What A Difference A Day Makes

BarroMetrics Views: What A Difference A Day Makes

On Wednesday, the papers were filled with doom and gloom and filled with stories about the ‘certainty’ of a double dip recession. Today we are told that figures yesterday in the US and China have negated the ‘double dip’ at least for the moment.

If ever there was a day that demonstrated why I use technicals to trade (supported by Pete Steidlmayers’ classification of fundamentals as context), it was yesterday.  The technicals have been suggesting that we would be seeing a rally, so yesterday’s price action comes as no surprise. By the way, this is not hindsight bias:  since August 24, the free daily update on the S&P has been giving reasons why a rally was on the cards.

In the same way,  the call for inflation is premature.

In my view, despite all the talk of quantitative easing, inflation won’t be a problem until the ‘easing’ hits Main Street. It won’t hit Main Street until the banks see fit to start lending again. How will we know that the banks are starting to lend? By keeping an eye on the St Louis Adjusted Monetary Base chart.

Figures 1 & 2 show the same picture; Figure 1 is  seasonally adjusted while Figure 2 is the raw data. We should have  two to three months lead time from the time the AMB starts to fall (i.e. banks start to lend) to the time the CPI starts to climb. When that happens, we can expect to see pressure on US rates and weakness in the US$ as the word ‘stagflation’ starts to make the rounds.

This brings me to the final item for tonight: when can we expect a  Stock Market to hit a high? I can’t even begin to guess but I am interested to see whether the Kress Cycles will prove correct. I spoke about these in Stock Market Cycles 2. The last Kress cycle that is yet to form a high is the 6-year due Sept/Oct 2011.

I read about Kress Cycles in Cliff Droke’s “Stock Market Cycles“.  The other night I rang Bud Kress and I have to say I was impressed with his sincerity. I am looking forward to seeing how his work plays out for my trading.

Usual Disclaimer: I receive no benefit of any kind for sales of Stock Market  Cycles or Kress’ work. I pass on the information as items I find interesting; and hopefully, useful in my quest for a positive expectancy return.

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FIGURE 1: St Louis BASE Seasonally Adjusted

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FIGURE 2: St Louis BASE Raw

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