Steven Vincent

Failed Bearish Technical Setups Could Be Bullish Signals

or there is an economic boom coming that no one is counting on...a possibility.

Is the Hated U.S. Dollar About to Rally?

The first phase of a dollar rally will likely be associated with a stock market/risk asset selloff. After a retracement as stocks bounce, the dollar rally will continue together with stocks as the growth story overtakes the deflation and inflation stories. Demand for dollars based on expanding international trade and demand for dollar denominated assets will then drive it higher. Of course if the world growth scenario does not emerge then this scenario will not as well. But it is the one possibility that no one is even willing to consider.

www.TheBullBear.com


On Nov 07 11:52 AM Cash999 wrote:

> 1) The DOW/USD inverse relationship is perplexing to me. If US stocks
> and other assets are in high demand, shouldn't it translate into
> higher Dollar demand as well?
>
> 2) Mr. Summer's implication that US equity surge is due to Dollar
> debasement is not understandable because other equity markets have
> also surged equally, while their currencies have gained Vs. the USD.
>
>
> 3) Maybe this inverse relationship is only a short-term happenstance
> and likely to breakdown. Assets denominated in competing currencies,
> especially Euro, which is 57% of the basket, do not offer any significant
> interest rate advantage.
>
> 4) Maybe the Dollar debasement scenario has been overplayed at this
> time.

Is the Hated U.S. Dollar About to Rally?

Here I was thinking that I was one of only two (potential) dollar bulls in existence. Now I see that there are at least 3 of us! Welcome to our exclusive club of the contrarians.

www.TheBullBear.com

Dollar Bear Trade Looks Dangerously Crowded

I agree. A rally in USD is imminent and it will be more powerful than many are expecting. The first phase will be initiated by an intermediate term pullback in equities markets which will throw the bull rally into question. The second phase (if there is to be one) will be occasioned by a shift in "the story" from the inflation/liquidity trade to a growth trade as the world economy shows signs of takeoff.

Both the dollar crash and the "world depression" hypothesis are sentiment extremes that stand a pretty good chance of being turned on their heads in dramatic fashion. It's what markets do.

Bullishness at Contrarian Extreme

People are ga-ga about stocks? On what planet? There has never been a rally of this magnitude that has been greeted with such a degree of skepticism, worry and doubt. Every little reaction is proclaimed to be "The Top" and "The Collapse" has always just begun. Just another brick in the Wall of Worry, not a slip on the Slope of Hope!

Inflation, Deflation or Growth? Markets Will Answer Soon

I'm not doing any hoping over here...the chart of NDX says "breakout" and outperformance....we either listen to the message of the market or we listen to our own thoughts...who knows more- you or the collective mind of the market?

Inflation, Deflation or Growth? Markets Will Answer Soon

I'll have to dispute that. If we were the first economy to be able to produce with low cost renewable energy, that did not have to be imported or recovered from the ground and shipped and refined, that did not impose all of the costs that come from pollution like the massive health care costs, the deterioration of infrastructure and plant and facilities, the expenses of having to control for pollution, the workplace expenses, that did not have the waste products associated with hydrocarbon fuels...

That is just touching the surface. The economy that is able to implement that will have a VAST competitive advantage over the rest of the world. And that is only one area of technological advancement.

Technology is the wild card that no one is really looking at. It is unstoppable and it is long overdue for another revolutionary wave.


On Sep 28 07:19 PM ilc wrote:

> Not to mention the sheer quantity of debt that has been built up
> in the last two bubbles, which must in some form be serviced, paid
> off, repudiated or inflated away - pointing again to a Stagflation
> scenario.
>
> Going back to the Growth scenario: I see no fundamental technological
> advance in our ability to produce on the horizon - what computers
> and robotic manufacturing were to the 80s and 90s. "Green" technology,
> for example, is a way to produce things in a more politically-correct
> way, not a fundamental advance in our ability to produce. If solar
> efficiency were to leap 10x, resulting in massive new quantities
> of cheap energy, that would be a fundamental advance in our ability
> to produce; it could power a growth story. But we aren't there.
> When I was a kid, I though we would have masses of cheap energy by
> now from nuclear fusion ;-) and we don't.

Inflation, Deflation or Growth? Markets Will Answer Soon

All true. Time will tell. The message of the market at this point in time is still "growth". When the trend changes it may be saying something else. And the bear trend in commodities may be the leading edge of that.


On Sep 28 07:08 PM ilc wrote:

> "Very strong, very exceptional reasons for a period of no growth
> or negative growth are, however, required."
>
> Agreed.
>
> Now let's look at the reasons we could be living in such an era:
>
> - Bailouts and bond contract nullifications. (Free markets cease
> to work. When failure isn't punished and contracts can be changed
> at will if someone has the right political pull, markets aren't being
> allowed to work and their long-term benefits are lost.)
> - Cap-n-trade, a massive tax increase if it passes.
> - ObamaCare, the effective nationalization (albeit through mandates
> and regulations, rather than literal takeover) of one-sixth of the
> economy, even if it is eventually constructed in a deficit-neutral
> way.
> - $1.6 trillion in new national debt and $1.3 trillion in Fed monetization
> in the past 12 months. (I include, in the latter, all net growth
> in the Fed balance sheet, not only its announced Treasury purposes.)
>
> - Every reason to think the above will continue in the future: for
> example, the next and bigger wave of the mortgage crisis, the Option-ARM
> reset wave which will result in political constraints on the Fed's
> ability to remove its liquidity injections.
>
> In short, the reasons to believe that we are living in a truly exceptional
> period of political intervention in the economy, militating against
> growth, are there.

Inflation, Deflation or Growth? Markets Will Answer Soon

Yes I consult with the Underpants Gnomes regularly. I like the way they just get to the point.

Economies grow. They just do. It's in their nature to grow and expand and develop and innovate. When that does not happen it is the exception to the rule.

People work. They just do. They seek out opportunity and finding none they create it themselves.

Technology develops. It just does. Scientists research and discover and invent. Capitalists look for ways to profit from that activity. It goes on and on and on and never stops. And it never will.

No other reasons for growth are needed.

Very strong, very exceptional reasons for a period of no growth or negative growth are, however, required.


On Sep 28 02:56 PM ilc wrote:

> You mentioned Peter Schiff, but I don't think you've quite understood
> his view. He is both an inflationist and a deflationist; in other
> words, people think there is a conflict between the two, and there
> needn't be. It is possible to have a cycle of "inflationary depression",
> that is, deflation/depression in the real economy (net debt destruction,
> job losses, lower living standards and lower prices IF you are measuring
> prices in gold), at the same time you have nominal inflation (your
> Central Bank madly trying to stimulate things).
>
> That has been the deep (secular) trend of the last 9 years, the housing
> bubble notwithstanding. If you price things in gold, then prices
> have dropped enormously the last 9 years. Worth noting: The Dow
> is currently around 9 ounces of gold, down from its all-time high
> in early 2000 of around 44 ounces. Various Austrian types predict
> it will go as low as 1-3 ounces before we have hit the secular bottom
> in stocks.
>
> I follow Schiff's speeches and videos, and the above is where his
> head is at. He refuses to price his predictions in dollars anymore
> (i.e., nominal terms); he prices them in gold. In other words, he
> will no longer say something like "The Dow is going to 11000" or
> "The Dow is going to 4000", but he will say something like, "Before
> this inflationary-depression cycle is over, the prices of one Dow
> unit and an ounce of gold will meet. I don't know where or how they
> will meet, but they will meet."
>
> Seeing Schiff's point, I think the inflation-deflation dichotomy
> is a false dichotomy. People who believe in it implicitly believe
> in the Phillips Curve theory of inflation, i.e. that there is a tradeoff
> between inflation and unemployment, and since we have unemployment,
> we obviously can't be having inflation. But, again, we can. Inflation
> is a monetary phenomenon, the *placement* of the Phillips Curve is
> dictated by fundamental real forces like the supply side, yadda yadda.
>
>
> Long story short, I think we are really looking at just two scenarios:
> Stagflation (or inflationary depression) vs. Growth. And as for
> the Growth scenario: I hope it happens, and I'll profit if it does.
> But I still can't see any fundamental reasons why it should. No
> offense meant, Mr. Vincent, but every time you talk about it, I have
> the feeling I am watching an Underpants Gnomes episode of South Park.
> (The gnomes' famous business plan: Step 1, collect underpants. Step
> 3, Profit. Missing is Step 2, a viable explanation or plan for why
> collecting underpants should lead to profit.)

Inflation, Deflation or Growth? Markets Will Answer Soon

Thanks Robert. I would just reiterate my view that the end result we may be seeing is actually a mix of inflation, deflation and growth over an extended period of time including considerable market volatility in both directions.

Re: politics...I think that the Austrian term "moral hazard" needs to become more of a focus...for me the problem with the fiat monetary system in private hands (The Fed) isn't the threat of economic or financial catastrophe, but the already exisiting catastrophe that comes from a private entity with its fingers on the print button for any purpose...social engineering, handouts to corporations, war, largesse of politicians...that has entirely undermined our constitutional Republic and replaced it with the Autocracy of Bankers and their hangers on. Too big to fail, no cost is too big for anything they want to do...this is moral hazard.


On Sep 28 03:57 PM Robert Martorana wrote:

> Stephen,
>
> Well done. I especially liked two of your observations:
>
> 1) "The "asset-ization" of commodities turned them from raw economic
> inputs into yet another speculative plaything."
> 2) "...the effect of massive Keynesian monetary and fiscal inflation
> is not the stable, consistent movement of markets in a single direction
> but greater and greater volatility in markets."
>
> You have done a good job of framing the discussion, and highlighting
> one thing that we DO know: Government intervention is now in uncharted
> territory, and sharp breaks are likely. In the meantime, we will
> debate whether the forces of private deleveraging will overcome monetary
> and fiscal stimulus. (Or vice versa.) Either way, it appears bullish
> for the VIX, an excellent way to play your prediction of a sharp
> breakout.
>
> May I suggest another important variable in the "new normal"? Politics
> is now a primary concern for investors, and both populism and protectionism
> are on the rise. Americans face a grim job market while corporate
> profits rebound, creating both anxiety and envy. I discuss this in
> detail in "The Deflation of the American Dream". seekingalpha.com/artic...
>
>
> I appreciate your comments, especially if you can punch some holes
> in my assumptions: I always respect the other side of the trade.
>
>
> Rob

Inflation, Deflation or Growth? Markets Will Answer Soon

I don't know that I "believe in" deflation but the commodities charts have a message and NO ONE is listening.


On Sep 28 01:21 PM John Galt wrote:

> Deflation
>
> We just ended a credit bubble. There was too much borrowing spending,
> so what is natural to have after that ( less borrowing/spending).
>
>
> Wages are staying the same ( or you lose your job and get no wages).
> It's hard to keep bidding the price of things up when your wages
> don't go up ( if you keep your job), and it's more difficult to borrow
> from the bank.
>
> Bond yields are low suggesting the bond market isn't worried about
> inflation... yet.
>
> Besides the credit bubble, the Fed keeping interest rates low flooded
> the economy with too many dollars, and helped create inflation.
> Now they are trying to flood the market with money to combat the
> deflationary effects.
>
> This was a good article and if you believe in deflation/new normal
> you should also be bearish in oil and commodities in general and
> more bullish on bonds and the dollar actually strengthening in the
> short term.

Inflation, Deflation or Growth? Markets Will Answer Soon

Thanks for that. Treasuries are not currently part of my analysis but I would like to go there. Your comment was very helpful.


On Sep 28 01:08 PM Mad Hedge Fund Trader wrote:

> ons Reviewing the current political and monetary landscape, I would
> beremiss, irresponsible, even negligent, if I didn’t revisit one
> of myfavorite ETF’s, the Proshares Ultra Short Treasury Trust (seekingalpha.com/symbo...).
> This isthe 200% leveraged bet that long Treasury bonds, the world’s
> most overvalued asset, are going to go down. While the Fed is going
> to keepshort rates low for the indefinite future, it has absolutely
> no direct control over long rates. The only political certainty we
> can count onis the continued exponential growth in the supply of
> government bonds of all maturities. Like all Ponzi schemes, their
> eventual collapse isjust a matter of time. It’s simply a question
> of how many greater fools are out there (sorry China). Look at how
> they are trading now. Wecurrently have the greatest liquidity driven
> market of all time, andthe ten year is only eking out a 3.40% yield,
> pricing in near zero inflationary expectations. The average yield
> on this paper for the lastten years is 6.20%, a double from the current
> level. Get the yield backup to 5%, a distinct possibility in 2010,
> and that takes the TBT fromthe current $45 to $70. Sure, we may get
> a sideways grind in yields fora few months, which will be expensive
> due to the mathematicidiosyncrasies of the 2X ETFS. But a security
> that is unchanged if I am wrong, and doubles if I am right is the
> kind of risk/reward ratio thatI will take all day. And I believe
> that in my lifetime Treasuries may lose their vaunted triple “A”
> rating and be priced closer to subprime(warning: I am old). That
> could enable the TBT to deliver the holy grail of trades, your proverbial
> ten bagger.

Inflation, Deflation or Growth? Markets Will Answer Soon

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On Sep 28 11:20 AM cyclingscholar wrote:

> Some of the best analysis I have read on Seeking Alpha and a great
> lesson to all emerging tech analysts out there!

Inflation, Deflation or Growth? Markets Will Answer Soon

Thank you. I wouldn't put myself in the Deflationist camp, just more aware that deflation is an possibility and a factor and keeping it more on my radar and in my analysis.


On Sep 28 12:09 PM CautiousInvestor wrote:

> Great article.
>
> Add John Mauldin, Tim Congdon (seekingalpha.com/symbo...)
> and others to the list of those who see deflation as a very real
> risk. Excess capacity, labor surpluses, increased savings, contracting
> credit, falling money multipliers, restrictive lending practices,
> expiration of stimulative fiscal policies, falling trade, US bond
> yields and stagnant incomes all hint at deflation.

Inflation, Deflation or Growth? Markets Will Answer Soon

It's the same inflection point. Markets are a process not an event.


On Sep 26 11:38 PM TheSnail wrote:

> Every other week this guy writes about an inflection point.
>
> You will get it right sooner or later.