S&P

S&P, the Mnt. Everest syndrome

Hamilton

S&P 500 Chartmnt everest

Mount Everest syndrome, in my vocabulary, stands for this phenomenon that you climb it for no other sensible reason than that it is there. I suspect that Bernanke and his co-conspirators at a whole slew of other central banks in the world, most prominently those of China, the ECB, Switzerland, the UK and now again  Japan, all want to get to the top just to be able to say that nothing really happened as a result of the great recession.

The mountain was first successfully climbed by the New Zealander Edmund Hillary and Tenzing Norgay, a Sherpa climber from Nepal, back in 1953. Locally the mountain was known as “Holy Mother” but was named after an English bureaucrat surveyor George Everest for fear of offending any one of the many ethnic groups that might claim parenthood to the mountain, preferring to, in good English tradition, offend them all. Since 1953 some odd 8,000 people have attempted to climb the mountain, resulting in 250 or so deaths, mainly due to altitude sickness or the tragic events immediately following.

What is not well known by the financial community of the World is that the mountain has had an almost 100% perfect correlation with the S&P. This is an impeccable record not matched anywhere else. Using an optical illusion it is perfectly clear that a high of 1565, give or take a point, will do the trick and then there is a precipitous drop right ahead. There is no need to do anything now, we are almost guaranteed to get there. But once we do, don’t let it get to your head as it is definitely time to get out. To gain a “feel” for the coming drop, here is that picture again;

mnt everest 2

 

P.S. For those who are wondering, Mnt. Everest is the one in the middle. The photos, without the white lines, are by David Breashears. Tomorrow we show the Matterhorn against the Swiss SMI index.

S&P last update, and US 10 year Treasury yields.

Hamilton

S&P Sept 13 2012US10YT sept 13 2012

So we got the Fed and they are easing and easing and easing. The S&P charged through our ideal target of 1450, all the way to 1463. That is fine as it does not negate the pattern, it is simple a throw-over which is as common as daylight. If this interpretation is correct it should stop here and start falling in the next few days.

As there is never an upside limit on where stocks can go, I have added the US treasury 10 year bond yield. There is a limit to how low it can go, zero being the level where the Fed is practically impotent. At 1.4% at the low it could be argued that the Fed is, for all intents and purposes, already impotent. Notice that there is a very high degree of correlation apart from one being the inverse of the other. Todays action on the TLT etf. shows that interest rate were actually moving up in contradiction to the stated objective in the Feds action today.

The Fed’s intentions are to keep rates so low in order to raise asset prices which then, through the wealth effect, would stimulate main street to spend a little more and boost demand. A few simplified lessons in economics makes it clear how stupid this approach really is. Basically every economy has three players, the Government, corporations and households. We all know that since time immemorial governments spend more than they take in and are therefore chronically borrowers, not savers. Corporations, on balance and as a group, borrow about 1/2 of their capital needs. There are sound reasons for that but suffice it here to note that they too are structurally borrowers. That leaves households as the savers either as the result of a conscious decision, or as an “involuntary” act as in making government or corporate pension contributions. Keeping interest rates low simple transfers income from savers to borrowers, that is from households to governments and corporations. How this miraculously stimulates spending, 70% of which is done by households, is the riddle that the Fed has not explained. It is true that the young households are stimulated into buying a bigger and better home, so there is no doubt an inter-generational transfer, but as a whole, households lose out big time with these policies.

I watched Bernanke’s entire speech today and can’t help but sense that he is tremendously unsure of himself. He is very wishy-washy, tentative and seems to be hiding behind an aura of academia constantly pointing out the limitations of Fed policy, using the word panacea at least 20 times. Also he is not pushing back against the lack of government as it applies to the fiscal cliff and other little problems that he acknowledges completely overwhelm the Fed. I am not impressed.

 

P.S. The critical difference between governments, corporations and households is that only the last one actually dies and consequently goes through an unavoidable life cycle, creating an obvious need for savings. Governments believe in eternity and corporations hope for it.

S&P update , again.

Hamilton

S&P sept 12 2012

As explained recently , this wonderful wedge could be the c of an a-b-c wave B. It has been 24 months in the making. Today we got the Constitutional Court decision with regard to what can and what cannot be done. As was to be expected the verdict is trumpeted as a verdict for even more largesse, but in reality Draghi’s promises to do whatever is needed are seriously curtailed by this judgement, never mind the conditions on top of what can be done. Tomorrow, at about 2.15 we will get the second edition of this farce as the market interprets Bernanke speak. It already knows that it will be a good outcome even if no one can decipher the meaning. And then ten minutes into the process the market remembers that good is bad and makes a 180 degree u-turn. After another ten minutes the “plunge protection team”, without ever having seen a plunge ( remember weapons of mass destruction?)decides to turn things around pushing the market to knew highs. But before all this happens Dutch elections will close today and the outcome will be such a cliff-hanger that the cognoscenti on this side of the pond will give new meaning to the term Dutch Disease, but our own Central Banker will counter that by observing that most Elm trees are already long gone.

We will stick to the chart, 1450 is the high, only another 11 points from this mornings high of 1439. Time will tell.

S&P again, update.

Hamilton

s&p 1 sept 2012s&p 2 sept 2012

S&P 3 sept 2012

Different charts show different pictures depending on how the values are calibrated on either the x or y axis, or in relation to each other. Also some charts show every move on the day, others only closing values and so on. So here is the S&P (SPX). 3 times.  The high point is at about 1450 once the trend line is reached. Obviously a throw-over is always a possibility but, for the sake of argument let us assume perfection. The S&P is presently at about 1435 and the Dow has already marched on to a new post crash high. So is the DAX. Most other indices are still well below previous levels and certainly not within 7% of their all time highs. Over the next few days we will have a QE3 announcement, the German Constitutional Court pronouncing on the legality of the ECB plan, Dutch elections, more fuss over Greece and perhaps a few additional infusions of stimulus by China and India. All this should be sufficient to add the needed 15 points but the big question is if it will stay there.