the future arrives for our Peoplenomics.com subscribers tomorrow, I wanted to point out that Ure’s Theory of Blow-Off Tops may be about to slide into the record books over the next two and a half years.

If it does, I promise to take savage joy in reminding you who the contrarian was who called it nearly a year in advance.

Here’s the deal, if you’re waiting for the coffee to kick:

As you know in the middle of the 1920s when the market was running up, the Fed sat pretty tight on the discount rate.  Steady hand on the helm, so to speak.

However, at their February 21st meeting, in 1928, the Fed began  to raise rates.  The first move was from a 3.5% discount rate to 4%.

Then, at the April 23rd meeting, they raised to 4.5%. 

Even that wasn’t judged enough because at their July 19th meeting (1928 still) they raised to a full 5% discount rate.  The “then Fed” held the rates at 5% until their February 1930 meeting – well after the devastating October crash.

Now let me show you how well our Aggregate Index Model is tracking the Dow Industrials run-up into the 1929 crash.

imageIn the chart to the right the blue data trace is the pre collapse Dow Jones Industrials.

The data set on to of that is our Aggregate Index, normed to market levels of 1921. 

Students of market history will recall there were a series of major market shakeouts between the Panic of 1906 and the final downward break in 1921.

And if you’re thinking “Is that all Ure did?  Line up the 1921 bottom with the 2009 bottom in his Aggregate work?”

Why yes,. now that you mention it, things MAY turn out to be that easy.

But don’t put away your glasses yet. 

Look at the bottom of the small decline (which we should be entering now through a week or two before the September Fed meeting).  See that GREEN arrow?  That’s when (normed to the match up with my data series) the Fed made its first rate hike in Feb ‘28.. 

And what happened?  Well, the market went up a ways, then drew back a bit, until (at the red arrow) the Fed made its final July 1928 discount rate hike to 5%.

You will notice that serious disintermediation from the bonds followed and money went seeking its highest rate of returns…which it always does.

Faced with a percent and a half increase in the bond rates (which meant their cash value was collapsing) money poured, hand over fist, into the stocks.

Which is precisely how and why we can see the stock market scream higher if the expectation set for bonds changes at the end of a Long Wave Interest Rate Decline.  If you look at the MAX timescale of the 10-year, you will see we are likely in the end of the bond rate decline.  At least insofar as before the crash of 2017.

And what, pray tell does the ^TNX move Monday have to do with all this?”

Yield on the 10-years (as you can see from the Yahoo Finance screen scrape was up 2.9% while our Aggregate Index was up (from Friday’s close) 1.27%.

Today, therefore, the 10-year should move lower, the down should give up about half (to a Fibonacci 61.8%) of the screaming Monday gains, and the 10 year should give up some ground as well.  Oil should drop, and between now and the Fed meetings from September into early 2016, we could trade about sideways from where markets were (as an Aggregate) last December.

Yes, if the lights are starting to go on now, that’s a go nowhere market for 8-month and perhaps another month to go.  Is nine months long enough to be an irregular high flat four off the rally from the 2009 lows?

That’s why I keep smart guys like Landry on speed dial.

Oh, and how all this ends?

Well, if you were a Peoplenomics.com subscriber, I’d tell you tomorrow.   But I assure you, the end is not pretty when it comes.

The market is screaming 2016 Presidential Election Disaster in 72 point type.

Productivity

Last month, productivity in the US took a major hit.  This morning we have a report that it has rebounded a bit:

“Nonfarm business sector labor productivity increased at a 1.3 percent annual rate during the second quarter of 2015, the U.S. Bureau of Labor Statistics reported today, as output increased 2.8 percent and hours worked increased 1.5 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.)

From the second quarter of 2014 to the second quarter of 2015, productivity increased 0.3 percent, reflecting increases in output and hours worked of 2.8 percent and 2.6 percent, respectively. (See table A.)

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers. Unit labor costs in the nonfarm business sector increased 0.5 percent in the second quarter of 2015, reflecting a 1.8 percent increase in hourly compensation and a 1.3 percent increase in productivity.

Unit labor costs increased 2.1 percent over the last four quarters.

Ever wonder what the impact of turning off all personal cell phones at work and banning the social internet could do?  Not advocating, but I’m just guessing the Chinese workers don’t get unlimited personal bandwidth hourly.  And we wonder why they are out producing us? 

Of course, that’s not necessarily a good thing since…

Is China Pounding Gold?

The price of gold just went up in China.  But an inspection of the North American market finds no big rise.  What’s going on?

China – for all their talk of worker’s paradise and yada yah, has just devalued the Yuan.

That’s a pretty capitalistic thing to do to the power workers in paradise, ain’t it? 

Wonder where they got the idea?  Well, the USA has been devaluing steadily over the years and look what it has done for us.  Under the Fed dual mandate, in theory we get fuller employment and stable prices.

What we sacrifice is a solid currency which would always buy the same steak dinner or same ounce of gold.

When war comes with China in the 2025 (and perhaps later) it will not be because of ideology so much as once such humungous piles of savings and debt are destroyed in the Global Depression of 2017-2025, there were be a terrible need to break everyone else’s toys.

That’s what happened in the lead up to World War II, except in the WW III version, instead of the USD shutting off oil to force Japan into war, it will be Putin, et al, turning off energy to Europe.  But the same kind of deal.

Cool how history rolls around, ain’t it?  Unless you’re a flash cinder, but that’s why we choose to live away from the bulls-eyes, though we did get here a decade early before the prices went up.

Over time, a few more people will figure this stuff out.

Meanwhile, the Chinese Central Bank should be getting huge deliveries of thank you for last night flowers.

Depends What You Mean by Reach

The headline Greece Sees Bailout Within Reach as Talks Continue in Athens has us wondering what the word us of “reach” is intended to be?  As in “within the possible” or is it more realistically as in “reach into the wallets of the Greek people?

I’m sure the intended use was #1, but the truth is #2.  And #2s show up a lot, this time of the morning.

Marketing the Aristocracy

No, I wasn’t kidding when I said the Aristocracy candidates are Jeb and Hil.  Take this headline, please:  Jeb Bush to Attack Hillary Clinton for Islamic State’s Rise in Iraq.  Jeb’s only got half the poll standing in New Hampshire, but what a friendly GOPress the Aristos, own.

Meantime, the GOPress is trying to pretend it matters that Rick Perry is out of cash to pay staffers. They do love their royals, though.

Meanwhile, you have to go looking for stories about The Don.  But when you find then, he’s still the leader of the pack.  And as Slate suggests, maybe it’s time to stop trying to write The Don’s political obit, or as a CNN op-ed suggested, stop treating him like a Kardashian.

Tax Scam

Tax Scam Losses Exceed $20 Million says the IRS.

DLY TXTR

lol is out, haha in.  Meantime FYVM hasn’t taken off, but the facts of language suggest that we’ve lost the art of intelligent invective.   We live in a world where the F word has lost its meaning.  So, again, I ask you:

Is this progress?

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The TNX Matters–Telegraphing 2017 Collapse? — 2 Comments