Ability is a poor man’s wealth.

1. Wren

The reaction when the market starts to correct is the same; run for the hills, the world is ending or some variation of that theme. However, if you spend a little time on looking at the history of the markets; one thing becomes clear. Those that panic gets hammered and those that remain calm walk away with the spoils.

 One way to visually see the “deviation factor” is through the use of standard deviation bands. Many software programs on the market will automatically fill in the Standard Deviation (SD) bands; Ideally, the setting should be set at 3SD from the norm, but settings of 2SD will suffice if you are unable to alter the settings manually. When the markets touch these ranges, and the trend is up, then backing up the truck is the thing to do.

Big Charts does not allow you to change the settings, they are fixed at 2SD, but there are sites out there that will let you adjust the settings.  Despite this limitation, one can immediately spot two great opportunities; 2003 and 2009, clearly illustrating that fear never pays.  As long as Fiat is in play, the Fed will attempt to reflate the economy. Naysayer after naysayer has stated that one day the masses will wake up, well they are still waiting for that day. Most don’t even know what Fiat stands for, and even fewer are willing to give it up.  There is a saying don’t fight the Fed, and so far that saying has held true.

 Strong corrections falling in the 2SD ranges and beyond should be embraced. From a long-term perspective, every back-breaking correction or crash has proven to be a buying opportunity. Knowing the trend does help and we put that to maximum usage; it’s for this reason we have adamantly stated that the Bull Market the bears were calling an end for would not end shortly. Several years later, and the Bull as we foretold remains strong; the bull market will end but not before the crowd embraces it like a long lost love

Stock market crashes should be viewed through a bullish lens,

 But how do you get out of the market at the right time, First of all, forget about trying to time the exact top, instead focus on the emotion? When the crowd turns euphoric, it is time to take money of the table and or tighten your stops.  As you can see from the latest reading below the crowd is still antsy.

This is an old bull market, and it continues to trend higher because the crowd is still nervous and the most individuals think this market cannot and should not trend higher; that is why it probably will continue to trend higher.  For almost several years on end we have been stating that this bull market would trend higher than the most ardent of bull’s expectations and so far that’s exactly what this bull market has done. 

History never changes; the markets will experience one very strong correction before this bull keels over.  The problem is that the masses have been waiting for a strong correction since roughly 2013.  The ironical part is that the markets will pull back strongly, but most likely they will be trading at a higher level than they were at 2013. In 2013 the Dow was trading in the 12,800-13,000 ranges. While it is possible that the Dow could drop to this level, it is a low probability event as the masses are far from Euphoric at the moment.  Most likely the Dow will shed 25%-30% from its highs. Assume the Dow trades to 22K; at the extreme end, the Dow could drop to the 15,600 ranges.  Market Update June 18, 2017

Until the trend turns negative, we can only make educated guesses regarding the intensity of the next correction. As Fiat money rules the world, even more, money will be poured into the next created financial disaster, which will eventually push the market to new all-time highs. Until the people reject Fiat, the Fed will continue to create boom and bust cycles purposely; that is their primary agenda. Examine the history of the Fed, and you will see that they have gone out of their way to create these cycles. Volatility is a trader’s best friend and the higher the market trends, the more volatile the ride. As the volume of the money supply increases so will the volatility.

Ability will never catch up with the demand for it.

Malcolm S. Forbes

By Sol Palha

Today’s bullish surge was strongly impulsive on the hourly chart (see inset), surpassing no fewer than four prior peaks, three of them ‘external’. From a technical standpoint it transformed a bearish head-and-shoulders formation that has been taking shape since May into something else — presumably a consolidation pattern with enough energy to push the stock above the all-time high at 1083.31 recorded in late July. We shall soon see.

Of course, if the bull market in AMZN is about to get second wind, it holds bullish implications for the stock market as a whole, since the company is the most important retailer in the world.  Concerning AMZN’s chart, from a trading perspective the rally from the September low at 931.75 was as appealing a ‘counterintuitive’ set-up as we could have imagined, since the low was just inches from June’s watershed bottom at 927.00. I

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One of the fascinating things about financial bubbles is how they transform great companies into screaming short sale candidates. Put another way, bear markets tend to throw even the prettiest babies out with the bathwater. 

Here, for instance, is what happened to Cisco Systems, the dominant maker of networking gear (the devices that run the Internet) when the 1990s tech stock bubble burst, bankrupting many of its customers and causing its earnings to miss expectations. Its stock fell by more than three-fourths and those who had bought it during the previous year’s euphoria got hosed.

Cisco recovered, as great companies do, and continues to lead its part of the tech world. Current market cap: $160 billion. 

And here’s Bank of America, which was a rock-solid dividend paying machine during the 2000s housing bubble – until the bubble burst and everyone defaulted on their mortgages. B of A stock fell by 90% and it stopped paying dividends, leaving its (mostly retiree) shareholders with massive capital losses and zero current income. 

It too subsequently recovered and, along with Goldman, Morgan and its other money center bank peers, is now back to manipulating markets with impunity and paying rich dividends. Its market value is a little north of $270 billion.

Which brings us to the current bubble, bigger and broader than its predecessors and so – presumably – full of more great companies about to morph into life-changing shorts. Consider Tesla: 

You have to love this company. Founded and run by Elon Musk, who inspired the Tony Stark character in Iron Man, it’s a leading maker of electric cars (which are both insanely fun to drive and the solution to the oil part of the fossil fuels dilemma) and solar panels (solution to the coal part of fossil fuels). So it’s about as cool as a company can be. 

But after rising by more than 1000% in the past five years it now trades at nearly 6x sales – an extremely rich multiple for an established company – and is having some dramatic production problems with its newest models: 

Tesla: Model 3 production problems prompt electric Semi delay

(Green Car Reports) – Tesla’s aggressive goals for Model 3 production have run into a series of setbacks, and the knock-on effect spilling over into the company’s planned electric semi truck debut, which has again been pushed back from its overdue September launch.

Elon Musk announced the later, November 16 unveil date for Tesla Semi via Twitter, while blaming both “Model 3 bottlenecks” and the ongoing humanitarian situation in Puerto Rico for the delay.

Earlier this year, Tesla announced plans to produce up to 5,000 Model 3s per month by the end of 2017, though the announcement was met with skepticism at the time.

A report last week by The Wall Street Journal revealed the company is producing major components of the car by hand, and confirmed production is falling well short the stated goals.

Though Tesla claims the report overstates the extent of the problems facing the factory, Musk did admit on twitter that the Model 3 is “deep in production hell.”

Between the continued production difficulties and Tesla’s efforts to send battery packs to Puerto Rico, the company decided to “recalibrate” the timing for both Model 3 production and the truck’s official debut.

To sum up, Tesla is facing a combination of richly-valued stock, overvalued stock market, and failure to meet its goals for this and presumably the next couple of quarters. So it fits the profile of the great company with internal and external problems that make its stock price hard to justify. 

Will it (and its Big Tech peers) be the next Big Short? That probably depends on when the current bubble bursts and whether governments this time around respond by directly buying large cap stocks. Those things are unknowable, but right now the shorts have a lot of data points on their side. 

Full disclosure: Various members of the DollarCollapse staff are looking hard at shorting Tesla.

MamaMancini’s Holdings (MMMB:OTCQX) is a marketer and distributor of a line of food products, primarily meat balls – the company reported a record quarterly results this past week. We let you know if it is a BUY, SELL or HOLD? 

With the Semiconductor sector below but hailing its all-time highs, a lot of images come to mind; chief among them the 1999-2000 stock market bubble…

In early 2013 we noted a progression that would go on to birth the current economic expansion and stock market boom (of course, I didn’t come close to envisioning the extent of the boom that followed). I’ve belabored it often since, but here’s the short version of the progression yet again…

Fiscal Cliff drama resolves into market relief after Q4 2012 and this occurs right around the time we noted that Semiconductor Fab equipment bookings were ramping up → which projected a ramp in the cyclical Semiconductor industry → which would lead general manufacturing → which projected broader economic firming → which projected improving employment → and with ISM currently booming and the Semi cycle in full swing, voila, we are still on that continuum.

Speaking of which, and considering I am not one for subtlety, here’s the Continuum again so you have a cartoon to consider while digesting the rest of this post.

The Semiconductor cycle was born in 2013 just before long-term Treasury yields topped out into the climax of the Great Promotion Rotation hype that the financial media cooked up as a rationale for buying stocks. It turned out they did not need hype because over valuation and over speculation aside, the cycle was real and backed by firm economic activity.

But it was a Goldilocks recovery and to this very day the bond market has not changed its mind about that. If the backbone of the chart above (the red EMA 100) remains intact, the continuum… continues. We’ll return to the bond market a bit later in the post with some reasoning about why Janet Yellen or whoever replaces her may not be as lucky as the middle two mugs on the chart above.

So here we are nearly 5 years later and Semi Fab spending for 2017 has been robust and is projected the same for 2018. I’d tend to dismiss these projections as trend following happy talk as I would the average economist’s projections, but in this case SEMI is charged with being accurate for industry users, not with running promotions upon we financial sphere types* looking for macro signals. Ever since we got the lift off signal in January of 2013 I’ve watched closely to see if the rosy projections might be hype and all along they’ve been borne out. The only crack in the rose colored glasses is that the rate of change has faded from what is in essence the 2017 actual to the 2018 projection. It’s hardly a concern in and of itself.

Moving on to what would be the next step from a firming Semi cycle, manufacturing is brisk all these years later (although Callum Thomas points out a discrepancy between the Markit and ISM PMIs).

If ISM (which I trust as a data source) is right the signal is as good as it gets for the manufacturing sectors. However, a casual glance at respondents’ overall healthy view (ISM Report for September) shows that the recent Hurricanes factored quickly and heavily into pricing in the supply chain.

Headline PMI really does not mean much. New Orders and Employment are solid and backlogs are good too. The rest is noise factoring into the headline PMI. It’s a solid report but I saw a lot of financial media buzzing about the Prices reading at 71.50. Tune it out. It’s not going to create inflation or inject anything structural into the economic situation.

The ISM’s bottom line however, is that the readings were firm in August as well and if inflation expectations start to creep up and large financial interests and global sovereign Treasury bond holders become net sellers… inflation would be indicated. It could be a good old fashioned inflation like the post-2000 period, which has so many similarities to today (like a potential market blow off).

But with the Fed soon to be actively, albeit slowly, removing assets from its balance sheet as a remedy to Ben Bernanke’s decidedly over the top original actions, a wild card is in the mix that did not exist in 2000 on through the inflationary bull market overseen by Alan Greenspan. In that time frame, despite obvious inflation in the system, the bond market remained tame (as one look at that time frame on the 30yr Continuum above clearly shows) and supportive. After post-2008 unconventional policy was fire hosed in there must be distortions, the effects of which we have not yet felt.

After 2000, from low long-term Treasury yields the great credit/mortgage bubble was blown in reaction to the stresses in and around 2001. This then instigated mal-investment in the housing and mortgage markets, mal-pricing in the housing market and in a progression much uglier than the Semi cycle noted at the beginning of this post, eventually proceeded into new leveraged derivative products and vehicles by which Wall Street banks almost wrecked the financial system. Their salespeople sucked in not only gullible and unqualified home buyers, not only US institutions and municipalities, but institutions and investment entities all over the world. All due to the speculation that resulted from inflation-by-policy (i.e. money printing) permitted by low Treasury yields and the supposed “inflation vigilantes” that may in hindsight have been more myth than reality.

So we are left watching ‘inflation expectations’ signals from the bond market (still tame) and economic indicators in order to gauge how well the Fed is doing at boosting inflation. Dumping long-term Treasury bonds, if not regulated well, could eventually work to paint the macro in an opposite way that Operation Twist did. Maybe now this macro operation would paint inflation in, as opposed to Op/Twist’s goal of sanitizing it out of the system.

Again, the goal of Twist was to buy long-term bonds and sell short-term bonds, to force a flattening yield curve and hold long-term interest rates down. Enter the Goldilocks economy, as if by decree. But today the Fed is on the verge of doing the opposite, albeit slowly. They plan to sell long-term instruments back into the market while at the same time economic growth is brisk.

Nothing is a lock here in Wonderland, but with the world conditioned for decades by the secular decline in yields, what if the red line on the first chart above is taken out (above 3.3%), the bond bull ends and all bets currently aligned with the secular bond bull (yield decline) come off?

Bottom Line

We have a lot of similarities to 2000 except that back then Greenspan had the benefit of low yields, which provided the mechanics of the recovery (i.e. the credit bubble and inflationary bull market, which later melted down into the first “Great Recession”).

Today we have a market that has feasted off of the Goldilocks environment that was created by QEs 1-3 and a Twisted operation of brilliance by Ben Bernanke, the “hero”, who will have long since ridden off into the sunset.

Investment and risk management objectives would include some important dos and don’ts depending on what the Treasury bond market and the Continuum above, do. Be prepared with an open mind that considers a view of decades as opposed to days, weeks, months or years.

* Of course I’m not really a financial type. I don’t wear fancy suits and I’ve spent more years on a manufacturing shop floor than in my home office writing about markets (which at 13 years and counting is getting pretty long too).

NFTRH.com and Biiwii.com