The inverse H&S in the S&P has fallen apart, it is still a double bottom of sorts and volume has shown some signs of returning on the side of buyers.
The rally in early November failed to test the 50ma, which is not good, and the downside gap has not filled. It remains an issue of liquidity, or cash, how much of it is coming into the market, and how serious are the sellers. We might resolve to the upside here but it could be a long slow grind.
Sure most of you remember Goldman’s role in the 2008 crash. I will do some backtracking later. The myth that the “banks” are okay this time, we stress test, we require larger reserves, none of these things change the business and the banking business is changing. More on what shadow banking really means to the industry and do you really believe we aren’t in a housing bubble? Check your housing value on Zillow, mine is higher than it was in 2007.
The experts are having trouble explaining the price weakness in oil, relative to the fundamentals. The most obvious problem is that higher interest rates should be putting upward pressure on oil prices, as lower interest rates allow oil extraction through hydraulic fracking and exploration companies find it easy to borrow money and bring more oil out of the ground. I consider those lost jobs at GM are nothing compared to what is happening in this industry.
That situation led to the halving of oil prices two years ago, now rates are going higher, cheap money has suddenly become dear, and supply should be constrained. Yet oil prices are falling? Yes the Fed got itself in a box where lowering interest rates caused deflationary pressures and they had to raise rates to keep inflation on their 2% target (they believe they are tamping down inflation by raising rates while there is a solid correlation throughout all of economic history between higher interest rates and higher inflation.) Meanwhile
New York Thanksgiving was the coldest day on record for that holiday. Natural gas prices are strong while oil prices are weak. On the macroside the case for higher consumer inflation is starting to take shape. The lost jobs in the energy sector, (as well as the auto sector) could dovetail into an inflationary recession. (Remember the 1970s) . And yet???
The TIP bond ETF tends to react to higher interest rates. Inflation expectations have actually been falling. Here is what I call the Fear Trade Setup, its not scientific. When a commodity or stock rises steadily and with little volatility for a time, investors tend to assume the gradual rise reflects further gains ahead, but then something happens. The price falters, and tries to rebound, and then investors pre-panic and a somewhat larger one day event signals the stampede lower. (The Fear Trade Setup took a marked reversal yesterday, perhaps it was support on the 50ma, but it might also be “panic” buying of Gold. I will followup on this, the TIP fund took a lift as well, so something is in the air, and it might be the fear of inflation. That could be another subject, since I consider deflation to be the immediate worry, but to some anyway, gold and inflation securities are “deflation” plays. We will see..)
In sum: What drives markets is the flow of liquidity, much of it from outside the US, where central bank policy is still loose. Trillions of extra dollars were printed, that now find their way into investments. The US market is the best, and most desirable destination for foreign investors. However that flow of credit will slow and perhaps even stop and (gasp) possibly even reverse. That does not necessarily mean that money will disappear, the real question for investors right now, are we better off with bonds, or gold, or stocks?
Everything crashed in 2008 including West Texas Intermediate. The parallels are setting up, (it is almost as though we have entered the crash without warning signs or systemic events) while the flow of funds is still favorable. LIBOR is the European version of the Feds overnight lending rate, and much more honest, the rate is set by bankers (not politicians) and it’s done every day. It approached 5% in 2008, before the system crashed, it is still only about half way there.
The thought that the Fed controls interest rates is interesting.