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Warm Temperatures Mean Lower Inflation, To a Point

 
weekly Chart In Focus

Members of the FOMC have been mystified about why inflation rates have remained low, and that has kept them from “normalizing” interest rates.  What they do not seem to understand is that the Fed is not really in control of inflation rates, and thus of interest rates.  But when you consider that the Fed has more than 1,000 PhD economists on staff, the likelihood of them looking outside of their lanes for insights is pretty slim, and so they are just not likely to realize that they are not... Read More

Volume in VXX Is A Tell For Price Bottoms

 
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The stock market’s quick selloff on August 10, 2017 came as traders got reintroduced to the concept of “event risk” after a long period of extreme quiet.  And like bad drivers during the first snowfall of winter, there was a lot of relearning going on about how the market works.

The CBOE Volatility Index VIX shot up to 16.04, after having closed below 10 just 3 days before.  And that led ETF traders to go wild with all of the VIX-related products.  VXX is perhaps the best known of these,... Read More

DJIA Arriving at the Real Seasonal Peak

 
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Everyone has heard the old saying about “Sell in May and go away,” but history shows that the period of seasonal strength actually ends around August 1. But it is tougher to come up with a catchy rhyming phrase for that.  The question for this year, with such a strong market, is whether the normal seasonal weakness of August and September are really going to matter. Or will the market just power on through?

The Annual Seasonal Pattern shown in this week’s chart is made by chopping up... Read More

How VIX Ends A Long Run of Low Values

 
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With the VIX Index down in the 9s, and with valuations at historic extremes, investors are wondering how long this all can last.  The short answer is, MORE. 

The VIX Index made its all-time closing low of 9.31 back on Dec. 22, 1993.  It has posted intraday values below that number in July 2017, but has not yet made a lower closing low.  The most important point that history teaches us about these extreme low VIX readings is that the lowest VIX closing value seldom coincides with the highest... Read More

Why Are Bond Yields Staying Low?

 
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There is a 60-year cycle in bond yields which has existed since bonds first came about in the 1700s.  It says that bond yields should have ideally bottomed in 2010, and by now we should be well into a 30-year rise in yields lasting until 2040. 

But that is not how it has worked out.  Bond yields have stayed low 7 years beyond the ideal bottom date.  So is something wrong, or is the cycle broken?  Or perhaps is this just an normal sort of anomaly?

We have seen prior examples of bond yields... Read More

A Different Sort of Presidential Cycle

 
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It is by now an overused phrase to say that we are in a different sort of presidency right now.  And befitting that theme, we are seeing a really different sort of behavior of the market relative to the Presidential Cycle Pattern.

This week’s chart shows a version of our Presidential Cycle Pattern that is constructed by averaging together the stock market’s performance only in periods when there is a new president from a different party than the last one.  We have found that the market’s... Read More

Phillips Curve Is Not Even Wrong

 
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To paraphrase Wolfgang Pauli, the whole idea behind the Phillips Curve is “not even wrong”. 

A.W.H. Phillips studied the relationship between inflation and unemployment in the United Kingdom, and noticed that they were usually moving in opposite directions.  He therefore theorized that when unemployment is low (and it is hard to find workers), prices of things rise because employers have to pay more to hire qualified employees.  That led 2-3 generations of economists to undertake an effort... Read More