More Keynesian Jabberwocky: Deflation’s Scary New Pal—”Lowflation”

By Peter Schiff

In recent years a good part of the monetary debate has become a simple war of words, with much of the conflict focused on the definition for the word “inflation.” Whereas economists up until the 1960′s or 1970′s mostly defined inflation as an expansion of the money supply, the vast majority now see it as simply rising prices. Since then the “experts” have gone further and devised variations on the word “inflation” (such as “deflation,” “disinflation,” and “stagflation”). And while past central banking policy usually focused on “inflation fighting,” now bankers talk about “inflation ceilings” and more recently “inflation targets”.  The latest front in this campaign came this week when Bloomberg News unveiled a brand new word: “lowflation” which it defines as a situation where prices are rising, but not fast enough to offer the economic benefits that are apparently delivered by higher inflation. Although the article was printed on April Fool’s Day, sadly I do not believe it was meant as a joke. Up until now, the inflation advocates have focused their arguments almost exclusively on the apparent dangers of “deflation,” which they define as falling prices. Despite reams of evidence that show how an economy can thrive when prices fall, there is now a nearly universal belief that deflation is an economic poison that works its mischief by convincing consumers to delay purchases. For example, in a scenario of 1% deflation, a consumer who wants a $1,000 refrigerator will postpone her purchase if she expects it will cost only $990 in a year. Presumably she will just make do with her old fridge, or simply refrain from buying perishable items for a year to lock in that $10 savings. If she expects the cost of the refrigerator to decline another 1% in the following year, the purchase will be again put off. If deflation persists indefinitely they argue that she will put off the purchase indefinitely, perhaps living exclusively on dried foods while waiting for refrigerator prices to hit zero. Economists extrapolate this to conclude that deflation will destroy aggregate demand and force the economy into recession. Despite the absurdity of this argument (people actually tend to buy more when prices fall), at least there is a phantom bogeyman for which to conjure phony terror. Low inflation (below 2%) is even harder to demonize. Few have argued that it has the same demand killing dynamics as deflation, but many say that it should be avoided simply because it is too close to deflation. Given their feeling that even a brief bout of minor deflation could lead to a catastrophic negative spiral, they argue for a prudent buffer of 2% inflation or more. But the writer of the Bloomberg piece, the London-based Simon Kennedy, quotes people in high positions in the financial establishment who offer new arguments as to why “lowflation” (as he calls it) is a “threat” in and of itself. And although the article was primarily concerned with Europe, you can be sure that these arguments will be applied soon to the situation in the United States. The piece correctly notes that those struggling with high debt tend to welcome high rates of inflation. The math is simple. By diminishing the value of money, inflation benefits borrowers at the expense of lenders. By repaying with money of lesser value, the borrowers partially default, even when paying in full. The biggest borrowers in Europe (and the United States for that matter) are heavily indebted governments and the overly leveraged financial sector. Should it come as a surprise that they are the leading advocates for inflation? The writer admits that higher inflation will help these interests manage their debt burdens and in the case of the financial sector, profit from the increased lending that low interest rates and quantitative easing encourage. On the other side of the ledger are the consumers, the savers, and the retirees. These groups want lower prices and higher rates of interest on their accumulated capital. Such a combination will lead to higher living standards for those who have worked and saved for many years in order to enjoy the fruits of their efforts. But these types of people are simply not on the “must call” list for our best and brightest economic journalists. As a result, we only get one side of the story. The article also points out that higher inflation gives businesses more flexibility to retain workers in periods of weak growth. The argument is that if sales revenue falls, companies will not be able to lower wages, and will instead resort to layoffs to maintain their profitability. However, this is only true in cases involving labor union contracts or minimum wage workers. In all other cases, business could reduce wages in lieu of layoffs. Plus, if prices for consumer goods are also falling, real wages may not even decline as a result of the cuts. In circumstances where wages cannot be legally reduced, as is the case for unionized or minimum wage workers, layoffs are often the employer’s only option for keeping costs in line with revenue. However, inflation allows employers to do an end run around these obstacles. In an inflationary environment, rising prices compensate for falling sales. The added revenue allows employers to hold nominal wage costs steady, even when the raw amount of goods or services they sell declines. When inflation rages, higher skilled workers will often demand, and receive, pay raises. But low-skilled workers, who lack such leverage, are usually left holding the bag. In other words, politicians can impose a high minimum wage to pander to voters, but then count on inflation to lower real labor costs, thereby limiting the unemployment that would otherwise result. So what the government openly gives with one hand, it secretly takes away with the other. Workers vote for politicians who promise higher wages, but those same politicians also create the inflation that negates the real value of the increase. But while government takes the credit for the former, it never assumes responsibility for the latter. The same analysis applies to labor unions. Based upon political protection offered by friendly officials, unions can secure unrealistic pay hikes for their members. But the same governments then work to reduce the real value of those increases to keep their employers in business. Of course, what the Bloomberg writer was really arguing is that governments need inflation to bail themselves out of the policy mistakes they make to secure votes. But two wrongs never make a right. The correct policy would be to run balanced budgets rather than incur debts that can only be repaid with the help of inflation. On the labor front, the better policy would be to abolish the minimum wage and the special legal protections offered to labor unions, rather than papering over the adverse consequences of bad policies with inflation. So be on the lookout for any more hand-wringing over the supposed dangers of lowflation. The noise will simply be an effort to convince you that what’s bad for you is actually good. And although it’s an audacious piece of propaganda to even attempt, the lack of critical awareness in the media gives it a fighting chance for success

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The Curated Jobs Report, Actual Depression and Bernanke’s Fraudulent Legacy

by Lee Adler

A couple of things struck me about today’s jobs report. One was the regularity of the straight line trend in non farm payrolls. I mean, even casual observers know that markets and the economy move in trends, (which are your friends) but come on! This steady state 1.6% annual gain for the past 4 years is a bit ridiculous, even for a normally credulous guy like me who is willing to believe almost any statistic the government publishes. But now… NOW… they have just gone too far. This chart shows the actual, not seasonally adjusted nonfarm payrolls number for the month. The headline, seasonally adjusted payrolls number was reported higher by 192,000 which was a little less than conomists’ consensus guess of 195,000. That’s a fake number, a smoothed and stylized attempt to represent the trend. It will get a big revision next month, the month after, and then when the data is benchmarked to the tax data once a year. Then it gets revised 4 more times in following years as they try to fit the number to what actually happened. It’s amazing that it actually does, on occasion, more or less accurately reflect the trend of the data. Whether the data represents reality is certainly arguable. For example, take the birth/death adjustment. Please.

I won’t get into all the statistical arcana. It bores me. I track the real time Federal withholding tax data, and based on tremendous strength in that data in March, I have no quarrel with this jobs data as reported. It might even be too low, to be revised upward next month. But even if so, it won’t be enough. Which brings me to the other thing I noticed in the data, which is that in spite of the steady trend of improvement for the past 4 years, in terms of a truer measure of employment, the US is still in a Depression. That’s right, not a recession, a Depression. There has been virtually no recovery in the percentage of Americans with full time jobs since the pits of the crash in 2008. Admittedly it’s a selective Depression, but if you are among the selected, your suffering is real. And the drag that millions of unemployed Americans exert on the economy is real. The downward pressure they put on middle class wages is real. Jobs that paid well in the past no longer do. With labor oversupplied, the plutocrats, empowered by the courts and friendly legislators have wiped out the bargaining power of labor in the economy. ZIRP/QE have encouraged unproductive speculation, not job creation. So there are simply far too many millions of Americans so selected to be the losers, to experience the Depression. All of the money printing in the world, all of the ZIRP, has not helped them and has not reduced their numbers. Nor can it ever do so.

This is the fraud of Ben Bernanke’s legacy. In addition to discouraging job creation, ZIRP has also stolen the savings of seniors, suppressing their returns to the degree that they have been forced to spend their principal down to zero in many cases. For these people, ZIRP stands not for Zero Interest Rate Policy. It stands for Zero In Remaining Principal. For the millions who are unemployed, it stands for Zero In Rehiring Prospects. Bernanke’s policy of financial repression was designed to prop up the very bankers and speculators who, along with the Fed, caused the housing/credit bubble and ensuing crash. In that regard, the policy has succeeded. But Bernanke continues to protest that his real purpose was to save jobs. Either he’s an idiot who believes that ZIRP and money printing will accomplish that, or he’s a criminal liar, simply lining up for his ultimate payoff. There’s a de facto case for Bernanke not being an idiot. One piece of evidence is the millions he receives from his former banker clients and plutocrat funded industry groups just for showing up for a photo op and excuse-making session. He took care of them, now they’re taking care of him. But he’s just following the rules of the game. This is how the system works. Bernanke lives by the rules of that system the golden rule. Those with the gold, make the rules. And this week the Supreme Court again ratified the rules and control of government by the plutocrats. Like Benny himself said, in monetary policy there are winners and losers. He picked those who played by the rules, who worked hard and put money aside all their lives, to be the losers. The wild gunslingers and con men who, along with him, caused the crash, he rewarded with endless free money with which to gamble ad infinitum. By promising to keep interest rates at zero until he told them otherwise, he virtually guaranteed their profits. The result is yet another massive credit and equities bubble, while millions suffer and wait to win the jobs lottery. History has shown again and again that the bubbles created by too easy credit and too much money can only end one way–financial crash and economic contraction. And if they do see some jobs created they are fake jobs, gone with the wind when the air goes out of the bubble. The fake jobs from the last bubble have never come back. The few fake jobs created in this bubble will disappear too, never to return. At least the housing bubble created fake jobs that fed a few million families for a few years, and even temporarily falsely enriched some. This bubble has been a jobless bubble. Bernanke’s excuse for ZIRP and QE was that the resulting higher securities prices would cause a trickle down that would increase job creation. It was one of his many self justifying excuses– a bald faced lie from the bald little man. To encourage real investment that might result in real job creation, investors need real returns that encourage rational investments, rather than the rank, gross, wild speculation in credit, equities, and exotic derivatives. The speculation that Fed policy promotes and enables, creates only fictitious capital, not real tangible investment in ventures that create employment opportunities. In this sense, the end of ZIRP and QE cannot come soon enough. The question is whether it can come at all. With the US Government owing trillions, for the Fed and Federal Government any material rise in interest rates is simply unthinkable. Rising interest rates would force a brutal austerity. They will do anything to fight that. Under the circumstances, the steady hollowing of the middle class in America could go on indefinitely. The only way out that I can see would be a crash and reset. This hideous mess is Bernanke’s legacy.

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This Is The End!(?)

by Greg Harmon

The Symposium was a great exchange of ideas. For the most part the Keynote speakers were all very bullish in the US market for the long haul. Quite a bit different than the the sentiment above. All but one had no idea about what was happening Friday either because they spoke Thursday, or early in the day or just did not care or both. One that did, John Murphy (yes that John Murphy of InterMarket Analysis) closed the conference speaking at 4:00 pm Friday, knew what was happening, addressed that we may see a short term pullback but was also bullish. Just because these speakers are seasoned veterans and are bullish does not mean we cannot or will not see a pullback. or that they will not change their mind after looking at the situation this weekend. I doubt one more day will do that but who knows. Build a plan. Address the risks in it. And stick to it.

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Bulls vs. Bears: Some Profit Margin Stories Are Better Than Others

by ffwiley

[M]argins have been rising smartly–faster than Greenspan can ever recall. His only explanation: productivity… Greenspan argues that the U.S. is undergoing a productivity revolution not seen since early this century… In the longer term, he’s betting that as the world moves into the 21st century and the New Economy takes root, more of the old economic rules will fall apart. - From “Alan Greenspan’s Brave New World,” Business Week, July 13, 1997 I caught up recently on a debate about S&P 500 valuation involving GMO, Hussman Funds and their assorted critics (see here or here, for example). As you may know, GMO and Hussman take the position that stocks are expensive, citing a variety of indicators and arguing that profit margins should “mean revert” from record highs. On the other side, market bulls dispute the indicators and propose that fat margins are no big deal – they might just remain at record highs indefinitely. “High margins reflect a long-term structural change, not a short-term cyclical one,” according to one account of a popular position. Also: “It’s a mistake to think that margins will revert to a long-term mean just for the sake of reverting to a mean.” The message seems to be that mean reversion is for losers. This is a new era, or it’s a new economy, or whatever. I’m paraphrasing, but the story sounds a lot like the capital letter New Economy of the late 1990s. There’s even a technology angle once again, along with huge confidence in monetary policy and recession-free growth. Above all, there’s a notion that the world might be different. Needless to say, the new, new economy story comes with plenty of red flags. But let’s not dismiss it just because it didn’t pan out the last time around. If we’re not buying the story, we should at least have a clear rationale and not just assume mean reversion “for the sake of reverting to a mean,” as noted above. I’ll take a shot at providing such a rationale. Or, as Brad Katsuyama might say: “Let’s do this.” What exactly is mean reversion? As much as I hate to start with a definition, people seem to interpret mean reversion differently, with the problem that it’s not always clear what’s being said. I don’t claim any particular authority for my definition, but when I say that profit margins mean revert, understand that this is what I mean: Most of the variation in margins is explained by cyclical and other temporary factors, although structural trends can occur. Cyclical changes pass through roughly the same range of values in both directions for long periods of time. When margins reach extreme highs, our first instinct should be to expect a correction towards more normal levels in the next cyclical downturn, if not before. (In fact, margins usually turn downwards before the broad economy.) Why should profit margins mean revert? It goes without saying that the ups and downs of the profit cycle are closely tied to the business cycle. But cyclicality isn’t enough to meet all the criteria above, which require that cyclical changes aren’t overwhelmed by structural trends. There are two other forces that keep the structural trends in check – external and internal competition. External competition – meaning between businesses – is the most obvious of the two, and ever since Adam Smith, isn’t especially controversial. Businesses are naturally more eager to invest when profits are strong. This leads to more competition, less pricing power, and eventually, margins are pushed downwards. The implication is that there’s a close link between margins, which help determine the return on capital, and interest rates, which determine the cost of capital. It’s hard to imagine a “new economy” for margins without a corresponding “new economy” for interest rates. (But, as noted above, we’re going to try). Internal competition refers to the conflicting interests of executives and shareholders, otherwise known as agents and principals. Executives may evaluate potential expenditures in terms their own power or prestige rather than what matters most to the shareholder – return on capital. Generally, executives also like to be paid as much as possible and tend to make hay when the sun shines. When margins are fat, they loosen the purse strings for pet projects, and especially, compensation. They normally manage to claw back some of the shareholders’ profits. This is the classic principal-agent problem, and it contributes to mean reversion. The new, new economy Now for the bull story, or at least a few of the key pieces that are getting particular attention, as shown in this chart: The chart suggests that the increase in margins can be divided up neatly into a few factors, including a decline in effective corporate tax rates, low interest rates and good times in particular sectors. This is helpful information for anyone trying to understand recent results and how they may change in the immediate future. But it doesn’t say much about mean reversion. Apart from the business cycle, mean reversion is explained by competition occurring between and within businesses, as discussed above. It has little to do with current taxes and interest rates or booms in specific sectors. Therefore, even though the chart may depict changes that are structural in a general sense, such as the decline in corporate tax rates, it doesn’t describe changes that have structural effects on margins. Look at it this way: Let’s say Congress eliminates every tax loophole tomorrow, tripling the average tax rate on U.S. corporations. Margins would fall sharply, no doubt. But does anyone really think the effect would be permanent? That businesses wouldn’t raise prices and/or cut costs to neutralize the higher taxes? And if you accept that businesses adjust to rising tax rates, why wouldn’t they adjust to falling tax rates? The answer is that businesses do adjust. Over time, competition (again, external and internal) pushes extreme margins back to normal. That can only change if the competitive forces themselves weaken. Therefore, analysis that purportedly demonstrates an end to mean reversion shouldn’t ignore these forces. Which leads to the question of whether we can come up with other stories that are genuinely structural, rather than cyclical, explanations for high margins. I can think of three possibilities: The “Munger” story I think I’ve been in the top five percent of my age cohort almost all my adult life in understanding the power of incentives, and yet I’ve always underestimated that power. Never a year passes but I get some surprise that pushes a little further my appreciation of incentive superpower. -From Poor Charlie’s Almanac: The Wit and Wisdom of Charles T. Munger If shareholder advocates have learned as much about incentives as Munger, they may have mitigated the principal-agent problem, and consequently, boosted margins. If so, this would be a structural effect. Is the story true? On the one hand, you might argue that there’s more equity-linked compensation than, say, in the 1980s. This would better align principals with agents. On the other hand, there’s also more dilution. Stock options are a great way for executives to grab a bigger piece of the pie. Call me cynical, but I’m guessing these effects offset. More broadly, I expect margins to gradually succumb to temptations, as they always do. When earnings are strong and stock prices lofty, empire builders get busy and pay negotiations become more aggressive. At the same time, you don’t hear as much from the folks who are naturally cost conscious. These facts of life aren’t easily overturned by corporate engineering. The “Lewis” story When private interests need a political favor, they know whom to call. When politicians need money, they also know whom to call. The people involved try to keep most of it concealed behind closed doors…. This is the system that prevails in Russia after the fall of Communism. But increasingly it is America’s system as well. - From Crony Capitalism in America: 2008-2012, by Hunter Lewis Judging from the crony capitalism chronicled in Lewis’s book, you might wonder if profit margins are high because they’re protected by corrupt politicians. There’s no better way to build a moat than through government-sanctioned advantages, and companies spend more money lobbying for those advantages than ever before. Think of it this way: The invisible hand may squeeze margins, but the invisible handshake works in the opposite direction. Sadly, I suspect there’s some truth in this story, but it’s unlikely to be either a large effect or especially bullish. One obvious offset to the positive effect on profits is that cronyism saps productivity over the long-term. Another is that the gains don’t necessarily accrue to shareholders (see “Munger” story above). The “Fama” story I don’t even know what a bubble means. These words have become popular. I don’t think they have any meaning … [A]lmost surely, expected returns vary through time because of risk premia. - Nobel Prize-winning efficient markets advocate Eugene Fama. When assets appear to offer unusually high returns, Fama would say that investors see unusually high risks. By the same logic, you might argue that extreme margins aren’t being competed away because it’s a lousy environment for risk-taking. I won’t repeat the reasons why this may be so, since I discuss them often. I’ll just point out that margins are high partly because of the same risks that are holding back business investment, which I discussed here. Of course, business investment also affects margins more directly by raising costs, and this is another factor to consider. One way or another, the co-existence of strong profits and weak business investment seems best explained by risk. These trends could persist, but it’s not a particularly bullish story. What is and isn’t new If you’re keeping score, you’ve noticed that I mostly dismissed the first two stories but not the third. Essentially, I’m arguing that we may indeed be witnessing a new economy, but the newness isn’t explained by profit margins being structurally higher than before. They may be somewhat higher, but probably not by much. Rather, newness is explained by attitudes towards risk, which perhaps isn’t surprising if you consider that today’s extreme highs in profitability were preceded by extreme lows at the last trough. In fact, increasing volatility is what stands out most in the last two decades of data. Moreover, even bulls accept that there’s little potential for further margin expansion. Such asymmetry of risks – high probability of an eventual fall in margins coupled with little chance of a significant increase – is another way to think about the consequences of mean reversion. Circling back to the Business Week excerpt from the beginning, I saved the Alan Greenspan article after reading about it in Robert Shiller’s Irrational Exuberance, where he shares research into a variety of historic market bubbles. (What, you mean I’m not the first person to balance out Fama with Shiller?) Shiller stresses that pundits can be “especially creative in telling stories of why a new era [is] dawning.” Based on the current valuation debate, it’s hard not to wonder if today’s profit margin bulls are gunning for a spot in the next edition of Shiller’s book. Investment implications This post is already too long for a full investment discussion, but I’ll close with a few points that I think are important. First, profit margins are unlikely to determine stock prices in the next quarter or year. For tactical investors with short horizons, the biggest questions still have to do with the Fed, and specifically, its reactions to changes in the economy. Does weak data mean that the taper tapers or untapers or however that should be said? Does strong data mean that rate hikes come sooner rather than later? Does QE mean revert? Okay, the last one may or may not make sense but you get the idea. Second, mean reversion isn’t the same as valuation. Of the indicators used most often in the valuation debate, I can’t think of any that assume margins return to long-term historic averages. Most don’t require any assumptions about future margins at all. I’ve even reported a price-to-trend-earnings measure that can have the effect of extrapolating an upwards margin trend into the future, rather than reverting it back to historic norms. Third, the margin discussion is ultimately about risk, as suggested above. Some analysts have recommended ignoring risk and contemplating only future cyclical peaks for indicators such as margins and valuation multiples. This may be okay for investors with the ability and foresight to liquidate only near market tops. Unfortunately, the vast majority of investors aren’t quite that deep-pocketed and skilled. For most investors, cyclical troughs can be costly and risk matters.

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Tech breaks support with Momentum hitting highest levels since 1999!

by Chris Kimble

CLICK ON CHART TO ENLARGE Two weeks ago the Power of the Pattern shared that the NDX had recorded the highest overbought momentum readings since the 2000 highs. At the same time it  was forming a bearish rising wedge at resistance as key Bio Tech names were already breaking support. (See post here) The chart above updates the NDX pattern, reflecting that that support of the bearish rising wedge is breaking and Mo Mo is too! These set up reflected a price point to manage risk, from a portfolio construction perspective and the action over the past two weeks hasn't changed this message! Party like its 1999???

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Stock Markets Bubbles and Parabolic Slope Theory

By: Dan_Stinson

There has been extensive discussion questioning the current rally and if it has reached bubble status. Firstly, what is a bubble from a technical standpoint? A bubble is a parabolic advance in a market or stock where the price appears to move straight up without normal corrections. The corrections or pullbacks are small, sending the stock or index straight up. Greed and euphoria are high and complacency is low. The higher the market or stock moves, the bigger the bubble and the more pain on the way back down. As we have seen, bubbles can occur in stocks, stock markets, commodities, debt, Real Estate and derivatives. Parabolic advances can't be sustained and always end poorly, with the price usually falling below the starting point of the parabolic move. What goes straight up, comes straight down faster and usually further. So, to determine if a bubble is in play, we need to analyze the advance to determine if it has gone parabolic. We know that parabolic advances always fail, so a parabolic advance in a market where it is questioned to be a bubble, will also fail or burst. [Parabolic advance = Bubble] I have a number of charts illustrating past and current bubbles and have identified many common aspects of a bubble, which we have named as Parabolic Slope Theory (PST), with more information coming. For now, we can see that bubbles have an average parabolic slope of 70 degrees, but can range from 60 to 85 degrees depending on the starting point of that slope. We can sometimes see a 60 degree slope when starting at the beginning of the rally, but can see a 70 degree slope at the start of the parabolic advance. The slope becomes steeper as the rally matures and can reach 80 degrees or higher near the top. This 80 degree slope on some charts can be counted as as wave (5) up. The first chart illustrates three bubbles for the S&P500, starting with the 2000 bubble with a slope of 68 degrees. The slope for the 2007 bubble ran at 60 degrees to the top. The current rally is running at an average of 70 degrees and has moved further and steeper than the parabolic advance from 1995 to 2000. It would appear that the markets are stronger now than in 1999, but it sure doesn't feel like 1999. We can also see that the parabolic advances into the bubble tops lasted for about 5 years, with the declines taking 2 years. We can't really utilize the 70 degree slope rule to determine where the top is in a bubble, but if we see a pullback and then see the parabolic advance turn higher at an 80 degree slope or more, then we could assume that the final wave up is in play. We also know that the markets are currently in the 5th year of this rally where the previous cycles suggest a top is due. Just knowing that it is a bubble will help us make the right decisions before the bubble bursts. Our previous newsletter adds insight on the timing for a top with the DOW and Nikkei relationship. S&P500 Parabolic Slopes and Bubble Tops 2000 - 2007 - 2014 The chart below illustrates market bubbles on 9 charts, so wait for them to rotate through. Parabolic Slopes and Market Bubbles including Gold - Nasdaq - SOX - Nikkei and a few stocks We can see similarities on these charts to determine if a bubble is in play on any chart. Parabolic advances that are near the 70 degree slope range always fail. In fact, some of the charts only had a 30-60 degree slope rally into the 2007 high. We can see that some of the charts had a major bubble in 2000 and have had smaller bubbles in 2007 and currently in 2014. We can see that some of the stocks are in bubbles now which have pushed the indices into bubble status as well. We can also see the classic 70 and 80 degree slope rule for Gold into the 1980 bubble top and again into the 2011 bubble top. Parabolic advances or (bubbles) always end poorly and usually retrace the entire advance. We can use our 70 degree parabolic slope rule to determine if an index or a stock is in a bubble. If the last advance of the move is running at an 80 degree slope or higher, then this could suggest that the last wave up is in play and possibly as wave (5) up. The markets are in another smaller bubble, although the S&P500 chart would suggest that this bubble is larger than the 2000 bubble. This bubble call is supported by our 70 degree slope rule and many stocks that have also gone parabolic and are in the 70 degree range. So, the next time we want to determine if a bubble is in play, we can 1: examine the slope of the advance and determine if it is parabolic move. 2: examine the corrections and determine if they are small. This will also be determined by the slope. If the slope is steep then the corrections will be small. 3: determine if greed and euphoria are high and complacency low. These charts are only a guide so that you can follow the action and monitor the expected outcome. The action could play out exactly as illustrated or it may need minor adjustments as we follow it through.

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