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Signs of the Times

The following is part of Pivotal Events that was published for our subscribers November 8, 2012.


Signs of the Times:

"A great civilization is not conquered from without, until it has destroyed itself from within. The essential causes of Rome's decline lay in her people, her morals, her class struggle, her failing trade, her bureaucratic despotism, her stifling taxes, her consuming wars."

~ Will Durant, The Story Of Civilization III, Epilogue, 1944

A number of sources list this as a quote, but it is a synthesis of the Epilogue "Why Rome Fell". It is valid then as well as now. America as we know it won't collapse, but Americans have been unusually successful in dealing with "bureaucratic despotism". They will be successful again. Bankruptcy of another experiment in bureaucratic despotism will prompt a refreshing turn to reform of bullying politics.

The election was a big day for the implacable forces of big bureaucracy, main stream media and big unions. There is no change from before the election.

"It thus appears that the treasury operations have thus far chiefly benefited the borrowers in Wall and Broad Streets more than the commercial community."

~ The New York Commercial and Financial Chronicle, October 19, 1872

"All of the money being created is elevating asset prices, but those prices are not causing corporations to invest in future production."

~ Bill Gross, Pimco, Bloomberg, November 1

"Fed's Rosengren: Fed Should Buy Bonds Until Unemployment Hits 7.25%."

~ Wall Street Journal, November 1

"I haven't seen the kind of improvement in labor-market conditions that would call for ending the MBS purchases."

~ John Williams, San Francisco Fed, Financial Times, November 2


A number of weeks ago we reviewed Gann's 55-day count to the end of a serious decline. That calendared out to close to November 8. The slide has been more evident in the Nasdaq than in other senior indexes, with the NDX losing 10 percent. While the season might have provided more of a drop, the US election and the storm seems to have provided distraction.

The Greenspan style of research considers that you can't tell a bubble until it's over. Similar orthodoxy insists that it is not a bear market until the S&P is down by twenty percent. Often such moves can end at such a level of disappointment, or discovery. As the leader of the NDX slump, Apple has plunged 23%. By standard reasoning about twenty percent declines AAPl has suffered a bear and the NDX only half a bear.

However, it is worth considering that the "count" could be valid for any degree of sell-off. In which case, around now or next week could be setting a temporary low. Apple is quite oversold.

Yesterday the "new" political news was about a compromise between opposing sides in Washington. This is the belief that the "Fiscal Cliff" can be averted. Or, in looking at it in another way, a natural rebound in the stock markets could inspire visions that Democrats and Republicans can join hands and leap across the fiscal chasm.

Unfortunately, it should be understood that Democrat leaders in the House and Senate are old and die-hard socialists who finally have their hands on the credit card. They will not compromise their compulsion to commit liberalism - as much as they can - while they can.

Upon his first win, Obama said to the House Republican Whip "Elections have consequences, Eric, and I won." Further instructive statements follow.

Senior stock indexes are not oversold enough to really clear the decks for an extended rally. Using AAPL as the proxy, a low (for nimble traders) is possible, soon, followed by choppy action into the end of the year.

It is worth recalling that the 2008 Crash fit the classic model and cleared in that fateful November. On the natural rebound, far too many believed Obama's boast that the disaster could be fixed. In January the street began to realize just how dangerous the new administration could be and marked stocks down into March. Some important exchanges declined sympathetically, but not to new lows.

When it arrives, the rebound will be natural but tempered by belligerent Democrats driven by "divine right" rather than mandate.

Yesterday's ChartWorks on ETFs in Europe and Asia, as well as precious metals reviewed some developing trading opportunities.

Business Conditions

It's not often that the stream of business or economic statistics gets our attention. This week, McDonald's reported a global drop in sales - the last was in 2003. For September overall sales declined 1.8 percent. Within this, Europe and the US fell by 2.2 percent and the number for Asia, the Middle East and Africa was down by 2.4 percent.

It seems like a world-wide event, or is it coincidence?

Generally increasing profits have been essentially due to the ongoing drive to cut costs, rather than to rising sales. No matter how inflationary global policymakers have been, pricing pressures have been relentless. As well as strong recessions and weak recoveries, this is typical of a lengthy post-bubble contraction.

Perhaps the McDonald's sign is indicating slowing retail sales, globally.

In the business world, has the drive to severe cost cutting been voluntary? In the world of policymaking, has the drive to austerity been voluntary?

Best to ask the Greeks.

Credit Markets

It seems that the ability of investors and central banks to buy most maturities of any quality of bonds remains undaunted. And as a representative from Barclays advised on Monday - "Seek safety at the long end of the yield curve".

From 144.94 on September 14, the bond future has rallied to 151.20 and is approaching an overbought condition. The urge to "safety" is the apparent story, but the long bond does not represent safety at all, but is yet another asset play.

It is interesting that the bond is, again, getting overdone as the stock market is getting oversold.

For the nimble, there's a trade pending.

At the short-end, the Ted-Spread continued its trend in narrowing to 0.203 last week. The move began at 0.581 as last fall's mini-panic cleared. As noted last week, the weekly RSI on this one has reached an exceptional level.

Within this, 3-month Libor has also reached an exceptional weekly RSI. Both on a chart back to 2005.

So we look around for a reason for change. US treasury bills remain one of the main focuses on the real flight to liquidity. The London Inter Bank Rate is not and that is the item that can change.

When? The market will tell us.

Perhaps it really comes down to liquidity. A post-bubble contraction features periods when liquidity generally disappears. Adding to this will be the re-election of the Democrat administration and continuation of anti-business policies. It is likely that Obama's re-election will seriously drive capital away of business and industry which is another form of disappearing liquidity.

The experiment in unlimited government will continue until liquidity disappears completely. It can't be ended by intellectual persuasion or by citing so many past examples. It can only end by financial catastrophe.

In the meantime, there will be some good trades to be made.

Dedicated People

"After this election, it's our turn. Payback time. Everyone not with us is against us, and they better be ready because we don't forget....the ones who opposed us will get what they deserve...there will be hell to pay. Congress won't be a problem for us this time...No election to worry about after this is over."

~ Valerie Jarrett, Obama's close advisor, during a recent meeting with the administration's senior staffers.

"All whites are going to hell."

~ "Rev." Joseph Lowery, Obama confidante and pastor

"Vote for revenge!"

~ Obama

"G-d d-mn America!"

~ Obama's pastor of 20 years


Link to November 10 'Bob and Phil Show' on TalkDigitalNetwork.com: http://talkdigitalnetwork.com/2012/11/this-week-in-money-57


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