Here is Fitzpatrick’s outstanding piece along with 3 tremendous charts:  “For the 3rd time in this 17 year period we may be looking at a 4 year, 4 month rise in consumer confidence before a turn lower again.


The peak in June, followed by the subsequent fall away in July, if followed by lower levels in the months ahead would set up a picture very similar to that seen in both 2000 and 2007 (see chart above). 

The prior moves down in consumer confidence in 2000 and 2007 both came as an existing rally in Oil extended and accelerated (Too far relative to the economic backdrop).

The break higher in Oil at the end of 1999 / early 2000 also saw a peak in consumer confidence (see chart above).  The 2007 break higher on Oil came just after the peak in confidence but as Oil continued to rally, confidence fell.  This time we have so far broken through short-term levels on Oil but not the more important ones yet.


Next good resistance stands at $115 (The 2011 high) above which we would expect an acceleration (possibly back to the all-time high above $147 posted in 2008.) 

There is no doubt in our mind that such a move would be near impossible to justify from a fundamental basis and therefore would expect it to come from a supply shock dynamic.  The resulting rapid rise, if seen, would act as a sharp “fiscal drag” effect on the economy.

We are already 25% higher from the lows of April this year and 16% higher in just the last 5-6 weeks coming straight after the surge in yields.

If economic data holds up they are still likely to move. However at the same time there is a danger that the yield dynamic and or Oil scenario could get exacerbated and provide an increased negative feedback loop.


The obvious point this chart makes is that the level of the S&P 500 does not reflect the relative confidence of consumers.  While consumer confidence has just posted a trend high, it is significantly below the 200 and 2007 highs, while the S&P made new highs in 2007 and again this year.

Bottom line:  The present Fed does not have the robust backdrop that Greenspan had in 1994 or Volcker had in the late 1970’s that allowed the economy to absorb (Albeit painfully) the headwinds of higher yields (And in Volcker’s case higher Oil prices). 

This increases the danger that it could become a “policy mistake” and/or that the present backdrop deteriorates over the coming months once again causing the Fed to backtrack.  At some point in every year since 2007 the Fed has expressed a more positive forward-looking outlook on the economy and/or the housing market and every time they ended up having to backtrack.

Our bias is that QE should be wound down, not because we are looking at a robust recovery, but because we are less than convinced of its merits relative to its negatives.  However, what we believe does not matter.  The present Fed believes it helps. 

If, as our charts suggest, we are not yet at that point of “Escape velocity” in the US economy and still have 2-3 years of repair to get through, then there is a small chance they do not taper.....but a bigger chance that they do, only to end up reversing course later on.”

© 2013 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

The audio interviews with Hugo Salinas Price, Chris Powell, Bill Fleckenstein, Eric Sprott, Egon von Greyerz, David Stockman, Andrew Maguire, John Mauldin, Art Cashin, William Kaye and Marc Faber are available now.  Also, other outstanding recent KWN interviews include Jim Grant and Felix Zulauf to listen CLICKING HERE.

Eric King

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