What I love about this time of the year is the background we see at Jackson Hole, Wyoming. Isn’t it relaxing? We got a little cheated last week with the clouds but it’s a reminder this is the light volume time of year along with Christmas. Don’t expect too much to happen between now and Labor Day. But last week was very interesting as it confirmed a cyclical low from two weeks ago at the 617-week marker off the 2002 bottom.
The period between a week ago Friday and last Monday was very tricky because Saturday was a near-term solar cycle point and it was also 144dg (Fibonacci) of earth’s orbit around the sun. This cycle collided with the 618-week window to the 2002 bottom. Literally anything could’ve happened. At the end of the day we got the least common denominator, which was a not even one-day pullback which we discussed in great detail last week.
The bottom line to the discussion, we ended up with the August low we were looking for one week early and a whole bunch of points shy on the CBOE Volatility Index (VIX). What should we expect this week? More than likely it’s time to consolidate some of the gains we’ve seen as even in this market nothing goes straight up.
In other areas, on Sunday night we saw the U.S. dollar gap up and now we have a bigger 161 relationship to big A as opposed to little a at 83.23.
That brings me to the Fed which is starting to get a little hawkish. There are Fed presidents who think they should tighten immediately. Luckily Janet Yellen doesn’t necessarily share that view. My understanding is we are now going through a transitional process where Fed economists try to figure out how much and whether the labor market’s problems are cyclical or structural. Real tightening will come at such time they come to some kind of a consensus. What does that really mean? At some time and I’m not sure it’s now; the greenback is going to be in a new secular bull market. If you can read the tea leaves, you can see that as QE expires we are about to enter some kind of new era.
That being said, there is something in this new era people are not considering. Since February I’ve told you this is going to be the year of the geopolitical surprise. For years I’ve pointed to 2014 as a defining geopolitical year. Why? In terms of socionomics it takes about 5-8 years for social mood to get angry enough after a financial disaster to manifest a major war. Whether many people realize it or not, last week ISIS declared war on the United States of America. What does this mean? Only one time in the past hundred years has the United States confronted this kind of evil. Most military experts I’ve seen the past few days are unanimous in their opinion we will have to confront this with the only option being total victory.