The 2009-2014 Cyclical Bull Market Is Running on Fumes at Resistance in Real and Nominal Terms (4/11/2014)

Technical Update on the U.S Stock Market in Real and Nominal Terms

S&P 500: $SPX is way above its 2000 and 2007 highs, but its current cyclical uptrend looks overextended. Volume is starting to increase on down moves as well, so traders and investors are getting jittery at these levels. That uptrend line must stay intact for the bulls to survive, in my opinion.

Source:  StockCharts.com

FYI: $SPX pierced through its 50 day moving average yesterday.

Source:  StockCharts.com

Nomura's Richard Koo on Balance Sheet Recessions (Deleveraging), QE Traps and Economic Growth

Richard Koo, Chief Economist at the Nomura Research Institute, is an expert on deleveraging cycles (or what he calls "balance sheet recessions" after asset price bubbles burst), deleveraging's negative effect on the money supply, credit growth, spending and inflation, and how to manage these deflationary forces to prop up GDP growth and to avoid a depression.

NASA Expects Sunspot Cycle to Dip in April; S&P 500 and Sunspot Cycle Are Moving in Tandem

The sunspot cycle may have exhausted to the upside in March. NASA expects the sunspot cycle to fall in April and, based on its forward projection, to trend down in the months and years ahead. It's interesting that both the sunspot cycle and S&P 500 made new cycle highs in March. Here's a chart of the S&P in real terms versus the sunspot cycle since 1995. What are the odds that they continue to move in tandem? Read previous posts on the sunspot cycle.

Rising Dependency Ratios in Developed World and China Will Put Pressure on Credit Growth, Asset Prices and Economic Growth For Decades: Demographics Alert

After various credit and asset bubbles burst in the developed world (and now in China) and fueled deleveraging cycles, negative demographic forces could also put pressure on credit growth, asset prices and global economic growth going forward. The total dependency ratio, which, according to the United Nations, is the total number of people aged 0-14 and 65+ versus those aged 15-64, in most developed economies is going to bottom out and start rising between now and 2020 (or already has when looking at the graphs of Japan, the U.S. and many European countries). If you do a Google search on demographics, you can see that many advanced economies are facing what Harry Dent calls a "demographic cliff," which is mainly being fueled by the "elderly dependency ratio" (people retiring from the workforce).

Sunspot Count Prediction Hits New Cycle High in March 2014 (NASA)

Wow.

Source: NASA

Chart of the Day: Ukraine's CDS Spread

Ukraine's credit default swap spread is testing the recent highs it looks like. The country could get bailed out soon by the IMF.

WSJ:
WASHINGTON—An International Monetary Fund team will visit Ukraine from Tuesday to March 14 to assess the economy and begin negotiations for a financial bailout, the IMF said Monday.

Source: S&P Capital IQ

The Dow's Low In 1932 Almost Tested Its High In 1835! Asset Price Deflation In The 1930s Took The Dow Back To The 1860s

These charts released by @Macro_Tourist in a PDF are a must see. I saw them all at Zero Hedge a few days ago (1, 2). There are charts of interest rates and commodity prices going back to 3,000 BC, a gold chart since 1263, and there's a chart of the "western stock market" since 1509. There was a also a chart that specifically showed the U.S. stock market (Dow Jones Industrial Average) since 1789, which I focused on below. In a previous post, I showed you that the Dow's low in 1942 (92.9) was below its secular bull market high of 103 in 1906 (-9.7% over 36 years). But @Macro_Tourist's chart showed an even better flatline. The Dow's low in 1932 (41.2) almost tested its high of 36.6 in 1835 (+12.5% over 97 years). For an analogy that's similar to my previous post, the Dow's low in 1932 (41.2) crashed through its high of 48.9 in 1869 (-15.7% over 63 years). That's how insane the asset price deflation (or deflation overall) was in the 1930s. It took stock prices back almost 100 years.

Rydex Leveraged Bull/Bear Ratio Is Flashing A Warning Signal (via Elliott Wave Intl)

I'm an affiliate partner of Elliott Wave International. They provide great charts for syndicated blog posts. The Rydex bull/bear ratio is another sentiment indicator for the stock market.

Many Are Betting on a Calm Market. We're Not.

Here's one good reason why: a historic market sentiment extreme

By Elliott Wave International

The DJIA, S&P and NASDAQ are struggling to bounce. Yet the bullish convictions remain high. Says a February 5 Investor's Business Daily headline:

"Why Mutual Fund Investors Need Not Panic After January Sell-Off"

When is the best time to get out of the stock market? When everyone else is invested and extremely optimistic. When is the best time to buy, then? Exactly: when you see the opposite sentiment.

Market sentiment is one indicator you don't hear much about on financial networks. Yet we've seen sentiment extremes repeat at every recent market top and bottom. What's more, as Robert Prechter, the president of Elliott Wave International, puts it, "the greater the degree of the advance that is ending, the greater the optimism at its peak."

One Linear Equation Has Driven Every Cyclical Bull Market In The NYSE Since 1995

Conspiracy time, people. According to this chart, cyclical upswings (bull markets) in the NYSE Composite Index have been controlled by one linear equation since 1995. Same exact trend line (slope) every time. Is this pattern seriously sustainable?

The Dow's Low In 1942 Was Below Its High In 1906 In Nominal Terms (Chart)

Here is some interesting market data I found at stockcharts.com. In the first half of the 20th century, the Dow Jones Industrial Average made a low in 1942 that was lower than its high in 1906. Meaning, if you were in a coma during the 1907 bankers' panic, panic of 1910-1911, Federal Reserve's creation in 1913, World War I, depression of 1920-1921roaring 1920s, 1929 stock market crash, great depression, and the first half of World War II, your Dow holding (if you bought near the $103 peak in 1906, let's say $100) would be down 7% over a 36 year period (bottomed at $93 in 1942).

Bill Gross: "Credit creation or credit destruction is really the fundamental force that changes P/Es, risk premiums, natural interest rates, etc."

Bill Gross, Co-CIO of PIMCO, wrote how the expansion or contraction of credit and its velocity affects asset prices and economic growth in his February 2014 Investment Outlook titled "Most ‘Medieval’". Basically, unless the private sector can stimulate credit growth in the system, he's worried that the declining budget deficit and Fed tapering will put pressure on credit growth, asset prices, and economic growth. Pulling credit (or credit growth) and liquidity from the economy and financial system is deflationary in nature, and doing so would also affect the private sector leverage, allocations, and euphoria propping up asset prices (1, 2, 3Reflexivity?) And we already know that money supply (M2) growth hasn't translated into much GDP growth since the government bailouts in 2008 (velocity of money).

Sunspot Number Expected To Turn Down In February 2014, Cycle May Have Officially Peaked In January - $MACRO $SPX

The reason why I follow the sunspot cycle is because Charles Nenner, founder of the Charles Nenner Research Center (studies cycles), told CNBC in November 2010 that it has a positive correlation with people's moods, economic growth, military conflicts, and the stock market ("exuberance"). He believes the Dow Jones Industrial Average will eventually fall to 5,000 and there will be a war. So, like other deflationists, he believes the Fed won't be able to stop the deflationary forces in the economy. Here is the video and the sunspot chart for February via Hathaway/NASA/MSFC.

Jim Grant: The Federal Reserve's Massive Experiment In Price Control Will Turn Out Badly (CNBC Video) $SPX

Source: CNBC.com
Jim Grant, founder and editor of Grant's Interest Rate Observer, told CNBC's Rick Santelli on 1/29/2014 that he thinks the Federal Reserve's "massive experiment in price control" will turn out "badly." Here's more of what he said:
It strikes me Rick that the Fed in substance, if not in name, is engaged in a massive experiment in price control. They don't call it that, but they fix the funds rate, they manipulate the yield curve, they, through this two dollar phrase called the portfolio balance channel, talk up the stock market. They have their fingers, their thumbs on the scale of finance. To change the metaphor, we all live to a degree in kind of a valuation hall of mirrors. Who knows what value is when the Fed fixes the determining interest rate at zero. I said experiment in price control, but there is no really suspense about how price control turns out. It turns out invariably badly.

These Charts Show Why Deflation Risks Remain In The Euro Zone #ECB

High unemployment rates, low money supply growth, and negative private sector loan growth (YoY) show why deflation is still a serious risk in the euro zone. The euro zone could experience lost decades of Japanese-style deflation if this trend persists, which is why the ECB was thinking about making its deposit rate negative a few months ago.

PIMCO's Bill Gross: "De-risk, move to Treasuries."

Via @PIMCO on Twitter today:

Eurozone's Overnight Eonia Rate Spiked Recently, Is Bank Liquidity Risk Rising In The "Core" Eurozone?

The Eonia® rate, or the "Euro OverNight Index Average," rose to 0.359% yesterday from just under 0.12% in early January (according to the chart below). At euribor-ebf.eu, the Eonia rate is defined as "the effective overnight reference rate for the euro. It is computed as a weighted average of all overnight unsecured lending transactions in the interbank market, undertaken in the European Union and European Free Trade Association (EFTA) countries."

Michael Pettis On The Consequences Of China's Rebalancing (Why Deleveraging Will Slow Growth)

Michael Pettis, finance professor at Peking University's Guanghua School of Management and author of "The Great Rebalancing", "Avoiding the Fall: China's Economic Restructuring", and the "China Financial Markets" blog, explained everything you need to know about China's rebalancing at the 2013 Wine Country Conference. He also did a Q&A session with hedge fund manager Jim Chanos, who is short China. Michael Pettis also talked about China at the Instituto Fernando Henrique Cardoso (iFHC) and Columbia University in 2009 (see videos at this post).

In the video below, Michael Pettis explains how China's rebalancing will occur and how it will affect GDP growth as the country shifts away from its levered fixed asset investment, export-driven growth model and towards domestic consumption. Basically, from what I learned from Pettis' lecture, what needs to happen is China's "household income share of GDP" needs to rise.

Jim Rogers: Japanese Stock Market Is Still Down 70%, Be Careful With US Stock Market, Follow Chinese Government Spending (Video)

Jim Rogers was featured on Reuters TV on January 17, 2014. Watch the full segment below. He thinks Japanese stocks are still cheap relative to U.S. stocks, you should follow Chinese government spending, but be careful with stocks when central banks pull back their stimulus (watch the Federal Reserve specifically).

On Herbalife's Big January 2015 $50 Put Trades ($HLF $NUS)

Were those 45,000 January 2015 $50 $HLF puts bought to hedge against Nu Skin contagion risk? Was it Ackman (via Ackman's broker/dealer) putting on more short exposure? Does a new hedge fund think $HLF will correct 40%+ in 2014?

Canada's Household Debt-To-Income Ratio, Price-to-Rent Ratio and Real House Prices Are Flashing Warning Signs

Alert: Canada's household debt-to-income ratio, price-to-rent ratio, and real house prices have been diverging with the US since 2006-2007 (right before the U.S. financial system collapsed). Household debt-to-income ratios in the US and Canada rose in tandem from 1990 to 2007. Can anyone explain why these massive divergences are normal right now? These charts are from BCA Research's blog. It looks like Australia is in the same boat (hopefully commodities don't see a hard landing).