2,040: The Only Battle That Matters

What we were mentioning the past couple of weeks to our Peoplenomics™ subscribers could show up today, or this week, as the S&P 500 does battle royal at the 2,040 level.

My friend Robin Landry and I talked about this at some length when we flew up there to huddle weekend before this one.   Here’s part of what Robin had sent out to his managed account clients:

“Once the MACD has crossed the signal line and begins to drop sharply, in the past it has paid to get defensive and raise cash. The 2040 level is also about to be tested as well as the trend line from the low last October which I referenced above was broken earlier today and then the market rallied into the close to the underside of that trend line.

I call this the Kiss of Death, when it happens, because of the high percentage of times when this happens the decline resumes and accelerates.

There are also a number of other technical indicators, not shown, which are supporting my concern of the potential for a large decline.

The following support level are ones, which if broken on a closing basis, would cause my concern to rise further. This is a time when the know your client rule really becomes even more important and the risk profile of each client needs to be reviewed. “

While our Peoplenomics Trading Model has continued to be positive, I’ve been reiterating that “cash is a position, too.”

I have to say, with the futures down nearly a percent in the earliest going today, the softening of auto sales and the sadly sucky jobs numbers Friday, this week promises to be…er…interesting.

For those of us who look at the market in the longer view, failure at the 2,040 level could be setting up the first leg down of a larger move.  Dropping below 2,040, rebounding and then a much, much larger decline, would only be the start of it.

Ideally (at least in my work – and this is not financial advice) I’d like to see a decline under 2,000 on the S&P, a run back up to 2,040-2,100, and then a drop to 1,740 before June, say.  Then, a strong rally – up to maybe 2,100 over summer, and then the whole bottom falling out this fall.

If that fall decline were to coincide with the September Blood Moon, that’d sure be mighty graceful, too.

Except for some minor import-export data Friday, which we already expect to be soft, the real “news” won’t come until a week from tomorrow.  That’s when retail sales will be out.  And that could be a tumultuous moment.  The question that will answer is “How much mostly useless crap can 200-million couch potatoes buy?” My guess?  Not enough.

Then consumer prices come out on April 17th.  Somewhere around there, things could become entertaining.

The Fed’s Preemptive Strike

One month worth of data does not a trend make. 

But let me run out the month-on-month change of M1 and M2 for you. 

If you take the latest H.6 money report (preliminary Feb data) you’ll see the most recent increases in print rate annualize to 29.7% for M1 and a somewhat more modest 12.9% for M2.

I suspect that Fed numbers for March, which may begin dribbling out as prelims late this week, will give a real solid indicator of what the Fed’s worried about.  Of course we know the answer:  Deflation.

The Fed minutes Wednesday will spark speculation, of course, but if the “throw money at the problem” of deflation continues long enough, eventually prices will rise.

They’re already doing that, of course.  You may simply not notice since you should have a half dozen zero-down, zero percent interest new cars lined up in your driveway.  More distractions to wash.

Ure’s Analysis of the Iran “Deal”

A couple of readers have asked me where to get a copy of the unadulterated (e.g. unspun) Iran framework that was a big deal last week.  The answer is here.

Next, my personal take on how to read it because it will reveal, I think, much about the future that both sides are lining up for us. 

This is NOT an agreement, first and foremost.  It is a Joint Comprehensive Plan of Action.  Think of it the same way you would jot down the major items to be worked out in a Prenuptial Agreement.  The screwing part will come later.

The Statement language is inset, my thoughts are not:

As Iran pursues a peaceful nuclear programme, Iran’s enrichment capacity, enrichment level and stockpile will be limited for specified durations, and there will be no other enrichment facility than Natanz.

The premise of the West is that Iran’s nuclear program is peaceful.  The CIA World Fact Book lists Iran as the 4th largest holder of proven petroleum reserves in the world.  Ahead of Iraq, Kuwait, Qatar, and Russia.

What’s more, Iran has the second-largest natural gas reserves of any country on the planet, save Russia. 

Given that – and given my “other way” of looking at things (proven energy reserves per capita), I have a difficulty with the assumption that Iran needs to pursue nuclear power at this time, whatsoever.

Development of their internal energy resource would not be controversial and would enable them to operate whatever level of industry they desire without increasing the global production of dangerous nuclear fuels.

Call me a natural-born skeptic, but if they were “up against the wall” to power their country, that’d be one thing.  This?  Sorry, to me it looks like something else.

As to the “no other enrichment facility than Natanz, this is something that would be subject to inspections.  And there’s no doubt in my mind that the Persian mind could foil the best of the Western minds when comes to playing hide the centrifuges. 

Iran’s research and development on centrifuges will be carried out on a scope and schedule that has been mutually agreed.

Again, the crafty weasel-wording here is important.  “that has been mutually agreed” could be negotiated for 2,000 years – and maybe longer.  The effect is to “run the clock.”

Fordow will be converted from an enrichment site into a nuclear, physics and technology centre. International collaboration will be encouraged in agreed areas of research.

This is going to cost what? (Money!)  As if the faltering European and American economies need another rat hole to pour money into, we’re talking about International collaboration in areas of research that we’re supposed to agree can be worked out between now and the end of June?

It all begins to fit a pattern here.  Best guess is we will see a falter in the market now, rebound over summer, failure to work out all the details required by the framework, an extension into September, and then a move toward war in the Middle East this fall, which could collapse global markets.

No, I’m not putting a lot of money on that scenario, but I think you can see how that play would come to mind.  So be watching short side (put) option premiums over coming months for hints about how the big players will shade their bets on this eventuality.

There will not be any fissile material at Fordow. ??

Of course not!  It will be hidden elsewhere.

An international joint venture will assist Iran in redesigning and rebuilding a modernized Heavy Water Research Reactor in Arak that will not produce weapons grade plutonium.

Again, this is a very long-term outcome.  Redesigning and rebuilding a reactor isn’t something that will happen overnight.  Very long term.  And in the meantime, it doesn’t say anything about shutting the doors of Arak now and sending people home, does it?

There will be no reprocessing and the spent fuel will be exported.??

I’ll believe it when I see it.

A set of measures have been agreed to monitor the provisions of the JCPOA including implementation of the modified Code 3.1 and provisional application of the Additional Protocol.

There is a concept in law called “Clean hands.”  In other words, the West already knows Iran has “dirty hands” when it comes to compliance with monitoring and promised disclosure.

In 2009. James Acton, writing for the Carnegie Endowment for International Peace pointed out that Iran has already violated international agreements on its Qom nuclear facility. 

“There can be no doubt that since February 2003 Iran has been bound by the modified Code 3.1. It was therefore required to report on its new centrifuge facility as soon as it had decided to build it—before construction had even begun.

Iran’s report to the IAEA, which arrived on Monday, clearly violated this requirement.”

What’s the old saying?  Fool me once, shame on you.  Fool me twice, shame on me.

The International Atomic Energy Agency (IAEA) will be permitted the use of modern technologies and will have enhanced access through agreed procedures, including to clarify past and present issues.??

Iran has already demonstrated a ability to “make up procedures” in order to delay international compliance (as Acton points out in the 2009 analysis).  So here’s where we get into the “devil is in the details.”  And that, I’m predicting from out here on a limb, won’t again by the latest “deadline.”  In the meantime, the Iranian centrifuges will be spinning merrily away…

Iran will take part in international cooperation in the field of civilian nuclear energy which can include supply of power and research reactors.

Yawn.  This is the West trying to make it sound like it’s a big deal.  The Iranians already know they can play “The Exciting Game Without Any Rules” so Modified 3.1 will be re-interpreted down the road as requiring the approval of some other (new/or made up group) and Iran will disavow reporting at its convenience.  All the while playing us for time.

Another important area of cooperation will be in the field of nuclear safety and security. The EU will terminate the implementation of all nuclear-related economic and financial sanctions and the US will cease the application of all nuclear-related secondary economic and financial sanctions, simultaneously with the IAEA-verified implementation by Iran of its key nuclear commitments.

This is the whole reason for playing along with the West:  End the sanctions, rally their economy, stockpile like crazy and do what they did with Qom and hide their intentions better.

A new UN Security Council Resolution will endorse the JCPOA, terminate all previous nuclear-related resolutions and incorporate certain restrictive measures for a mutually agreed period of time.

That’s because Iran has violated past resolutions and no one wants to make a big deal about it.  It’s the West wanting to believe that recidivism isn’t necessarily true.  Ure’s truly looks at the numbers:  One DUI ticket often leads to another.

There’s only one sure cure:  Quit drinking – and quit enriching.  But hey!  Don’t take my word for it – let’s see what happens at the deadline.  June 30th, is it? 

Very seriously:  My consigliore asked me point blank “Are you in favor of war?  You know if Israel goes into a ground war, we already have legislation that will drag us in, right?”

No, I am not in favor of war.

But, when dealing with a ruthless enemy, one must be at least as ruthless and more so.  Yes there are surgical strike options and remember (how to put this delicately?) If you remove the leadership of a country, there will be no one to lead a war.

In reading as much as I have about war, I’ve always been struck in Gwynne Dyer’s remarkable books about how there has been a persistent “code of honor” in war that clearly didn’t exist among some of the more successful military strategists of history.

America’s enemies have made no secret of perpetrating war against the US civilian population through acts of terrorism.

The reasonable US/Western response would be to strike not the civilian population of an opposing country in general (that’d qualify as genocide).  But how about attacking at the very top?

Here’s a little thought experiment for you.

The US used two nuclear weapons in WW II:  One over Hiroshima and one over Nagasaki.  Let me ask you:  Would one bomb have done it if detonated over the Imperial Palace? 

Or would a puddle of molten glass in Berlin have lopped off the head of Hitler’s efforts, had the technology evolved more quickly?  I believe it would, in either case.

I don’t like to “think the unthinkable” although I’m pretty good at it.  Besides, it does help prevent stupid mistakes of history.

Like Qom.

—

Yes, it’s horrific to contemplate, but so is convert or be killed.

Benefit:  Every other country on the planet would have serious second thoughts about support of international terrorism thereafter.  It draws a glassy line in the sand.

Cost: Decisive policy ain’t free.   If DHS and half the military would be disassembled, we’d have 15% unemployment…so you see why this goes on, of course?

While an aggressive approach would all work out nicely, the “other fallout”  would be economic collapse because the other side of any future conflict would know we’re just crazy enough to come to a knife fight with an Uzi.

That’s not the guy to pick on.  Ever.  Principles of effective economic decision-making are clearly extensible into other areas.  But particularly illustrative is the matter of foreign policy and making war to make up work.

Maybe tomorrow morning, we should have a discussion about full-rationalized decision-making?

Brits Worrying About YAB-YAC

Oh-oh.  I’m not the only one worried about ‘Merica turning into Land of the Simpletons, Home of the Fools.

Why here it is in the prestigious Financial Times:  “There is something profoundly disturbing about the prospect of another Clinton or Bush presidency “

I do declare!  There must be an echo among clear-headed thinkers on both sides of the pond.

News of the News

Rolling Stone has retracted its frat-house gang rape story.  Besides a report coming out showing this as a breakdown in reportorial checks and balances, the big question is how many millions is this going to cost RS anyway?

Ah…here’s what you need:  Just the thing to watch the End of the World on…or the huge earthquake later this month if dreams predict future correctly…