May 2008

Is the dollar in the initial stages of a hyperinflation? We very strongly doubt it, although we would no longer assert categorically that such an outcome is impossible. Even so, there is only one course of political action we can conceive of that would put the U.S. economy on a hyperinflationary path, and it is not one that we have heard discussed. Indeed, while inflationists have always insisted the Fed would do ‘whatever it takes’ to avoid deflation, they’ve always fudged the details. And even when details were forthcoming, the scenarios they described were preposterous ‘ such as that wage inflation was about to come on full-bore. Does anyone actually believe that United Airlines, Chrysler, Beazer Homes et al. will somehow find a way to pay their employees enough to scrape by in hyperinflationary times?

Another crackpot vision of the inflationists has Helicopter Ben dropping $100 dollar bills from whirlybirds. This tableau was metaphorically appealing but implausible, since the only legal and legitimate way to put fresh money into people’s hands is to get them to borrow it. And by the way, this is true even of the stimulus checks the IRS recently mailed to taxpayers. It may have seemed as though the money dropped from the sky, but in reality the hundreds of billions of dollars worth of free lunches disbursed by the Treasury Department will increase the federal deficit and therefore the amount for which taxpayers are ultimately on the hook.

No Need to Speculate

In light of the above, what options does the Fed have to fend off deflation? Actually, we needn’t speculate any longer, since, by its recent attempts to arrest the collapse of America’s financial system, the central bank showed us exactly what it would ‘ and will — do. Recall that the Fed did not simply fork over hundreds of billions of dollars to the banks; rather, Bernanke & Co. employed subterfuge to make a still-bottomless bailout look like a series of business loans. Banks simply ‘exchanged’ their dubious mortgage paper for superficially less-dubious Treasury paper ‘ ‘new lamps for old!’ — and that was that.

All of this, by the way, was well within the intentions of the Monetary Control Act of 1980, which gave the Federal Reserve emergency authority to acquire the bonds of, say, a bankrupt auto manufacturer, a poultry distributor, or a municipal stadium. In practice, though, we see that the Fed has done nothing so transparent as purchase assets outright; rather, it has swapped Treasury paper for subprime confetti, enabling the banks who were warehousing the confetti to pass muster with regulators who are all in on the con.

These sham transactions have given the banks the temporary appearance of solvency, but, as is becoming increasingly obvious, the loans have done nothing to stimulate the consumer economy or the housing market. Taken together, however, the measures could be seen as a template for a future, potentially hyperinflationary, bailout at the household/consumer level. Surely nothing less than that will suffice to get consumers spending again, and that is why we might expect the government’s so-far token aid to a relative handful of down-and-out homeowners to expand as real estate deflation begins to asphyxiate more and more neighborhoods across the nation.

Why Lenders Matter

But we shouldn’t confuse such a course of action with a deliberate strategy to hyperinflate, since any political decision to do so would have grave and presumably unacceptable consequences — not only for savers as a class, but for all of the institutional conduits and repositories of savings. Think of an economy operating without credit or bond markets for perhaps a generation and you begin to see the devastation that hyperinflating the dollar would cause. After all, who would be willing to lend even a dime to the U.S., or to U.S.-based businesses, if hyperinflation had screwed them out of tens of trillions of dollars worth of interest and principal? Pensioners and widows would be wiped out too, since their nest eggs and life insurance annuities would be rendered effectively valueless.

It is at that point, perhaps, that debtors might collectively begin to understand that by walking away from those whom they owe, they would only be screwing themselves. It happened easily enough in Germany, you say? True enough. But anyone who cites the Weimar hyperinflation of 1923 as a reason for why it could happen here has contrived to ignore the crucial fact that post-War Germany, physically in ruins and economically devastated, had relatively little to lose. Americans, on the other hand, have everything to lose, since we would be plunging from a civilizational pinnacle of affluence into destitution. Under the circumstances, a vote for Total Debtor Relief ‘ for hyperinflation, that is ‘ would be a vote to destroy any chance of the ‘good life’ returning for decades. A deflationary course would at least have the moral virtue of visiting pain on sinners more or less in proportion to their sins of borrowing.

Real Estate Vortex

So how could a hyperinflation occur in this country if it is politically out of the question? The answer is that we would get sucked into it — slowly at first, but then inescapably as the vortex of real estate failures accelerated. In such desperate times, bailout measures could grow increasingly reckless, until they reached a point where the government effectively assumed all of Americans’ mortgage debts. The sums involved would dwarf the Treasury paper currently held as rescue reserves by the Fed, so that the government would wind up literally printing money to take over the bailout where the central bank had left off.

Compared to a wholesale bailout of America’s home ‘owners,’ the government’s measures so far to prop up the banking system have been timid and opaque. In the end, we doubt Congress will have the stomach to tell mortgage lenders they will have to accept confetti as payment. And that is why the housing-sector bailout is unlikely to reach the vortex stage. More likely is that real estate deflation will at some point become precipitous, outstripping any rescue package that Congress might be able to throw together. Ruinous deflation would be a fait accompli by then and there would be little point in effecting a hyperinflationary rescue. Deflation would simply be allowed to run its course, with the government restructuring mortgage contracts so that each of us would continue to make monthly payments commensurate with our means.

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The brazenly fraudulent economic data the U.S. government puts out each month would have us believe that inflation and unemployment are both pretty tame right now. Would that it were true! In reality, ‘underemployment’ is rampant, and, according to John Williams, a speaker at the recent meeting in New York of the Committee for Monetary Research and Education (CMRE), consumer inflation would be running at closer to 12 percent than the currently alleged 4 percent if it were calculated using the 1980s formula. Instead, we now get ’seasonally adjusted’ unemployment figures, and a ‘core’ inflation rate, ex-food and -energy, that are about as believable as 1930s Kremlin data intended to validate Stalin’s Five Year Plan.

Productivity Hoax

By egregiously manipulating the inflation number each month, the government has produced another statistical fiction ‘ i.e. ‘productivity growth’ — a number used by “Easy Al” Greenspan to persuade us that the economy was on the right track during his tenure. If this were true, though, and Americans were indeed as wealthy and productive as the Fed chairman always liked to tell us we were, then why are there so many working wives? And why, even with all those wives working, do Americans have no savings? Oh, that’s right: Our savings, and most of our wealth, are vested in the homes that we live in (but which are mostly owned by mortgage lenders — the same homes that, on average, lost 15 percent of their value in the last year).

Regarding inflation, it doesn’t take a genius to figure out that the monthly CPI number is bogus. Anyone who has been to the grocery store or the gas station, or who has sent a check to a college bursar, or had a prescription filled, knows that consumer prices have been rising very steeply ‘ more steeply, in fact, than at any other time since the 1970s. But what about those mellow unemployment figures ‘ statistics that would deign to suggest that joblessness is hovering around 5.6% even though the U.S. economy is in a state of near-collapse. Anecdotal evidence that the economy has nosedived is overwhelming at this point, even if the government’s numbers crunchers have miraculously kept us out of statistical recession. Talk to some retailers at the local mall if you don’t believe us — or to friends who are realtors, consultants or lawyers.

Realty Business ‘Off’

We have more than a dozen friends who are realtors, and perhaps another dozen who are self-employed consultants of one kind or another, and although nearly all of them would tell you that business has fallen off significantly in the last six to twelve months, not a single one has turned up as an unemployment statistic; for in fact, self-employed workers cannot even file for jobless benefits. That means that if the income of a highly paid, self-employed service worker were to fall by 50 percent, we would never hear about it from the Bureau of Labor Statistics. The only evidence we’d have would come indirectly: Sales revenues at pricier stores would start to dry up. Caribbean cruises would sail half-full. Tax revenues in upper middle-class enclaves like Boulder, Colorado, would drop sharply. Casinos would start opening up more tables for $5 blackjack players, even on Saturday nights. Pricy restaurants would either close or cheapen their menus.

All of these things have been happening, as far as we can tell, and the changes seem at least anecdotally to be waxing rather than waning.  This suggests that although official unemployment has climbed only somewhat, the free-spending, highest-income workers who have long stoked the U.S. economy, and who are invisible to the government’s statisticians, are hurting. There are probably millions of such under-employed workers now, given America’s extremely heavy skew toward service-sector jobs. And, by and large, they had been among the top earners in the work force. But literally tens of millions of them could be reduced to subsistence wages and they still wouldn’t show up as unemployed. Keep that in mind the next time some bozo on CNBC points to ‘low’ joblessness as evidence that this deepening recession isn’t so bad.

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Wall Street may have succeeded in ignoring atrocious Q1 earnings these past few weeks, but it would appear that skyrocketing oil prices are another matter. News that U.S. reserves fell unexpectedly last week pushed crude to new record highs and stocks into their worst two-day decline since February. The usual bunch of analysts seem to think it’s all about supply and demand, but maybe the global energy market simply smells major weakness ahead for the dollar? If so, and the Dollar Index were to break the supposed Maginot Line of support at 70, banging out new post-World War II lows, there’s no telling how high crude could go. We’ve identified a precise target for the July contract in Thursday’s touts that’s about as bullish as our technical runes will permit. Although the number is close to Goldman’s recent estimate of $140, because our target is a precise Hidden Pivot, even slight progress above it would be warning of significantly higher prices to come.

(Click on chart to enlarge)

We doubt the already fragile global economy could survive much higher prices, but because the rally is technical rather than fundamental, $200 a barrel cannot be ruled out. We can’t recall anything as big as the energy markets ever getting short-squeezed, but the 1970s oil embargo proved that it is possible for a single entity ‘ at the time, OPEC ‘ to corner the market. Odds of this occurring have probably increased since then, since no one supplier, even Saudi Arabia, can pump enough extra oil at the margin to satisfy a spike in demand, much less a wilding spree caused by global speculation.

Bubble Must Pop

But when the bubble final pops, and it will, it’s unlikely to be bullish for stocks, since the collapse will cause hundreds of billions, it not trillions, of petrodollars to vanish from the financial system in a matter of days. Since no one can estimate the extent to which those petrodollars are propping up the global economy now, we cannot begin to guess how the world’s asset markets would fare without them.

Whatever happens, it will probably be too late to save the nation’s air carriers, which appear to be in a death dive. Most recently, American Airlines announced that on top of the $25 fee for checking a second bag, they are about to institute a $15 fee for the first checked bag. What’s next? A surcharge based on one’s weight? American, among others, is also reportedly cutting back dramatically on domestic flights and laying off employees. We flew Northwest from LaGuardia to Denver yesterday and saw downsizing first-hand when Northwest canceled a flight due to ‘weather’ even though only light rain was falling. We’ve all been hearing for months that this would be a tough summer for passengers, but if the airlines start finding excuses for canceling flights merely because those flights are not full, it’s going to be much tougher on travelers than we’d imagined.

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Murphy’s Law at exceptional strength has delayed my return to Denver by a day, but I’d rather spend a few moments tonight talking about all the things that went right. There was the CMRE dinner, for one, since it gave me an opportunity to hear what the best and brightest bears are saying these days — Jim Grant, John Williams, Alex McDougall and Bill Laggner in particular. Two of those speakers are predicting hyperinflation, and although their arguments were moderately compelling, I will attempt to explain here later this week why I think they will be wrong. I still see deflation as the true threat to the economy, and although I no longer believe that hyperinflation is impossible, the catastrophic damage it would cause to savers and savings institutions, including U.S. and global bond markets, makes it a very unlikely policy choice.

I will also tackle the seeming mystery of why unemployment is not skyrocketing even though the economy is falling apart. The answer is pretty simple, and I think persuasive, and I’ve already given you a hint when I used the word ‘under-employment’ here a couple of days ago. This is a problem that is still statistically invisible but anecdotally mountainous, as I hope you will agree.

I spent the last two days of my trip meeting with one of my two trading partners, John Boutiette, a Boston native who’s got enough PC monitors on his desk to blow out all of the lights in Watertown if one of his surge protectors should fail. We spent most of Monday comparing notes on some of the technical tools we use to trade futures contracts, but it was the Red Sox game that evening that made the day memorable. I’d never been to a game at Fenway before, and I came to this one feeling less than fond toward the Red Sox after the pounding they gave the Rockies last October.

Murderer’s Row

On this particularly night, though, they were playing Kansas City, a team I care nothing about, and so it was easy for me to ‘belong,’ rooting for the likes of Youkilis, Ortiz, Ramirez and the rest of the Sox’ murderer’s row. In the top of the fifth inning, John noticed that Boston’s pitcher, Jon Lester, had a no-hitter going ‘ a fact that I and probably many other fans were not paying much attention to, since the Sox had taken a 7-0 lead early in the game. But everyone had noticed a couple of innings later, when the sell-out crowd starting jumping to its feet and high-fiving whenever Lester’s fastball, still in the mid-90s toward the end of the game, went whistling by a batter. But for a fielding error early in the game, and a walk in the last inning, Lester, a young cancer survivor, would have had a perfect game. But the one he threw was the prettiest I’ve seen in a long, long time.

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Is the end of the housing bust in sight? A prominent money manager known for his maverick views thinks so, but not without reservations. Charles Peabody, of Portales Partners, was one of the presenters at the meeting we attended in New York last week of the Committee for Monetary Research and Education. He says that ‘Four Horsemen’ have been working hard to pull the economy out of the mire of a housing/credit bust. The horsemen are the Federal Reserve Board, Congress, the SEC and/or FASB, and the Treasury Department. Three of the horsemen have fully materialized, he says, and it is only a matter of time before the fourth, Treasury, succeeds at the crucial objective of stabilizing the dollar. Once this has been achieved, says Peabody, several positive things will happen: 1) the housing market will stabilize (albeit at depressed levels); 2 we will pull ourselves out of the recession; 3) widening spreads in fixed-income markets will reverse; and 4) a rally in financial stocks will develop.

For Peabody’s bullish scenario to play out, housing prices must first find a bottom. He says this is imminent because housing affordability is slowly shifting in favor of buyers. We think this is where his bullish argument fails, though, for two reasons. First of all, even though real estate prices have been falling for more than 20 months, that doesn’t necessarily make homes more affordable. In fact, lending standards have tightened so dramatically as to all but negate the would-be stimulus of lower prices. Whereas buyers could once take possession of homes without a downpayment or verification of income, now, to qualify for a mortgage loan, they must meet far more stringent income guidelines and come up with a downpayment of at least 20%. These new hurdles are formidable and have probably more than offset the effect of lower prices.

Bullish Psychology Dead

But there is another factor working even more powerfully against statistical affordability, and it is mainly psychological. We would argue that the single most important catalyst of the housing boom, and of widespread, albeit misplaced, notions of ‘affordability,’ was the near-certitude that home prices would continue to rise. After all, what does a home buyers care about how much he pays for a property, or the interest rates he pays to his mortgage lender, as long as he confidently expects the home to keep rising in value? This was by far the most powerful force driving the housing boom, and it was all the more powerful because, on average, homes in most regions of the country were gaining value much faster than the incomes of those who were buying them. But the psychology of home buyers has turned decisively bearish, and relatively few are inclined to buy more home than they can afford. We think buyers will grow even more conservative in the months ahead as the recession deepens. Bulls who think a firming in home prices will help put the economy back on track are therefore putting the cart before the horse.

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I promised to report on some of the Big Ideas that came out of the CMRE meeting, and this I shall do in the days ahead. Some speakers featured at the semi-annual event, including John Williams, Bill Laggner and Alex McDougall, shifted my thinking a bit on the deflation/hyperinflation question, and although I remain convinced that deflation will ultimately devastate the economy, I can now at least imagine how a hyperinflation might occur. No one that I am aware of has fleshed out this point, and the inflationists’ main argument — that the Fed ‘will do whatever it takes’ to keep a deflation from occurring — has never satisfied me. I also intend to share with you an insight I had concerning unemployment, and how the relatively tame statistics the government has been feeding us belie an economically ruinous trend, already well under way, that might be characterized as rampaging underemployment.

But more immediately, let me relate to you the eye-opening discussion I had with a Washington D.C. lobbyist who attended the dinner. Based on conversations he’s had with behind-the-scenes players in the Democratic Party, he believes Al Gore has a good chance of becoming the Democratic nominee. This is a possibility that had not occurred to me, but the more I’ve thought about it, the more plausible it seems. The lobbyist, who spoke with me on the condition that his identity not be revealed, is a well-known figure on Capitol Hill. He said that some of the shakers and movers in the Democratic Party are strongly convinced that, at this point, Gore would be more electable than either Clinton or Obama. This is hardly a stretch, since it should be clear to any observer that the all-but-endless series of primaries has damaged both candidates while leaving their GOP opponent, John McCain, largely unscathed. Meanwhile, who can even remember what it was the voters so disliked about Al Gore before he officially dropped out of the race? He’s won an Oscar for documentary film, crusaded for the environment, and regaled campus and talk-show audiences, in the process becoming less wooden than he appeared on-the-stump.

Open Ballot

So how would Gore become the nominee when he is not even in the running? Very simply, his name would be placed in contention at the July convention in Denver if neither Hillary nor Obama pulls a majority on the first ballot. It would become an open race at that point, and one can easily imagine delegates drafting Gore once they are free to vote as they please. Keep in mind that Obama, for all the good press he has gotten, is a rookie with no track record in the Senate, and that Hillary is despised by nearly half the voters. From where I’m sitting, Gore looks like he would be tougher to beat than either of them. If you can get a 4-to-1 bet on Gore as the nominee, I’d advise you take the odds.  (Note:  www.intrade.com is currently laying 40-to-1 (!) on this bet. Our thanks to subscriber Bill Flinn for alerting us Sunday evening to this golden opportunity.)

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I’m in New York for the annual spring meeting of the CMRE, the Committee for Monetary Reform and Education. This group attracts men and women from the investment community who share your editor’s disdain for fiat money and other falsehoods promoted by Big Government. Here’s the line-up of speakers at tonight’s dinner:

James Grant, ‘Grant’s Interest Rate Observer’, the man who has brought financial reporting to a high art. In politics, James recently praised Grover Cleveland as president. (We agree and if your knowledge is incomplete regarding Cleveland, check the Mackinac Institute for the article by Lawrence Reed,* fellow supporter of sound money.)

Charles Peabody of Portales Partners, reports on the world’s banks and economies. In January, Charles had this provocative coverage, ‘Is China the Next Disease? We think so!’ His list of what a collapse in Chinese markets could produce for US financial companies is not to be missed. Can the bubble burst before the Olympics?

Walter J. ‘John’ Williams prepares Shadow Government Statistics, an extraordinary service for sound analysis that he started when a client asked for his assistance as he could not depend on Department of Commerce GDP figures. Williams found the government figures faulty. His corrections lasted until� GNP methodological changes eventually made the underlying data worthless. His outlook is a deteriorating but still inflationary recession.

Stanley Sporkin, known for his uncompromising work as a lawyer and a judge, he distinguished himself as a legal critic. Sporkin was SEC Chief of Enforcement during the Carter Administration. President Reagan appointed him to the U.S. District Court for the District of Columbia. He retired as a federal judge in January 2000.

Rogue Wave Economics

If you’d like to know more about the CMRE, click here. I was a speaker at this annual event myself, during the 1990-91 recession. An essay that I’d written for Barron’s caught the attention of a CMRE director, the late Ed Hart, a well respected commentator on CNBC before the network adopted its current show-biz-’n'-babes model. My thesis was that a ‘rogue wave’ created by a combination of public and private debt was about to swamp the economy. David Ranson of H.C. Wainright went sharply against the grain that night with a very bullish forecast. In retrospect, he was right ‘ very right, since, not long afterward, the stock market began an ascent that would make all previous bull markets look like pikers.

Three More Zeroes

At the time, the doomsday scenario making the rounds had it that Third World debt would do us in. A year or two earlier, Tad Szulc of the New York Times had written a scary article on the topic that appeared, if memory serves, in Penthouse magazine. The article convinced me that a severe downturn was imminent, but in retrospect it seems almost quaint that anyone should have worried about the relatively meager sums involved. For in fact, the Third World owed U.S. banks mere hundreds of billions of dollars, and the problem got papered over as easily as a kitchen wall. Few could have imagined back then that, with the advent of the derivative game in the late 1990s, three zeroes would get tacked onto global debt totals.

One can be reasonably certain that we are not at a similar threshold today, since debt would have to soar into the quadrillions or even quintillions. That would occur in a hyperinflation, of course, but that scenario is extremely implausible for reasons that I have tried to make clear here before. (To believe hyperinflation lies ahead is tantamount to believing you will one day sell your home to some greater fool for a thousand times what it is presently worth, and that automobile manufacturers and air carriers, among other employers, will be paying their workers thousands of dollars per hour. I have long argued that the credit implosion now well under way in real estate and banking can produce only a deflationary outcome.

I’ll be interested to hear what Jim Grant in particular says about this at tonight’s dinner. Talk to you tomorrow!

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Let me say it once more: Microsoft is history. Yeah, I know, companies with $50 billion in the bank don’t just die overnight. But Microsoft will go to its reward nonetheless, a victim of technological Alzheimer’s and changing times. Diminished capacity has been taking a heavy toll on the software maker for the last decade, as should be apparent to anyone who uses a Windows-based computer regularly, and somewhere down the road lies decrepitude and, finally, death. It’s only a matter of time.

Speaking as someone who uses a PC 10-12 hours a day, this is something that I feel strongly in my gut. And although probably not one person in a hundred would agree with me, I am convinced nonetheless that the Redmond behemoth’s slide toward oblivion will be complete within six to eight years. It could even happen sooner if some upstart finds a way to offer reasonably good equivalents for Excel, Outlook and PowerPoint as Web-based applications. As many PC users who have had to put up with the gratuitously conceived Vista operating would agree, if it weren’t for Microsoft’s Office suite, the company would have died long ago. Will it be Google that administers the coup de grace? Possibly. But if so, it will not be any time soon. The firm currently offers a Web-based spread sheet and a decent e-mail client, but unfortunately the applications are not yet sufficiently robust to supplant Excel and Outlook. How about Apple? Well, we can only hope Steve Jobs has chambered a round for the kill shot.

Like Alzheimer’s

But let’s not harp on the reasons why Microsoft merely deserves to die, since we’ve done that before. We won’t even discuss Microsoft’s failed, desperate bid to acquire Yahoo, which itself has been flailing around, like Microsoft unable to invent or even remotely imagine the Next Big Thing. No, it takes more than a failure of the imagination to kill a company as big as Microsoft. It takes an operating system so bloated, buggy and poorly conceived, as Windows is, that no amount of expertise can make it mesh smoothly with third-party software. That’s the disease, and like Alzheimer’s, it is progressive and ultimately fatal.

And I would know, since nearly every one of my 12-hour workdays includes a nasty tussle with a glitch related to the Windows operating system. Here’s a short list, from just last week:

Ear-Splitting Beep

How’s that for a week’s worth of frustration? But here’s the kicker: I was able to resolve only one problem on the entire list ‘ the ear-splitting beep. Fortunately, you can hack that beep out of your life by flipping a switch in the Windows registry. But as for all of the other problems, you could probably spend a few days working unsuccessfully to resolve even a one of them. For instance, try Googling the phrase ‘Outlook won’t retain passwords’ and you’ll discover that, while many others have trod that ground before, no one has been able to find a solution that works. I went a step further, joining the web-based Experts Exchange.com so that I could ask certified PC geniuses how to fix some of these problems. Search their site under ‘network password problem’ and you will find a nearly endless string of proposed solutions that comes to a dead end’ ‘We give up!’ And I doubt there is anyone alive, even among the apparent dolts who write Windows code, who could explain why my laptop’s screensaver works only when Skype is running.

And that is the crux of Microsoft’s problem: While Windows continues to grow buggier and more bloated with each new release, increasingly necessary support for the third-party applications that run on Windows is either unavailable or unable to resolve even the most trivial problems. And so the vendors of literally hundreds of major software applications routinely refer you and your problem to Microsoft, knowing full well that it’s easier to get an audience with the Pope or the Wizard of Oz than it is to reach a MSFT tech-support person. As for Microsoft’s Web-based ’support,’ having a problem that can actually be fixed using their voluminous instructions, archived on a million Web pages, is a stroke of luck on a par with winning the lottery.

Long Live XP!

Microsoft’s answer to all this is to ram Vista down users’ throats and to stop supporting XP, whose glitches we had almost gotten used to. But users hate Vista so much that Microsoft has been unable to kill off XP in the usual way. XP lives on, and it seems increasingly likely that a black market will develop for it once the application is no longer sold by retailers who must kow-tow to Microsoft or die.

Is this any way to run a business? We’ll find out ‘ probably around the time Microsoft moves to render Vista obsolete with yet another RAM-hogging leviathan that will draw praise from a servile press even as it is reviled, execrated and loathed by tens of millions of frustrated users.

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The Rick’s Picks chat room is the place to be if you’re looking for tradable ideas in real time. Gold and silver traders in particular can benefit, since the room attracts experienced traders from all over the world at all hours of the day, particularly during U.S. market hours. If you would like a free one-day pass to check it out, click here, and then on the green banner.

Yesterday’s headline implied that it might be time for bears to take a vacation, but perhaps the mental health of bulls too might benefit if they ‘go away in May.’ Seasonality will favor longer lapses of tedium on the nation’s bourses in the months ahead, but on Wall Street that is surely no remedy for hypertension. Quite the opposite, in fact, since prolonged stretches of sideways price action are almost as stressful as the number one killer of money managers, bear markets. Below is a chartist’s version of atrial fibrillation at work, straining the heart and arteries of anyone so foolish as to be trading the E-Mini S&P yesterday:

(Click to enlarge)

For our part we just watched, having lucked out overnight with a target that caught the bottom in June Crude within 12 cents. Here’s the advice for oil traders that went out to Rick’s Picks subscribers Monday evening, when quotes for Texas tea were hovering just below $124 : ‘There are some bullish targets near 131 given here earlier, but we’ll put them aside for now, since the futures look primed for a fall to at least 123.22, or to 122.25 if any lower. Either can be bottom-fished with a stop-loss as tight as you can abide.’

The actual intraday low occurred at 123.10, so a 15-cent stop-loss would have survived our advice. The subsequent rally proved quite robust, hitting 124.19 about three hours later in the dead of night. But it took a nimble hand, iron nerves and quick reflexes to convert the recommendation into lucre, as one chat-room denizen appears to have done, since the June contract dropped like a brick after the rally apexed. Even so, the original low where we’d gotten in held, producing a second rally to 126.02. But by then, anyone in aboard near the overnight bottom would have been far from the madding crowds, fondling a StressEraser and counting sheep.

Hidden Pivot targets aside, we were somewhat surprised to see oil rebound as strongly as it did. The daily chart has been looking somewhat heavy, and the trajectory of crude’s rally looks too steep to sustain for much longer. But we do have higher targets outstanding, and that has tempered our enthusiasm for playing the short side of the move. Parabolas always ended badly for investors, and the one in crude will be no exception, We see quotes falling by 40% to 50% when the break finally comes. Let’s hope it comes by summer, though, since gas could be $5 at the pump by Labor Day if oil continues to rise at the current rate.

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Reserve Your Seat Now

Because seats for the recent Hidden Pivot seminar were nearly sold out, I’m offering the course again on May 21-22, from 6 p.m. to 9 p.m. Mountain Time. Click here, and then on the ‘Upcoming’ tab to register; or here if you would like more information as well as a detailed description of the Hidden Pivot Method and a free Hidden Pivot calculator (our latest model, perfect for beginners).

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Get a Chat-Room Pass

The Rick’s Picks chat room is the place to be if you’re looking for tradable ideas in real time. Gold and silver traders in particular can benefit, since the room attracts experienced traders from all over the world at all hours of the day, particularly during U.S. market hours. If you would like a free one-day pass to check it out, click here, and then on the green banner.