Hoenig Predicts Bubble: Dave's Daily

Fed Governor Hoenig openly rips current policy as too accommodative leading to another bubble that could burst.
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There's some unusual infighting within 33 Liberty as

Fed Governor Hoenig

openly rips current policy as too accommodative leading to another bubble that could burst.

The volume continues to fall and share prices seem uninspired by much one way or another. Most individual investors are leaving markets (ICI, 14 straight weeks of redemptions) and don't like getting hit in the face with these sudden bursts of negative news.

The news today wasn't supportive as Retail Sales and Michigan Confidence data were mixed. Next week we'll see how well retailers are doing but preliminary indications are earnings are good but outlooks poor. This follows along with poor economic data which is logical.

Even for us it's a late summer Friday and we have things to do before it snows in New England. So this comment will be somewhat abbreviated.

Volume was summertime light while breadth again was negative overall.

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SPY

: The markets closed on the lows of the week failing to gain much buy traction that stuck on Friday. Many found Fed Governor's Hoenig's statement disturbing.

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MDY & IWM

: The further down the menu the more brutal the declines. It's just normal to outperform when markets rise and vice versa.

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QQQQ:

I'm not particularly a devotee of H&S tops or bottoms but point them out when they're this pronounced. You can see these patterns clearly in all the major index ETFs.

Continue to U.S. Sectors, Stocks & Bonds

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AAPL, AMZN, GOOG & RIMM:

These were the Four Horsemen but one is down and may be euthanized by the look of things. The other three are down a bit but outperforming at the same time which may only be small comfort.

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XLF & BAC

: It's interesting how these markets are fading as the yield curve gets a little flatter.

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XLI

: Yes, the range is deliberately drawn tight. Beneath current levels is another 5% at least to the downside. GM supposedly will be priced in an IPO next week as the government clears its books. How successful have union owned companies been? Not many.

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XLB

: Materials have just fallen back into the range and there's little more to say. The companies within the index are the roots to economic growth so always watch this sector above all.

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JWN, JCP & XRT

: Disappointing reports hold the retail sector down. There will be more results next week.

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XHB & IYR:

In this small area of great wealth, and also an area with little speculation, for sale listings are piling up and nothing is moving. Realtors are very worried.

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IEF, TLT, LQD & TIP

: Once again we're off to the races and into strange new territory not seen in our lifetime.

Continue to Currency & Commodity Markets

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USD/DXY & FXE

: The euro is back in the dog house due to more debt concerns which continue to float to the surface like so many tar balls in the Gulf.

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GLD:

Gold is the major alternative for bears and insurance for those concerned about political leadership and economic policies.

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DBC

: Commodity tracking indexes are all heavily weighted by energy given their dominance and a lack of depth in other markets.

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XLE

: At support technically and that's it.

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DBA

: Up with grains but also other sectors like meats and softs.

Continue to Overseas Markets & ETFs

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EFA

: European debt issues weigh once again.

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EEM

: EM's are weighed down by declines in commodity prices overall.

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EEB:

BRIC sector individually and jointly all sport the same look. They're all weighed down by poor economic outlooks which negatively impact commodity prices.

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The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.

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The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends.  I believe readings of +1000/-1000 reveal markets as much extended.

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The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.

Continue to Concluding Remarks

All I can see in markets is a change in tune and tone. Bulls are getting their rosy outlooks shattered. Sure, the Fed has more ammo in its arsenal but there is building dissension in their ranks as one member, Fed Governor Hoenig, has gone public with his criticism. He's predicting another round of bubbles as these low rates of interest aren't doing much for either economic expansion. Political leadership has become an embarrassment as we don't see wisdom or experience from elected officials. Rather, we see clown acts and grass payoffs to favored constituents and widespread corruption.

According to an article appearing in

ZeroHedge,

and something most experienced people would know intuitively, implied correlation has never been higher.  This makes long/short strategies difficult to profit by and causes every sector to look pretty much the same.

Of course, all the rage this week has been a resurfacing of the

Hindenburg Omen

which many believe may be imminent. So put that in the same mental basket as the "death cross", rising wedge, H&S top and so forth. These only come to pass after the fact of course making the prediction business a hazardous affair. ETF Digest Sacred Cow IX advises per economist Edgar Fieldler: "If you must forecast, forecast often." 

Have a great weekend!

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Disclaimer: Among other issues the ETF Digest maintains positions in: TZA, FAZ, GLD, DGP, DBC, UDN, FXE, DBC, EEM, EWZ, EPI and FXI.

The charts and comments are only the author's view of market activity and aren't recommendations to buy or sell any security.  Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period.  Chart annotations aren't predictive of any future market action rather they only demonstrate the author's opinion as to a range of possibilities going forward. More detailed information, including actionable alerts, are available to subscribers at

www.etfdigest.com

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Dave Fry is founder and publisher of

ETF Digest

, Dave's Daily blog and the best-selling book author of

Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management

, published by Wiley Finance in 2008. A detailed bio is here:

Dave Fry.