Yellen at the Tide, the Brain Amplifier Problem

imageLast week, I gave Peoplenomics subscriber a little hunk of spreadsheet I call the brain amplifier.

This week, what we have running around in the headlines is an interesting mash-up of how Central Banks may be using a flurry of bad news – aided and abetted by the Bank for International Settlements.

Here’s how the (quite Machiavellian) landscape looks from here in the sensory deprivation chamber this morning.

1.  Read the article in the Sunday Wall St. Journal under the heading “Bank for International Settlements Raises Questions About Impact of Negative Rates…BIS quarterly report also warns that central-bank stimulus may have less traction in financial markets.”

2.  Go look at the best paper ever written about crashes and news.  Try on this site (Bubbles and Market Crashes) or go read more deeply over here.

3,  Next, calculate the ultimate upside of the present rally at its more fundamental levels using that brain amplifier software:

You can look at this as an Elliott wave 1 up, so for the recent low (1,829.08) to the Friday closing high (1999.99) we would want to consider that a wave II pullback is no longer to the 1,890 level, but is now 1914.54.

That would put the further move up to 2,191 and change for wave 3 up, After a pullback to wave 4 as low around 2020 and change, the market could blossom to a high of around 2,300 on the S&P.  Ure’s new high?

So what’s the problem?

4.  It is simply this, dear reader:  The higher this possible Wave 1 up goes, the bigger the blow-off top. The more debt will be loaded on and the greater the loss of savings since the money for debt has to come from somewhere and that is either savings or pension money or…

Which is why – if my spidey-sense if working right, the Fed will raise rates again when they meet next week (15th/16th) and that will be roughly analogous to their second move of rates up prior to the bubble forming its lead-in to the ultimate top in 1929.  (They will have one more rise in summer…remember where you heard it first.)

You see, in the wave mechanics stuff, if we continued up another 20 points on the S&P to the 2,050 level, that would raise the blow off top to as high as 2,476.  And if we made it to 2,100 on the first move, we could be looking at 2,622 and change for a high.

And THAT would just scare the hell out of the Fed because they would then be on a course to repeat what we have been warning of for a long time…a replay of the massive destruction of the 1929-1934 portion of the Great Depression.

SOOO….how high this wave goes will size the bubble and set our trading targets.  The overhead resistance is 2,100.  Once through that?  How much bubble and destruction do you want?  There’s a reason that both nuclear weapons and Fed policy share a mental construct called “dial a yield.”

What that means is that this week, the people who are trying to “manage the bubble down” will be talking their book and only the smart people in the room who know this is all too much like a replay of 1929 will really :get it:

February 21, 1928, the Fed raised the discount rate from 4.5 to 4%.  Then on April 23rd of 1928, they moved it again, only this time it was up to 4.5%.

Hmmm…..

Yes, I know what you’re thinking:  So they had a long period of low raters back then and then raised twice in two months.

Remember this:  The All-Time High (ATH) of the S&P was 2,100 back in February of 2015.   Even if the Fed raises, and we get a good scare going in the coming week or three, this still looks like it counts as a wave 1 up under Elliott and if that’s the case, the odds would be (in my estimation) something well over 50% that an ultimo high in the 2,224 to 2,330 range is already baked in the cake.

And even with the paid-for grim reapers shills are trying to stop the developing stampede, the futures are only down 35 this morning.  Partly because WTI is up to $36.5p as we try to “Save Houston” (although Oilman2 reports it’s worse than 1985).

Off in the background, we also notice gold is up another $12 bucks today and quickly closing in on the $1,300 level.  Subscribers who have that little calculator spreadsheet might want to hit www.kitco.com and plug in some of the historical spot prices because when I do it, and looking at the data, I keep coming up with an ultimate golf blow-off high around $2,350 and silver….well more on that Wednesday.

In a nutshell, though, that’s why I think it’s a solid “bet a ham sandwich” that the Fed will raise another fraction next week.  Unemployment numbers are almost too good…and despite from fraying around the edges, it’s still looking like bubblishous to Ure’s truly.

And yes, when gold gets within spitting distance of whatever the top calculates to, we will dump and roll back into bonds.  Because while we are sometimes crazy, we are never to completely insane as to fall in love with any asset class.

Useful Idiots

Trump story here.  Clinton story here (it’s another Clinton fracktured fairytale).  Little Marco story here.  And then there is Cruz.

I will leave label application to you. 

In the meantime, I get to play Rip Van Ure because I can sleep until November and whatever goes on between now and then is 90% trajectory, 10% reality. 

OK, maybe  not that much reality.

As the old saying goes, if voting matters, we wouldn’t be allowed to do it.

Sailing from the Edge of the Earth

Meantime, remembering this site offers (rather cynical and sometimes biting) comment but not financial advance, please behold that the Baltic Dry Cargo Index is at 349 now and the Harpex jumped a bit last week.  We expect the Harpex and Baltic to show more signs of fear as the worry promotion rolls out this week, but we continue to believe that greed still rules the world.

The Week

Which gets us to the events to brace for this week.  Gallup Consumer Spending is just out…  A couple of headlines off that:

  • Average spending increased to $84 from $81 in January
  • January-to-February spending uptick similar to previous years
  • Spending similar to February averages for the past three years

The in-depth is over here

Tomorrow, the National Federation of Independent Business will roll their optimism index (expect a decline in keeping with the anti-bubble agitprop), mortgage aps should be up Wednesday a bit since gold is screaming inflation in the wings and the rate issue is up next week.  There’s little going Thursday and important Export prices on Friday are more, or less, a function of FOREX spreads…

The End of Immigrant Addiction

While people in the Obama administration may not be bright enough to figure this out (yet), what is clear in Europe is that immigration has its limits.  So when you read how “EU looks to Turkey to stem migrant influx” don’t be surprised.

The reality is that immigration is a huge short-term economic stimulus.  People coming here need somewhere to live, food to eat (pass the halal,l would jah?).  They need cars, they need case workers, they need houses of worship, they need schooling, and that means they need ESL programs.

But as Germany is finding out, there is a limit as to how much of this “good news in immigration” a country can take.

And Europe, which was dumb enough to take down its borders internally, is now having second thoughts on that, too.

Worth reading:  Borders could cost Europe $20 billion a year/  But ask yourself this:  What is the social services tab for all that?  When the cost of social spending rolls past the cost of borders, along will come border controls again.

Comments

Yellen at the Tide, the Brain Amplifier Problem — 8 Comments

  1. money has to move out of bonds when rates go up…… some goes to the market, and the scared money goes to gold while the Central Banks restock the larder with gold (real money). Gold has bottomed imo

    (the above logic is why I pay the ridiculously low fare to read Saturday and Wednesday – best value on the web!)

    • Thank you…yeah, Peoplenomics is really my “thinking space.
      Heck, I wish I c ould do nothing but write Peoplenomics and work on the research angle, but without the free site here, how would people hear about it without going off and working on sales, marketing, advertising, yada yada…
      I would rather share and research than put on the salesman suit again…

      • Agree that Peoplenomics is money very well spent. As for Urban Survival… Frankly, George, I wish you wrote a bit less. A good deal of your stuff is excellent, but it’s a chore to keep up on it all. Still, it’s a testament to the quality that I aim to read as much as I can. Glad to have the comments, too. Some intelligent folks read your stuff, but – again – the (relatively) recent addition makes the task of keeping up take more time. Diversity in informational sources is important, so I look to read other places as well. Information is valuable, but time moreso. In short, feel free to keep em short from time-to-time – particularly on the US side. :) Leaves you more time for things like anti-grav experimentation, projects on the ranch, and quality time with Elaine. Be Well.

  2. Yepper I agree they raise em some more but we are into negative interest rates from the baks for keeping our mo ey there account system
    And the only asset class to fall or stay in love with is your wife and all other members of save your (ass) community, yep community is better than hoping those on the outside will be nice,anyway yes we need a rest or financial proverbal debt forgiveness,and If not then the possiblies of us being screwed are very very high, and I agree about the 90% – 10% /and Jan -Feb spending is ,you guessef it the return of taxes and those few who buy after Christmas/yep human nature says hey all my friends and relatives , I can only help but so many of you. , so enquire elsewhere/as I have said before ,the gold will be a pivotal moment because of wars for who will rule the next day/HAVE A GOOD DAY AND ENJOY

  3. Obama don’t lie we are having a wonderful economy and the job market is raging. A Chicken for every pot and Happy Days are here again!!

  4. Back in the old days..if you wrote a check today it would go by mail to the regional bank be processed then sent back to your bank where they would process it and deduct it from your account..the average was three days depending on where you wrote the check some places it was five to seven days..it was called kiting the check…
    if you needed extra you wrote the check for a few bucks over to keep you moving till the next payday..
    if you owed a bill that was due for fifty and needed a tank of gas you paid the bill and wrote it for ten over to get you by till payday..
    what I see is this..the federal reserve started kiting the economy with the QE whatever and just like kiting a check if you kept it up it eventually caught up to you leaving you in a world of hurt.
    the federal reserve from my viewpoint is kiting the dollar..we got a lower than average credit rating and have been kiting our dollar ever since..we also increased spending and cut industry by outsourcing our economy.
    That to me is like kiting a check then quitting your job and going shopping at the same time.
    now how long can they do that before we are over the cliff..

  5. I’m not buying the payroll numbers.

    BLS Jobs Statistics at a Glance:
    Nonfarm Payroll: +242,000 – Establishment Survey
    Involuntary Part-Time Work: No Change – Household Survey
    Voluntary Part-Time Work: +304,000 – Household Survey

    So, of the 242,000 jobs added, 304,000 of them were part time.

    This is a net LOSS of 62,000 full time jobs.

    • Always wondered how Manny meaningless gov-ment jobs they are adding to boost these numbers.