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Friday July 2, 2010 interview with John Grant and Tim Wood

2010-07-06T15:18:00Z

Friday April 16, 2010 interview with John Grant & Tim Wood

2010-04-18T14:05:00Z

Friday, April 2nd interview with John Grant & Tim Wood

2010-04-05T21:09:00Z

Friday, March 26th interview with John Grant & Tim Wood

2010-03-28T19:03:00Z

Friday, March 5th, 2010 interview with John Grant and Tim Wood

2010-03-07T02:01:00Z

Is this about to happen??

2010-03-01T21:03:00Z

http://www.bestonlinetrades.com/20100224/potential-crash-window-developing-in-the-sp500-index/

So where's inflation?? (excerpted from a John Mauldin article on Safe Haven.com)

2010-03-01T16:34:00Z

So Where's the Inflation?

Now for a series of graphs. First, let's look at the Adjusted Monetary Base (or M0). This is the one monetary aggregate that the Federal Reserve actually controls. Notice that it exploded in the middle of 2008, as the Fed started quantitative easing and pushed rates to zero. They were desperate to try and thaw out the credit markets that had frozen.

That in turn caused M1 to increase.

But the broader measure on money that is M2 rose into 2009 and has then gone sideways. Normally the stimulus of such raw money growth in M0 would have M2 exploding upward, as you get a money multiplier effect.

We all know that a US bank can lend out about nine times the deposits it has on hand. When the Fed puts money into the system, it can be multiplied rather quickly if banks choose to lend. This is called the money multiplier.

"Restated, increases in central bank money may not result in commercial bank money because the money is not required to be lent out - it may instead result in a growth of unlent reserves (excess reserves). This situation is referred to as 'pushing on a string': withdrawal of central bank money compels commercial banks to curtail lending (one can pull money via this mechanism), but input of central bank money does not compel commercial banks to lend (one cannot push via this mechanism)." (Wikipedia)

This described growth in excess reserves has indeed occurred in the financial crisis of 2007-2010, with US bank excess reserves growing over 500-fold, from under $2 billion in August 2008 to over $1,000 billion recently. Look at the chart below. This is what has all the gold bugs salivating. Where else has this happened without hyperinflation?

Now let's turn to our old friend Paul Samuelson and his textbook that we all read in Econ 101 to learn about the money multiplier:

"By increasing the volume of their government securities and loans and by lowering Member Bank legal reserve requirements, the Reserve Banks can encourage an increase in the supply of money and bank deposits. They can encourage but, without taking drastic action, they cannot compel. For in the middle of a deep depression just when we want Reserve policy to be most effective, the Member Banks are likely to be timid about buying new investments or making loans. If the Reserve authorities buy government bonds in the open market and thereby swell bank reserves, the banks will not put these funds to work but will simply hold reserves. Result: no 5 for 1, 'no nothing,' simply a substitution on the bank's balance sheet of idle cash for old government bonds."

-(Samuelson 1948, pp. 353-354)

And that is what has happened. And all those mortgage bonds and other assets the Federal Reserve has purchased? They have been put right back into the Fed by the banks. There has been no money multiplier. In fact, the money multiplier, as measured by the ratio of MO to M1 growth is at its lowest level ever. Look at the graph below:

What this graph shows, astonishingly, is that a dollar added to the monetary base now has a NEGATIVE multiplier effect. Without showing yet another chart, bank lending has fallen percentagewise the most in 67 years. The actual amount of bank loans is falling each and every quarter, with no signs of a bottom. Consumers are reducing their debt and leverage. Bank loans are being written off at staggering rates. Over 700 banks (I think that is the figure I saw) are officially on watch by the FDIC, with more banks being closed each week.

No Help for Homebuilders

Before we close, this note from Mark Hanson about the home-building market:

"In January, builders sold a whopping 1000 houses per day nationally. During the same month, Foreclosures rang up at 4300 and Notice-of-Defaults at 5100 per day nationally. What a mess. I really thought earlier in the year with massive mortgage rate and tax stimuli -- and the purposeful lack of distressed inventory due to HAMP and other mortgage mod and foreclosure prevention initiatives -- that builders had a shot at some volume.

Is 2010 a candidate for a four year low?

2010-02-24T01:46:00Z

The markets have done what they do best the last few days, frustrate the majority. Bearishness had risen dramatically heading into the February 5th low. The tide had turned in a hurry. But in the last two weeks the market has been resilient, rising and seemingly on its way to new highs. The bears have been running for cover, just as the bulls had been just 3 short weeks ago. Then today happened.

The stage is now set for a serious decline in stocks, and probably other asset classes as well. The only question is will it unfold that way. After today it looks more likely.

The cycles I follow call for a move to new lows (below the Feb lows) by the end of March. Then an important retest of the highs should occur. If that fails, then it really gets serious.

One thing that occurred to me recently is that 2010 COULD be a 4 year cycle low. You get there by simply counting 1990, 94, 98, 2002, 2006, 2010. etc. But sometimes cycles expand and contract. In fact Tim's work suggests the March 09 low was an extension of the 4 year cycle low due in 2006, which would make it the longest 4 year cycle on record. So is it possible to have another extreme low late in 2010, less than two years after the last 4 year low? I think it might be.

My rational is that it would make perfect sense to have the longest 4 year cycle on record followed by the shortest 4 year cycle on record, which is what we'd have if another low occurred this year. That would get the 4 year cycle count back on track. Could that be what the possible 3 of 3 is suggesting will unfold? It would take a seriously powerful, rapid decline to make that happen, but that's what a 3 of 3 would be, right?

Could it be that simple? I don't know. I'm just saying.....maybe.

What I do know is that the market looks vulnerable tonight. So be on alert.

Friday, February 19, 2010 interview with John Grant and Tim Wood

2010-02-19T23:04:00Z

Uptrend about to be tested

2010-02-19T03:09:00Z

Since warning about a possible upside surprise in my last entry, the market has done just that, closing above the critical 1105 level today. Then, after the close, Chairman Bernanke and Co. raised the discount rate in a surprise move to .75%.

It wasn't a surprise that they did it. They telegraphed as much in their latest ramblings. The surprise was that they did it between meetings. This may be a preemptive strike against an overheated CPI report that will come out Friday morning. The Fed gets those numbers early. Whatever the reason, this changes the environment a bit.

I'm aware of the Elliott 3 of 3 of something count that everyone's watching....and that's the problem. Everyone's watching it, and expecting it. That's usually not a great recipe for it actually happening. Sort of like that H&S pattern everyone saw in July. Remember that one?

So we're about to find out if it's a valid count. If the market holds up and moves higher in the next few days after this Fed action, it'll be signaling to me that the top is a ways off yet. If this happens, don't make the mistake of saying the market's wrong. The market is never wrong. Only traders are wrong....whenever they're aligned against the market.

So be open and don't dig your heels in. If the 3 of 3 is here, it'll be obvious very soon. If not, go with the market you have, not the one you want.

Interview with Chris WIlson and John Grant

2010-02-16T15:37:00Z

Friday, February 12th interview with Tim Wood, John Grant and Brian Winkler

2010-02-14T18:57:00Z

Be on alert for an upside surprise

2010-02-08T03:43:00Z

After close consultations with the venerable "Mr. S", I feel the need to issue an alert for an upside surprise.

I'm not going to get into details, but there is a surprise Elliott count and measurements that could take the markets to new highs from here. Friday could have been the reversal. The new count would take the S&P up to near 1250 before the final top.

This is not a primary count, but an alternate one. SO, be on alert for a possible continuation of the reversal.

Also note the weekly interview is in the entry below this one.

Friday, February 5th interview with John Grant, Tim Wood and Ken Bateman

2010-02-08T03:40:00Z

How deep is deep?

2010-02-05T02:30:00Z

Tonight the market finds itself in deep trouble. The only question tonight is how deep? The answer is probably "real deep".

My take all along during this advance from the March lows was that it was a B wave, a wave correcting the steep drop from November 2007 to March 2009. Once it finished, the dreaded C wave of the bear market would show up, devastating an unsuspecting public once again with a vicious downside move to, or below the March lows.

There is a good chance tonight that that process has begun. If so, it's going to be an unbelievable ride...sort of like today, only again and again and again and again and...you get the picture.

The signs are all around. Gold and silver being pummeled. Credit spreads widening rapidly. The dollar rising. Stocks getting pounded like a tied up goat. And throw in a global sovereign debt crisis just for good measure.

Whatever the cause or trigger, it doesn't matter. What does matter is that there are more sellers than buyers. A lot more. Liquidation has begun again. When that happens prices go down...potentially a lot.

So be alert tonight. This could be the beginning of the Big One.

An entertaining video I'm sure you'll enjoy. Thanks Eddie.

2010-01-29T15:26:00Z

http://www.youtube.com/watch?v=d0nERTFo-Sk

The "Bernanke Two Step" underway

2010-01-27T02:09:00Z

Do you want to know how bad the economy REALLY is? Today your Fed Chairman, Ben Bernanke, spent part of his day phoning Senators trying to drum up support for HIS OWN confirmation vote. Why on earth would he do that?

Is it because he loves the pressure cooker he's been deposited in to? Maybe he loves going before Senator Bunning and Congressman Ron Paul in those pesky hearings and getting insulted to his face. Perhaps he enjoys going to bed every night wondering if he's going to be awaken from his sleep by some new financial crisis that he can claim (again) he didn't foresee.

Wouldn't it be easier if he just said "The heck with them. If they don't want me, I'll just go back to the classroom. I've paid MY dues".
It sure seems like that's what most people would do. So why work so hard to keep this seemingly thankless job?

To me it's simple. He understands how serious our (and by extension the worlds) financial problems really are. He believes he has a handle on it and that things are under control. He believes if he relinquishes his grip, voluntarily or by force, everything he worked for will be lost in a moment and the world will spiral out of control....again.

As result he feels like he NEEDS to be in that chair, and he's willing to campaign to stay there. I can almost hear the exchange now:

Senator Bunning: "Did you order the QE?"

Bernanke's counsel: "You don't have to answer that."

Bernanke: "I'll answer the question. You want answers?"

Senator Bunning: "I think I'm entitled"

Bernanke: "You want answers?"

Senator Bunning: "I want the truth!"

Bernanke: "You can't handle the truth! Son, we live in a world that has a System, and that System has to be guarded by men with a printing press. Who's gonna do it? You, Senator Bunning? I have a greater responsibility than you can possibly fathom. You weep for Lehman and you curse the Fed. You have that luxury. You have the luxury of not knowing what I know: that Lehman's death, while tragic, probably saved AIG. And my existence, while grotesque and incomprehensible to you, saved the System! You don't want the truth because deep down in places you don't talk about at parties, you want me guarding the System! You need me guarding the system! We use words like PCE price deflator, reverse repos, aggregate demand. We use these words as the backbone of a life spent inflating something. You use them as a punchline! I have neither the time nor the inclination to explain myself to a man who rises and sleeps under the blanket of the very prosperity that I provide, and then questions the manner in which I provide it! I would rather you just said "Thank you" and went on your way. Otherwise, I suggest you pick up a loan application and borrow some more money. Either way, I don't give a damn what you think you are entitled to!"

Senator Bunning: (voice rising) "Did you order the QE?"

Bernanke: "I did my job."

Senator Bunning: (screaming) "Did you order the QE?"

Bernanke: (screaming back)"You're dadgum right I did!!!"

Now you know what he really wants to say.

Friday, January 22, 2010 interview with John Grant, Tim Wood and Chris Wilson

2010-01-23T20:52:00Z

Range bound ...again

2010-01-20T21:59:00Z

The S&P once again finds itself range bound. Late last year it was a 30 point range that frustrated most market participants, between 1085 and 1115. Today it's a 20 point range, between 1130 and 1150.

The market tried to break the lower boundary today, but there just wasn't enough sellers to get the job done. So the technical buyers came in looking for another profitable trip back towards 1150, and it appears they may get it.

So the light volume gyrations continue, and the trend is still up....for now. But that could change very soon. So be alert.

The dollar is showing strength, which is what I've been looking for. It closed above it's 200 day ema for the first time since May 2009. We're about to find out if dollar strength is going to translate into stock weakness. It certainly helped hammer gold and silver today. A trip back to the 200 day for the metals could actually be a welcome rest after the blistering run they've seen.

I personally feel like, regardless of how far the metals correct, much, much higher prices are in their future as long as the "Keynesian's" are in charge at the Central Bank. And just know that they are currently in charge.

The election of Scott Brown yesterday in Massachusetts will change the political landscape as self serving politicians scramble to save their own hide. This will bring the Obama administration back to the center and lead to more market friendly legislation than might otherwise have developed. Will it matter? Probably not that much. But it might boost the sales of pickup trucks. Don't laugh, I drive one!

Friday, January 15th interview with John Grant & Tim Wood

2010-01-16T21:51:00Z