The question is, do they work. And the answer is, yes and no. A chart will NOT tell you what is going to happen tomorrow. No matter how highly regarded some technical analyst might be, a chart tells you just one thing perfectly, it tells you what Happened. Not what’s going to happen.
I’m sure a bunch of you are moaning and groaning and saying colorful words about me. It’s okay, I’ve heard them all. But the fact still remains, charts show you where a stock has been, but it does not tell you where it’s going.
On Monday, we learn that consumer sentiment is the highest since the end of the Great Recession.
On Tuesday, we’re told that Americans’ fear of hunger, eviction and foreclosure are at record highs.
On Wednesday, a new analysis tells us that GDP is expected to grow by 6% in the 1st quarter of 2021.
On Thursday, an article shows that over 10 million people are still unemployed, with tens of thousands of restaurants and bars permanently closed.
And on Friday, one strategist suggests that the stock market will grow by another 30% this year.
Another one says that because stock prices are so overpriced relative to earnings the market is due for a major correction.
Quite a week, eh?
The bottom line however, no matter what sort of investing/trading you wish to do, the most important thing is your risk management. I’ve been in this game for over 26 years. I’ve seen so many people “blow up” because when the market was hot, and they were making gains every day, that they thought they were geniuses. But, then the market decided to roll over into a bear market, or even just a good correction, and they got crushed, losing it all. It’s all about risk.
Just six months ago, participants in a monthly survey conducted by too-big-to-fail Deutsche Bank were asked, “[What] do you think are the biggest risks to global financial markets in 2021?”
There is no economy. There is however, trillions in Fed/Government money keeping the plates in the air. So let’s talk about inflation, the so called economy, and what’s really going on.
After a trading day that saw the steepest drop in the S&P 500 since 2008, briefly dropping into correction territory with a big sell-off — and then saw it actually close UP 0.3% — the word that comes to mind, besides Whew, is Volatility.
A lot of it.
Since the beginning of the year, the CBOE VIX Volatility Index is up about 74% — having risen from a more modest 17.60 to 29.90 at the close today.
In fact, over the past two years, market volatility has more than doubled, and that is something precious metal investors should be paying attention to.
Without getting too technical, the VIX signals the level of fear or stress in the stock market — using the S&P 500 index as a proxy for the broad market — and thus is widely known as a “Fear Index.”
The higher the VIX, the greater the level of fear and uncertainty in the market; levels above 30 indicate a lot of investor fear and enormous uncertainty.
Five years ago, Meera Shawn wrote in Market Realist, “Notably, we often see that an increase in volatility can lead to a rise in gold.”
Other studies also confirm a positive correlation between the VIX and gold prices but are too detailed to summarize in this article (e.g., Gorbel & Jeribi 2021, Klein et al 2018, Bauer & Lucey 2010).
Hey all, we're mid week in a Holiday shortened market week. On Friday, the US markets are closed for Good Friday, and I'm happy about that. If we can close for significant people, we can certainly close for God and son.
Now I'm sure you looked at the headline of the article and figure that I lost my last marble. Deflation? Isn't that where prices of things come down? Indeed it is. And like the housing bubble of 2005 - 2007, this time will probably be no different. ( pay attention to that word probably, I'll come back to it later in this piece)
The biggest cure for high prices, is indeed high prices. When prices of things get too far out of whack, markets have an interesting way of putting them back in whack.
Naturally there's multiple mechanisms at work, but the bottom line is that there always comes a point, where "things" are just too expensive to be purchased. Then, things sit on shelves and ultimately have to be "marked down." This is going to happen again. But, and this is the big elephant... we probably have to endure something akin to a hyper inflation, before we get the big bust and everything falls down.
Right now, we've still got supply chain issues, manufacturing issues, etc. to deal with. Take China and their lockdown of tens of millions of people. NONE of those people are producing products that will end up on Wal-Mart's shelf. So, the products that are there or are in transit, will demand higher prices. No doubt.
But trees don't grow to the moon, and everything eventually reverts to the mean. Always and forever. The twist this time, is that the reasons for the hyper inflation, aren't rooted in the public doing incredibly stupid things. Think back to the "Tulip mania" of the 1600's. I don't know what kind of mushrooms they were snorting during that period, but people were giving up family farms for one tulip bulb. Peak insanity.
The other day I said that there’s not going to be any Fed rate hike and then they’re done. No “one and done” sort of thing. I also explained why I think that they’re going to drive down demand for things, by making it harder to borrow money.
Now, I see a LOT of the so called market genius people saying that the Feds will hike into a recession, then have to stop and reverse course and start a new round of cuts and increase their QE. I get it. I really do. It’s been the norm for years…decades actually.
I’m writing this ahead of the three day Memorial Day Holiday, so I’ll try and keep it short. Like many of you, we too have some delicious plans for the weekend, and writing a long drawn-out article wasn’t high in the ranking. Ha. But I do want to talk briefly about the market and what I see happening.
For over two weeks, I’d been looking for a bear market bounce to occur. Maybe three actually. But each one ended up just being a one-day wonder, where on very low volume they’d send the DOW up 4, 5, 600 points, only to see it roll over and flop the next day. It was frustrating, not to mention the intra day volatility that often saw round trip swings of 900+ points. Great for daytrading, but not so hot for swing trades, or short term holds.
Well, starting this past Monday, the market (especially the DOW) decided it was finally time and we’ve seen them put in a powerful reversal. It was pretty overdue, as the market had fallen for 5 weeks in a row. But we finally got it and because people have short memories, there’s a ton of chatter that the bottom is in, and now we’re starting the first legs of a new bull market.
That could be possible. Anything is possible. But is it probable? That’s up for debate. So really quick, let’s ask a few questions and see where the answers lead us.
Stocks, bonds and precious metals plummeted again today as Wall Street reacted with continuing, unencumbered knee jerks to soaring inflation.
It appears there’s widespread distrust and a self-fulfilling fear among investors about how forceful the Federal Reserve will be as it tries to put the evil genie back in the bottle.
The S&P 500 is now officially in a bear market, down nearly 22% since it hit its most recent high on January 3rd.
Matt Phillips writes that these market moves highlight the deeply uncertain outlook after more than a decade of growth for stocks and gold and low bond yields that made borrowing more affordable than ever for investors and consumers alike.
So affordable, in fact, that U.S. consumers’ collective personal debt has risen to over $23 trillion – about $69,800 per citizen.
The S&P 500 benchmark index closed down 3.9% on the day. The Nasdaq composite index fell 4.7%. The yield on 10-year Treasuries climbed 0.22 points to 3.39%.
Plus, bitcoin is down another 14%+ over the past 24 hours, and rates on the 30-year fixed mortgage hit 6.13%.
Spiking prices are overshadowing the Fed’s policy meeting tomorrow and Wednesday, where the Federal Open Market Committee will almost certainly hike interest rates by at least another half a percentage point.
Inflation is driving prices upward at the highest level in over 40 years, leaving the Fed with little wiggle room to cut interest rates in the face of dizzying markets — as it has done repeatedly in recent years, most recently in 2019.
For now, the markets will have to figure out how to live without the support of the Fed.
By Dave Allen for Discount Gold & Silver
On yesterday’s Financial Survival podcast/radio program, I observed that getting the price of oil down is really the whole ballgame when it comes to how, why and when the Federal Reserve plans to bring down inflation.
And if it doesn't go down – substantially – then the Fed will only go harder and faster on rate hikes to try to scale back demand – ill-advised as that may end up being.
Whatever the case, that level of unwarranted monetary tightening will mean markets further spiraling downward and sending the economy into a recession sooner – and possibly deeper – than we think.
And oh what a week it’s been. Let’s go back to last week for a minute. Last Tuesday the market capped off a blistering to week run, by having the S&P run “smack dab” into its 200 day moving average. Now a lot of people will tell you that the 50 and 200 day moving averages don’t carry as much weight as they used to, but they still carry some clout.
When the S&P hit that 200 day, that whole two week climb came to a screeching halt and we started heading down a bit, but nothing major. Until Friday. Friday the wheels fell off and we plunged. That carried into Monday of this week as the market puked for another big drop. Tuesday and Wednesday the market sort of “ran in place” trying to figure out if they had over reacted on the big sell down.
Meanwhile over in Wyoming at the Jackson Hole economic meeting, all the movers and shakers were talking about the economy, inflation, and interest rates. Despite several fed heads telling folks that they think rates must go higher, most of the talking heads began to tell folks that it seemed the Fed might only do a 50 basis point hike at its next meeting. (Hogwash, you’ll see why)
The bulk of this past week was truly boring. Yes we had stock market volatility and the almost "now-normal" gigantic swings, but overall there wasn't a lot new.
But then Friday happened and things became very interesting very quickly. So, what was it? All week the yield on the ten year had been flirting with 4%. It might do 4.1, then fade to 3.96, back to 4.00 etc. But Thursday night it really got moving again, and I think I saw 4.33 overnight. This is not supposed to be folks. Bonds are supposed to be stable. A place to park money and feel safe. Instead, the debt market has felt like it was on the verge of literally breaking.
So, Friday morning the futures were grumpy and we opened red. But then, out of the blue, we started racing higher. Obviously something was said or done somewhere, but where? Then "it" hit. The Wall Street Journal supposedly "leaked" from a source that the Fed's would indeed do 75 basis points in November, but then might only do 50 or even 25 in December. Thus, all those looking for the fed "pivot" were dancing like they were on Happy days.
Then we started to get some confirmation by no less than fed head Daly:
Just 12 trading sessions ago, the DOW was at a day low of 28,660. By 3 pm on Friday, it was at 32,834. A quick look at my calculator says that this means the DOW gained 4174 points. In 12 trading days.
For months on end, the market did a bunch of herky-jerky up and down chop, with a trend toward lower. But for “some” reason, it decided to run 4K points in just 12 days.
Now the point gain isn’t that impressive to me. For instance earlier this year the DOW ran from 29,653 to 34,281. That run was 4,600 points. But the difference is/was that it took 2 MONTHS to make that sort of move, not 12 days.
So, what’s up with this one? Where’d we get all this fire power from? Several things, so let’s chat about them.
So Friday was jobs day. The “Non-Farm payroll report” it’s called. And as usual, when the headline hit, it seemed acceptable. Well that’s what the headline’s supposed to do, give you a quick hit of “good” so that you wander off thinking things are pretty good out there.
They said that overall, 261,000 jobs were created and that was better than the estimates. Even taking out any Government employment, it was still up 230K, better than they hoped.
But as usual in this day and age, the report was total crap. Lies and distortions of epic scope. First off let’s look at that headline number. Okay so 261K jobs were created. Or… were they? Uhm, NO. In fact our friends at the BLS sprinkled so much of their fairy dust on the report, it was unreadable. Let me explain.
The Bureau of Labor each month takes verified job numbers, and counts them. But they also figure “hey there are probably jobs out there that we didn’t get proof of yet, so we need to calculate them into the mix.” This is called the “Birth/Death” model.
You can go to the BLS website and read the mumbo jumbo about how they come up with these extra jobs, but it’s an exercise in futility. They’ll give you all these fancy equations and academic mental gymnastics, and it won’t make a lick of sense. Let me sum it up for you…
Basically what they’re saying is that for every “X” amount of businesses that close (that’s the death part) Some “X” amount of those now unemployed employees, will go out and open “X” amount of new businesses. Well new businesses need employees, so they take a random-assed guess about how many that comes to also.
Earlier this week, I posted something to my readers that I thought was pretty interesting. Some of you have already seen this, but stick with me, as we're going to ponder on it some more. So, here's what I wrote on Sunday:
There's a financial planner/CPA that posts on twitter, who has a pretty big following. He's been involved in running a stock fund for years, and he's pretty sharp. So, the people that follow him, for the most part, are intelligent folks. He's not some 20 year old that got lucky in the 12 year bull market. No, he's been around for 30+ years and his dad was in the same business. So, he put up a poll for a day. Here's what he asked.
Which is more likely to happen in the stock market into the end of the year?
Melt-up....50.4%
Crash......49.6%
8,206 votes---Final results
So, we talked about two things this past Wednesday, 1) are we looking at a “melt up” into year end and 2) what were we going to get with the CPI.
My feeling was simple. This is what I said: “So, the median call is for the CPI to come in +7.9%. The question is, what happens if it's higher or lower? If we get a lower reading of say 7.6 this market will rally hard. Maybe it would be short lived, but up we would go. “
Well I missed by a tenth, the report came in at +7.7%. And what happened? The market went nuts. We had the futures trading up 1000 points on the DOW before the open and we put in a 1,200 point DOW day.
Why? The current theory is that inflation has peaked, and this will give the Feds the green light to just do maybe one more 50 basis point hike and then go into pause mode. They thought the concept was just marvelous and they ran with it. Bigly so to speak.
First off let’s get a few things straight. The inflation we’re suffering from wasn’t because of overheated buying by us peon’s. It has TWO root causes. 1) the insane money printing/QE baloney the feds have been hammering us with for 12 years and 2) the insane supply chain disruptions resulting from them unleashing their bioweapon bullshit on us.
The money creation IS the very textbook definition of inflation. You don’t have to be a fellow of Lucasion mathematics to understand that. In fact if you go to dictionary.com and look up the word inflation, this is what you find:
Noun.
Economics. a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency
And there you have it. An increase in the volume (amount/printing) resulting in the loss of value of the existing currency. Bingo, give the dictionary a big cigar.
This week, we had what was almost comparable to the Cuban missile crisis. Yeah, it was dangerous to say the least.
So, what happed was that in Poland, a couple missiles landed, killing at least two people. Well Poland is a NATO country and Article 5 of NATO says that any member nation that is attacked, will be supported by ALL the member states.
Instantly the cries went out “Russia sent missiles to Poland!” The UK Express said this: Two people have been killed in Poland after two stray Russian rockets landed near the border with Ukraine. The rockets landed in the NATO state following Russia's mass bombardment of Ukrainian cities earlier today, which saw over 100 rockets launched.
According to the AP news agency, a senior US intelligence official said that the missiles were of Russian origin.
The UK Mirror blared this: Russian missiles land in NATO-member Poland killing two and causing 'crisis situation'
Two Russian rockets landed in a village in eastern Poland not far from the Ukrainian border, killing two people, as the country's top officials called an emergency meeting over the incident
Poland was adamant: The missile “attack” against Poland was clearly a crime, one that could not go unpunished!
As you can imagine that idiot gay actor playing President of Ukraine went ballistic, DEMANDING NATO act on this attack.
The equities market is a very strange beast, it truly is. Let's take Friday for example.
The fed has been pretty straight forward in telling you that they are going to hike rates until they get up and over 5%. Despite the howls from the market participants, Powell has also said that there would be no rate cuts in 2023.
But Wall street doesn't believe him. See, they've got all this history about the Fed, and for decades the play was always the same. Fed hikes rates to cool down an economy, overshoots, panics and then starts cutting rates.
When rates are being cut, stocks move higher. Why? Companies can borrow more money at a cheaper price. They can use that money to buy up their own shares, and thus reduce the float and therefore push the stock price higher.
Wall street LOVES low rates and the evidence is easy to see. Look at what the DOW has done since 2010. After the 08/09 financial crisis, the fed went into panic mode and printed money like madmen. Do you know where the DOW was in 2010?
No, really.... think about this for a minute. The DOW Jones has been in existence since 1896. Did you know it was that old? Yessirree it is. And from 1896 all the way to 2010 the best it could do, was end the year at 10,600. That's it. 10K in over 100 years.
From 2010 to 2022 it made it to 34,561. Now the back of the cocktail napkin tells me that this is a gain of about 24,000 points.
So, if it took 114 years to go from its humble beginning of 12 stocks, to the current 30 stocks in 2010 and only gained 10K points... why did we gain 24K points in just 12 years? What changed?
You all know the answer to this riddle. Zero interest rates and trillions of freshly minted/printed dollars, that's what. If the fed is cutting rates, and/or keeping them there, AND printing trillions at the same time, the market gets orgasmic and up it goes. We have the proof, it's there in black and white.
But the fed has changed course now, and has been aggressively hiking rates. Well that's sort of peeing in their punchbowl and they hate it. That's why in 2022 we saw the S&P down 20% and the debt heavy NASDAQ down 34%.
Matt Phillips is right when he observes that “the debt ceiling circus has arrived in D.C.” and it’s not going away anytime soon.
He writes today that the closer the federal government gets to “stiffing creditors” and going into an unprecedented default, “the bigger the implications will be for the markets and the economy.”
As I wrote in Friday’s article, the government hit its $31.4 trillion debt limit last Thursday.
While that’s a big deal, it’s nothing compared to what will happen to financial markets if the government defaults sometime mid-year.
For now, it just means the Treasury Department has to start using "extraordinary measures" – like drawing down its cash balances and deferring contributions to government pension funds – to keep paying its bills.
Treasury Secretary Janet Yellen told Congress that her department can keep juggling payments at least until June.
Markets don't appear to be overly worried at this point. But just wait. As Phillips points out, the longer the debt ceiling drama plays out — and the closer the government comes to default — the crazier markets will get.
That's exactly what happened in the summer of 2011, when we last came perilously close to the Thelma & Louise Driving Over the Edge moment into the abyss.
That year, as the crisis got worse into July and early August, the S&P 500 plummeted 15% and credit spreads that determined costs for home mortgages and corporate borrowings surged.
That jump came as investors grew leery of lending in the face of growing risk and uncertainty.
On the other side, those who say they want to cut government debt levels will likely claim that the turmoil the debt fight raised over a decade ago was worth it – despite the U.S.’s lowered credit rating.
They point to the Budget Control Act of 2011 that resulted from that debt limit fight, which helped cut federal budget deficits in subsequent years (note that it hasn’t actually helped cut the national debt, an important distinction).
So, however it turns out, the fight over raising the debt ceiling and avoiding default is going to hang over the markets for a good chunk of the year.
And, at least for investors, according to Phillips, “it's likely to be a bummer.”