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Saturday, May 11, 2013

US Federal Budget Maintains Counter-Trend Rally

Capital returning to the safety of the core economy (US dollar) will continue diversifying into US equities as long as the US Federal budget counter trend rally lasts (chart 1 and 2).  A break of the 2010 up trend will be preceded by the following:

  • Concentration of capital into US federal budget (chart 2).
  • Concentration of capital into US equities (chart 3).
  • Concentration of capital defined by cycle readings in excess of two, maybe three standard of deviations (chart 2 and 3) as the economic cycle changes from up to down.

Chart 1: US Federal Budget (Surplus or Deficit As A % of GDP, 12 Month Moving Average) and Gold London P.M. Fixed


Chart 2: Large Cap Stock Capital Appreciation Index (LCSCAI) and US Federal Budget (Surplus or Deficit As A % of GDP, 12 Month Moving Average) Cycle Z Scores (SDC1 & SDC2)


Chart 3:  Large Cap Stocks Total Return Index (LCSTRI), LCSTRI to Gold Ratio (LCSTRIGOLDR) and LCSTRI Cycle Z Scores (LCSTRIC3 & LCSTRIRC4)


Conclusion

Enjoy the rally while it lasts.

Headline: U.S. Posts Biggest Monthly Surplus in 5 Years

By Jeffrey Sparshott

The U.S. government posted its biggest monthly budget surplus in five years as record revenues bolster federal finances and push off a drop-dead date for the debt ceiling.

The budget surplus was $112.89 billion in April, compared with $59.12 billion a year earlier. Economists surveyed by Dow Jones Newswires had forecast a $106.5 billion surplus for the month.

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