Timing & trends
1. Something Big Is Happening…
by Michael Campbell
What’s about to happen is going to make the last five years seem tame. My goal is to make sure you are protected and profit financially.
2. Canada Mortgage & Housing Drops a Bombshell
Actually the CMHC CEO threw grenades at the real estate market.
3. Is One Of Richard Russell’s Last And Most Shocking Predictions Now Unfolding?.
What the Godfather of newsletter writers had to say. (Richard was 91 when he wrote his last article) A must Read in full M/T Ed:
I’ve been in the financial industry a long time, and I’m continually amazed at the market’s astuteness in making reliable, actionable forecasts.
Consider the run-up to this year’s election. Nearly every poll pointed to Hillary Clinton taking the White House, with many pegging her chances at greater than 90 percent. The market took these prognosticators to task. Historically, when the S&P 500 has turned negative between July 31 and October 31, it’s spelled doom for the incumbent party candidate. This year, the market fell more than 2 percent, setting the stage for a Donald Trump victory.
A thought-provoking Atlantic article asserts that “the press takes [Trump] literally, but not seriously; his supporters take him seriously, but not literally.” This is ostensibly how many Trump supporters were able to excuse his more off-color language and instead focus on his proposals. Markets were willing to do the same.
Now, those same markets seem to be placing their bets on the likelihood that Trump’s “America First” policies will benefit small-cap companies especially.
The media is already calling it the “Trump rally.” As I write this, the Dow Jones Industrial Average closed above 19,000 for the first time ever, with the S&P 500 Index and Nasdaq Composite Index having recently set all-time highs.
But small-cap stocks have fared even better. Since Election Day, the small-cap Russell 2000 Index has made “big league” gains, surging more than 11 percent and hitting a record high. The index has been up for 13 straight days—its best run since 1996.
But why are investors focused on small-cap stocks specifically? Simply put, a bet on domestic small caps is a bet that Trump will deliver on his promise to “make America great again.”
Making Domestic Stocks Great Again
The president-elect’s proposals are aggressively inward-facing, which bodes well for companies with little foreign exposure. As a group, small caps have far less exposure to foreign markets than larger, multinational companies do. Because they rely a lot less on exports, they’re not as negatively affected by a strong U.S. dollar, which has the effect of making American-made products more expensive for foreign buyers.
Today the dollar is trading at 14-year highs, with expectations of moving even higher after a possible rate hike next month, followed by Trump’s inauguration in January.
According to his website, Trump plans to create at least 25 million new jobs over the next decade and grow the economy at 3.5 percent per year on average. He will manage to do this, he says, by lowering taxes and “scaling back years of disastrous regulations unilaterally imposed by our out-of-control bureaucracy.” As I’ve shared with you before,regulations cost the U.S. economy approximately $2 trillion a year.
The president-elect also plans to spend as much as $1 trillion on infrastructure over the next 10 years, which the market has responded to approvingly.
This market behavior is yet another example of the “wisdom of crowds,” which I’ve discussed numerous times before. In one of my favorite books, 2005’s The Wisdom of Crowds, business writer James Surowiecki convincingly makes the case that large groups of people will nearly always be smarter and better at making predictions than an elite few.
The Wisdom of Investors
At first blush, this idea might seem counterintuitive. We’ve all heard of mob mentality. Indeed, giant crowds of people are sometimes capable of making impulsive, irrational and destructive decisions. Think of the Salem witch trials, which ended with the execution of 20 people, or the Holocaust.
But Surowiecki’s thesis says that large groups of diverse and independently-deciding people—investors, for instance—are far better at analyzing and aggregating mass amounts of information than individuals, even experts.
As an example, Surowiecki explores the market’s now-famous response to the tragic Challenger shuttle explosion in 1986. In the minutes following the televised disaster, “investors started dumping the stocks of the four major contractors who had participated in the Challenger launch: Rockwell International, which built the shuttle and its main engines; Lockheed, which managed ground support; Martin Marietta, which manufactured the ship’s external fuel tank; and Morton Thiokol, which built the solid-fuel booster rocket.”
One of these names, however, was hit the hardest—Thiokol. By the end of the trading day, it was down almost 12 percent, more than six standard deviations in the three months before the explosion, according to economists Michael Maloney and Harold Mulherin. What the market seemed to be saying is that Thiokol was to blame.
The thing is, there had been no public comments implicating the now-defunct manufacturer. It wouldn’t be for another six months, during a presidential commission hearing on the disaster, that evidence was released showing Thiokol’s O-ring, which is supposed to prevent hot gases from escaping the booster rockets, had been faulty.
On that day, Surowiecki writes, the stock market was “working as a pure weighting machine, undistorted by the factors—media speculation, momentum trading and Wall Street hype—that make it a peculiarly erratic mechanism for aggregating the collective wisdom of investors.”
Similarly, the market in 2016 managed to cut through the ugly campaign noise and rhetoric to select the candidate who eventually emerged as victor. And now, they appear just as convinced that Trump’s policies can unleash American growth and ingenuity.
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The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks. The Russell 2000 Index is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000. The Russell 3000 Index consists of the 3,000 largest U.S. companies as determined by total market capitalization.
Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility.
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America voted to return to its foundations as a constitutional republic instead of continuing on the path towards a corrupting welfare state. On their compulsive drive, the governing classes had become, well, ungovernable.
On Independence Day weekend, this writer published an article that rhetorically asked if the “American Spring” would be successful? The answer in rural talk was “You bet!”. Trump, the Republicans and the “deplorables” will indeed drain the swamp in early stages in another great reformation.
For many, the election was a shock followed by distress. This shows up in street riots and counselling sessions. Get over it, equally intense angst took to the streets with the transition from Carter to Reagan.
For beleaguered taxpayers, results signal relief from increasingly expensive and wasteful bureaucracy. High-fives all around. Hoist a beer and work with the reform.
In the last few years the thrust of state ambition became intrusive enough to arouse a popular uprising. Dating back to dynastic changes in Ancient Egypt, there is a long history of the public being provoked enough to reform predatory government.
The uprising in Czechoslovakia in 1989 was successful and attributed to the “power of the powerless”. The “Prague Spring” of 1968 was brutally quelled by tanks and machine guns.
For hundreds of years, neurotic intellectuals have scorned ordinary citizens as “bourgeoisie”. Hillary Clinton’s contempt was focused upon the “deplorables”.
The moment of success for an uprising occurs when state operatives lose the will to impose authority. At virtually the same time, submission loses its complacency.
Professional activists disrupted GOP meetings during the election and it was worth making the comparison to riots in Europe in the early 1930s. Those were violent streetclashes between international socialists and national socialists. Both were professionals and both sides were rioting for authoritarian government. Uninvolved citizens remained quiet.
Recent disruptions in American streets have had only one party clamouring for intrusive government.
While unremarked by legions of journalists, there has been an important distinction. Despite being burdened by the establishment’s intrusions, the general public remained silent and stayed home. With contempt, Dems abused them; too many in the GOP ignored them.
Suddenly, the uninvolved became involved.
The results are profound, irrevocable and quite likely long lasting.
Just how profound is that it was not just another struggle between two parties contesting the middle ground. The combination of the apparatus of government, the MSM and the Democratic Party had become a monolithic political force with seemingly infinite power.
Political Correctness has become one of the most formidable forces in history. Its remarkable success does not depend upon winning arguments, but in relentlessly attacking anything contrary to the notion de jour. Since the late 1960s, it’s been Global Cooling, Fluoridation, Alar on Apples, Acid Rain, Ozone Holes, GMOs, Global Warming and Climate Change, just to list the most compelling anxieties. Thoughtful folk are grateful that activists seem unable to get excited about all of the threats at the same time.
And, no matter the issue, the dogma is always settled.
Now for the irrevocable part.
The recent great experiment in authoritarian government has run for more than a hundred years. Each country ran its experiment in its own way. Some countries became murderous police states, some were constrained to mere envy, but most did not turn murderous.
In what seems a long time ago, Americans celebrated individual responsibility and limited government. But inspired by Obama, the long-running trend of intrusion went ballistic. In providing credit without limit, the central bank also went ballistic. Such extremes have provoked informed and legitimate opposition.
This uprising compares to the early 1600s, when the last great authoritarian experiment ran to political and economic distress. The burden of the ambitious combination of church and state became too much for the average household. England’s reformation was much less violent than Europe’s, and hopefully provides guidance for today. The “Glorious Revolution” of 1688 was bloodless and the highlight of the transition from absolutist monarchy to limited government.
The subsequent trend towards increasing freedom was described as liberalism and ran until the 1890s. Even if a researcher then had known the characteristics of the two previous great experiments in authoritarian government, it would have been impossible to predict another one. Fortunately, there has been two examples of ending action to provide guidance. The first one was the collapse of Rome.
Quite simply, undisciplined bureaucrats intrude until the money is gone.
Over the decades, intrusion has had many compelling political banners. Fascism, which is the combination of big business and big government, Communism, Socialism, Globalism and sadly a corrupted Liberalism. Not to overlook the remarkable persuasions of the Global Warming/Climate Change movement. Anyone who criticizes the compulsion of the day is often called a Nazi. All the banners represent arbitrary intrusion and clearly a universal definition of authoritarian ambition is needed.
“That which is not compulsory is prohibited.”
Which covers everything from Communist dictatorships to school boards.
Authority happened everywhere and the belligerence of the Obama/Clinton administration finally aroused an uprising that is now impressive. This is shocking to the establishment, which ironically, has suddenly become the reactionary force.
More recent political history could also provide guidance.
In the early 1980s, a popular uprising began in Europe and eventually took out totalitarian governments. The West enjoyed reform as well.
President Reagan won the White House, but was opposed by the Democratic House and Senate. More reform was prevented than accomplished.
In 1984, Canadian conservatives were revved up for change. This gave Prime Minister Mulroney the biggest landslide in history. In a parliamentary system the majority party has a lot of power. Unfortunately, even by the 1988 election the party did not understand the popular demand for reform. Some privatization was accomplished, but much of the potential for reform went unrealized.
In England, Prime Minister Thatcher’s majority was understood and accomplished massive reform towards more limited government. The greatest such success since 1688.
Brexit is a reform movement away from excessive and remote government. In 1776, Americans had similar issues.
Donald Trump will take office with the strongest Republican position since 1928. This includes 33 state governorships. What about continued activism by monolithic media?
The blunder by main stream media is finally being recognized and criticized. Some reporters could reform, but too many will not quit promoting intrusive bureaucracy.
In the late 1500s, England’s government enjoyed almost full control of the media, both in print and in the pulpit. But during the popular uprising of the early 1600s, Archbishop Laud at the notorious Star Chamber complained about losing control to the new middle class media. Because of establishment censorship, independent information was published as “newsbooks” in Amsterdam. And then distributed to discerning readers in England.
Some of the financial details of that period are fascinating.
As usual, a long expansion ended in a boom. Then the contraction with growing unemployment forced the desperate government to an experimental “make work” program. In real time, London merchants ridiculed the scheme in calling it “Tyrannical Duncery”. The severe financial collapse that began in 1618 validated the description. Intrusion worsened the financial calamity.
History records as many failures as there are theories of intervention. The last twenty years of policymaking has been providing another prime example of Tyrannical Duncery.
Lately, business is burdened by rules and regulation, which inhibits growth. Academic economists arbitrarily decide that GDP growth is too weak. Central bankers recklessly boost credit hoping it will “grow” the economy. The net result has been a weak expansion. But excess credit has bubbled up in reckless speculation in tangible and financial assets that is becoming unsustainable.
With a degree in geophysics, this writer has described the ambition to “manage” the climate as the most audacious boast in the long history of bureaucracy. Traditionally, wise priesthoods have only interceded with gods, not acted as if they were gods.
Understandably, the state has championed only economic and climate theories that serve its drive for power and wealth. Such corruption will become more widely understood. IPCC’s mandate was to investigate anthropogenic warming via CO2 and nothing else. One-dimensional research on a three-dimensional subject.
The electorate’s discovery of the modern equivalent of “Duncery” and the conviction to say “No!” is a start. Eventually, it will reform in-your-face and in-your-wallet governments.
Perhaps the movement really is becoming the “American Spring”. Opposing tantrums will be ineffective. The unprecedented union of state and media has had a serious setback. Generally, media could reacquire self-criticism as well as its former responsibility as the “Fourth Estate”.
As with so many historical examples, the uprising is the vehicle of reform. Trump just happens to be the leader, and personally he is more of a threat to good taste than to good order. Bureaucracy unconstrained by constitutional norms has always been the greatest danger.
You can wager on this.
Bob Hoye, Institutional Advisors – WEBSITE: www.institutionaladvisors.com
….also:
This Week In Geopolitics: Russia, the United States, and Donald Trump
Todd Market Forecast for 3pm Pacific Wednesday November 16 , 2016
DOW – 55 on 100 net advances
NASDAQ COMP + 19 on 150 net advances
SHORT TERM TREND Bullish
INTERMEDIATE TERM Bullish
STOCKS: Today was profit taking after 7 up days in a row for the Dow. We like the fact that it was down on positive breadth.
Crude oil may have influenced trading. It was down on a high inventory number.
It’s tempting to take a long trading position, but it’s a bit too risky right now.
GOLD: Gold was flat. Not much happening even though it is very oversold.
CHART The NASDAQ Composite, like the S&P 500 is overbought and in a congestion zone. Note that when 5 Day RSI becomes overbought (over 70) the index usually drops or goes sideways. That is unless it is in a sustained uptrend like last July. We should soon know if that’s the case. We still have in mind the high put call ratios.
BOTTOM LINE: (Trading)
Our intermediate term system is on a buy.
System 7 We are in cash. Stay there for now.
System 8 We are in cash. Stay there.
News and fundamentals: The PPI-FD rose 0.3%, higher than the expected flat reading. Industrial production rose 0.1%, better than the consensus 0.0%. The home price index came in at 63, in line with expectations. Oil inventories rose 5.3 million barrels, more than last week’s 2.4 million rise.
Interesting Stuff Start by doing what’s necessary; then do what’s possible; and suddenly you are doing the impossible. ——–Francis of Assisi
TORONTO EXCHANGE: Toronto dropped 23
BONDS: Bonds rose for the second day.
THE REST: The dollar continued higher. Silver fell back. Crude oil back off slightly.
Bonds –Bearish as of November 7.
U.S. dollar -Bullish as of November 7.
Euro — Bearish as November 7.
Gold —-Bearish as of November 7.
Silver—- Bearish as of November 7.
Crude oil —- Bullish as of November 15.
Toronto Stock Exchange—- Bullish from January 22.
We are on a long term buy signal for the markets of the U.S., Canada, Britain, Germany and France.
…also Michael Campbell’s Mid-Week Update: On The Brink of Massive Changes
Monetary conditions (+2 means the Fed is actively dropping rates; +1 means a bias toward easing. 0 means neutral, -1 means a bias toward tightening, -2 means actively raising rates). RSI (30 or below is oversold, 80 or above is overbought). McClellan Oscillator ( minus 100 is oversold. Plus 100 is overbought). Composite Gauge (5 or below is negative, 13 or above is positive). Composite Gauge five day m.a. (8.0 or below is overbought. 13.0 or above is oversold). CBOE Put Call Ratio ( .80 or below is a negative. 1.00 or above is a positive). Volatility Index, VIX (low teens bearish, high twenties bullish), VIX % single day change. + 5 or greater bullish. -5 or less, bearish. VIX % change 5 day m.a. +3.0 or above bullish, -3.0 or below, bearish. Advances minus declines three day m.a.( +500 is bearish. – 500 is bullish). Supply Demand 5 day m.a. (.45 or below is a positive. .80 or above is a negative). Trading Index (TRIN) 1.40 or above bullish. No level for bearish.
No guarantees are made. Traders can and do lose money. The publisher may take positions in recommended securities.
Explosive swings in the markets this week with the US Dollar, Interest rates, & the stock market rising. Gold down & Currencies in the emerging markets are getting smashed.
….related Michael’s Featured Guest: Don Vialoux on Fascinating Markets
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