Tuesday, January 3, 2017

Stocks Up On First Trading Day Of Year, Signifying Nothing

Having - i some small ways - dispelled the concept that reaching for fantastic numbers such as Dow 20,000 is somehow productive, traders today took no heed of... well, anything, and pushed the DJIA close to the historic, albeit meaningless, mark.

That was early in the day. Shortly after the noon hour, the Dow had given up nearly all of the gains (all 160+ points) and was close to UNCH for the day. At the same time, the big run-up in WTI crude - to its highest level in 18 months (July 2015) - quickly was eviscerated, sending crude back below the break-even point for the day and into the red, where it closed on the NYMEX (53.49, -1.17).

However, the trading was not over on the stock exchanges and market participants seemed determined to open 2017 on a positive note, which they did, the major averages closing about 25% off their high points of the day.

Gains were well distributed, with nine of ten sectors positive, led by basic materials and energy. The only loser was utilities, though the loss was mild (-0.07%).

None of this one-day-one-off momentum-fest should be cause for alarm nor excitement. It's a new year, loaded with new ideas and fresh money and that money needs to go to work. While there are still impediments and potholes on the road to a brighter economic future and higher stock prices, none of that appeared to be of any consequence today.

Tomorrow may be another story with the very good possibility that the Dow will pierce the golden 20,000 mark and go well beyond. On the other hand, the evidence from the final two weeks of 2016 was robust in telling that the Trump rally from election day forward had run out of steam, so sideways could be the order of the day.

Money Daily was correct in predicting that Dow 20,000 would not be achieved in 2016. The second hypothesis was that it wouldn't reach that number until June of this year. Our third and most bombastic call was to say that Dow 20,000 may not be hit until 2023. Note the word MAY. We did not say the Dow would NOT reach 20,000 by that time, only that it MAY NOT. Big difference, but the call is based on a nascent understanding that everything in finance-land is not as rosy as the fake news media might have all of us believe.

The concept is very deep and rooted in a theory that the bulk of stock gains since the GFC of 2008 were achieved only though the means of depreciating and nearly decapitating currencies around the world. If money is cheaper today than it was yesterday, assets will accordingly be priced appropriately higher. Of course, should this free-money regime persist (we think it won't) then Dow 20,000 is not only achievable in the short run, Dow 30,000 would be in the kluge lights in short order, as would Apple at 250, and sirloin steaks at $24 a pound. In other words, inflation, then hyperinflation - such as is the case in Venezuela today - would make pricing irrelevant. Survival on $100,000 a year would be challenging and nobody is looking forward to that kind of nightmare scenario.

So, we see the gains of the last eight years as chimeras, and fading. And, if they fade, they will continue to fade until they are almost all gone. Not that a major, dramatic, collapse in prices would be a panacea for a better world, but only one which could be called closer to rational.

That's the view.

At the Close: 1.3.17:
Dow: 19,881.76, +119.16 (0.60%)
NASDAQ: 5,429.08, +45.97 (0.85%)
S&P 500: 2,257.83, +19.00 (0.85%)
NYSE Composite: 11,154.35, +97.46 (0.88%)

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