Posts Made By: Paul Kammueller

Here is a logarithmic trend-sheared chart of the S&P500 for the bear market of the last 19 months. Overall bear trend line is in yellow, overbought/oversold deviation limits appear to be roughly at the upper and lower red lines. Oversold extrema are circled red, overbought circled violet. The bearish trend appears to be reaching another oversold extremis.

rotfl. And the market was doing so wonderfully up to Jan. 26th, eh? So now that you believe the White House controls the Dow, I trust that when the market recovers you'll attribute it all to Obama's leadership? I will be waiting for that post with baited breath.

Yesterday's general announcement on science, more important than the policy move on stem cells that went with it, was a marker I've been waiting for for a long time.

For the previous 8 years the executive branch had acted as a science 'policeman', acting as a sort of goalie against research that was not deemed Politically Correct enough for the right. The days of interfering with science, of censoring climate research, etc. are over. If things would have continued down that path much longer, evolution would probably have been the next thing to get censored, or confused or replaced with a bunch of ID nonsense.

The Dark Age of science is over. Knowledge can move forward again.

So looking over the mutual fund stats I decided just for fun to plot another chart: this one taking the balances in stock funds, taxable bond funds, and taxable money market funds, calculating the ratio of balances in each and plotting the last 12 years' worth of shifting sands.

Times near local oversold ratios or market bottoms are circled in red. Actually there was one of these near the end of both 1997 and 1998, as well as 2002. Times of well-known bull market tops are circled in green. I don't know where the current market cycle bottoms out, that's why the red circle on the far right extends into the margin (terra incognita).

I see now that I had the axes poorly labeled, the stock/bond ratio is measured on the left axis, the stock/money market ratio is measured on the right.

So today the Fed announced that they would be buying some $300 billion in treasuries. This is the classic "flood the street with money" solution. The Fed takes treasury bonds off the market, exchanging them for the Fed's own promissory notes, that is, Federal reserve notes, i.e. dollar bills. About the most direct means of increasing the money supply that there is.

I gotta think there's some opinions out there about this.

So think about this -- because of growing inventories this summer, natural gas has crashed further than just about anything else and has not participated in the recent commodity rally. A barrel of oil typically is about 9-10x the price of 1000 c.f. of natural gas. Right now that ratio is about 19.0x! On a cost per btu basis, natural gas has now become one of the cheapest fuels out there. Or conversely, oil is way overpriced on a relative basis.

Then there's seasonal factors: over the last 23 years, natural gas prices find bottom most often in the July-Sept quarter, and most often peak in Dec-Jan.

Analysts have been predicting a bottom around October but I'm thinking the expectation is making it bottom now. Comments?

Submitted for debate and amusement:

The case for inflation
1) M1 growth 17% last 12 months, M2 up 9%
2) Price of gold still showing strength
3) Deficits, bailouts and so forth

The case for disinflation
1) Shrinking consumer and mortgage credit
2) Collapse in commodity prices from last year (but for gold)
3) Baltic Dry Index chart showing signs of decay

Do they even out to some kind of 'middling' path? If not, which horse are you betting on?

With no other news to go on, it's all about the inventories driving prices, though its gone to lengths I would have thought impossible. A barrel of oil is on average 9-10x the price of 1000 cf of gas. 'Normal' range of variation in history is 7x to 15x, with extremes around 4x and 21x. Now we're up around the 20-21x range.

On the one hand, I never thought I'd see natural gas down in the $3's again. On the other hand, I thought I'd never see oil as high as $65-70 in the middle of a recession, as 5 years ago this would have seemed a high price in the best of times.

So everyone knows the public debt's going bonkers. But looking at the Fed's balance of payments reports, it's also clear that private debt is collapsing, as appetite for risk in the credit markets has evaporated, so other kinds of debt have been rapidly evaporating.

On balance, the overall 'debt' in the country isn't really changing all that much in the latest quarters. In fact, debt overall, when you count in everything (including federal) is growing more slowly than it was in the good times. So is the federal deficit really a problem? It also explains why there's still plenty of demand for treasuries at 4% yields. The personal savings rate is soaring so people are looking for assets to invest in, and the 'exotic' options are out the window.

Which is the other part of the question - each and every debt is someone else's asset. Your debt is someone else's investment. In a globalized economy, the net debt of the whole system is exactly zero. It has to be. Sooo... in the big picture, does any of it matter? I suppose it does for your country if you get too indebted to external (foreign) lenders so the interest is too big a drag on your nation's cash flow.

I really don't know where I'm going with this. Just casual noodling on a Sunday afternoon, and itching to see where conversation goes. 8)

So I remember some weeks back the subject of the Fed's exit strategy came up and it sounded like they were planning to start unwinding some of their liquidity injections, starting Octoberish.

In other words, now that the party's really rolling again on Wall Street, the Fed is going to very quietly start watering down the punch bowl.

Will be interesting to see how it all goes, and the effects on stocks, interest rates, the whole works.