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Quick Pivot

The following is part of Quick Pivot that was published for our subscribers February 3, 2011.


 

SIGNS OF THE TIMES:

"World Needs $100 Trillion More Credit, Says the World Economic Forum" ~ The Telegraph, January 20, 2011

The establishment still thinks that throwing credit at a credit contraction will make it go away. This seems to ignore that a business recovery is underway. What are they worried about?

"Global Price Fears Mount As Food, Raw Materials Soar" ~ Wall Street Journal, January 24, 2011

"U.S. Consumer Confidence at 8-Month High" ~ Fox News, January 26, 2011

"Banking Toxic Cocktail Is Too Big to Forget" ~ Bloomberg, January 26, 2011

The last headline is a valid concern, despite the business recovery and relief in sovereign debt and Muni markets. Unserviceable debt is not going to go away and the recovery is showing signs of blowing out. Too much leverage pursuing too few goods. Actually it is not so much that credit is bidding up prices, but that soaring price action is creating credit through leverage.

Is it reckless again?

Our impartial "Forecaster" is indicating frenzy.

Egypt has been generating some big headlines and reliable sources note that the beginning of the disturbance was spontaneous and we are finishing a special study called Popular Uprisings.



STOCK MARKETS

Whether measured by dynamics or sentiment, stock markets are in "La-La" land usually found at important tops. Most everything else is in the same condition. However, the strong action is still within the time frame for a dramatic blow off.

This is the kind of action that makes in-depth research so interesting. For new subscribers, our proprietary Momentum Peak Forecaster only goes straight up during the late phase of wild speculation: When everyone is catching the last stage coach - into Dodge City.

 

The warning registers when the indicator stops going up and that was in the last week of the year. Typically, the mania can run for up to two months before exhaustion and failure. The indicator is now going straight down and our table is updated:


TRACK RECORD

WARNING
LEVEL

SIGNAL
DATE

PEAK EVENT

PEAK DATE

LEAD

1.23

Nov. 23, 1973

Commodities (CRB)

Feb. 26, 1974

3 Months

1.37

Nov. 9, 1979

Gold & Silver

Jan. 21, 1980

2 Months 13 Days

1.31

May 22, 1987

Stock Market DJIA

August 7, 1987

2 Months 17 Days

1.36

Feb. 13, 1998

Narrowing Spreads in Euroland (LTCM)

May 1998

3 Months

1.27

April 9, 2004

Housing Annualized Rate of Change

1.21

May 12, 2006

Housing

June 2006

1 Month

1.28

Dec. 31, 2010

AOM *

??

??

(*AOM = All-One-Market)

 

On data back to 1970, the two big commodity speculations of 1973 and 1979-1980 were accompanied by "food shortages" and riots. The latter in Egypt had riots over state-funded food subsidies and Mubarak took office in 1981. Other Middle East strife included the Soviet invasion of Afghanistan in December 1979. The Iranian taking of Americans hostages began that November 4th.

Precious metals and crude oil recorded an outstanding price eruption. Our Forecaster (retrospectively) gave the alert on November 9, 1979 and precious metals set the high on January 21, 1980. It was a secular high.

Convictions about commodities and Middle East turmoil were also headline stuff in 1973. In October hostile forces launched a surprise attack upon Israel. Also on that October 17th, Arab producers within OPEC announced an embargo on oil and the excitement was remarkable.

Remarkable enough to drive our Forecaster to 1.23 on November 23 and commodities set the high on February 26, 1974.

This week's highs for stocks and commodities is in line with our model and the steeper the action becomes, the more the probability of a climax within the next six weeks or so.


CURRENCIES

The latest surge in stocks and commodities has prompted another slide in the Dollar Index. At 77 the DX has declined below the support level at 78. This has taken the RSI down to 30 which should soon start to limit the decline. Reaching 26 would set the DX up for a good rally.

The Canadian dollar will remain firm until the big party fails.


POLITICS

It is worth summarizing that hyperbolic statements on Middle East strife and world food shortages attended the warnings from our Momentum Peak Forecaster with the 1973 and 1980 extravaganzas.

One of the feature groups of folk music revival in the late 1950s was the Kingston Trio. One of their hits was "They're rioting in Africa, there's strife in Iran".

Politically, it looks like reform of bullying government, which started in early 2009 in the US as the Tea Party movement, is spreading to the Middle East. In Egypt they might call it the "Shai Party". When it hits Iran, it will be called the "Chai Party".

 


Link to February 4, 2011 'Bob and Phil Show' on Howestreet.com: http://howestreet.com/2011/02/last-stage-into-dodge/

 

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