Financial topics

[John]

> My temporary run of luck has come to an end as the S&P closed at
> 1353 today and I am still short from just over 1320. An old
> gambler once told me that gambling is streaky.

I've been worried about you all day, Higgie, when I saw what the stock
market was doing.

John

[Higgenbotham]

I've been worried about you all day, Higgie, when I saw what the stock
market was doing.

John

Probably better to be worried than amazed. It's very difficult to predict what the vagrom and unstable Wall Street throng will do next. A significant low followed by a powerful rally has been appearing in this bull run about every 10 months counting back from late last month, so a rally was "due" but how much is always the question. Yesterday was 14 months from the flash crash, which was 14 months after the March 6, 2009 low. Instead of a flash downcrash, the ADP report seemed to inspire a flash upcrash. A bull run can end with an equidistant low low high pattern where the final high is a sudden upcrash. Silver loves to upcrash and reverse.

PS I may have the dates a little off but it can be easily seen on a chart of the S&P. The time period from February 27, 2010 through May 6, 2010 is a mirror image of the time period from May 2, 2011 through July 7, 2011.

PPS I had noticed the above but just did an actual 180 degree turn and flip of the time period before and including the flash crash and our recent time period and put them side by side. The resemblance is extraordinary and indicates the polarity shift of the herd right on the specified time sequence. Crowd behavior as observed through charts is truly remarkable and remarkably well hidden. Maybe I can put an image together.

[Higgenbotham]

Herd changes polarity. Top image is mirror image of flash crash. Bottom image is most recent market activity. This activity is separated by 14 months, as is the March 6, 2009 low and the May 6, 2010 flash crash.


http://oi52.tinypic.com/dqno6s.jpg

[aedens]

http://www.scribd.com/doc/59489177/When ... upply-Copy

Adjustments are still underway. We have forumed entries to somewhat 40 percent oversupply "production/supply given data driven events.
The graph concluded to what we recorded on the oversupply issue at the bottum trough we navagated on supply side demands.

Somewhere when SHTF we issued a observation of 36 to 40 overcapacity "malinvestment" in the forums. We were off less than ~4 percent. Our group
knew this and liquidated a few groups over the years. One group was 17 percent globally oversupplied from zone competitors.

Every serious discussion of the problem of credit expansion must start from the distinction between two classes of credit: commodity credit and circulation credit. Public opinion is utterly wrong in its appraisal of the phases of the trade cycle. The artificial boom is not prosperity, but the deceptive appearance of good business. Its illusions lead people astray and cause malinvestment and the consumption of unreal apparent gains which amount to virtual consumption of capital. The depression is the necessary process of readjusting the structure of business activities to the real state of the market data, i.e., the supply of capital goods and the valuations of the public. The depression is thus the first step on the return to normal conditions, the beginning of recovery and the foundation of real prosperity based on the solid production of goods and not on the sands of credit expansion.
In discussing the situation as it developed under the expansionist pressure on trade created by years of cheap interest rates policy, one must be fully aware of the fact that the termination of this policy will make visible the havoc it has spread. The incorrigible inflationists will cry out against alleged deflation and will advertise again their patent medicine, inflation, rebaptising it re-deflation. What generates the evils is the expansionist policy. Its termination only makes the evils visible. This termination must at any rate come sooner or later, and the later it comes, the more severe are the damages which the artificial boom has caused. As things are now, after a long period of artificially low interest rates, the question is not how to avoid the hardships of the process of recovery altogether, but how to reduce them to a minimum.
Mises: Paper of the British Experts, April 8, 1943. [p. 227] [p. 228] [p. 229]

The paper linked does convey the journey and I still rent stocks...

ABCT and asset prices: The error cycle of asset price booms and busts becomes possible because market participants do not know when the credit expansion has ended, and because market participants believe that credit expansion and central banking stabilization of asset prices are beneficial.

“every bubble needs a story”
The phenomenon of herding is made more probable by the existence of a central bank. This is so, because a central bank increases the uncertainty in the market. With a central bank that orchestrates credit expansion, it is unknown how far the process of credit expansion will be taken. This makes herding a successful and profitable behavior as long as the central bank supports the boom. Previous forum posting indicate the political consequences we are currently subject to to clear this malinvestment in context oversupply which as the linked paper suggest inflationary pressure from two effects from supply demand to ensue since the infrastructure is there and actual monertary policy to inflate debt away given all Governments lockstep measures which will pick winners and losers without factoring trade reciprocity balances.

Conceptual framework for calculating the “financial repression tax,” or more specifically, the annual “liquidation rate” of
http://www.imf.org/external/np/seminars ... f/crbs.pdf
government debt. The repression tax will enable winners and losers and guess were small business will be. Direct context is effective tax rates
scaling and the other side of the coin as inflationary modeling.

PS: http://www.imf.org/external/pubs/ft/fm/ ... mindex.pdf
Interest rates will be leveling to zones it appears: http://hedgeanalyst.com/2011/02/farewel ... re-begins/

Source notes:
von Mises, L. (1996). A critique of interventionism. Revised edition. Irvington-on-Hudson: The Foundation for Economic Education.
von Mises, L. (1998). Human action, scholar’s edition. Auburn: Ludwig von Mises Institute.

[Higgenbotham]

I've been worried about you all day, Higgie, when I saw what the stock
market was doing.

John

Yesterday was 14 months from the flash crash, which was 14 months after the March 6, 2009 low. Instead of a flash downcrash, the ADP report seemed to inspire a flash upcrash. A bull run can end with an equidistant low low high pattern where the final high is a sudden upcrash.

All of yesterday's upcrash has been reversed with this morning's release of the payroll number.

[aedens]

Business will continue to compress workers. Hard rain indeed as you Noted. Democrats will drown defending unfunded mandates.
Republicans are desperate. In Michigan 40 percent of newborns are single parent. As previously noted supply infrastruture is grossly
bubbled from insane cheap credit. This was avoidable as we all know and Business has continued to circle the wagons. They have no choice
because again, hard rain, uncertainty. As the years will pass they will still deny.

Sat Sep 12, 2009 5:35 pm
http://generationaldynamics.com/forum/v ... list#p4156
Americans are still painfully clueless about needs to there economic survival anymore. Ask Pelosi or there mindless and clueless hordes and ilk about not in my back yard semantics bent on emotional blackmail and not fact of law or contract or proper funding. Yes some Company's are ruthless and follow the political chain to its ultimate conclusion of special interest's. Rent dissipation issue's in a mixed market is life or death now and the coruption will envelope more very soon it appears to wasted capital. As we are the Internal socialist's have destoyed more economic security than the free world competion had ever dreamed of which is only brought up to pacify the simple of mind dominating the population. Mr Obama nailed there ass to a board and each party cannot see the writing on the wall about fiscal sanity or walk out the room given avarice unabated with that board nailed to there ass with mind numbing greed. Currently the Fed still spews debt is wealth, I rest my case on these insular realities of elist rambling.

http://online.wsj.com/article/SB1000142 ... 66944.html
The Senate was removed decades ago as we know.

To make its loan, the IMF will borrow from the U.S. Federal Reserve and the other central banks it taps and pay them interest of about 0.25% on the money; the IMF will then charge Greece about 3% on the loan. This is a insult to Americans as millions upon millions suffer. If you have to convince a group of people who are not directly dependent on a solution of a problem, you will never succeed. Only to bureaucrats can the idea occur that establishing new offices, promulgating new decrees, and increasing the number of government employees alone can be described as positive and beneficial measures. The issue is always the same: the government or the market. There is no third solution.

The balanced budget amendment failed in the Senate on March 4, 1997, by one vote. The well was poisoned even before this.

WO-AA796_IMFGRE_NS_20100504205616.gif (10.53 KiB) Viewed 6275 times

[aedens]

This is the so called political wisdom routing public opinion provided below. Namely the level of disconnect runs deep, long, and hard
by choice. The supply overhang on production capability's is real and will not diminsh for subsequent years. Already the Bulltards
in Auto credit recovery for supply chain issues. Meanwhile, Auto has spewed "tax fuel higher" and a month later as we speak
are trying another program offering "free insurance for a year" in a few states like Washington and Oregon.
What business will do is compress sector workers for the "productivity" holy grail of basic calculation.
Not that we have not seen this before as noted to appease the analyst who have obivous conflicts as just another investor class
which really just what it is, fast money. The point will bear witness to node production units of control in current existance.
Forward thinking Cluster leader's have been actively doing this for a number of years already.
And it is not easy for them watching this train wreck either.

As Higgy correctly correlates the Herd changes polarity.

Countries are seeking to export their way out of the current crisis through competitive currency depreciation as well we by erecting new trade distortions also linked in the forums earlier. Testimony also before the Subcommittee on Terrorism, Nonproliferation and Trade, Committee on Foreign Affairs, US House of Representatives March 12, 2009

Any one with a compass knows this to be true. Below the level of disconnect is staggering...

http://hedgeanalyst.com/2011/07/the-ame ... ard-adams/

http://www.nationaljournal.com/columns/ ... t-20110606

"Presumably, had everyone known how bad the jobless situation would be, both parties would have sought to spend on things where they would get the maximum bang for their buck in terms of job creation."

"The Fed, through monetary policy, has stimulated the economy in an unprecedented manner. But there seems to be a limit to how much that can help and the spending stimulus is largely worn out."

If you follow the money it is leaving the States as we speak from the U.S. Federal Reserve’s.
http://www.bloomberg.com/news/2011-03-3 ... -2008.html
meanwhile:
http://www.reuters.com/article/2011/05/ ... TK20110511

We have a responsible team and we can only be patient as the induced credit bubble plays out.
As conveyed we can only wait and watch the obvious. Waiting to close a few positions.

[Higgenbotham]

Serial Hacker Breaches Federal Reserve Computers

http://www.theregister.co.uk/2011/04/14 ... er_guilty/


Anonymous Calls For Bernanke's Resignation, Vows Attacks on Federal Reserve Computers

A99 OpESR Communication #2: Ctrl+Alt+Bernanke

In this new video release, "as a first step," Anonymous has called for public protests beginning on June 14th, continuing "until Federal Reserve Chairman Ben Bernanke steps down." To make their case, they have presented a list of recent scandalous Federal Reserve actions.

345,000 hits in less than a month.

http://www.youtube.com/watch?v=XySGw-g2tyk

[Higgenbotham]

As Higgy correctly correlates the Herd changes polarity.

I contacted John the other night because there were 300 hits on the thread right after I posted that. But the hits were due to a web crawler, not various financial interests. If they do find this site, I will quit posting anything trade related that the parasites can use.

As far as the correlation, it goes a lot further than what I posted. The polarity shift started a few months back and I observed it and loosely discussed the correlation to the silver spike into April 25 with a lower high on May 10 indicating weakness (this also correlated to 3 other cycles I have discovered). The following polarity reversals can be observed on the 14 month lag:

January 15, 2010 (HIGH) and March 16, 2011 (LOW)
February 5, 2010 (LOW) and April 6, 2011 (HIGH)
February 27, 2010 (LOW) and May 2, 2011 (HIGH)
April 15, 2010 (HIGH) and June 16, 2011 (LOW)
May 6, 2010 (FLASH DOWNCRASH) and July 7, 2011 (FLASH UPCRASH)

A few observations.

Anyone who studies the charts and these dates carefully will notice the strong inflationary bias. As one example, looking at the April 15, 2010 high it can be noted that this high was followed by a slightly higher high on April 26, 2010. Had there been no inflationary bias in the system April 26, 2010 would have been a lower high. As a second example, the February 27, 2010 low is a higher low on the charts whereas May 2, 2011 was a high. Had there been no inflationary bias in the system, I am positive that February 27, 2010 would have been a lower low.

I believe when the market crashes, all of this bias will come out to the downside AND OVERSHOOT TO THE DOWNSIDE. The potential air pocket to the downside and potential overshoot is tremendous.

Looking out to the future, I am only posting this for long time readers of this forum (and hopefully nobody else) because I think this inverse correlation will soon end anyway. In other words, whereas May 25, 2010 was a lower low on the charts (below the flash crash low) I do not necessarily expect that July 25, 2011 will follow this correlation and be a higher high. My best guess as posted last weekend is that the markets are going to crash soon and the crash may well start to correlate again on the 14 month basis. In other words, I expect a much lower low could be reached on or around July 25, 2011. As usual, I would say that nobody knows what will happen. If someone were to want to be cautious, they could stand aside and wait to see what happens on or around July 25. If the markets are really getting hammered at that time, then expect the low to occur a few days after July 25.

I believe the polarity shift was due to the earthquake in Japan. The Fed cannot control this and they know it, or should know it. If the earthquake reversed the polarity of the herd, then the after effects will likely be strong. I would note two previous cycles related to earthquake and nuclear disaster.

First is the April 18, 1906 SF earthquake and fire. A financial panic followed this disaster with an 18 month lag time.

Second is the April 26, 1986 Chernobyl nuclear power plant disaster. A financial panic followed this disaster with an 18 month lag time.

Now we have both an earthquake and a nuclear power plant disaster rolled into one. However, this duo disaster has occurred at the tail end of an unraveling or early crisis period rather than at the tail end of a high. The 1907 and 1987 panics were false panics due to their location in the generational sequence and may have been held off for longer than this one will be held off. There are fundamental reasons as to why panics follow these types of disasters with a lag time. As noted, the systemic risk is higher due to the increased linkages in the world financial system as compared to 25 and 105 years ago. For mathematics fans, dividing these years by 5 results in 5 and 21, which are fibonacci numbers 3 removed on the sequence and have an ideal fibonacci ratio of 0.236.

It can also be observed that the 1930 rebound high in the stock market followed the 1906 SF earthquake and fire by EXACTLY 24 years. The theoretical rebound high in the stock market would have therefore followed the 1986 Chernobyl disaster by 24 years, which it did EXACTLY, as April 26, 2010 was the high in the stock market before QE2 was instituted.

Ben Bernanke, as smart as he is, has been cornered by the inexorable forces of the Universe. He has no way out. Goldman Sachs, etc., as smart as they are, have been cornered by the inexorable forces of the Universe. They have no way out. Any attempts to find a way out will only dig a deeper hole and result in a larger crash. It's written into the DNA of the generational constellations, the physics of the earth, and the mathematics. There is no escaping it.

[jcsok]

Wonderful analysis, Higgenbotham. I regret that I do not make the time to compare past charts as you do. As one of the longtime readers of this site, I appreciate your insight. In our previous communications, you are aware that my trading positions have ironically been similar to yours in timing, but I've probably given up more on this torturous melt up. Each time that I've had to take a loss in closing a position on the upside, I think of John's theory of maximum ruin. Prior to reading your latest post I had planned to short again around July 20, looking for a brief down, and another top around August 5. Although our corrupt Congress will ultimately raise the debt ceiling, and an attendant rally melt up will occur, this, I believe, will be a buy the rumor (which I can't do given the risk) and sell the fact.