Pagare per vendemmiare in Toscana da Sting rende quasi più brutta Fields Of Gold

by Alessandro Morichetti

Non ti basta aver fondato i Police e scritto canzoni memorabili come Message in a bottle, Fields of gold, Russians, When we dance e cento altre. Non ti basta aver millantato ore e ore di sesso tantrico, avere una moglie molto bella e possedimenti di tutto rispetto. Non ti basta nemmeno avere l’età di mio padre ma meno rughe di mio nipote.

No, tu sei Sting e puoi anche permetterti di far pagare per vendemmiare a casa tua in Toscana presso la tenuta Il Palagio. In fondo, perché non pensarci prima? Circa 260 euro al giorno per raccogliere olive e uva in una tenuta di 900 acri e godere del paesaggio splendido che la Toscana sa regalare.

Notizia ripresa anche dalla Nazione: “Ha guadagnato milioni dalla musica rock - scrive il Teleghraph – lo scorso anno ha cominciato a affittare cottage toscani a 6mila pound alla settimana”. Ora l’ex leader dei Police, “il cui ultimo tour ha fruttato 358 milioni di pund”, è deciso a trasformare la tenuta del 16esimo secolo vicino Firenze, comprata in stato di abbandono, in un business. Al momento è un’azienda che fa miele, olio e vino cosiddetto ‘biodinamico’. La produzione è così abbondante che la moglie di Sting, Trudie Styler, ha aperto un negozio in cui vende  olio, vino, ortaggi, frutta e insaccati.”

E bravo Sting, businessman mai domo. Ma no, tranquillo: pagare per vendemmiare non rende affatto più brutta Fields of gold. Come potrebbe?

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Porsche 911 Carrera makes shift work wonderful

By Dan Neil

Dan Neil/The Wall Street Journal

This is a writer’s prerogative. I have no reason to favor you with another review of a Porsche 911—the base model, no less ($92,185, as tested), just another cutie-patootie in the chorus line, with 19-inch summer tires, big steel brakes, and a seven-speed manual transmission. To be honest, in world of 580-hp Camaros, Chevrolet Z51s Corvettes and Nissan GT-Rs, the Porsche (350 hp/3,042 pounds) isn’t even unusually fast. But as I hand back the keys after a couple hundred miles of disporting, my heart is full.

The word that comes to mind is tailoring. After a couple of days these cars start to fit like bicycle shorts. It begins with the muscle memory required to enter and exit the low-slung machine gracefully, because the one thing you mustn’t ever do is tumble lamely out of the 911 as the valet holds the door. Spoils the effect.

And yes, OK, in the base model you do have to use a manual lever to adjust the steering column—no powered multiposition memory function—but once it’s set to preference, the 911 seems to wrap itself around the driver’s posture, secured by the deep-pocketed seats. Our car was fitted with the optional premium sports seats. (I would like to have eaten the steaks that were once inside this leather.) Visibility is great, fatigue is low, the steering wheel is superb, and the hip-to-heel geometry relative to the pedals is just about perfect. I’ve driven 911s for 12 hours at a stretch and they are surprisingly agreeable.

The weird thing is, almost everybody who drives a 911 for any length of time feels the same way. If you aren’t freakishly huge, or wee, the car feels almost as if it was tailored for you.

My theory on this has to do with numerosity. Think of all the arses that have been on the 911’s seats in decades of product development and ergonomic data collection (the 911 goes back to 1963 and the fabulously named Butzi Porsche). After thousands upon thousands of human samples, that data would stabilize and you would know, just freaking know, how to build a driver’s seat. And that seems to be the case here.

There are other interesting things about Rosebud. First, it has a seven-speed manual transmission, with a clutch pedal that the driver must operate with the left foot to engage and disengage the running engine from the drivetrain during gearshifts. This is affected by way of a mechanical-hydraulic linkage and a single clutch, somewhat like the new Studebaker (I’m kidding, there is no new Studebaker).

Standard transmissions in sports cars are going the way of the moa. Ferrari doesn’t sell one any more, and neither does Lamborghini. Porsche and a few other auto makers (GM, Ford, Fiat-Chrysler) offer them as atavistic tokens of their performance heritage, bending over backward to appeal the old, grouchy purists, but it’s a bit silly and all over the map. The bat-guano fast Dodge Challenger SRT Hellcat (707 hp/10.8 seconds in the 1/4-mile) has an optional eight-speed automatic transmission. Might as well say TorqueFlite on it.

The 911 buyer’s other option is a seven-speed dual-clutch transmission, the fabulously named Porsche Doppelkupplung, or PDK, which essentially automates the function of a clutch pedal. (A quick primer on PDK: It involves two clusters of gears, 1-3-5-7 and 2-4-6-R, with two electrohydraulic clutches, arranged in such a way that one is primed to engage when the other disengages, thereby reducing the duration of loss of power during shifting to as little as a couple hundred milliseconds. Also known as flappy paddles.)

Around your average road-racing course, a PDK-equipped 911 of any stripe will embarrass its manually shifted twin. The PDK’s paddle-shifting, helpfully smoothed by the all-encompassing powertrain software, is nearly instant and precise, and it does exactly what it was designed to do, which is to help the driver put the power down and keep it down longer without all the messiness of stirring the gears. Since the driver’s workload is reduced, PDK also has an enabling effect on driving precision—mine, anyway. And it gives you a few more options in terms of shift strategy, too.

A dual-clutch automated manual transmission also has the advantage of a fully automatic mode, with the press of a button.

Functionally, the manual transmission, be it seven gears or 70, the “stick shift” as Buz and Tod would say, is obsolete in sports cars. Yes, right? We’re all agreed on that? Automated clutching = faster, better.

And can we not also agree that it’s a kind of madness to hang so lossy a thing as a manual gearbox on so rigorously optimized an engine as the 911’s: naturally aspirated 3.4 liters, in the classic horizontally opposed six-cylinder (flat or boxer engine) configuration, four cams, with phased timing and lift on the intake and exhaust valves, direct injection, 12.5:1 compression ratio, dry sump lubrication, and a brain of the purest silicon. Nominal output is 350 hp at 7,400 rpm and 287 lb-ft of torque.

To pair such a mill with a manual transmission is crippling.

The 911 with a stick accelerates from 0 to 60 in 4.6 seconds; with the PDK, that number is as low as 4.2 seconds (with the Sport Chrono package). A difference of four-tenths, officially! If you were a German transmission engineer and you were four-tenths of a second slower getting to the coffee pot in the morning they would bin you.

And yet there it is: I want, I would only have, the seven-speed manual transmission. First, because those few tenths at 100% throttle are not actually that important to me and I, personally, would never track my daily driver. Second, because Porsche’s seven-speed shifter is turned out so beautifully, with lustrous aluminum and taut leather, surrounded by a glove-soft leather gusset in the center console, almost steampunk in its elegant antiquation. Third, it’s a mechanical marvel: The weight, throw and uptake of the clutch pedal, the frictionless linkages, the gate-homing precision of the shifter, all impeccable, all to the sound of an upscale lumber mill.

To feather the clutch lightly up a hill, to rev impetuously and dump the clutch when the floodlights hit. Stop, thief! You’ve stolen our hearts.

But it’s mostly because when you’re good at something—a language, an instrument, or in my limited case, heel-and-toe downshifting—there is joy in doing it. A couple of mornings I caught myself skipping out to the car.

Another interesting thing: Our test car was de-badged; that is, the model designation typically displayed in brightwork letters on the rear of the car -- “911” or “911 Carrera,” for example—was omitted. Instead, spread handsomely across the stern was only the company’s name in blueprint capital letters.

Which kind of said it all.

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ISM DATA FOR JULY AND AUGUST POINT TO VERY STRONG GROWTH IN Q3 GDP

by Robert Lamy

At the start of each month, the U.S. Institute for Supply Management (ISM) released data on the state of the manufacturing and non-manufacturing industries of the U.S. economy. The data are closely followed by economists, stock market brokers, and the media as they provide the earliest reading on the current state of the economy. The ISM provides data on the current performance of a number of indicators related to the manufacturing and non-manufacturing industries, such as production, employment, new orders, and backlog of orders, deliveries, inventories, new exports, imports, and prices. Figure 1 plots the evolution since the first quarter of 1998 of a proprietary coincident economic index from The Forecasting Advisor, built from a number of indicators from both the survey on manufacturing and non-manufacturing industries, and U.S. real GDP growth.

The aggregation of indicators from both surveys into a coincident economic index provides a close relationship with historical movements in real GDP growth. In other words, the Figure suggests that the coincident index contains useful information on the actual strength of economy. Because the ISM data are never revised, except for the annual updates of the seasonal adjustment factors, the coincident economic index is a useful real time forecasting tool and provides valuable leading information on ongoing changes in the pace of economic growth.

U.S. Real GDP Growth Outlook

The value of the coincident economic index for the month of July and August is used here to get a preliminary forecast of the rate of growth in U.S real GDP for the third quarter of 2014. The official first advance estimate of real GDP growth for the third quarter of 2014 will only be released on October 30th by the U.S. Bureau of Economic Analysis.

The forecast for the third quarter of 2014 is reported in Figure 2. It shows an acceleration in the pace of economic growth in the third quarter, as real GDP is projected to rise by 5.3% (annual rate). In the second quarter, real GDP rebounded by 4.2% (preliminary estimate, annual rate) from the 2.1% drop in the first quarter. The projected stronger growth in real GDP in the third quarter reflects a significant strengthening in activity in both manufacturing and non-manufacturing industries.

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Weekly Market Summary

by Urban Carmel

Yesterday's widely anticipated employment report (NFP) reaffirmed that growth remains positive but tepid. 142,000 jobs were added in August, well off the expected print of 220,000 new jobs.

Was this "miss" really a surprise? No.

This month's print follows those of 84,000 in December and 288,000 in June. Moving between extremes like these is nothing new: it has been a pattern during every bull market. Since 2004, every NFP print near or over 300,000 has been followed by one near or under 100,000 (circles).

We should also note that a "miss" of 80,000 jobs is equal to 0.05% of the US workforce. Assuming greater forecasting precision is folly.

The largely ignored bigger picture is more instructive. In the past 12 months, NFP has averaged 207,000. That is close to the middle of the range in the chart above.

Annual growth in employment in August was 1.8%. As you can see in the chart below, the monthly prints shown above have been noise within a growth trend below 2% since the start of 2012. It wasn't much different in the 2003-07 bull market either. Given this history, investors should be careful assuming a faster rate of growth in employment.

Despite expectations that wages are set to accelerate, growth remains subdued. In August, wages grew 2.1% yoy. That too is in the middle of the past 5 year's range.

There's nothing bearish in the latest data - in fact, it fits the recent pattern perfectly - but it should moderate expectations that economic growth is accelerating and that inflation will imminently turn higher.  CPI and PCE are both below 2%. For some reason, many mistrust these data sources. For those, MIT publishes an independent price index (called the billion prices index). It tracks both CPI and PCE very closely and also shows little pressure on prices.

There's also an unfounded belief that the current growth in employment, wages and demand is surprisingly weak. True, all of these are slower than during recent post-recession recoveries. But 2008-09 was not a conventional recession led by a wage-price spiral. It was caused by the biggest financial crisis since the 1930s. Wealth equal to a year's worth of GDP was lost. Compared to other post-financial crises, the current recovery in the US is much better than average. It might seem slow, but this was entirely expected.

For a more complete summary of the latest macro data, please click here.

The Week Ahead

SPY opened at 201.0 on Tuesday and closed at just 201.1 on Friday. Trading has been in a very tight range.

From the August low, SPY rose nearly 5% in two weeks. In the following two weeks, it has risen less than 1%. But what is remarkable is this: since Friday August 22, more than 100% of the gain in SPY has come from overnight trading. SPY is up by $1.90 in these past two weeks, but overnight gaps account for net gains of $2.10. Daytime cash hours account for a loss of $0.20.

This is a pattern reminiscent of late March before April spilled lower.

Tick is similar. Ticks over 1000 are outnumbered by ticks under -1000 by a ratio of more than 1:10 in the past two weeks. Buying moves slowly higher, in measured moves, but selling has been on offer. This is usually not constructive.

Still, the number of exchanges making new highs this week is impressive. SPX, NDX, DJIA, FTSE, Shanghai, Hong Kong, Australia and EEM all made new 2014 highs. Nikkei made a 7 month high. France made a two month high and Germany a one month high.

So, what happens next?

The most importantly technical feature for SPY is that it closed above its 5-dma for 18 days in row. In the past 5 years, that has only happened once before (June 2013). That type of strength, as we have said, rarely marks the end of an uptrend. Momentum should carry SPY higher.

Friday's low was also the first touch of its 13-ema since the August low.  In the past, there has been at least some follow through higher (green arrows).

The upside may not be great. Note the areas shaded in yellow above. Price chopped for a week or more and resolved higher but several didn't make much additional gains. Note RSI (top panel); it is diverging, most resembling late July 2013 before a test of the 50-dma in August.

Also note the top trend line (dashed blue) that SPY is up against and that has impeded upside since July. There is room up to 202 next week, equal to weekly R1.

On the downside, SPY has tested support at 199.5 several times, including on Friday. A quick return to that level likely breaks to 199 and fills an open gap. Just below is 198.5, a multiple top in July and also next week's S2. That should hold any significant weakness.

The weakest index is still RUT, and it remains a useful tell for overall market health. We continue to focus on the 1160 level as the key to trend. So long as this holds, the bias should remain higher. This was successfully tested on Friday. Here, like SPY, note the divergence in RSI.

The big news this week is the ECB cut rates and announced a stimulus program of upwards of $1 trillion. This sent the Euro down and the dollar higher. What other impact will this have?

We have detailed a trade in the CRB (post). A higher dollar (top panel) is clearly bearish for commodities (bottom panel; chart from Stock Charts).

Remarkably, the CRB did not make a lower low this week and remains above a larger support level. It looks bad, but its not dead yet.

A higher dollar is probably not bearish for US treasuries. In the past, with one main exception (red arrows), dollar buying has led to inflows into treasuries, and vice versa (green arrows).

To the extent US yields have been driven lower by competing yields overseas, the ECBs actions should also keep US yields low (provided European yields do not rise, of course). While the rise in yields this week seems large, the trend hasn't yet changed.

Seasonality turns mostly negative for the next several weeks.

Our weekly summary table follows:

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Stocks Have Reached a Permanently High Plateau

by Charles Hugh Smith

A permanently high plateau of stock prices is a marvelous innovation.

Somebody said this before, of course, but one glance at a chart of the S&P 500 tells us that stock prices have reached what looks like a permanently high plateau. How can we identify a permanently high plateau? One sign is price never touches the 50-week moving average (MA), much less the 200-week MA: prices just keep marching higher in a volatility-free permanently rising plateau.

It's almost like a film set, where the special effects department (i.e. the Financial Singularity) has been called in to get rid of pesky volatility and fluctuations.

Memo to Head Office: Done. The MACD indicator has been locked into a permanently high plateau as price marches higher in an orderly fashion.

A permanently high plateau of stock prices is a marvelous innovation: you can practically set your watch to the steady tick of new all-time highs, and all you need to plan your retirement or cash-out of your stock options is a ruler and a pencil--just extend the price line as far forward as you want, and calculate your wealth.

The only downside of this permanently high plateau of stock prices is that it eliminates the need for the financial punditry and the workforce of money managers. With bearish influences and volatility both eradicated, there is nothing left to talk about except the upward slope of the permanent plateau.

As for money management--for most people, there's no need to play around trying to beat the index by a tiny percentage: just lock your money up in a index fund and watch it grow, month after boring month, year after boring year.

The Federal Reserve's testimony to Congress will be boringly predictable: "stock prices continue to rise in an upward sloping permanently high plateau." Congress and the Fed will congratulate their outstanding management of the economy, and once behind closed doors, congratulate the Special Effects crew for their fine work maintaining the permanently high plateau.

Our permanently high plateau of stock prices greatly simplifies life. If you own enough of the stock market, you can calculate your wealth next year and order a new private jet right now, because you know you'll be $25 million richer by then.

And of course the economy will thrive on this steadily rising permanently high plateau because those new private jets will need to be manufactured and maintained, and small airports in wealthy enclaves will need to add space for the new private jets.

Let's face it: this permanently high plateau of stock prices is financial nirvana. Permanently high plateau has such a nice ring to it, doesn't it? Let's say it three times just for the pleasure of the alliteration: permanently high plateau, permanently high plateau, permanently high plateau.

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Sell Apple And Prepare For A Market Crash

by Stock Traders Daily

Summary

• The market is set up to crash.
• There are very few stocks that will be sheltered.
• Apple is not one of them.

According to our observations, the market is significantly overvalued, earnings growth rates are poised to decline, but the price-earnings multiple levied on the S&P 500 at this time, almost 18 times earnings, suggest that earnings growth will remain robust. Our analysis suggests that earnings growth will instead become slower than it was, and not accelerate like analysts suggest.

The basis is quite simple after we stop listening to the noise. The market has had a substantial amount of injected capital over the recent years, and that injected capital has influenced economic activity. Most of the recent injected capital was from FOMC policy and direct stimulus measures, but the stimulus program has changed.

When reviewing stimulus, it is important to review both sides of the equation - the one that injects liquidity and the one that removes liquidity from the Financial System. The FOMC policy is the one that everyone sees because the media has talked about it most prominently, but the operations of the U.S. Treasury play a significant role. On the one hand, the FOMC has been injecting liquidity into the Financial System, while on the other hand, the operations of the U.S. Treasury remove liquidity when they sell bonds. These two parts of the liquidity equation work to define net real stimulus (NRS).

In the table below, you can see what net real stimulus was, what it is, and what it will be given these combined operations, assuming that no derivation from the current plans of these departments occurs.

As you can see, net real stimulus is now negative, and liquidity is actually being drained from the Financial System already. This is a very important observation, because if the rationale for equity price increases in recent years is that liquidity levels were high and money was readily available to be invested in assets like the stock market and real estate, a negative liquidity environment should put pressure on the same asset classes.

Furthermore, if the economy was supported by fabricated growth induced by stimulus programs and the economy is now at a level that is much higher than it otherwise would be had the trillions of dollars not been infused into the system, without a constant flow of additional capital, the economy is going to revert back to where it otherwise would be.

According to our longer-term macro economic analysis, The Investment Rate, the economy has been in a longer-term down period since December 2007. This is based on socioeconomic patterns directly tied to the way our population invests money over the course of our lifetimes. The economy is all about people, and the way we invest our money governs longer-term economic cycles, but the stimulus program offered by the Federal reserve in recent years caused a blip in that longer-term cycle.

This longer-term cycle dates back to 1900, there have been blips in the cycle before, but nothing can prevent the influence of the investment rate, because it is based on the backbone of every economy, people, and the way we live our lives. The only way to prevent a reversion to the natural condition of the economy would be not only to continue the stimulus measures, but to increase stimulus and make net real stimulus more positive on a monthly basis than it was in 2013.

Clearly, the path of the FOMC is not only to reduce its bond buying program, but also potentially to raise interest rates, and this is happening when the stock market and the housing market are in asset bubbles. The natural state of our economy as that is defined by The Investment Rate has deteriorated over the past few years, even though asset prices have increased.

The wealth effect did kick in, but this is a double-edged sword, because if the wealth effect propagates economic growth, when asset prices fall, it can rip the rug right out from underneath and the reversion can be much swifter than the recent increases. This is exasperated when the underlying conditions have actually worsened, as our work has shown.

Prepare for a crash in the stock market and in housing.

Stock Traders Daily has recommended that investors sell any stock or ETF that will fall if the market falls by 50% or more. That would include stocks like Apple (NASDAQ:AAPL), Tesla (NASDAQ:TSLA), Facebook (NASDAQ:FB), General Electric (NYSE:GE), Bank of America (NYSE:BAC), and any other company that would not profit from a market collapse.

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Countdown To Another Market Peak Has Begun

by Chris Puplava

Back in June I made the case to be wary of a pullback in the markets this fall (click for article link) based on the increase in inflationary pressures that occurred starting near the beginning of the year. The importance of inflationary trends was laid out in that article with an excerpt provided below for context:

In the past, the Fed raised short-term interest rates to cool the economy and often a recession would ensue, while it lowered them to stimulate the economy back toward growth. However, with the Fed currently committed to keeping rates near zero, changes in the rate of inflation have now become the key variable acting on the business cycle. Like rising interest rates, rising inflation is a bearish force that eats into discretionary spending and corporate profit margins while falling inflation puts money back into consumers' pocket books, boosts corporate profit margins, and helps to stimulate economic growth.

With that in mind, monitoring real-time and lagging inflation indicators is helpful for investors trying to identify or avoid heightened risks of a correction. This was a point I stressed when calling for an intermediate market top and correction in February 2012 (see Countdown to Market Peak Has Begun) based on rising inflationary trends at that time. (Note: the S&P 500 peaked in early April at 1422.38 and then underwent an 11% correction before bottoming at 1266.74 in early June.)

To show how important inflationary trends have been to markets in a zero-interest rate world, take a look at the figure below which shows 10-year breakeven inflation rates and the S&P 500. Whenever breakeven rates moved into the 2.4%-plus range the market has tended to peak (see blue arrows). Since the middle of 2013, breakeven rates have been tame and the S&P 500 has enjoyed a near uninterrupted rally with only minor setbacks.

(click to enlarge)
Source: Bloomberg

While breakeven inflation rates do not show any present concern of a pullback as inflation remains anchored, other measures of inflation that rose earlier this year suggest we could see a pause in the US economic growth story. One chart I showed in June was the NFIB Small Business Higher Prices index which is shown below advanced by six months and inverted for directional similarity with the ISM Manufacturing PMI. With the rise in the NFIB price index to the highest level in three years, we are likely to see the ISM PMI peak right here and decline and/or moderate heading into the end of the year.

(click to enlarge)
Source: Bloomberg

Back in June I also showed the relationship between the consumer discretionary sector's relative performance to the energy sector and how that led the ISM PMI reading. The outperformance of energy earlier in the year suggested we would eventually see softening in the PMI numbers in the fall. An update shows the ISM should be peaking here and then experience a decline heading into the end of the year.

(click to enlarge)
Source: Bloomberg

Given the prior inflationary move seen earlier in the year, it is likely we should expect a moderation in economic momentum that has been building since Q1 of this year. Should growth moderate we are likely to see more economic releases surprise to the downside which should weigh on the markets in the near term. Most market pullbacks since 2009 were associated with excessive economic optimism where the Citigroup Economic Surprise Index was north of 40% (see shaded red region and red circles. We find ourselves again north of 40% on the Citigroup Economic Surprise Index which suggests a little near-term caution. In all likelihood we should see a trading range develop in the weeks ahead as the market digests its recent gains and economic momentum softens.

(click to enlarge)
Source: Bloomberg

While the stock market may stutter in the weeks ahead that shouldn't be cause for concern because the rising inflationary headwind that is going to cause the likely short-lived slowdown ahead will transition to a tailwind. Oil prices have moderated recently and suggests the prices paid inflation component to the various regional Fed manufacturing surveys are likely to come down which would be bullish for economic growth.

(click to enlarge)
Source: Bloomberg

The monthly changes in the CPI Index also appear to have peaked and will be moving from a headwind to a tailwind ahead.

(click to enlarge)
Source: Bloomberg

The recent strength in the USD has sent commodity prices tumbling which also will put downward pressure on the CPI in the coming months. The USD Index is shown below inverted and advanced for directional similarity and suggests the annual CPI inflation rate may dip back toward 1.5% by year end.

(click to enlarge)
Source: Bloomberg

The decline in commodity prices and surge in the USD indicates inflationary pressures should moderate toward year-end, which should provide another lift to equity markets after a coming bout of softness near-term. When reviewing the economic landscape there simply is no immediate risk of recession as shown by my recession probability model below, which means any weakness ahead should prove as a temporary speed bump in the economic recovery and bull market. This implies both the economy and stock market should enter into their sixth year as neither are likely to peak in 2014.

(click to enlarge)
Source: Bloomberg

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The Ghosts Of October Crashes Past... And The Present

by The Motley Monetarist

Summary

• The last four October crashes - 1907, 1929, 1987 and 2008 have had entirely different origins.
• The current market conditions resemble to a great degree certain aspects preceding the 1907 crash.
• But there is also a great degree of dissimilarity between events today and those preceding those four major shocks.

So, the silly season is upon us... September 4th, and we're swirling towards October, that month of all months... The month characterized by: the Cuban missile crisis in 1962, the fall of the Berlin Wall in 1990. The beheading of Marie Antoinette in 1793. The month that Thomas Edison invented the electric light in 1879. The month that the Battle of Trafalgar began in 1805. Also when the Beatles published their first hit song, "Love Me Do" in 1962. And also four stock market crashes: 1907, 1929, 1987 and 2008. What do these four crashes presage for the month of October 2014?

1. The Banking Panic of 1907

The financial crisis of 1907, with some uncanny flash-forwards to 2008, was a banking-cum-stock market crisis. The resolution of this crisis coincided with the ascendance of the New York elite banking interests, focalized on the august presence of Mr. J.P. Morgan, and culminating eventually in the creation of the Federal Reserve System in 1913. The crisis also represented the retrenchment of the populist, inflationary, anti-gold Bryanist forces.

But the immediate cause of the panic was the attempt to corner the copper market in October on the part of Otto Heinze, of the United Copper Company. The failed short squeeze on the shares of this company by Mr. Heinze was financed by the Knickerbocker Trust Company. When this failed, a run on the banks ensued, starting with the Mercantile Bank Company. Both J.P. Morgan and John D. Rockefeller attempted to infuse cash into the New York trusts; nevertheless the banks were unable to finance short-term stock trades. A crash ensued on October 24th.

This is the short story of the panic. In fact, a year prior to the October 1907 panic, the Dow had declined gradually.

Some measure of the panic could be represented by the skew of annual returns the year preceding, and the difference between median and mean returns. Although these measures are interesting in themselves, they need to be compared to the subsequent market crashes.

The closer to zero the skew, the closer to "normality". Similarly, the median represents the exact mid-point of the returns, and in a "well-balanced" distribution, the two parameters should be close.

Accordingly, measuring the skew between October 1906 and September 1907 allows some comparability with the present, as well as an understanding of the behavior of the market. The market lost 159% between October and November 1907. The skew shows that this market was not "normal" in any way.

Average returns Oct. 1906-Nov. 1907-43%

Median returns Oct. 1906-Nov. 1907 –27%

Difference between mean and median -16

Maximum drawdown in returns -157

Skew of returns between Oct. 1906 and Nov. 1907 –0.67

Skew of returns between Oct. 1906 and Sep. 1907 –1.02

Source: stlouisfed.org

II. The October 1929 crash

Twenty years thereafter, the October 24, 1929 stock market crash was the culmination of a nine-year bull run in the Dow. While the immediate origins of the 1929 collapse are not a clear-cut as in 1907, suffice it to say the basis was more clearly macroeconomic in nature than the 1907 panic. Most would agree that it represented one of the most traumatic events ever in financial markets. Clearly, the excess speculation prior to the crash is evidenced in the dramatic difference in the skew of returns up until September 1928 and up to and including the crash period. The market lost 260% between October and November 1929.

Average returns Oct. 1928-Nov. 1929 1.7%

Median returns Oct. 1928-Nov. 1929 13.5%

Difference between mean and median –11.9

Maximum drawdown in returns -354

Skew of returns Oct. 1928-Nov. 1929 –1.54

Skew of Returns Oct. 1928-Sep. 1929 1

Source: stlouisfed.org

III. The October 1987 crash

The origins of the October 1987 crash were purported to be more institutional in nature: the existence of program trading and arbitrage insurance exacerbated the decline. But the economic backdrop into the preceding rises in the market included the entry of pension funds in a large way. Weakness in the market was precipitated by rising interest rates, the declining dollar and the growing U.S. trade deficit, as well as the excess leveraging, junk bonds and all of the well-known "slap-happy" aspects of the economy of the 1980s. But statistically, the 1987 crash showed some aspects of the 1929 crash, with none of the disastrous post-crash economic consequences, of course. The market lost 96% between October 1987 and November 1987.

Average returns Oct. 1986-Nov. 1987 7%

Median of returns between Oct. 1986 and Nov. 1987 23%

Difference between mean and median –16

Maximum drawdown in returns between Oct. 1986 and Nov. 1987 -354

Skew of returns between Oct. 1986 and Nov. 1987 –1.67

Skew of returns between Oct. 1986 and Sep. 1987 1.2

Source: finance.yahoo.com

IV. The October 2008 crash

Of course, this is one of the more complicated crises ever to beset the markets. A combination of events occurring in the housing market, a shortfall of market liquidity, over-leveraging in derivatives and collateralized debt obligations, a faltering economy, the bankruptcy of Lehman Brothers, the bailout of AIG, and the ultimate injection of liquidity by the Fed - this is a short course in the staggering events leading to October 2008. The market declined by 63% between October and November 2008. Nevertheless, there are no great differences between the skew including and excluding the crash period. This crash seems to be characterized by a greater degree of "stability", except for the large difference between the mean and median.

Average returns Oct. 2007-Nov. 2008 –37%

Median returns between Oct. 2007 and Nov. 2008 –26%

Difference between mean and median -10

Maximum drawdown of returns -223

Skew of returns between Oct. 2007 and Nov. 2008 –0.84

Skew of returns between Oct. 2007 and Sep. 2008 –0.57

Source: finance.yahoo.com

V. And now?

Markets have been on an upward trend since 2008, with some corrections. But looking at the behavior of the Dow over the past year, in particular the skew of returns, one is reminded strangely of 1907. The reason? The declines of 63% and 19% in January and July of this year. However, for investors relying on history to any extent, the extent of the coherence between the mean and median contradicts the message indicated by the skew. This is a reason to comfort both the optimists and the pessimists. However, geopolitical events might throw a gigantic wrench into this analysis...

Average return between Oct. 2013 and Sep. 2014 12.5%

Median return between Oct. 2013 and Sep. 2014 10%

Difference between the mean and median 2.5%

Maximum drawdown in returns –0.50

Skew of returns between Oct. 2013 and Sep. 2014 –1.3

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SPY Trends and Influencers September 6, 2014

by Greg Harmon

Last week’s review of the macro market indicators suggested, as the market heads into September, that equities were strong but had strong moves already. Elsewhere looked for Gold ($GLD) to continue to hold around 1300 with a downward bias while Crude Oil ($USO) had a short term bias higher in its consolidation. The US Dollar Index ($UUP) and US Treasuries ($TLT) were biased higher. The Shanghai Composite ($SSEC) looked to continue to pullback in its recent rally while Emerging Markets ($EEM) were biased to the upside with the risk of consolidation at resistance continuing. Volatility ($VIX) looked to remain subdued keeping the bias higher for the equity index ETF’s $SPY, $IWM and $QQQ. The IWM looked strongest and this may be a sign of rotation into it from the SPY and QQQ. The QQQ looked a bit better than the SPY having rested all week, where the SPY had some signs of short term exhaustion. But the trend of SPY and QQQ both remained higher.

The week played out with Gold probing lower but still close to 1300 while Crude Oil started higher but but failed, holding steady. The US Dollar moved higher like a rocket while Treasuries started lower and just kept falling. The Shanghai Composite broke out higher while Emerging Markets found support and then moved to new highs. Volatility held at last weeks levels with a few probes higher that failed. The Equity Index ETF’s pushed to higher highs but could not hold them at first. But Friday changed that with the SPY making another new all time high close. What does this mean for the coming week? Lets look at some charts.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

SPY Daily, $SPY

SPY Weekly, $SPY

The SPY had both the bulls and bears squawking again this week. First it was the bears with second Hanging Man candle and then a bearish engulfing candle and a Spinning Top confirming them lower. But Friday showed a strong finish to the week closing at a new all-time high level. The excitement dissipates a bit if you look at the full week and the prior in the context of consolidation at the highs and the round number 200. The RSI is strong and in the bullish zone on the daily chart and the MACD is leveling but also bullish. Out on the longer weekly timeframe the doji print will bring out some top callers. But a doji means indecision, not reversal, and can resolve in either direction. The RSI is strong and bullish on this timeframe as well with a MACD that is about to cross up. There is no resistance higher but a target of 202.78 as a 150% extension of the major move lower followed by a Measured Move to 208 and the 161.8% extension to 213.39. Support lower may come at 200 and 199 followed by 198.30 and 196.50. Consolidation Short Term with an Upward Bias.

As the kids are back to school and the adults file back into work from vacations the equity markets are looking strong but with short term consolidation likely. Elsewhere look for Gold to continue lower but not stray much from 1300 while Crude Oil consolidated in its downtrend. The US Dollar Index looks strong and higher while US Treasuries are biased lower in the uptrend. The Shanghai Composite is also strong and biased higher along with Emerging Markets. Volatility looks to remain subdued keeping the bias higher for the equity index ETF’s SPY, IWM and QQQ. Their charts show signs of consolidation in the short run with the SPY and QQQ a bit strong on the longer timescale. Use this information as you prepare for the coming week and trad’em well.

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Apple: New B8 Chip To Start A PC Revolution

by J. M. Manness

Summary

• Apple will announce the new iPhone 6 on Tuesday, September 9, with an A8 processor.
• The A8 will take the iPhone to new performance levels.
• A more powerful companion processor will probably power a new series of Mac laptop and desktop computers.

Apple (NASDAQ:AAPL) led the smartphone revolution when in 2007 it introduced the iPhone. For several years now, the iconic phones, along with their cousin products the iPads, have been driven by Apple's custom designed A-series processors, which have steadily increased in power. In this post I will show how the latest incarnations from its labs are likely to revolutionize the whole electronics industry and send a longtime leader into crisis.

The iPhone has been a success well beyond the expectations of both Apple and the investment community. It now forms over one half of Apple's revenue, and some expect that the new model, that will be announced Sept. 9, will sell 75 million or more by year's end.

Part of the success of the iPhone is the high quality hardware. Each new model has set performance records as new processor chips increase in power. Apple has done an amazing job of keeping ahead of the pack in performance and this has been done through its intelligent development of its System on a Chip (SoC) processors - the A series. Each year it has surprised techno-geeks with the features of its latest processor. It does this by giving incredible focus on performance, but not on technical performance rather the focus is on overall system performance. The A7, for example, runs a lower frequency than its competitors, it has only 2 cores in the CPU while others have 4, yet it consistently matches or beats the performance of its rivals.

Because Apple develops the whole system, hardware, operating system and many applications, it recognizes that the smartphone is different from a PC and has different system needs. Apple attends precisely to these needs, tuning the processor specifications accordingly.

A7 - the current model

Apple's iPhone 5s shocked the tech world with the introduction of the first smartphone based on a 64-bit processor, the A7. Still based on ARM technology by ARM Holdings (NASDAQ:ARMH), the SoC was announced as putting:

...desktop-class processing power in the palm of people's hands.

[image source: here]

In my article a year ago, I discussed in detail the implications of the A7. I noted that to say it has desktop processing power was a little bit of a stretch, but that it approximated the power of netbooks and approached those of moderate range desktops.

The big question here is not where we are now (or last year), but where we are going.

(The new Samsung (OTC:SSNLF) Galaxy Note phablets announced on Sept. 3, by the way, are currently running the Qualcomm (NASDAQ:QCOM) Snapdragon 805 processor which is still only 32-bit. So a year later, competitors have yet to catch up with Apple's innovation.)

A8 - what's to come

What will the new A8 chip be, and what are the implications? To me the implications are less in the A8 but in the groundbreaking B8 processor that I believe will follow.

Caveat:

• I should note here that I have no direct knowledge of Apple's plans and that what follows is speculation. It is, however, speculation based on viewing the current reality and drawing upon that to make some educated guesses.
• The name B8 is particularly speculative.

In an earlier piece I went into great detail on the A8. It will be built on the 20 nm process which will allow lower power and greater complexity than the 28 nm process used in the A7. This will allow:

1. Quad-core CPU
2. Much larger GPU
3. Lower overall power requirements

Yet any particular detail is not really to the point. Whatever any specification may be, overall the new chip will undoubtedly enable in the new iPhone 6 and iPads:

1. even greater overall performance
2. increase in screen size and resolution
3. a bump to 4k video output for external screens

But I am not after what is happening in the mobile market. What I am after is the implication for the Desktop/Laptop (D/L) market.

The B-8 system processor chip

I believe that Apple is also developing a second version of the A8 designed for the D/L market - here I will call it the B8 (although it might be A8X as the A5X was used for the third generation iPad).

There has been some speculation that Apple might use the A8 chip in its hugely popular MacBook Air laptops. I think it will go a lot further.

But first… Why?

Why a separate chip? The physics of processor chips has a simple rule. For any given chip, as you run it faster you generate more heat, and this heat must be dissipated.

According to Wikipedia:

The thermal design power (TDP), sometimes called thermal design point, refers to the maximum amount of heat generated by the CPU, which the cooling system in a computer is required to dissipate in typical operation. [here]

Additionally, as you run the chip faster, you consume more power, and at some point, this power consumption increases faster than does the processing power. (This is one reason why Intel (NASDAQ:INTC) has gone, over the last several years, to increasing CPU power by increasing cores rather than by increasing speed as it did in earlier generations.)

These are both critical elements for mobile computers (smartphones and tablets) as increased power consumption demands either a larger battery or decreased runtime, and only a certain amount of heat can be dissipated by a small unit.

Thus, Apple has resorted to custom designs in its processors to increase performance even though they run at slower, battery saving speeds than do those of competitors.

Incursion into D/L market

As noted above - these two issues with processor speed versus power consumption is critical to smartphones. It is, however, less critical to laptops and even less so to desktops. Laptops have larger batteries for power and larger area for heat dissipation. Desktops have no power issue as they plug into the grid.

Therefore, Apple could realistically pump up the power to their chips significantly. Samsung's new Galaxy Note 4 runs the Snapdragon 805 processor at 2.7 GHz while the A7 in the iPhone 5s is throttled to just 1.3 GHz. There is no reason that Apple could not run the A7 faster - if they were willing to pay the power consumption/heat generation price. To them these would be affordable in D/L applications.

So, I see the new B8 processor as being a higher speed version of the A8, but it will also include more graphics processor cores. (See this explanation of computer and graphics processors, and how they work.)

This would truly bring the processor up to the promise of "desktop-class processing power." It could bring the B8 up to the performance of a Core i5 - if not the current version, then that of a one or two year old model.

Price driven

The simple reason for all this, is price. The Intel Core i5-4260U in the latest low-end MacBook Air lists for $315 in quantity. I am sure that Apple pays a lot less than that, but even if it pays only $200, that is still roughly ten times the estimated under $20 cost of the A-series chips. With 50% gross margins (less than for the iPhone) saving $180 would cut $360 from the price of a MacBook Air, and provide similar performance. So the entry point for the Airs would be around $549. These would storm the laptop market, yet maintain high margins.

But that is just the beginning

Let's look at the Mac Mini, current entry price $600. If Apple can build the Apple TV and sell it for $99, I don't see why it can't build an A8 based Mac to sell for $400, and still maintain an enviable margin. It would essentially be an iPhone with extra ports and heftier power block, but with no display or battery or radio chip.

(click to enlarge)

[Mac mini - Apple site]

This would be a direct attack on the Microsoft (NASDAQ:MSFT) empire. Windows PCs have achieved domination on several factors, but a major one has always been initial cost. "Macs are too expensive" was the rally cry of IT pros steeped in the MS culture. With a $400 Mac, this could no longer be claimed.

I call this new desktop computer the bMac - it is aimed at the business sector. It would be more powerful than many current low-end computers, clearly sufficient for the majority of office tasks.

Implications

Currently Mac laptops and the iMacs have healthy shares in their market segments, and command a lion's share of profits, but still represent a very small proportion of PC sales. Global PC shipments will likely be over 300 million units in 2015. In the last 4 quarters, Apple sold just shy of 18 million Macs, roughly 6%.

With new low-end models, Apple might easily double that to 35 - 40 million units, or 12% - 15% share. With an increment of 20 million units priced on average of $550 (half Airs and half bMacs) this would generate $11 billion in new revenue. Granted, this would be somewhat offset by lower revenue from lower prices of existing sales (i.e. the existing Airs that now would be sold at lower prices). Still, we might see a total increase of perhaps as much as $10 billion in revenue and more than $2 billion in earnings. This does not even account for related sales such as cables, cases for laptops, monitors for bMacs, etc.

More importantly, the increased D/L sales would increase the market penetration of Apple's ecosystem and foster growth and acceptance of its whole line of products.

Announcement

On September 9, Apple will hold an event presumably to announce new iPhones and some other products. Along with the iPhone there will inevitably be an announcement of the A8 processor along with some rudimentary specs.

Given that the location for the event has been moved form the usual Yerba Buena Center to the more spacious Flint Center for the Performing Arts, and they appear to be building a huge temporary structure outside, it seems certain that this will be a particularly important announcement - probably including the long awaited iWatch or some other secret project.

My guess is that it will be focusing on consumer products here, and that the B8 and bMacs announcements will wait until the new year. However, it is possible that these will actually be the surprise products, and the iWatch will have to wait.

In any case, to my mind the bMac, whatever its name may be, is an inevitable product that will reshape the PC industry.

In a future article I will discuss what this reshaping will do.

What are your thoughts?

Editor's Note: This article discusses one or more securities that do not trade on a major exchange. Please be aware of the risks associated with these stocks.

See the original article >>

Gold And Silver Testing 3-Year Lows As Palladium Hits New Highs

by Jeb Handwerger

Summary

• Gold, Silver and the junior miners are undervalued hitting three year lows.
• US dollar, stocks, bonds and equities hitting major highs trading at high valuations as a supposed safe haven.
• Beware of Black Swan events which come out of nowhere. This could cause capital to flow out of equities into hard assets.
• Palladium is in a major uptrend in 2014, outperforming all the precious metals.

There is no doubt gold is undervalued and stocks, the US dollar and bonds are way overbought. Globally, investors are flocking to the supposed safety and stability of the US despite rising deficits which are continuing to soar amidst the threat of instability in Asia, Europe and the Middle East. Beware of black swan events and look to protect your assets with positions in gold, silver and the junior miners at near three-year lows.

(click to enlarge)

Despite the global quantitative easing which sent stocks, bonds and real estate soaring, gold (GLD), silver (NYSEARCA:SLV) and the junior miners (NYSEARCA:GDXJ) are now trading below both the three-year and five-year moving averages. That's very rare. The last time we saw the gold price move below the long-term moving averages was more than 15 years ago in the 1999-2001 bear market. This set the stage for the historic bull market from 2001 to 2007. The Philadelphia Gold and Silver Index rallied more than five times from a low in the mid 40s to over 200.

If you can get gold at a discount to its long-term moving averages, then it's a great buying opportunity. The greatest leverage may be in the junior gold miners. The larger miners (NYSEARCA:GDX) are usually closely correlated to gold, but the smaller miners could generate outsized gains to bullion in the next bull market. For instance, in the 2008-2009 correction we saw the Philadelphia Gold and Silver Index decline from 200 to below 80 - more than a 50% decline - even though gold only corrected from $1,000 per ounce ($1,000/oz) to $700/oz.

Now we're seeing higher lows in the $1,200/oz range and the Philadelphia Gold and Silver Index is trading around $100. If gold moves up even $50 or $100/oz, the miners and the index could have much larger percentage gains, so the leverage opportunity is really in the miners. The miners outperformed gold by a wide margin from 2000-2008.

If you're unable to beat the Market Vectors Gold Miners ETF and the Market Vectors Junior Gold Miners ETF, then buy them directly. I try to do my homework and find the smaller junior companies that outperform the large producers and their junior peers. If you find companies that are leading both in fundamentals and technical data, you have a good chance of beating the indexes.

(click to enlarge)

The long-term charts for silver and the Philadelphia Gold and Silver Index are closely correlated and leading indicators to gold; silver and the miners (NYSEARCA:SIL) will usually top a few months ahead. They were also the strongest gainers after the 2008 crash. Silver has pulled back to lows and the major breakout point from back in 2011 when quantitative easing was announced and silver ran close to $50/oz. Now that it has pulled back to that breakout point again, silver should reverse higher providing leverage and outside gains to gold.

Positions in platinum group metals should be increased. In 2012, I became bullish on platinum (NYSEARCA:PTM) and palladium (NYSEARCA:PALL) because both were trading at a discount to gold. Palladium is now breaking out and in a major uptrend on concerns about supply from South Africa and Russia, while industrial and investment demands are increasing.

(click to enlarge)

There are very few platinum group metal major assets. Investors should check out the juniors with advanced platinum group metals resources in North America.

See the original article >>

The Average Investor's Biggest Mistake

by Amber Lee Mason

Meb started with the bad news: "You're a terrible investor."

Today, I'm sharing an important idea discussed at the latest Stansberry Conference Series event in L.A. It's not a stock pick... But it could be a thousand times more valuable than any one trading idea.

It came from Meb Faber, whom Porter introduced as "one of the most innovative guys in all of finance." Meb is a longtime friend of S&A and is always one of the smartest guys in the room.

One of the first slides Meb shared with the audience in L.A. was a version of the chart below. It shows the average annual returns of a variety of assets over the past 20 years or so...

Way on the losing end, past even inflation, you'll find the average investor's returns.

Part of the problem, Meb explained, is fees - commissions, loads, and other brokerage charges. But the much, much bigger issue is that individual investors buy and sell at exactly the wrong moment.

"They're terrible at timing," Meb said. "And when I say 'they,' I mean, in many cases, you." The next chart proves his point.

The American Association of Individual Investors (AAII) publishes a weekly survey of its members - mostly "mom and pop" investors. Every week, it asks them a simple question: "Are you bullish, neutral, or bearish on the stock market over the next six months?"

Below, you'll find the range of weekly counts of bullish and bearish investors since mid-1987.

The highest bullish reading ever was January 2000 - just before the dot-com bubble burst. The highest bearish reading ever was March 2009, the exact bottom of the recent crash... and a fantastic time to buy stocks.

As Meb explained, "This is a great quantitative illustration of how bad people are with their emotions."

When you're reading bearish headlines, when you're losing money, when your friends and neighbors are frightened... it's hard to be bullish. On the other hand, when the news is rosy, when you're doing well, when your friends and neighbors are bragging about the money they're making... it's hard to be bearish. Most folks find it much more comfortable to move with the crowd.

And while the audience in L.A. - and readers of Growth Stock Wire - might be more sophisticated traders than most... Meb didn't let them off the hook.

"Most of you - most of us - think we're better looking than average, smarter than average," he said. "But the math doesn't work out."

So what can you do to be better than average... to make sure the math does work out for you?

Two things...

The first is to have a plan. As Meb said, "No football coach says, 'Wow, I don't know what to do when it's third and two... Let's figure it out once we get to the line of scrimmage.'"

In my DailyWealth Trader advisory, we start every position with a clear plan. When we use a trailing stop, for example, we know exactly what to do if the asset goes up (sit tight) or if the asset falls (cut our losses).

If you stick with this discipline, you'll exit a trade well before most folks give up and the asset bottoms. And you'll never have to wonder what to do at "third and two."

The second thing you can do to combat your natural tendency to follow the herd is to make sure you know exactly what the herd is doing.

The best way to "map" the crowd is with sentiment indicators (like the AAII sentiment survey and cocktail party chatter). These tools are most useful when the herd is either very bullish or very bearish. When you see one of sentiment indicators signal an "extreme," it's important to either protect yourself from the inevitable reversal... or move in the other direction.

As you can see in the AAII chart above, sentiment now is a little more bullish and a little less bearish than average. (The two percentages don't add up to 100% because some folks are neutral.) But neither reading is at an extreme. That supports the idea that this bull market may have farther to run.

Meb noted that in the market, we're often our own "worst enemies." Your emotions prompt you to buy high and sell low. But you don't have to listen. Once you understand that, you can become a much, much better investor.

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Weekend update

by tony caldaro

REVIEW

Summer holiday traders returned this week in the sell mode. Every new high, tuesday-thursday, was sold within the first hour and a half, or less, of trading. But the market managed to turn the tide on friday. For the week the SPX/DOW were +0.20%, the NDX/NAZ were +0.15%, and the DJ World index was +0.20%. On the economic front, positive and negative reports came in about even. On the uptick: ISM manufacturing/services, construction spending, factory orders, the unemployment rate, and the trade deficit improved. On the downtick: the ADP, payrolls, the WLEI, the monetary base, and weekly jobless claims rose. Next week we get a look at Consumer credit, Retail sales and Business inventories.

LONG TERM: bull market

For the past several months we have been tracking a subdividing Major wave 5 in the SPX. We had counted four Intermediate waves up into the recent early August low, and expected the next uptrend to conclude Intermediate wave v, Major 5 and Primary III. When the uptrend was confirmed we noticed two things about the correction that caught our attention. We posted these observations two weeks ago in the weekend update.

An exerpt: While we are maintaining our primary counts … We have noticed some deviations from what was expected during these past few months … The problems we are seeing are in the NAZ and the DOW. Since these two indices are key to our market observations, these deviations are worth noting.

You can read the entire posting, titled; “Potential Alternate Count” at the end of that weekend update: http://caldaro.wordpress.com/2014/08/23/weekend-update-462/.

This week Europe’s ECB announced their first QE program, naming it ABS. While the details were not released, we gathered from several sources that the program could be as large as $1.0 tn. This would be quite similar in size to the FED’s QE programs. As you know, the liquity of these programs has been the driving force that has taken the SPX/DOW to all time new highs. It is also a bit odd that the ECB is starting ABS, just when the FED is ending QE 3.

When we consider the recent patterns in the NAZ and DOW, and now the ECB’s QE. We have the ingredients for a potentially extending Primary wave III. The chart above displays the count we have been tracking for months, suggesting a Primary wave III high is near. The chart below is the count we offered two weeks ago, suggesting another extension for Primary wave III. Right now we give them equal weight.

The key to this inflection point is the wave pattern. Since both patterns start from a Major wave 4 low in February, and have risen five waves up since then. The key level to watch is the August low at SPX 1905. Should the market fall below that low, Primary IV is underway. Should the market remain above that low, especially during the next correction, Primary III is extending. Therefore, the risk of remaining fully invested at this point is about 5% on the downside.

MEDIUM TERM: uptrend

The current uptrend began at SPX 1905 in early August. Thus far the market has rallied to SPX 2011 on thursday, and ended the week at 2008. While the four week rally has had a steep rise, similar to the February uptrend, it has run into some resistance lately. As of thursday we had counted five waves up from that low: 1945-1928-2005-1991-2011. The first wave was simple, the third divided into five waves, and the fifth was a diagonal triangle. At the high we had negative divergences on all time frames.

The market then pulled back to SPX 1990 on friday, the second largest pullback of the uptrend. But surprisingly rallied all the way back to SPX 2008 by the close. We believe the five waves up ended an impulse pattern of some degree. There is room, however, for a slightly higher high to complete this pattern with a slightly different short term count. In either case we would expect the OEW 2019 pivot to limit any further upside before the largest pullback of this uptrend unfolds.

If SPX 2011 was the high we would expect a pullback to either the OEW 1973 pivot, or the 1956 pivot. The first is a 38.2% retracement, the second a 50.0%. When we reach those levels the market will then have to decide if Primary III is over, or is extending. A larger pullback, especially below that rising trend line from 2012, would suggest Primary IV is underway. Holding one of those two pivots would suggest Primary III is extending. Medium term support is at the 1973 and 1956 pivots, with resistance at the 2019 and 2070 pivots.

SHORT TERM

Short term support is at SPX 1990 and the 1973 pivot, with resistance at SPX 2011 and the 2019 pivot. Short term momentum ended the week overbought.

The short term wave pattern defined above is easily seem in the above chart. We labeled the recent high with a 5 to indicate that five waves had completed from SPX 1905. Since we are not completely sure what degree it was we will leave that labeling for now until the inflection point clears. Recent corrections, during Jan/Feb and July/Aug, have corrected about 50% of the previous uptrend. If they were a series of 1-2’s, as the alternate count suggests, then a 50% pullback of the recent SPX 1905-2011 rally would be quite normal. Another interesting juncture in this relentless bull market. Best to your trading!

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The Lesser Depression: How Bubble Finance Has Deformed The Jobs Cycle

by Jeffrey P. Snider

If you limited yourself to only the official unemployment rate the picture you get of the economy is seemingly one that fits very much inside historical expectations. The rate rose and fell just like it “should” in a recession/recovery cycle. That raises the question about why this period has been so divergent with past expectations. When even the Federal Reserve looks to something other than the unemployment rate (though of equally dubious features and deficiencies) to gain some insight into the economy’s actual station you know that traditional correlations have broken in some broad fashion.

There is a relatively clear demarcation between those times when the unemployment rate was highly correlated to other indications of economic activity and the period when its status seems to be more in doubt. This “recovery” has certainly been the most evocative of discussion and doubt, but that really extends backward to the prior two. While the “recovery” after the dot-com recession created the term “jobless recovery” it can also be seen in the cycle ten years before.

The term “jobless recovery” is itself an oxymoron since the main function of any economic advance is to broaden participation. Thus a “jobless recovery” is nothing of the sort, indicating more so the re-arranging of numbers rather than full achievement – the hallmarks of redistribution.

Measuring from “peak” unemployment forward, there is again a clear difference between the recovery after the deep recession in 1981-82 and those that have come after. Even in the early 1990’s, the labor force was obviously changing as the number of new potential entrants to the jobs market began to shift more toward staying out. Yet, there were still enough payroll gains to attract significant growth in the labor force (undisturbed by changes in population and demographics).

The Great Recession “recovery”, or “Lesser Depression”, has seen something altogether worse. Where the track of the unemployment rate appears very much normal, it has almost nothing to do with a healthy economy. In fact, in this instance, the unemployment is actually the primary indication of all that is wrong!

Structurally, even orthodox Keynesians have come around to actually identifying another clear demarcation in function. As Paul Krugman noted in his affable affirmation of “secular stagnation”,

“We now know that the economic expansion of 2003-2007 was driven by a bubble. You can say the same about the latter part of the 90s expansion; and you can in fact say the same about the later years of the Reagan expansion, which was driven at that point by runaway thrift institutions and a large bubble in commercial real estate.”

Correlation does not prove causation at all, but it is more than curious that an economy gaining serial bubbles suddenly stops training itself on recession/recovery cycles. It’s made all the more compelling by the volumes of academic scholarship dedicated to the orthodox plan of “filling in troughs without shaving off peaks.” The primary appearance of that is to “elongate” the economic cycle, to depress the amplitude of downturn as well as the upswing, in order to better “manage” economic growth. That dangers of attempting as much are explicit in the very phrase itself, acknowledged at least as a possibility by those that claim it could not happen.

Yet, nearly every labor and economic statistic in this “cycle” demands recognition that it has happened. Not only have these “cycles” become elongated, denoted by the labor force’s post-1980’s tendency to not participate as much on the upswing, the overall shift has been one in which the peaks are clearly shaved in addition to elongation – the two are apparently and unfortunately not mutually exclusive.

That leaves quite a mess to clear up, and no real definitive means to do so outside of total reform (which orthodoxies don’t undertake on their own – instead inventing convolutions to try to doctor and conjure explanations that satisfy at least apathetic attention while preserving the bureaucratic paradigm). It also leaves the economy on a new kind of plane we have not witnessed in history outside of perhaps the Great Depression itself.

Given new incoming data, including that in today’s employment reports, it very much looks as if the amplitudes have waned and that not only recovery has been shorn of its bounce but that contractions too may be much shallower. In other words, the economy doesn’t really recover but remains in a depressing and durable state lingering between shallow contraction and absence of that.

I don’t think it will ever become an official recession, outside of more heavy and major revisions (which are all too possible), but it certainly appears as if the change in economic trajectory past the middle of 2012 is a low-amplitude “cycle.” The question now is whether that has finished its course, or whether elongation means many more months on the same, slow downward slope.

The data on the labor force, as well as income, suggests further erosion. That would make sense if the paradigm I have sketched here is valid. If monetary intrusion unites both cycle elongation together with structural deformations (of the negative variety), existing now alongside the most intense and sustained monetary intrusions should logically impart the same patterns in proportionality – lower ultimate trend coupled with startling elongation.

That may also offer a potential explanation for why we see so many divergences in the data, particularly jobs and payrolls. The more heavily adjusted the series, the more it is captured by “trend-cycle analysis” that views elongation as indifferent to historical experience. The mainstream statistics model “recovery”, deficient of slope undoubtedly, but still recovery on its central axis. Yet, the less adjusted series cannot follow that trajectory because there is no broadening of the upswing, instead the slow erosion shows up as irregularities and deficiencies that don’t appear to be outright recession (and also not outright recovery).

To summarize all of this: essentially the bubble economy, dating to monetary changes toward more active “management” through finacialism, have transformed economic behavior to something like what we have seen in Europe since 2009. In more general terms, the basic malformation is not all dissimilar to the Japanese experience of the past quarter century, regardless of the appearance and maintenance of “inflation” or “deflation” (just different forms of instability). As financialism spreads, so does disharmony, not just in function but in breaking correlations among economic accounts and statistics that were once seemingly so unconquerable.

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