Email of the day (1)
Comment of the Day

August 19 2013

Commentary by David Fuller

Email of the day (1)

More on the Hindenburg Omen
"The following analysis by Chris Puplava provides a very interesting take on the 'Hindenburg Omen', as he attempts to adjust for any distortion that closed-end bond funds (in this period of sharply rising yields - thus bond fund falls) may be having on the indicator:

"His concluding summary sounds much more reasonable than forecasts for an imminent full bear market:"

"While I would never dismiss a Hindenburg Omen outright, it does make more sense, I believe, to run the criteria on operating-only companies like the S&P 1500 rather than on the NYSE, which is riddled with closed-end bond funds. While we are getting Hindenburg Omens on the NYSE like we did during May, the spike in new lows is largely due to fixed-income (interest-rate sensitive) funds, which I believe are selling off due to a strengthening economy. This makes perfect sense when you run the criteria for the Hindenburg Omen on the S&P 1500, which is nowhere remotely near a "sell signal", given its composition of companies linked to economic growth. That said, I do anticipate we could have some weakness heading into the September FOMC meeting (see "Possible Short-Term Top; No Bear Market on the Horizon") but do not anticipate any major decline as those referencing the Hindenburg Omen suggest."

David Fuller's view My sincerest thanks to the author of this email for not only his conclusions but also for sharing this fine analysis by Chris Puplava. In terms of Empowerment Through Knowledge, I have benefited from this article, and more importantly, I believe most subscribers will reach the same conclusion. Therefore, I cannot recommend it more strongly.

Previously, I confess to being put off by the name Hindenburg Omen, which seemed gratuitously alarmist, but that was my problem. More importantly, I was also put off by the number of false signals which I recall being associated with this indicator. However, Chris Puplava has pointed out that it works far better when applied to an Index such as the S&P 1500, given its composition of companies linked to economic growth, without the considerable dilution of fixed-income funds which are primarily interest-rate sensitive.

In conclusion and as I said on Friday:

There are plenty of reasons for expecting a period of market turbulence, as Fullermoney has been discussing for several months, not least in the Audio. However, I do not think it will be anything like 2008.

The Hindenburg Omen is not part of the problem, at least not yet. However, Wall Street and plenty of other stock markets are somewhat overvalued against the background of slow global GDP growth. While the US Federal Reserve and other leading central banks are on record as saying that they will not raise short-term rates until either unemployment comes down and / or inflationary pressures pick up, stale bull selling in government bond markets is increasing borrowing costs for governments and other long-term borrowers such as home owners with mortgages.

Now that long-dated government bonds are in a bear market, following 30-plus years of falling yields in a bull trend extended by quantitative easing since 2008, most of the fixed-interest yield surprises will be to the upside.

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