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Don’t Let the Smoke Out

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Posted by Bob Hoye - Institutional Advisors

on Wednesday, 13 September 2017 06:21

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Don’t Let the Smoke Out

This article is not about wildfires in California and the Pacific Northwest.

It is about cars and speculative financial markets.

When tinkering with old cars it is best not to go near the wires as there is weirdness there. The red ones are definitely taboo. But if you must fiddle with them, be careful not to let the smoke out. The engine will not run. Sometimes the smoke will come out all on its own – same thing – the car won’t run.

A good thing about new cars is that you can’t see the wires. What you can’t see, shouldn’t worry you. So, new cars run forever. 1

Because they are not widely watched, the wires in the financial markets are not worrisome either. With no visible threats, bull markets run forever.

 

With always outstanding corporate management and the genius of the Fed, adversity is limited to setbacks.

Although not familiar with the smoke theory, quite likely the Fed is doing everything it can to keep the smoke in.

Fortunately, there are technical measures that are warning that the financial wires are getting very hot. The hottest since 2007 and 2000. Bubbles, in any century, are dangerous and failure has been signaled by changes in the credit markets.

What about the climax of this bubble?

Most of the great stock bubbles have clocked a regular timing pattern. 2017 is the year that a great bull market could become hot enough to conclude. Since the advent of modern financial markets by 1700, most of the great stock bubbles have concluded in the ninth year after the climax of a great speculation in commodities.

This history would not be put forward if there weren’t signs of excessive speculation (


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