The stock market is behaving just as anticipated so far.  The Dow is getting into a very exciting territory. As I have mentioned in the past, we are close to the moment of truth. We are either going to get a confirmation that the bear market rally that started in 2009 is now over or go on to set the next top.

My work shows that there is an 80% probability that the bear leg down has started with the top set in August of 2013. However, there is a 20% chance that the top will complete in March of 2014 instead. Without going into too much details in regards to the timing involved, what will happen over the next few weeks is incredibly important.

Even though the futures are up close to 1% due to Summers drop out, I believe the market will give up gains and this week will be somewhat uneventful. The market is moving up to close the gaps in 15500-15400 range as I previously discussed.  Thereafter, it should pause for a little to digest the gains. At that point we should either see divergences indicating the next leg down OR continuation of the run.

Once again, not much to do right now, but wait. Maintain your long position (if you have one) and wait for various confirmations that the bull run is over to kick in. I will keep you posted.  

Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!! 

CNBC Writes: Pimco: 3 reasons bond investors should chill

 

Bond investors are sweating bullets. In 3½ months, the 10-year yield has risen from about 1.6 percent to over 2.9 percent, before cooling off in recent days. And on Thursday, bond expert Jeffrey Gundlach made the case that the 10-year yield could reach 3.1 percent by end of the year.

As yields rise, bond prices fall, so the move in yields has been very painful for those who have owned bonds, and investors are heading for the exits. Bond funds saw outflows of $36.5 billion in the first 22 days of August, according to TrimTabs. Bond giant Pimco saw $7.4 billion worth of outflows in July alone, and double that in June.

But Tony Crecenzi, Pimco executive vice president, market strategist and portfolio manager, believes that the bearishness has gotten overdone. On CNBC’s “Futures Now” on Thursday, he made the case that “yields will move lower from here,” and he provided three reasons why.

1: Economic fundamentals don’t support these yields

Crescenzi said that yields could rise a bit more due to technical reasons, but the fundamentals don’t support it.

After all, “what’s priced into the bond market is the idea that the economy, in 2014, will accelerate,” Crescenzi said.

But he throws cold water on the rosy economic picture that some are drawing. “Bond investors will begin to reassess whether or not the optimistic forecasts, including the Fed’s own forecast, will come true.”

Indeed, many have questioned the accuracy of the Federal Reserve’s forecast for 3 to 3.5 percent GDP growth in 2014. On Tuesday, Krishna Memani, OppenheimerFunds’ chief investment officer of fixed income, said on “Futures Now”: “The economic growth that we’re looking for in the Fed’s forecasts is probably a bit overstated,” and for that reason, he, too, sees rates dropping.

2: Inflation is not coming back

While Gundlach compared the recent rise in rates to the rate rally in 1994, Crescenzi said the present situation is markedly different.

“What 1994 was about was the last big battle against inflation expectations,” Crescenzi said. “When the economy began to accelerate from the 1991 recession, people started to say, ‘Well hey, more growth means more inflation. Why can’t the inflation rate get back to 4 and 6 percent again?’ Then Alan Greenspan came in and stomped on the bond market with big rate hikes to say there isn’t going to be an inflation acceleration like there used to be in the ’70s and ’80s.”

Because “that inflation battle has been fought,” the Fed doesn’t need to hike rates in order to tamp down the rate of economic growth and thus reduce inflation, according to Crescenzi. That means that a full repeat of the 1994 bond catastrophe-in which yields rose nearly 2 percentage points in three months-is unlikely.

3: Investors are misreading the Fed

Crecenzi believes there’s an “80 percent chance” that the Fed will begin to taper its qualitative easing program in September. But he thinks investors are misreading when the Fed will raise their Federal funds rate.

Again, because the Fed doesn’t need to worry about inflation expectations getting out of hand, Fed Chairman Ben Bernanke has no need to hike short-term rates as Greenspan did. “Unlike 1994, there won’t be rate hikes to reinforce the rise in interest rates,” Crescenzi said. So according to Crescenzi, “there won’t be a rate hike until 2015 and the earliest, and we think 2016.”

Any rise in rates would be investor-directed, then-and since the economy will not be as good as investors expect, he does not expect to see rates get pushed higher.

In fact, by the end of the year, this bond guru sees rates falling back to the low to mid 2s on the 10-year.

The points outlined in the article above are important and must be addressed. As I have mentioned in my previous article  “The Most Important Financial Story No One Is Talking About”  interest rates on a 10 Year T-Note have increased 100% over the last 12 months. That is a huge move. Should the investors be worried? I think so. Let’s take a look and take away their argument.

1. Economic fundamentals don’t support these yields: Oh yes they do. I don’t think the market is pricing in growth, I think the market is pricing in upcoming defaults and beginning of an inflationary environment.

2. Inflation is not coming back: That is kind of a definitive statement. My work is showing that inflation is just around the corner and will start to accelerate in 2016. I think the bond market is starting to price that in as well.

3. Investors are misreading the Fed: This is not about the Fed. This is simply following the market and trying to determine what the future holds. The Fed has an imaginary control, not a real one.

The bottom line is this. As I have indicated in my previous post I believe the interest rates have bottomed in July of 2012 and are now starting their multi decade climb higher. Yes, the rates are likely to decline here (pull back) only to resume their climb upwards within a short period of time. Of course, this will have huge negative consequences on the overall economy, the stock market and real estate.  

If you can, please share our blog with your friends as we try to get traction. Gratitude!!!

Bloomberg writes: German Jobless Unexpectedly Rises Even as Economy Grows

The number of people out of work increased by a seasonally adjusted 7,000 to 2.95 million, the Nuremberg-based Federal Labor Agency said today. Economists predicted a decline by 5,000, according to the median of 25 estimates in a Bloomberg News survey. The adjusted jobless rate stayed at 6.8 percent, near a two-decade low.

The economy in Germany, which faces elections next month, is forecast to slow after growth was bolstered last quarter by a rebound from a colder-than-usual winter that curbed output. While the euro area, the nation’s largest export market, has emerged from its longest-ever recession, some companies are still cutting jobs as countries in the periphery of the region struggle to recover.

“If data that signal the economy will gather pace in the second half of the year are to be believed, there’s a good possibility that employment will increase and unemployment will drop next year,” said Jens Kramer, an economist at NordLB in Hanover. “In the euro area, there’s at least hope that the worst is behind us.”

I think the best way to look at Europe at this point in time in from Macro Economic perspective. 

Obviously Germany is by far the strongest economy in the region and the only reason European Union hasn’t collapsed yet. The rest of the countries there are in a big time mess. 

I do not believe the worst is yet over for Europe. Not by a long shot. The only reason you are seeing an improvement and better data coming out of Germany is the same reason you see it in the US. Massive amounts of liquidity in the system. 

What is quite shocking is how weak the recovery has been in the European Union region even though record amounts of capital were deployed to sustain it.

What will happen next is quite simple. 

As interest rates continue to increase on the global scale, as the US Stock market begins to go down, as emerging markets continue their decline….there won’t be any reason for European Union to recover. As a matter of fact, quite the opposite. As all stimulus disappears, expect most of the European Union to fall back into a depression environment.  

An eventual break up of the European Union is not out of the question. As a matter of fact, I would be surprised if it doesn’t happen over the next 5 years. 

If you can, please share our blog with your friends as we try to get traction. Gratitude!!!

 

CNBC Writes: Prepare for the crash no one is predicting

Stock market declines, especially the violent kind we refer to as “crashes,” are pretty hard to predict.

True, for every crash one or two visionaries emerge who called the market decline with unusual accuracy. In time, we generally conclude that these visionaries were more lucky than prescient, because there are no records of prognosticators who predict market crashes more than once.

But this time may be different.

The Federal Reserve has been propping up the stock market through its quantitative easing program that forced interest rates to all-time lows and drove investors out of bonds and into stocks.

But those days may be coming to an end.

Read the rest of the article here.

WOW, really CNBC, I am not sure what to think here. I thought that CNBC were perpetual bulls. One thing is for certain. If CNBC is predicting a crash, there won’t be one.

Here is the bottom line and what my mathematical/timing work is showing. There shouldn’t be a crash here. As a matter of fact, the next few years a quite boring.  The market will decline to the tune of 20-40% over the next two years, but it shouldn’t be anything drastic like a crash. As a matter of fact, the market is a little bit oversold here and I do anticipate a rebound.

See, who said I was always a bear?