The following is part of Pivotal Events that was published for our subscribers February 1, 2018.
Perspective
“Rational Exuberance”.
We started using the phrase in December 2016, because of the new Pro-Business Administration. On the big technical surges, we dropped the “Rational”.
The DJIA zoom has reached a Weekly RSI of 92. As noted last week, the highest reached for the Nasdaq in the Dot-Com mania was 84.
Also, the Fibonacci has reached a possible target, built upon the major swings since the panic ended in March 2009.
Clearly, “Irrational Exuberance”.
The NYXBT (NYSE Bitcoin Index) soared to 18732 in mid-December and the break is turning into a major hit. The index is at 9345 and the 20-Week ema is at 10125, which is a serious take out of support. Individual examples such as RIOT have been smashed.
The take away is that the sector accomplished a climax within our December-January window. This correction could lead to the Bitcoin bubble entering a long contraction. This would be the speculative part, as with RCA in the early 1930s, or Western Union Telegraph following the 1873 Bubble, the technology continued to advance while stock prices went down. Bitcoin and Blockchain technology will continue its phenomenal progress.
The ChartWorks reviewed the Qualcomm blow-off at the turn-of-the-year in the 2000 peak, and is updating it.
Retail Trade Is Back!
- Back in the late 1960s, we used to use the ratio between trading volume on the American Stock Exchange and the NYSE.
- This kept track of the amount of trading on a speculative trading floor.
- The ratio would soar to a peak in the overall stock markets.
- Today’s equivalent is soaring now.
Scandals and The Stock Market
An example of a turn-of-the-year peak was the bull market that reached excesses in January 1973. A few days before the top, Time magazine glowed that 1973 was “shaping up as a gilt-edged year”. The action was overbought enough to force the roll-over. Then the scandal became irresistible. The Dow fell from 1090 to 550.
The conviction and sentencing of the five “Watergate” burglars was headlined on January 30, 1973. The scandal consumed the media and political process and President Nixon resigned on August 8, 1974. The following weekend this writer was sailing on a 59-foot sloop. Guests aboard included two bankers from Switzerland. I ventured that the resignation could end the bear market. The veteran bankers pointed out that it was driven by financial problems, made worse by the scandal.
The worst financial contraction since the 1930s ended with a classic fall panic into October 1974. Problems cleared with a scary test of the low into December.
The U.S. is facing its worst political crisis– ever. It is an unusual one as senior officials at the FBI attempted to force a Clinton win. Failing that, the attempt has been to depose a sitting president. Main Stream Media still maintains its delusion that the only way Clinton could lose was due to “Russian influence” upon the election results. Over the 15 months since, this notion has yet to be proven.
It would be wonderful irony if the Mueller Special Counsel investigation of Trump assembles enough compelling facts to shift its focus to the real scandal.[1] The chronically corrupt Clinton political machine as well as certain ambitious leaders at the FBI have been fronting the Deep State. For a constitutional democracy founded upon a rule of law, it is a profound corruption of government.
The scandal will assist the popular uprising which is a voluntary move back to government “by the people”.
The scandal has reached a critical mass and will have to run its course. The reduction of unconstitutional ambition can be considered as part of the Great Reformation initiated by a popular uprising. The last such uprising brought down the Berlin Wall and eventually Communism. That was in 1989. The best example of what can happen in parliamentary democracies has been the “Glorious Revolution” in England in 1688.
It got rid of the last absolutist king.
The job now is to reduce the ambition of absolutist bureaucrats, their political parties and their media.
It is going to be a very interesting year in political and financial markets.
The latest rally has generated technical excesses in momentum and pattern that needed correction. Also riveting is that the DJIA has been meeting Fibonacci targets on the big swings. That’s since the 2009 panic-low to, now, at a possible panic-high. The Fib level target is 26,500, the high close has been 26,616.
Accounts facing liquidity concerns in any kind of a market could consider that industrial commodities may decline after March. However, the stock market is suddenly sensitive to falling Junk-Bond prices. The “Comforts” from narrowing credit spreads can seasonally be favorable out to “around May”. On the bigger picture, time to the latter target is very short.
Can this very compelling bull market survive a reversal to widening credit spreads and curve-steepening after mid-year?
Not a chance!
Some Notes on the South Sea Bubble
Contained in
The Autobiography of William Stout
1665 – 1752
In 1720
Our neighbor and my particular friend, Robert Lawson, had some time since bought South Sea stock, about 800 pound [worth], when it was at the lowest, as a well wisher to the government, when it was doubtfull. And now, when it was advanced to 7 or 800, he bought an estate for 4 thousand pound, fully expecting that his advance in the stock would pay it; and was urged by me and all his well wishers to sell, and then might have payed for the estate and had 3 or 4000 pound more. But he was so far infatuated that it would still advance till the payment for the estate was due, that he delayed drawing out or selling, till it all on a sudden came down to the principle put in. And as the estate was bought too dear, he lost not only the advance, but much of the principle of his stock, and this was the fate of thousands of people in and near London. But many persons in and about London, who before this were supposed not to be worth 500 or 1000, had in this confusion got one hundred thousand pounds, and purchased estates, and appeared in an equipage as great as the lords and great men who were deluded out of their estates. All this time the King was at Hanover, who was advised of it by express, who immediately came over, called the Parliament to enquire into this fraud; and the Commissioners of the Tresury largely amerced for it, and the South Sea Company directors.
In 1721
The Parliament this year apoynted a secret community of thirteen members to enquire, and if possible to discover, who were the authors and encouragers of the great frauds comited last year in managing South Sea stock; and severall of the directors were detected, taken up, and their estates seized. And also John Aislby [Aislabie] of Yorkshire, First commissioner of the Tresury, had twenty thousand pound given him for promoting it, and many more whose estates are to be sould towards the releife of the greatest losers. Knight, who was their cashear, is fled over sea and cannot be recalled, who might have made large discovrys. And it’s evident that many members of Parliament, Ministers of State, and receivers of the King’s revenues, were accesary to the fraud. There is about one million of frauds discovred, and seized to be sould; but is much short.
The great distraction the stock buyers and sellers made last year, and the prosecution of them made this year, has almost wholly discouraged trade and put a stop to the circulation of money, and many are broke, both in London and the country; puts a stop to the sale of cattell and all our manufactories, although this kingdom is now at peace with all Europe, but in much confusion or distraction in our own affairs. But corn and all necessary provisions for life are plenty and cheape in all parts.
[1] Adam Schiff is the top Democrat on the House Intelligence Committee has stated that “FISA” memo could lead to the dismissal of Mueller.
Link to February 1, 2018 Bob Hoye interview on TalkDigitalNetwork.com:https://www.howestreet.com/2018/02/02/bitcoin-blood-bath-typical-burst-bubble/
Listen to the Bob Hoye Podcast every Friday afternoon at TalkDigitalNetwork.com
We’re not there yet, but veteran investor Jim Rogers says the next bear market we see is going to be a doozy.
Before turning to the action I would like to put where we are in the “everything” bubble into perspective, as I had an insight this weekend, which everyone else may already have thought of, but it was new to me so I thought I would share it…
