The State of the Business Cycle March 2016

I just got the quarterly Cycle report from Fidelity.  Quite extensive and very nicely done.  The economy is actually in good shape contrary to all the false hype coming out of the GOP debates.  Of course we all know those clowns just make it up as they go.

They make a strong case that we are just entering the “late-cycle” and that the U.S. recession risk is low.  Here is a chart of where we stand in the cycle relative to the other three largest economies.   What usually drives the transition from mid-cycle to late-cycle is inflation, which regarding commodities, has been absent.  Wages have been increasing and therefore wage inflation has been gaining traction.

Fidelity March 2016 Economic Cycle

Historical performance patterns of stock sectors is as follows and could be used as a guide, going forward, in your investing allocations.

Fidelity Sector Performance Patterns

End of the bull market?

In August, in fact the week ended 8/21/2015, the market made a significant turn.  The weekly indicators (moving averages, linear regression curves) turned bearish for the first time since 7/2011.
The Dow downside targets are 14,500-13,700 or as low as 11,000
S&P  downside target 1560-1400

The SPY is the ETF that tracks the S&P and here is a chart with a suggested range for escaping or shorting.

SPY Sept 2015

Has Oil Bottomed?

Since everyone is watching the great gas prices of January, disappear I thought I would put up a chart on oil futures. My wife noted that she paid 2.19/gal for gas in January while now it is at 3.29 here in Colfax, CA. The downswing in oil has brought the price of MLPs down to the point where they are now yielding close to 7% (ETP Energy Transfer Partners LP at 6.86%). However with this 50% increase in gasoline you would think oil was rising dramatically. In fact, the energy sector may have bottomed (jury is still out on that) but it certainly has not come roaring back. Today West Texas intermediate crude is under $50 per barrel. I am following the ETF Direxion Energy Bull 3x ERX, and after a bounce in the first half of February it appears to be headed south again, similar to the oil futures (chart here).

Quotes from an article on

“Just by oil getting 20% off its low, they think the sun has come back out and the birds are singing and it’s a wonderful time to own oil,” Evans said. “Meanwhile, the statistics show oil production hit its highest level since the early 1970s — a 40-year high — and is 15% higher than a week ago.”

Crude oil inventories are the highest in 84 years, since 1931. The U.S. Dept. of Energy weekly inventory series dates from 1982, so analysts making that comparison are looking at an older, monthly data series from a different source, he noted.

Inventories of 444.4 million barrels are 80.6 million barrels, or 22.1% higher than a year ago and 89.5 million barrels, or 25.2%, above the five-year average level.

The first is a daily chart of ERX

Interactive Intraday Chart – Just enter the ERX symbol in the box below

Are Bonds the next bubble?

Interest rates have been extremely low for a good 5+ years now.  And we know its because of the Fed keeping the discount rate at zero and pumping free money into the sytem.  But nothing goes on forever and I have to wonder is the bond market the next bubble.  Look at all the other bubbles on this chart, while bonds have just been moving upward over the last 30+ years.  Will we see 1% 30 year mortgages?  I really doubt it but there are 2.5% 15 year mortgages now.

Are bonds the next bubble?