This is going over to Financial Sense online, but I wanted to beta test here first. I might be willing to set up a blog using this outline, but frankly am not very computer savvy, nor do I have any interest in spending time on battling such a project. If somebody reading this, has that ability to get it set-up in a presentable format, and it's easy to use (kind of click and plug data)for me, I'd be receptive, and I'll just link it to the lab tools header.
The Little Shop of Horrors:
There are two components to the LSH scenario (* see lyrics): first, the set up, second, how to track and analyze the set up. Of course the playbook off the set-up is the toughest of all, and I regularly try and comment on that in real time as opposed to making some kind of general prognostication. Trading this outline is still difficult because incredibly the Wizards (monetary authorities, and various plutocracy influenced governments), through their Ministry of Propaganda (MoP) arm still has considerable sway with their words on the cognoscenti (crowd). Example, influencing momentum based hedge funds to liquidate large energy longs, and now in part Fx (long foreign or non-US currencies)and gold. There may be a transition period, when that is no longer the case (a short Wizards credibility play), probably after (not before) a major market crack would be my guess.
Although I agree in part with the consumer is saturated theory,
idorfman.com
idorfman.com
idorfman.com
we are now still in an inflationary "boom" period, and no where near a deflationary bust, which will require the Wizards laying off the printing for some time, given the steroids already in the system. Therefore shutting down this runaway consumption/speculation that even "a number of" Wizards at last appear to be concerned about, may be dicey.
Message 20945867
Message 20946119
And since the Wizards only seem to know Plan A: the print more money approach to economic problems, one still has to look for the prospect that they just turn on a dime away from the post-Dec. 8th "tightening", and start the printing presses up again big time at the first sign of trouble.
Since many if not most reading this are generally in agreement that this economy is all about speculation, credit induced consumption, and massive maladjustments, we need to keep going back to the question of how much heroin do consumers need to keep borrowing/speculating in order to buy more Asian crap and overpriced la la land houses,
fantasylandmortgage.com
and keep the maladjustments going (see just one example 4e below).
I've been calling this the Little Shop of Horrors Feed Me Seymour analogy. I still think it's largely about interest rates and manipulative money printing, but right now the consumer/Bully (** see footnote below), may be in high sensitivity mode, with some early signs of post Dec. 8th (when the printing presses seemed to slow down) "cooling" (****).
So what happens if the Fed, and the lackey Asian Wizards manage to revive vendor financing and keep the party going? Some (the quick onslaught deflationists) feel that rates can and will drop, and consumers just won't respond (the Japan model). I think they will respond although it will require more and more plant food for Audrey, because she's getting very big, and is outgrowing the Horror Shop. And this time when she is fed, she'll really "go out into the world" (hyperinflation). That's the dilemma now, and the principal cause of her getting loose out from the confines of the Little Shop of Horrors will be a collapse in demand for the USD (as too much keeps being printed).
I still think an adjustable rate mortgage (ARMs) rate back down below 4.00, can in some measure keep the party going and the lampshades on people's heads, while creeping above 4.25, combined with "tied to" rates like the six month LIBOR getting over 3.00 (usually a 1.5-2.0 margin above that) will act as a depressant. I actually feel that many investors will start taking these higher short term rates through CDs, short term treasuries, and even money markets, and in turn run away from the stretch from yield junk and equity plays. That could get nasty real fast, and there is evidence that's starting to happen (see 5c link below). The spread to really watch is probably the two year Tres.-BAA corporate spread, even more so than the 2-10 Treasury. I don't think 250 bps between 2yT-BAA will cut it for some, especially once any kind of correction or high yield top is put in.
stockcharts.com[w,a]daclyyay[pc50!c200][vc60][iUd20!La12,26,9]&pref=G
So it most likely won't take much to really get Audrey angry. Right now we have this post-Dec 8th turn of events, where the 2-10 Tres/BAA spreads are really narrowing. That's killing financial institutions (see 2f below), and that one trick pony is all America really has now.
Is the Fed (and their lackey the BOJ) really going to stand by and watch that? Plus "somebody" needs to finance, depending on whose numbers you believe, a $1.0 - $1.2 trillion twin deficit for 2005.
jessel.100megsfree3.com
I suspect at some moment they will blink again, and will try and engineer a widening in that spread. It's a game of chicken though, because it will immediately spill over into anti-USD sentiment, and this time it will have a flucht in die sachwerte (flight to real goods/assets) tenor to it. The second question is can the Fed and BOJ engineer a spread widening and ARMs back under 4.00? The answer to that question depends entirely on if one thinks command and control manipulation and intervention still works. The ONLY way bonds can rally now in my view, is because money gets printed and just overwhelms the so called "market" (not really what it is, as it's rigged by central bank "buying"). Judging from the big long positions in the COT commercial interest rate complex (see 5a below), that is exactly what is likely to happen. It's happened several times already. Just when Audrey gets tired and you see refi and consumer borrowing trends (and of late for really the first time the housing purchase index) dropping off, here comes the plant food via massive printing press operations.
So the playbook is going to depend entirely on Little Shop of Horrors plant food feed going forward. Since I'm really interested in day to day real time "actions", as opposed to words from Wizards, and lagged govt indicators that get constantly revised, I'm cueing in on the following. I'm very open to suggestions? It should be evident to anybody paying attention, what feeding Audrey means: dangerous because it will lead to complete loss of confidence in the USD, nuclear explosion A. Or put Audrey on a diet: dangerous, because when hyper-leveraged wild men and Bullies get in trouble, you get nuclear explosion B.
1. Little Shop Of Horrors plant food indicators:
This would be defined as aggregating the whole printing press, manipulation, intervention and doing favors/scams for Boyz complex:
a. coupon passes
b. securities lending
ny.frb.org
c. foreign custodial purchases (monetizing)
d. Fed purchases (monetizing)
federalreserve.gov
e. temporary OMO operations
bullandbearwise.com
e. TIO or Treasury repos.
2 Interest rate levels and spreads:
a. Six month LIBOR rates, the favored vehicle of real estate wild men, and the house as ATM crowd, and it's been moving up quickly of late.
libor-loans.com
bankrate.com
b. 2 year Treasury-BAA spread. The more it narrows as the 2yr yield moves up, the less incentive to finance junk and risk.
idorfman.com
c. 2 year-10 year Tres spread
gcm.com.
d. Agency spreads, this is really getting to be a manipulated controlled market on the foreign custodial side (they bought $3 billion a week over the last three), so a widening might suggest they are losing confidence in the game of musical chairs and having to constantly buy US debt securities.
gcm.com.
Also track agency purchases foreign custodials weekly, see 1b. This of course can translate into
e. ARMs rates, 30 year rates, using MBAA data released each Wed. See weekly mortgage applications:
mbaa.org
f. A measure of tightening lending standards in real time would really be a powerful tool now, but the data for that tends to be reported quarterly with a lag, and that will be too late.
3. Bully and wild men condition indicators:
a. Charts on the dominant "luxury" and Bully stocks, would the SBUXs, WFMIs, COHs, CZRs, WGOs, CCLs, JWNs, HOTs, etc, etc. A simplified snippet would be just the XLY (consumer discretionary).
stockcharts.com[l,a]daclniay[pd20,2!b50][vc60][iUc20!Lf]&pref=G
b. The second group are financials (XLF), the mechanism that funnels all the money printing, rig jobs and intervention (see 1) from the Wizards towards Bully and Joe Sixpack. Their condition can be tracked by following the MBAA refi index, and
c. The MBAA Purchase index, a time sensitive measure of activity and demand in the maladjusted housing Bubble. If this turns down and stays down, then the bloom is off the rose, period. Link to MBAA site 1e above.
d. And also resell margins, profitability of taking the money Wizards print and creating securities out of thin air loaning to Bullies and Joe Sixpack. It's getting pretty punk.
idorfman.com
e. Note that Joe Sixpack and Sally Walmart, or the late receivers (non-Bullies *** see footnotes)are already history, therefore "job reports", etc, are only useful to determine how much plant food, that the Wizards might elect to feed Audrey or run their other easy money loots and scams to benefit Bully. The more plant food Audrey receives (see 1) at this point the <b< worse Joe Sixpack will be impacted by further maladjustments and inflation.
4. Loss in confidence in the US Dollar indicators, lower demand for USD indicates accelerating inflation even in a weak economy , a panic indicates hyper-inflation (the Argentina model). A significant sustained (not manipulative)rally in the USD accompanied by a weak economy will be deflationary.
a. USD index.
jessel.100megsfree3.com
b. Gold, which will measure how the US currency debases. A sub indicator would be the the gold versus yen, or Euro, because significant gold outperformance might indicate that confidence in all major currencies is waning, a very dangerous sign. Sometimes gold is misleading, because it's owned by monetary authorities who can use it to send out false or distorting signals. However, recent events involving various European signatories to the WAG, suggest that is changing,
Message 20903262
and that will make gold a true and more reliable indicator. A second measure of real (versus paper) demand for gold is the tonnage held in the new GLD ETF.
streettracksgoldshares.com
c. CRB, general commodity prices,
jessel.100megsfree3.com
an indicator of the potential for a flucht in sachwerte (massive flight from money to goods) or just general input cost inflation. Govt release figures should as a rule be discarded as propaganda. Even they are spotting components:
idorfman.com
d. Foreign custodial weekly activity released by Fed (see 1 c), useful because the main prop for USD is command and control intervention by foreign CBs.
e. Dr. Copper: I focus on copper, because it's a good maladjustment indicator that measures how poorly the expanding global economy is set up for an economic boom that uses actual resources (as opposed to imaginary, pretend or "paper", see 5b, what I call "synthetic economics"). In otherwords sustainable economic growth. Oil is another one, but there are more variables, so tougher to analyze. In copper's case you have LME, Comex, and Shanghai inventories that can be tracked, as well as price. If there is a massive price spike, then you have a red flag for an Asian collapse or Train Wreck. Copper is effectively nearly out of above ground inventories:
kitcometals.com
f. Surprises, or outliers, such as a global influenza pandemic, am watching closely.
recombinomics.com
5. Clues from the Boyz
a. Commitment of Traders reports.
64.82.65.31
This is not so much a timing device, as a measure of positioning or how the Boyz are positioned versus hedge funds and speculators (wild men). Boyz are "smarter" (actually more favored, or tipped off more)than hedge funds (momo types). I feel shifts are as important as relative levels, but certainly in a flucht in die sachwerte easy money environment, when one sees specs short, and commercials actually long a key commodity, as in energy recently on the dive towards $40, you have something to sink your teeth into. Hedge funds definitely influence price at the margin, don't think otherwise.
b. The price of CME.
stockcharts.com[l,a]daclniay[pd20,2!b50][vc60][iUc20!Lf]&pref...
Measures how much leveraged paper trading with weak counterparties is in the system. Also measures the concept of synthetic economics. When you see CME's price going up or holding up, while domestic stock and high yield funds show outflows, or GLD shows inflows, that's a signal that paper trading and synthetic economics is dominant, relative to the real world. That's very unstable. If you see CME break hard, that's a sign this unstable regime is in big trouble.
c. AMG mutual fund flows, real money as opposed to synthetic or leveraged paper trading.
amgdata.com
And good luck, you'll need it, in this world.
(*)
Feed me Seymout lyrics:
[AUDREY II]
Feed me! Feed me! Feed me!
Feed me, Seymour
Feed me all night long
That's right, boy
You can do it
Feed me, Seymour
Feed me all night long
'Cause if you feed me, Seymour
I can grow up big and strong
Would you like a Cadillac car?
Or a guest shot on Jack Paar?
How about a date with Hedy Lamarr?
You gonna git it.
Would you like to be a big wheel,
Dinin' out for every meal?
I'm the plant that can make it all real
You gonna git it
I'm your genie, I'm your friend
I'm your willing slave
Take a chance, just feed me and
You know the kinda eats,
The kinda red hot treats
The kinda sticky licky sweets
I crave
Come on, Seymour, don't be a putz
Trust me and your life will surely rival King Tut's
Show a little 'nitiative, work up the guts
And you'll git it
[SEYMOUR]
I don't know. I don't know
I have so, so many strong reservations
Should I go and perform mutilations?
[AUDREY II]
Think about a room at the Ritz
Wrapped in velvet, covered in glitz
A little nookie gonna clean up your zits
And you'll git it
[SEYMOUR]
Gee I'd like a Harley machine,
Toolin' around like I was James Dean,
Makin' all the guys on the corner turn green
[AUDREY II]
So go git it
If you wanna be profound
And you really gotta justify
Take a breath and look around
A lot of folks deserve to die
[SEYMOUR, AUDREY II]
If you want a rationale
It isn't very hard to see
Stop and think it over, pal
The guy sure looks like plant food to me.
[SEYMOUR]
He's so nasty, treatin' her rough,
[AUDREY II]
Smackin' her around and always talkin' so tough.
[SEYMOUR, AUDREY II]
You (I) need blood and he's got more than enough
[AUDREY II]
So go git it!
(**) Bully: the elite, the wealthy, the current system is a plutocracy, with regular Joe Sixpack's condition being used as a "my dog ate the homework excuse" to ramp up more artificial (and I think ultimately phony) wealth via asset Bubbles towards speculators and Bully. Austrian economics also calls this group "early recipients" or those who "benefits" off of big inflations. Example might be an individual lucky enough to have bought an house in San Diego before 2001, which they can now use as an ATM machine (see 2a).
(***)Non-bullies (or Joe Sixpack), late arrivals (often the young who are easy for Bully to loot, as many are in diapers, or still riding tricycles) to the Great American Bubble machine. While Bullies hardly bat an eye, borrowing and credit demands strain Joe now, plus they get to end fumes from Bully's inflation tailpipes, including overpaying for housing, energy, food, medical, schooling, without the access to easy money to pay for it. The great maladjustments also cause him to lose jobs if not properly placed in one trick pony Wizard Plan A Bubble industries like financial, retailing, government or housing.
(****)
Passes x 9 + custodials + fed sec
10-20 28,621
10-27 28,958
11-3 14,403
11-10 6,947
11-17 18,990
11-24 16,293
12-1 29,586
12-8 37,486
Then suddenly the helicopters get put away:
12-15 Minus 1,212
12-22 4,093
12-29 5,736
1-6 8,522
1-13 6,849 |
