...in a derivative-laden, finance-based, globally-interwoven, hedge fund driven, compression littered financial fabric, a butterfly in Asia can stir a tornado in Kansas.
One, Two, Three, Four, Five
Everybody in the car so come on let's ride
First Thing's First...
With a mindful nod to the out-performance of the drillers (noice eyes Mr. Dingmann), yesterday's session was a snoozer from soup to nuts.
Levels of lore--then and now--remain S&P 1280, NDX 1510, DRG 340ish, TRAN 4400 (200-day) and Russell 700 (is that dandruff?).
Mainstay intraday tells--then and now--remain breadth (when skewed 2:1 either way), the dollar (the contra-tell!), financials (firm underlying bid), the trannies (yes, they matter) and the heretofore painful trifecta of retail, semis and homies (for signs of washed-out dryness).
So, given the lack of motion or general movement, what shall we discuss today? How bout the following noodles as we edge into the dog days of August....
Natural Gas was up 14% yesterday. Why does that matter to anyone that A) isn't a Klump, B) isn't a commodity trader or C) doesn't use energy in everyday life? Simple, because in a derivative-laden, finance-based, globally-interwoven, hedge fund driven, compression littered financial fabric, a butterfly in
Speaking of conventional wisdom, I came across this nugget while chewing through the Minyanville archives. It got me thinking about how backwards the mainstream is conditioned to think and, ergo, whether inflation is truly thy enemy. It is in some circles, we know, but when discussed in the context of thy Phantom, I arrive back at Stagflation*. Why the asterisk? Because the results may be the same but historical precedence need not apply.
Part of the reason my opening missive is a bit haphazard today is that I sat down this morning and suddenly became inspired to scribe my MIM3 quasi-keynote speech. Suffice to say that it's something that's been on my mind for a mighty long time but I've yet to fully delve into the depth of the topic. Inspiration is a rarity, particularly when you write all day every day, so I ran with it and furiously pounded my keyboard. I'm still pounding--like a chicken cutlet--so lemme hop before the tale grows stale.
Before I go, some Mailbag grist as we eyeball the light at the end of the tunnel and hope to gawd it isn't a train.....
The recent obsession of market participants calling for an end to the current rate hike cycle, combined with the "conventional wisdom" suggesting this is bullish for equities has prompted me to revisit a passage written on this very site by Jeff Saut, as he cited some extremely illuminating data. In his April 17, 2006 missive, Mr. Saut shares some research from Comstock Partners regarding the historical behavior of the Dow Jones Industrial Average following the end of a rate hike cycle. The following summarizes the results of Comstock Partners' findings:
In examining each of the last 16 rate hike campaigns by the Fed going all the way back to 1920, the Dow Jones Industrial Average DECLINED by an average of 19.1% from the date of the last rate hike to the eventual market bottom. The Dow fell by at least 10% in 12 of the 16 instances, and by more than 20% in 8 of the 16 instances. In only 4 cases did the Dow experience no decline or actually rise, of course one of those times being in 1995.
Now, I'm hard pressed to find anything bullish about these numbers, and quite the contrary, these numbers paint a very dubious future for the stock market. Could the markets go higher after the present rate hike cycle ends? Sure, it wouldn't be the first time. However, it is clear from the data above, that the overwhelming odds favor a market decline, and quite possibly of some magnitude (20% or more). Of course, like so much of what you read here on Minyanville, this completely flies in the face of "conventional wisdom." Maybe the bulls should be careful what they wish for!!!
I've had this little market tidbit in my head for months now (thank you Mr. Saut & Comstock Research) and have found it very helpful contextually speaking. I thought it definitely deserved another mention.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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