Federal Reserve Chairman Ben Bernanke appears before the House Financial Services Committee Wednesday at 10 a.m. to kick off his two-day semiannual testimony on the economy and monetary policy. In a break from past custom, Mr. Bernanke’s prepared testimony will be released at 8:30 a.m., giving investors and lawmakers a good while to digest the document before the Fed chief even opens his mouth and before U.S. markets open. As is often the case, however, any new nuggets of information are more likely to come during the question-and-answer session than from the prepared statement.

It’s been a wild couple of weeks for markets since Mr. Bernanke’s June press conference, when he laid out a tentative timetable for winding down the Fed’s bond-buying program. Here are three things to watch for as he speaks again:

…..all 3 HERE

Market Psychology has taken a wild round trip since May 22…when  Bernanke first frightened the market with talk about tapering…to this past week when the major American stock indices closed at new All-Time-Highs. The US stock market was at All-Time-Highs May 22 before Bernanke’s tapering comments…it fell ~8% to the June 24 lows…as Market Psychology worried that the Fed was going to “take away the punch bowl”…but then it changed dramatically…tapering worries were thought to be “overdone”…and Fed spokesmen everywhere, including Bernanke himself, made the case that “accommodation” was going to continue…so…the market roared back with the Dow up nearly 1000 points in 12 trading days. Where do stocks go from here? Higher is the easy answer, but the bond market may be signaling caution.

It’s tempting to speculate why Bernanke “changed his tune.” On May 22 and again on June 19 he clearly gave the market a signal that the Fed was going to cut back on “accommodation”…but then on July 10 he gave a completely opposite signal.  Did he underestimate the impact his initial remarks would have on the market…or is this “give and take” part of a process to prepare the markets for inevitable cutbacks?

US Stock Market: I called May 22 a Key Turn Date…but as far as the US stock market is concerned May 22 was just a day when Market Psychology began a modest correction…the market had probably been “too bullish” after a 6 month run from the November 16, 2012 KTD and it needed a little correction and now…less than 2 months later…the correction has run its course and we’re back making new All-Time-Highs…the correction was obviously just another “Buy The Dip” opportunity, courtesy of your local Central Bank.

But the US bond market tells a different story. Since May 22 bond prices have fallen to 2 year lows while the yield curve has steepened dramatically. Most of the time it’s a safe bet that the bond market is “smarter” than the stock market…and in this case bonds may see Fed tightening ahead…while stocks see clear sailing.

Gold is now down over $100 since May 22…although it has rallied back $100 from the 3 year lows it hit at the end of June. ETF sales continue, but the large speculative short positions on Comex may provide fuel for a further rally. As noted in this blog 2 weeks ago I’m net long gold.

WTI crude oil is up more than $10BBL from its May 22 levels…to its best levels in over a year. Obviously rising Mid-East geo-political risk has put a bid into the market…but is real demand also adding a bid…despite growing domestic supplies? I don’t know, but you’d have to be really well informed…or just plain “feeling lucky” to want to short a market that looks like this:

The currency markets have been a puzzle. The US dollar Index was at 3 year highs on May 22 but then FELL (??) for 3 weeks as the markets believed that the Fed would begin to taper…the fall was mainly against the Euro while the US$ rallied against nearly all other currencies (there were huge short positions against the Euro and that may have accounted for its rally…and/or maybe European banks have been calling in overseas loans and repatriating capital home to shore up their balance sheets.)

On June 19 when Bernanke made his second “taper” comments the US$ soared against all currencies, including the Euro, with the US$ Index hitting new 3 year highs this week before Bernanke “sang a different tune” on July 10 and the US$ plunged against all currencies. This past week saw the US$ Index create a Weekly Key Reversal Down…following a Weekly Key Reversal Up 4 weeks ago…the currency markets are “choppy” on hourly, daily and weekly time frames! Yikes! But the Big Picture trend since the May 2, 2011 Key Turn Date has been up.

What to make of it all? Two weeks ago I wrote that I expected the US stock market rebound from the June 24 lows to “peter out” and the market to roll over and make new lows…which would mean that the May 22 highs were indeed a Major Key Turn Date. HOWEVER, I also wrote that if the market was able to rally back through the June 19 highs (the date of Bernanke’s second taper scare) then new all-time-highs were likely to follow. (You have to respect the bullish momentum created as the US stock market rallied over 100% from its March 2009 lows.)

If Bernanke would have stayed consistent with his May 22 and June 19 signals during his July 10 Q+A session then I doubt that stocks would be making new highs…but he didn’t…and they are. Once again we have evidence that this market is trading on the anticipation of Central Bank policy…nothing much else matters.

Trading Themes:

For my short term trading accounts:

I have zero conviction as to where the US stock market goes from here. The market feels toppy to me…and even though Fed officials have stated that accommodation will continue it seems as though some tapering is inevitable. My currency theme remains that the US dollar gets stronger. My interest rate theme remains that we’ve seen the lows and higher rates lie ahead.  With respect to gold…I’m net long a small position of gold as of two weeks ago and still have that position. But it’s summer holiday time and I’m happy to be mostly in cash and on the sidelines…it’s more important to me to maintain my capital and my sanity for future trading opportunities rather than thrash around in these markets. There are important elections coming in Japan in July, Germany in September and while the markets seem to be churning right now some good trading trends may come from all this chop. Best wishes for good health and good trading.

Futures and futures options are the best way to trade currencies, metals, stock indices and many other financial and commodity markets. Call 604 664 2842 to talk with a futures broker.

Signs Of The Times

“We don’t have time for a meeting of the Flat Earth Society.”

                                                                                                      – Barack Obama, June 24

Well, anyone who is not on Planet Liberal is a “Flat-Earther”.

On any issue.

Anyhow, he was mocking the growing number of folk who are skeptical of the theories about Anthropogenic Global Warming. And his timing was remarkable. Made the declaration when a huge high-pressure area drove temps up on the Western side of North America.

The chart of the Sunspot number remains low as the unusually weak Solar Cycle 24 peaks. This following link provides a review of Livingstone and Penn’s work on diminishing solar activity.

http://cbdakota.wordpress.com/2012/01/28/forecasting-cycle-25-livingston-and-penn-method/

Probably his next grandiose scheme will be to re-unite the Continental Divide.

FRIDAY, JULY 12, 2013

BOB HOYE PUBLISHED BY INSTITUTIONAL ADVISORS

The following is part of Pivotal Events that was published for our subscribers July 4, 2013.

“Gold’s price carnage threatens small mines ‘In A Dire Condition’.”

                                                                                                            – Financial Post, June 27

“Forget Gold Altogether” 

                                                                                                            – BNN, June 27

“Gold Bears Eye Fall Towards $1,000 Level” 

                                                                                                            – Financial Times, June 28

“A record amount of money poured out of exchange-traded and mutual bond funds in June. Nearly double the amount at the height of the financial crisis in October 2008.”

                                                                                                          – TrimTabs, July 2′

Perspective

One can’t help but note that comments on gold are virtually opposite to those on lower- grade bond markets in April. Ironically, both conditions have something to do with ambitious government. The first has been critical in helping fund the experiment in unlimited government. The second with gold providing independent adjudication of extreme policymaking.

The key is extreme policymaking and extreme swings in bonds and stocks on the upside and precious metals on the downside. Financials, including Utility stocks, reached measurable excesses in April.

As noted, this was an outstanding set up for a dramatic reversal in May.

This also set up an important philosophical issue. Was the bond crash due to Bernanke’s mutterings about “tapering” the bond-buying program?

Or was it the natural consequence of excessive speculation going into another fateful May? It worked for us in the summer of 1998 as well.

Our view as our indicators soared in April was that “Mother Nature would preempt the Fed’s decision”. This has been the case and the Fed’s only option has been a flimsy attempt to look “in charge” during a bond crash that, by one measure, was worse than the 2008 example.

Interventionist policymaking truly is the theatre of the absurd.

Stock Markets

The big Rounding Top is still on.

The high for the S&P was 1687 set on May 22nd and there has been descending highs and lows since. The panic in bondland got overdone a couple of weeks ago and the overall relief has popped the S&P to the 1626 level. The previous high was 1654, and the June low was 1560.

Generally markets could be somewhat positive into July and the S&P could trade above the 1654 level. Breaking below 1560 is probable and would be important. It would formally mark the end of the cyclical bull market that began as the crash ended in March 2009.

It is worth emphasizing that corporate management and earnings reports, central banks and their cheerleaders are all subject to market forces. The May convulsion is another reminder that credit spreads and the yield curve force change in the stock markets, and once again history has shown that at crunch time the Fed has little influence on spreads and the curve.

Continue to sell the rallies.

Commodities

Crude oil jumped to 102 on yesterday’s “Coupe” in Egypt. This did not break to the Upside on the “Big Triangle” chart. Independent of this, Ross has a chart that has been looking for a high in first part of July.

Important gains in oil reserves and increases in production due to fracking will continue. Other than lowering the real costs of petroleum products it will reduce the premium of Middle East Risk. Diminishing revenue will reduce the ability of Islamists to spread their version of radical utopianism.

In the Western World it will also reduce the ability of governments to impose their versions of radical utopianism. Wind turbines and solar panels–anything but something provided by evil oil companies has been a mania. Not to overlook the mania against nuclear power.

Technically, the remarkable zoom to 147 in 2008 registered a Weekly Upside Exhaustion in the third week of that fateful June. We noted that it indicated the possibility of a cyclical bear. Also noted was that if the action continued to the end of the month and registered on the Monthly it would indicate a secular bull market had completed and a secular bear would follow. The spike ended at 147 on July 11.

The slump into the April low touched 30 on the Daily RSI. The rally could top in the first part of this month and the last two weeks has been outstanding. The RSI is up to 68 and perhaps 70 would end it.

The latest rally has been assisted by the end of the mini-panic in the credit markets.

Then crude oil prices will be facing the prospect of the next credit crisis that could become evident in September. Over time, it will also be facing an increase in production and pricing presures similar to that recorded by natural gas.

Unresponsive to Middle East problems, other commodities declined with the mini-panic. Base metals (GYX) slipped to 323, which extended the bear that started at 502 in early 2011. However, relief in credit markets has prompted a rally. Relief could run for a few weeks more.

The decline in the grains (GKX) took out the low of 281 set last June just as the drought was starting. Technically, this sets the cyclical bear that started at 382 in March 2011.

Relief in the credit markets could allow a rally for a few weeks.

Link to July 5, 2013 ‘Bob and Phil Show’ on TalkDigitalNetwork.com:

http://talkdigitalnetwork.com/2013/07/jobs-up-again-gold-tanks/

BOB HOYE, INSTITUTIONAL ADVISORS

E-MAIL bhoye.institutionaladvisors@telus.net

WEBSITE: www.institutionaladvisors.com

Sunspot Number

 Livingstone and Penn expected diminished solar activity.

 This shows up in the sunspot number.

 The recent minimum was the lowest since 1913.

 Solar cycle #24 has been the weakest in over one hundred years.

 This is the main reason why there has been no increase in temperatures over the past 16 years.

 Sunspot counts in the 1960s and 1970s reached the highest in 1,000 years.  Global temperatures have not yet been as high as recorded with the Medieval

Optimum that ended in the early 1300s.

One of the most insightful comments explaining what happened last night, when Bernanke just killed all credibility that the economy may soon be able to stand up on its own two legs, comes from Seth Klarman who crushed the logic (or lack thereof) behind proclaiming any recovery in a world in which the only marginal factor preventing an all out collapse in the stock market and thus economy is, and continues, to be the Federal Reserve which has not only destroyed the market’s discounting function, but with every passing day is taking over both the entire US economy (the Fed’s balance sheet is now 25% of US GDP) and the US bond market (currently in possession of 30% of all 10 Year equivalents).

To wit:

If the economy is so fragile that the government cannot allow failure, then we are indeed close to collapse

….read much more HERE

It’s Getting Closer – Don’t Say I Didn’t Try To Warn You

Raising interest rates is a blunt but effective weapon against financial bubbles. Central banks now are experimenting with more targeted “macroprudential” tools. Watch how debt-to-GDP ratios have moved in countries trying such tools by clicking the buttons.