Guys at the Fed still think that crude oil prices going up is bad for the stock market. Obviously, there is still little regard for empiricism at the Fed. The stock market goes up with crude and then it goes down when crude goes down. The establishment has a similar problem in thinking that rising interest rates are bad. No, short-dated rates, such as T- Bills, increasing confirm that the boom is on. Reversing and turning down indicates the boom is over.
Since the first of February, the Bill-rate has jumped from 1.40% to 1.77%.
Then there are solar cells that generate electricity from raindrops rolling down the matrix. Could be exciting in Vancouver, which is the city by the rainforest. The way we locals tell the weather is straightforward. If you can see the mountains, you know it is going to rain. If you can’t see them, you know it is raining.
And then if it rains after dark – solar cells would work! The presence of “Goldilocks” is noted.
That meteorology staffers are using super computers to mine cryptocurrencies may be as sound as their forecasts that the Earth is going to fry.
On the bigger picture, financial markets have been enjoying a fabulous boom. Is it complete?
Our concern is that when it expires, the recession will start virtually with the bear market. During the usual cycle the stock market peaks some 9 to 12 months before the economy does. At the end of great financial bubbles, the record has been that the recession starts virtually as speculation blows out and collapses.
We used this in 2007 when the S&P peaked in October and the recession started in that fateful December. Fateful, because that was the month that Harvard economist, Greg Mankiw, boasted that nothing could go wrong. The Fed had a “dream team” of economists. Fateful, because it was the start of the worst contraction since the 1930s.
Our October 4th Pivot outlined that even the DJIA would be “bubbled”, which was a bold call. Also outlined was that there were previous examples of outstanding speculations completing in the December-January window. The Bitcoin phenomenon peaked in the middle of December and seems to be following the path following the climax of previous bubbles such as with gold and silver in January 1980, or the Nikkei in December 1989.
Another point was that the senior indexes would likely peak somewhat after the feverish speculations did. The high for the S&P was set on January 26th, which was also the high for the NYSE Comp (NYA).
Following the initial hit, the market was likely to churn around, building a base for a rally into May-June.
So far, so good, but to be prudent it is best to look to the threats that accompany magnificent frenzies. The real threat is that the markets have been hyper. The “threats” from credit markets or industrial commodities are actually catalysts.
Any change in the credit markets could place some big accounts offside. As with Bear Stearns in June 2007, Clarence Hatry in the summer of 1929 and Jay Cooke (“a savior of the nation”) in late September 1873. A decline in industrial commodities would be a negative.
As we have been noting, credit markets could enjoy some seasonal “sunshine” at around May. When financial conditions are speculative () there can be a turn to adversity later in the year (??).
BOB HOYE, INSTITUTIONAL ADVISORS