4 replies to this topic

[Douglas]

The days this coming week with the highest risk of seeing a turn in or acceleration of the current trend in the DJIA are Monday September 11th and a window stretching from Wednesday September 13th till the morning of Thursday the 14th.  

 

Of more importance is the upcoming crash risk window which stetches from Wednesday October 11th through Monday October 16th.  I know, I know, none of the ones I have noted in the past have worked out, but I live by the maxim that if you can't predict accurately, predict often and vociferously.  My optimistic crash target is gap fill and the A wave low at about 28,500.  Before it finishes, I expect the C wave to reach the intersection of the 61.8% blue line and the green trend line at about ~25,500, or lower if things get really bad. 

 

I believe the key is crude.  If the black sticky stuff's march north has turned the inflation figures which will be released this coming 13th and 14th of September back up, J. Powell will be stuck between a rock and a hard place.  His kinder and gentler inflation attack will have failed, and he will probably be forced to channel Volker and crank rates up enough to cause that recession that has failed to appear on cue.   

 

 

My current EWave count also shown above, which surprisingly has survived quite a long while without major revision, shows the B wave of the current correction completing on August 1st.  I must admit that the five wave green count leading up to that completion is more than a bit flaky.  Any breach of the August 1st high will require a rethink.  Also if J. Powell just accepts his Arthur Burns redux place in history and does not go full Postal on any new rise in inflation, my count and crash prediction will be wrong.

 

To get a bit dark for a moment, my pessimistic C wave target is the "4" of previous degree at about 18,200, the pandemic low.  This will require a B-52 sized black swan event which are rare as hen's teeth, but is still within the faint realm of possibilities, just not all that likely, and probably would involve Putin or the new covid variant more than crude or J. Powell.  

 

Regards,

Douglas 

 

 

[slupert]

Keep your eye on the bonds market. Also peaking my interest (and not in a good way) is private equity.Thesse guys have gone on some spndin spree, I've been wondering if we see a canary in the coal mine developing there. (JMHO)

[Douglas]

slupert, how do you track private equity investing?  Is there a symbol for it on popular data sites like stockcharts.com?

 

If I'm right, and that is a very big IF, bonds should sell off as the FED is forced to crank up rates again as crude causes inflation to pop, but as soon as the rates bite and the economy turns toward recession, I would expect a big bond rally.  The devil lies in the details of the timing of both events.  Also if stocks tank when the FED cranks up short term rates again, flight to bond safety might put a floor under any bond sell off.  Too many possibilities, my head hurts just thinking about it.

 

Regards,

Douglas

[pdx5]

LT bonds are heckuva better buy now than just 2 years ago when interest rates were artificially low. Even if interest rates go up, the increase is not going to be of Volcker proportions. Eventually recession will show up, then bonds will go sky high and then will be good time to bail out. In the meanwhile pocket the juicy yields.

Edited by pdx5, 15 September 2023 - 12:31 PM.

[Douglas]

pdx5, I believe the long bond currently yielding 4.39% is pricing in some level of risk for a recession.  Remember the Fed target for inflation is 2%, so the long term Fed funds rate target should also be 2% to produce a 0% real overnight lending rate.  The long bond should provide a 3% real yield which means a 5% bond.  So if the risk of recession is ever taken off the table, the long bond should fall in price.

 

Also the current BLS inflation numbers are complete baloney and are so massaged that it's impossible to compare the interest rate to inflation rate spread to Volker's time using their numbers.  If you go to Shadowstats.com, they show a current inflation rate using the 1980 methodology of about 12%.  If you believe this number, the current "real" Fed funds rate is about -7%.  How is such a steeply negative interest rate going to stop inflation?  Simple answer, it's not.  Rates have to go a lot higher, or inflation is going to keep eating away earnings, meaning more strikes like the United Auto Workers to keep up with the cost of living. 

 

I think J. Powell was hoping the war would end and oil would collapse giving him a BLS 2% number.  Well, oil is rallying, not collapsing and the two trillion dollar Federal deficit is pumping the economy, so no recession is in sight to bail him out either, so like I said above, J. Powell, is now between a rock and a hard place. He either has to swallow his pride and face up to being an Arthur Burns redux, or he has to grow a pair and crank up rates.  I think his time for kicking the can down the road ended with the Auto Workers Union strike. 

 

So if I'm wrong and inflation falls to the 2% target, the long bond falls to give a 5% yield and if I'm right and inflation rises, the long bond falls since the Fed will continue to raise rates.  So short term heads you lose, tails you lose.  It looks to me like buying bonds right now is a lose, lose proposition for the near term.  You are right, if you're willing to sit through the draw down, sooner or later there will be a recession, I guess, and rates will fall bailing you out.

 

Of course, my whole premise above could be wrong, in which case inflation somehow magically falls in the face of rising oil and labor costs and rates head once again towards the zero boundary making the long bond fly.  Could happen, my cracked crystal ball could be dead wrong, just doesn't seem likely from where I sit.

 

Regards,

Douglas  

Edited by Douglas, 15 September 2023 - 01:46 PM.