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Warning: Credit Delinquencies To Skyrocket In Q4

Farm delinquencies skyrocket +24% year over year as global trade issues and the ability to service credit continues to be a problem.  This is a tell-tale sign that the US Fed decreased the Prime Rate recently as a result of broader credit issues related to higher interest rates for corporate and other borrowers.  The last thing the Fed wants is another collapse on the lending markets similar to 2008-09.

(source: zerohedge.com)

Low growth continues to plague the global economy as this extended run in the US stock market continues to mature.  There are many questions all traders are asking – will it continue higher or have we reached a new peak in price activity?  Many economists believe we are ending an expansion period related to the revaluation of the global markets after the 2008-09 credit market collapse.  The typical price cycle of approximately 6~7 years has extended beyond traditional bounds and many analysts are wondering how it may end?

If an economic cycle has truly come to an end, we should expect to see some change in economic activity levels, consumer confidence and mortgage/housing activities.  The end of an economic cycle is usually aligned with some moderate level of economic contraction and a slowing of economic activity.  The one thing that may continue throughout this end of the mature economic cycle is the “capital shift” where capital rushes away from risk and into the US stock market as long as the reversion event stays at bay. (source: zerohedge.com)

Consumer Confidence levels have fallen recently to new lows.  This is a very clear sign that consumers expect the economy to contract a bit based on continued trade-related issues and the overall maturity of the economic cycle.

Most of the “rest of the world” has continued to binge on credit/debt since the 2008-09 credit crisis.  This is a very clear sign that the US Fed and global central banks have pumped trillions of dollars out into the consumer, corporate and global markets over the past 8+ years.  The question for all of us is when and if this debt becomes a liability – when does this credit become un-serviceable?

China and Asia were some of the biggest consumers of US credit/debt since 2008-09.  This graph highlights the incredible 10,667% increase in debt in China since the 2008-09 levels – from approx 300 million to 3.2 billion in 8-9 short years.  It appears the global economic rally was really the “binge on credit” rally.

US Mortgage debt has climbed to near all-time highs recently as well.  This is a sign that the US housing market has rallied to levels that are very close to the peak levels in 2007-08 – just before the crash.  It may also be a sign that cracks may soon start to appear in the housing markets across the US as delinquencies and foreclosures may continue to skyrocket.  People need to be able to service this debt/liability effectively in order to maintain their assets.

We believe the path of least resistance in the US stock market is higher – at least until price breaks below the current price trend channel.  The continued capital shift where foreign investors continue to pour capital into the US stock market will likely continue until some event shakes the confidence of these foreign investors.

You can see from our Monthly chart of the ES, below, we have highlighted the longer-term economic maturity trend which typically lasts about 6~7 years.  The rotation in 2015-16 was very mild as the US Fed continued a type of quantitative easing process by buying bonds and keeping interest rates historically low.  Because the US stock market actually failed to experience any real price rotation near this 2015~2016 cycle date – we believe the current cycle highs are extremely extended and related to the credit binge that has taken place over the past 8+ years.

Our cycle research suggests we may have already past a cycle peak event and may be operating on borrowed time right now.  This suggests that any further upside price activity in the US stock market may be a function of the overall strength of the US stock market compared to the weakening economic activity throughout the world.  In other words, the capital shift process is still feeding large amounts of capital into the US stock market as foreign investors flee risk and uncertainty.  If and when this ends, the US stock market will likely begin a price reversion process that may result in a very deep price correction.

This last Monthly ES chart provides a closer look at the technical indicator data that we believe highlights the overall weakness that is building up in the US stock market.  Even though we’ve recently pushed to new all-time highs, our technical indicators are suggesting that price is actually weakening in the upside price trend and could break lower at any moment.

The Direction Movement index, Momentum, and MACD of Momentum are all highlighting a weakening price trend that appears to be setting up for a broader downside price move eventually.  Traders need to be very aware of the risks in this extended upside price trend and to prepare for the potential of a new credit crisis event related to the current credit levels that are far more extended than in 2008-09.  If something breaks in the credit markets now, there appears to be nearly 5x to 10x the amount of credit extended throughout the global than there was 8 short years ago.

November will be the month of breakouts and breakdowns and should spark some trades. I feel the safe havens like bonds and metals will be turning a corner and starting to firm up and head higher but they may not start a big rally for several weeks or months.

October was a boring month for most major asset classes completing their consolidation phase. Natural gas was the big mover in October and subscribers and I took full advantage of the bottom and breakout for a 15-22% gain and its till on fire and trading higher by another 3% this week already.

If you like to catch assets starting new trends and trade 1x, 2x and 3x ETF’s the be sure to join my premium trade alert service called the Wealth Building Newsletter.

Happy Trading
Chris Vermeulen
www.TheTechnicalTraders.com

Black Monday 1987 vs 2019 – Part II

Our research team has been attempting to answer the question that seems to be on everyone’s minds right now – are we setting up another Black Monday type of event in the global markets and what should traders/investors know before the event potentially takes place.  Our research team has spent the past few weeks trying to better understand the global economic events that took place 8 to 20+ years before the Black Monday event happened and have been particularly interested in the 10+ years just before the Black Monday event.  Additionally, we’ll focus on the recovery event that took place after the Black Monday collapse completed.

In Part I of this article, we attempted to highlight some of the similarities of today’s global economic world to the scenario in the early 1980s.  Many of you may not be old enough to remember the 1960s or 1970s, but at least one individual on our research team is old enough and was actively trading in 1985.  His interpretation of the economic events prior to the 1987 Black Monday collapse and how they may be similar to today highlight some very interesting facets for our readers.

The late 1970s was a period where most Americans worked hard, tried to play by the rules and struggled to attempt to get ahead in a world that seemed to be a little out of order.  The 1960s was a period of awakening in America where music, culture, and people shifted away from the WWII era and post-WWII era thinking.  Vietnam, Korea and a host of other issues, as well as rising US interest rates, presented very real problems for many Americans.  By the time the US entered the 1980s, Americans had already experienced the assassination of John F. Kennedy, the race to the moon, multiple wars, victories and defeats, a cultural shift to near the extremes and another shift moving our culture back closer to center, Oil/energy crisis events, a moderate malaise of economic prosperity, and continually higher US interest rates.  Then the US elected Ronald Reagan.

It seemed to everyone that Ronald Reagan had unlocked secrets to the American opportunity that had been somewhat lost over the previous few decades.  In reality, the first 2 to 3 years of the Reagan Presidency resulted in very mixed economic results – almost identical to President Carter’s.  The biggest identifying factor that our research team found was that the US Federal Reserve altered its rate policy in the early Reagan years from a “raising stance” to a “declining stance”.  Throughout Carter’s term, the FFR rate change averaged +2.08.  Throughout the first four years under Reagan’s term, the FFR rate change averaged -0.7825.  By 1984, the US Federal Reserve had lowered rates, twice, by an average of over 7% after raising rates every year since 1977.

(source: https://einvestingforbeginners.com/us-gdp-growth-history/)

Is this similar to what is happening today?  The US Federal Reserve began raising rates in December 2015 and continued to raise rates until August 2019 – nearly 3.7 years of rate increases after nearly a decade of near-zero interest rates prior to 2016.

Another interesting facet is what our research team calls the “capital shift” that has taken place since just before 2015 – where foreign capital has poured into the US stock market and asset markets for safety, security, and returns.  Prior to the point where capital controls were instigated in China (in 2015), a moderate capital shift event was already taking place.  Once China installed these new capital controls, attempting to prevent capital from fleeing their local economy, a broader shift took place where the US markets began to rally and where foreign capital was more actively attracted to the US stock/asset markets because of the strength of the US Dollar and the continued rally in the US stock market.  This is similar to what happened in 1983 through 1987.

These comparison charts of the 1980s and the current 8+ years of the S&P 500 charts highlight some very interesting facets of both peaks.

_  Support set up nearly 24 months prior to the collapse in 1987. This support channel became the ultimate price channel level to break as Black Monday hit.

_  Price was able to rally above the upper price channel three times before the breakdown event began.  This upper price channel mirrors the lower price channel slope and is anchored near the tops after the initial support bottom is setup.

_  The final rally attempt before Black Monday initiated near early January 1987 – nearly 9 months before the peak and 10 months before the price breakdown began.

Within the current S&P 500 chart, some slight variations are present.

_  Support set up nearly 44 months prior to the peak in 2019. This support channel is the ultimate price channel level that acts as ultimate support for the price trend.

_  Price has been able to rally above the upper price channel four times since the ultimate support level was set up in 2016

_  The most recent rally attempt initiated near early January 2019 and has lasted nearly 9 months before the current peak.  As of today, we are nearly a full 10 months into this new price rally.

Although there are subtle differences in the price setup, rotation, and trend lengths, we can certainly see a similarity in between these two chart and we believe the recent price advance in the US stock market, along with the fact that capital has continued to pour into the US markets over the past 3+ years, sets up a similar type of event where current price levels, valuation, and risks may have been under-weighted dramatically.

Could another Black Monday type of event happen in today’s global markets?  Certainly, it could.  All it would take is for global traders/investors to suddenly realize there is a new degree of risk or excessive price valuation that currently exists in the markets and to begin liquidating assets in a mass event.

What would it take for something like this to happen?  Quite possibly, China or Hong Kong could, again, present a very real risk for the global markets if a threat to the lower price support channel becomes threatened.  A collapse in true value would relate as a potential “true price exploration” event (a reversion event) where global traders may attempt to retest substantial historical support.

Our belief is that true historical support currently resides near 1860 on the S&P 500 – which aligns with the same type of price reversion that occurred in 1987.

Time will tell if we are currently set up for another Black Monday event.  In fact, we may know as early as Monday, October, 21.  Until the lower support channel is seriously threatened by any new downside price move, the chances of this type of event happening are fairly low.  As you are well aware.. things can change very quickly.  Pay attention to near originating out of Hong Kong, China or Asia over the weekends as any type of real risk could spill over into the UK and US markets very early on Mondays.

As a technical analysis and trader since 1997, I have been through a few bull/bear market cycles. I believe I have a good pulse on the market and timing key turning points for both short-term swing trading and long-term investment capital. The opportunities are massive/life-changing if handled properly.

I urge you visit my ETF Wealth Building Newsletter and if you like what I offer, join me with the 1-year subscription to lock in the lowest rate possible and ride my coattails as I navigate these financial market and build wealth while others lose nearly everything they own during the next financial crisis. Join Today to Get a Free 1oz Silver Bar with a subscription – Offer Ends This Week!

Chris Vermeulen
www.TheTechnicalTraders.com

Part III – Is the Fed Too Late Prevent A Housing Market Decline?

So, the reality is that based on our modeling system and our research, there are only two ways that the US Fed (and likely the global central banks) can navigate out of this inflation killing debt glut that has sunk the global markets into a quicksand-like economic malaise; either A. reduce debts dramatically across the board (all nations) in an attempt to allow for some level of future growth/inflation opportunity, or B. find a way to push GDP out levels to 2x (or higher) that of current debt levels.  A is much more difficult to negotiate and navigate – but it may be an option sometime in the future.  B is the more likely option with a transition into some type of new 21st-century economic model that assists in advancing the build-it, sell-it model. In the last, Part II, a section of our research, we showed you a chart of our US Fed modeling system and where we believe the US Fed should be targeting rates currently.  The one thing that was a bit different than our original model, created in 2013, was the election of President Trump and the EU, US/China trade wars.  This could complicate things a bit in the future, but overall the model continues to perform well. Our research suggests that given current global market factors, we are looking at a very narrow pricing structure for US fed rates that are completely dependent on consumer activities (consumer optimism and activity, perception of the economic opportunities and supply/demand price equilibrium).  Which is why we believe the next 15+ months could be very interesting for global traders and consumers. We use a simple tool to track the levels and scope of the changing markets in various areas of the US and have noticed a dramatic increase in the numbers of Foreclosures and Pre-Foreclosures in various prime markets over the past 12+ months.  Take a look at some of these maps. Be sure to opt-in to my free market research newsletter
In each one of these maps, there are more than 500+ current active Foreclosures and/or Pre-Foreclosure listing.  These are prime real estate areas like Los Angeles/Hollywood, CA, New York City, NY, San Francisco, CA, Phoenix, AZ, Chicago, IL and Newark, NJ.  Either the market is changing or the consumer is changing because affordability is sky-high. The law of supply and demand dictates that when the price gets too high and affordability is beyond the scope of the average buyer, then price MUST fall to levels that support healthy buyers and re-balance the marketplace.  This type of price reversion has happened many times in the past, but this time we believe the US Fed may just let the dust settle and allow these foreclosures to funnel through the traditional channels (banks and financial institutions. We do believe the US Fed is slightly behind the curve in terms of rate levels and actions.  The Fed waited till 2016 to begin raising rates when our model suggested rates should have been raised in 2013.  Additionally, the Fed raised rates above the 2.25% upper boundary of our modeling system.  The Fed recently began to decrease rates from the 2.5% level which we agree with.  The Fed target should be between 1.5% to 2.0% at this point and levels should fluctuate up and down within this range for the next 4+ years – gradually settling near 1.25% near 2024. Again, there are only two outcomes that can dramatically alter the path without our modeling system – dramatic debt reduction or dramatic GDP increases.  Possibly, we may see a combination of both of these over the next 10+ years, but our belief is that the US Fed is trapped in a low growth, mild inflationary mode waiting for GDP to increase while attempt to PRAY that no asset bubble pops.  The reality is that bubble will pop and price levels will revert to find “true value” before any real GDP increases begin to take form.

CONCLUDING THOUGHTS:

It’s going to be an interesting 10+ years, folks.  Get ready for some really big price swings in almost all the global markets and various sectors. Real Estate has already run through the price advance cycle and the price maturity cycle.  There is really only one cycle left to unfold at this point which is the “price revaluation cycle”.  This is where the opportunity lies with select real estate ETFs which we are keeping my eye on to profit from falling real estate prices. I can tell you that huge moves are starting to folding not only in real estate, but metals, stocks, and currencies. Some of these supercycles are going to last years. Brad Matheny goes into great detail with his simple to understand charts and guide about this. His financial market research is one of a kind and a real eye-opener. PDF guide: 2020 Cycles – The Greatest Opportunity Of Your Lifetime As a technical analysis and trader since 1997, I have been through a few bull/bear market cycles. I believe I have a good pulse on the market and timing key turning points for both short-term swing trading and long-term investment capital. The opportunities are massive/life-changing if handled properly. I urge you to visit my ETF Wealth Building Trading Newsletter  and if you like what I offer, join me with the 1 or 2-year subscription to lock in the lowest rate possible, get a FREE BAR OF GOLD and ride my coattails as I navigate these financial market and build wealth while others lose nearly everything they own during the next set of crisis’. Chris Vermeulen www.TheTechnicalTraders.com

PART II – Fed Too Late To Prevent A Housing Market Crash?

In Part I of this research, we highlighted the Case-Shiller index of home affordability and how it relates to the US real estate market and consumer economic activity going forward.  We warned that once consumers start to shift away from an optimistic view of the economy, they typically shift into a protectionist stance where they attempt to protect wealth, assets and risk of loss while attempting to weather the economic storm. We’ve seen this happen in 2008-09 as well as after the 9/11 attacks in the US in 2001.  The process is always somewhat similar.  Consumers start to react to pricing levels that are unaffordable and do so by trying to skimp on extraneous purchases like travel, new cars, credit card debt or other items that are not essential.  The other thing that happens is that the lower tier borrowers (the “at-risk borrowers”) typically begin to become delinquent on debts and fall behind on their mortgage payments.  This is how the process starts. Once it starts, a shift takes place in the market that can be sudden or it can be transitional.  The shift is often termed as a change from a “Seller’s Market” to a “Buyer’s Market”.  This terminology is used to describe who is in control of the transaction and who has the advantage within the transaction.  When it is a “Seller’s Market”, buyers are typically offering to pay MORE for an item/home and the seller does not have to stress about trying to sell their property/items.  When it is a “Buyer’s Market”, the buyer is able to negotiate with the seller, demanding more concessions, lower prices, better deals and often has a wide variety of sellers wanting to court the buyer away from other property/items.  See how this shift in market dynamics can really change the way a marketplace works. Now, lets take a look at how the US consumer is doing, overall, and how it might reflect a change in the marketplace if certain fundamental change. This chart of the delinquency rates for All Loans and Leases in the US shows an increase in the levels of delinquencies starting near the 2016 year.  This aligns with the year that the US Fed began raising the Fed Funds Rate and is exactly 1 year after the Chinese initiated capital controls to attempt to prevent local currency (Chinese Yuan) from leaving the country and landing in other countries as foreign assets.  In 2015, the delinquency rate for All Loans and Leases was near 2004~05 levels (below  30,000).  Right now, the level is above the 2008 level near 36,000.
Consumer Credit Card Delinquencies are rising sharply.  Since 2016, the increase in sub-prime credit card delinquencies has skyrocketed above the peak levels of 2008-09 and continues to stay above 5.5%.
Meanwhile, those nasty Mortgage Backed Securities held outright are still massively higher than in 2008/09 based on this Fred data.  We are unsure why the data is reported as ZERO in 2008, but we can safely assume that a $1.55 Trillion risk factor in these MBS levels is not something that we would consider a minor risk factor.
Now, in the first part of this article, we promised to show you some data from our proprietary Fed modeling utility and to show you what we use to determine if the US Fed is ahead of the curve or behind it.  Here you go.. Our original research model of the US economy and the Fed Rate levels into the future are shown below.  You can see that our model suggests the US Fed, as of 2013, should have been raising rates towards the 1.5% level then gradually raising them further towards 2.0% to 2.25% before 2017.  This type of increase would have slowed the advance of the real estate price levels and moderated the expansion of the debt levels that are currently associated within this sector.  Instead, the US Fed was late in their efforts to raise rates – starting only in late 2016.

CONCLUDING THOUGHTS:

Based on our model, current rates should be dropping toward levels near 1.25% to 1.75% as US debt, GDP and population levels continue to increase.  In the 4 years after the 2020 election, rates should stay below 2% as the US Fed is somewhat trapped until GDP increases dramatically.  Our modeling system suggests there are only two ways the US Fed can attempt to raise rates above 2.5% in the future; a. the US GDP increases dramatically (increasing to levels more than 1.5x total US debt annually), or b. US debt is dramatically reduced while GDP continues to grow at moderate rates. In the last part of this 3 part article series, we’ll show you more data that will allow you to prepare for the future events that may unfold and show you how to watch for some of these trigger events yourself. If you are like me and have friends who know nothing about real estate like cops and techie programmers building spec homes and thinking its easy money, then you know the market is or has already topped. In fact, take a look at home sales month over month in Canada.

House Values Declining Month Over Month

Real Estate has already run through the price advance cycle and the price maturity cycle.  There is really only one cycle left to unfold at this point which is the “price revaluation cycle”.  This is where the opportunity lies with a select real estate ETF I am keeping my eye on to profit from falling real estate prices. I can tell you that huge moves are starting to folding not only in real estate, but metals, stocks, and currencies. Some of these supercycles are going to last years. Brad Matheny goes into great detail with his simple to understand charts and guide about this. His financial market research is one of a kind and a real eye-opener. PDF guide: 2020 Cycles – The Greatest Opportunity Of Your Lifetime As a technical analysis and trader since 1997, I have been through a few bull/bear market cycles. I believe I have a good pulse on the market and timing key turning points for both short-term swing trading and long-term investment capital. The opportunities are massive/life-changing if handled properly. I urge you to visit my ETF Wealth Building Trading Newsletter  and if you like what I offer, join me with the 1 or 2-year subscription to lock in the lowest rate possible, get a FREE BAR OF GOLD and ride my coattails as I navigate these financial market and build wealth while others lose nearly everything they own during the next set of crisis’. Chris Vermeulen www.TheTechnicalTraders.com

Fed Too Late To Prevent A Housing Market Crash?

Real Estate is one of the biggest purchases anyone will make in their lifetime.  It can account for 30x to 300x one’s annual income and take over 30 years to pay off.  After you’re done paying for your property, now you have to keep paying to maintain it and to support the property taxes to keep it.  What has happened to the US Real Estate market since the 2008-09 global credit market collapse and is the US Fed behind the curve?

Case-Shiller Home Price Index

One of the most common indicators used to measure national housing affordability and price trend is the Case-Shiller Home Price Index.  In this chart, we are displaying the Case-Shiller National Home Price Index – including all markets in the US.  It is fairly easy to see that in last 2016, on a national level, the Case-Shiller index had reached the 2006 peak level.  After that, the new Trump economy pushed it even higher where we now near 210.  This is a very uncommon level for this index and because we are in uncharted territory with this 210 ranking, it should concern everyone that a reversion maybe somewhere in our future.

Fed Funds Rate data from early 1990 till now

The question we’ve been asking our research team is “Is the US Fed behind the curve in the markets and how will that translate into the US/Global equity markets?” When we consider the recent Fed rate increases (starting in 2016), our research team compared these levels to a modeling system we build back in 2013.  This modeling system suggests what the US Fed should have been doing based on certain GDP, Population and other factors.  The chart below is the Current Fed Funds Rate data from early 1990 till now.  The rise in valuation on the Case-Shiller index can almost be directly correlated to the amount of money available in the global markets and the US Fed rate levels.  More money and lower interest rates mean everyone was stampeding into housing expecting it to increase in value (which it did).  But what is next with the US Fed turning cautious recently?

US 30 Year Mortgage Rate

The US 30 Year Mortgage Rate has continued to rotate between 3.5% and 5% (on average).  We all know these rates vary depending on the borrower’s credit rating and other factors. Yet we believe any rates above 4% (on average) are dangerous for the markets and once lenders start to tighten requirements for loans while sellers start to aggressively decrease their asking price in order to attract buyers, we could see a massive shift in the market within a matter of months, not years.

CONCLUDING THOUGHTS:

The global markets are setting up for some type of event.  Capital is being pulled out of the markets as investors/traders wait to see what happens with the US/China trade issues, the EU as well as the US Presidential election in November 2020.  Many economists and researchers believe a recession is fast approaching and are waiting for any signs that it is starting. Are the turmoils setting up in the global stock market about to fracture into the global real estate market as well?  As investors and consumers engage in risk aversion processes, how will that result in continued economic activity in certain sectors of the global market?  Could it be that we are about to experience an economic contraction/reversion event that many analysts have failed to comprehend? In part II of this article, we’ll show you our US Fed proprietary modeling system’s data and show you why we believe something big is going to unfold over the next 3 to 5+ years.  We’ll also highlight some very interesting data regarding the US real estate market that you should be preparing for right now. Real Estate has already run through the price advance cycle and the price maturity cycle.  There is really only one cycle left to unfold at this point – the “price revaluation cycle”.  This is where the opportunity lies with a select real estate ETF I am keeping my eye on. I can tell you that huge moves are about to start unfolding not only in real estate, but metals, stocks, and currencies. Some of these super cycles are going to last years. Brad Matheny goes into great detail with his simple to understand charts and guide about this. His financial market research is one of a kind and a real eye-opener. PDF guide: 2020 Cycles – The Greatest Opportunity Of Your Lifetime As a technical analysis and trader since 1997, I have been through a few bull/bear market cycles. I believe I have a good pulse on the market and timing key turning points for both short-term swing trading and long-term investment capital. The opportunities are massive/life-changing if handled properly. I urge you to visit my Wealth Building Newsletter and if you like what I offer, join me with the 1 or 2-year subscription to lock in the lowest rate possible, get a FREE BAR OF GOLD and ride my coattails as I navigate these financial market and build wealth while others lose nearly everything they own during the next set of crisis’. Chris Vermeulen www.TheTechnicalTraders.com