The following is part of Pivotal Events that was published for our subscribers January 23, 2014.

Signs Of The Times

"It's been so cold it's forced the liberals to keep their hands in their own pockets."

- Anon

"Firms that use borrowed money to lend to the smallest and riskiest companies are attracting cash at the fastest pace since before the crash."

- Bloomberg, January 15

"U.S. state revenue isn't rising fast enough to keep up with the cost of funding pensions, health care and public works projects."

- Bloomberg, January 14

"Newport Beach, California, where four ranking lifeguards earned more than the town's $109,677 median income, may partially disband its municipal ocean rescue to deal with pension costs."

- Bloomberg, January 15

Undisciplined state and local budgeting has been riding the Wall Street bubble, which eventually depends upon the prosperity of business.

"It feels totally different to be a small-business owner in America on Main Street than on Wall Street, where they're popping Champagne corks."

- CNBC, January 6

Undisciplined governments have been accompanied by unreal policymakers.

"Our financial system is still in a risk-averse mode."

"I don't think that the low interest rates were an important contributor to the housing bubble."

- John Williams, San Francisco Fed, Wall Street Journal, January 14

Credit Markets

In looking at the last observation, one can't help but wonder if central banking causes amnesia?

Typically a boom can run for some 12 to 18 months against rising long rates. Long treasury yields increased from July 2012 to the end of December and that counts out to 18 months. If long rates were to turn down with the economy it could show up in the next month or so.

In more normal times, the term "boom" would include a "booming" economy, but not during a lengthy post-bubble contraction.

However, for a number of obvious reasons, lower-grade bonds became a huge play. The Merrill Lynch High Yield Master went from 23% to 5%. The run from calamity to certainty has been outstanding and the yield is now trying to turn up.

Junk (JNK) has soared in price from 16.69 in 2009 to 40.97 this week.

The Daily RSI (momentum) has made a huge swing from 12 in 2009 to 83 on Friday.

This compares to the best reached at 79 on May 6th.

That was just before the "Mini-Panic" that ended in late June. The Fed was heavily buying sup-prime mortgage bonds during the week that the price rolled over.

It is worth noting that at the all-important high on May 1st 2008, the RSI reached 82.

Lower-grade bonds have had a fabulous run and have reached a momentum level that last occurred in 2008 and are primed for a price decline of cyclical proportions.

The long bond future can rally further. It is not overbought and there is resistance at the 107 level.

Stock Markets

The senior indexes (S&P) have reached momentum levels seen at the cyclical peaks in 2007 and 1937. As with this bull market, those came out of a monumental crash.

Sentiment numbers are not available for 1937 but the numbers reached recently haven't been seen since 2007.

On timing, the 1937 example ran for 249 weeks as did the 2007 example. This one is at 255 weeks and getting very stretched.

Other timing includes the probability of a January peak. Previous examples include gold in 1980, the S&P in 1973 and the Nikkei in 1990.

"Japanese firms' massive equity financings will push up stock price. Instead of causing oversupply they will invest the newly raised funds in the stock market. The Nikkei target is 46,000 in December."

- Sanyo Securities, January 1990

With topping action so visible, who would really want to set a target for the S&P at 4 PM on December 31st, 2014?

Link to BNN Headline January 24, 2014 with Howard Green and the panel of Willem Hanskamp of Heward Investment Management, Bob Hoye of Institutional Advisors and Stuart Freeman of Wells Fargo Advisors:

Part 1: http://watch.bnn.ca/headline/headline-january-2014/headline-january-24-2014/#clip1065604
Part 2: http://watch.bnn.ca/headline/headline-january-2014/headline-january-24-2014/#clip1065606

Credit Spread Reversal 2008

• The reversal to widening in May 2008 was the warning on the stock market.
• The S&P rolled over in June and crashed.