Markets Shaky As Congress Abrogates Responsibility On Coronavirus Stimulus Legislation

Markets got a little bit shaky on Thursday, the main driver seemingly congress' inability to come together on a stimulus package to help out struggling Americans.

The Dems want $3.5 billion which would include a lot of extras, such as up to $150 billion in direct aid to states, localities, and school districts. The Republican plan is more streamlined and less expensive at around $1 trillion. Both plans include another $1200 check for individuals and some form of extended unemployment benefits, the Democrats calling for an extension of the $600 weekly though the end of the year, the Republicans wanting to lower the amount to $200 or $400 for a few months, and then base the extra federal payout plus regular state unemployment to become 70% of employees' regular pay.

The reality of the situation is that both parties' members are out of town, away on their usual month-long August hiatus and won't return until after Labor Day, September 7. Unless the president's executive orders issued over the past weekend pan out, all hell will have broken loose by then. There are an estimated 30 million Americans out of work presently and the so-called recovery has begun to stall out.

That's taking its toll on investors who are afraid that the rally, which has been engaged since mid-March, is about to roll over. Most of the upside in stocks over the past six months has been due to nothing other than Fed largesse, with the central bank basically sopping up assets from every corner of the country, and to a lesser extent, executing swaps on the international stage. Everything from high yield junk to AAA corporate offerings are on the Fed's menu and they've been busy chowing down like a gang of frat boys at an all-you-can-eat buffet.

An economy and stock market built almost entirely on central bank counterfeiting is not a long-lasting solution and everybody on Wall Street knows that, but they're getting while the getting is good. The S&P touched its all-time closing high on Thursday but backed off as selling intensified in the afternoon. Bonds were being sold off as well. The 30-year closed Thursday with a yield of 1.42%; the 10-year note ended at 0.71%. The yield on the 30-year is at a one-month high, but more troubling is the 10-year. One has to go all the way back to March 26 (0.72%) to find a yield higher than yesterday's close.

The Federal Reserve cannot allow rates on treasuries to rise much more as they would soon become more attractive than stocks. The very last thing the Fed wants is a stock market crash and high yields on treasuries as that would indicate just how serious the economic condition is in the United States. The overriding narrative has been that the Fed has a handle on everything and all is well. At least if things do get sideways, they can lay the blame on politicians for not acting prudently or quickly enough.

Following up on our reportage on Tuesday's massive selloff in gold and silver, Andrew Maguire explains that the price "takedown" was executed as part of a strategy by the CME to achieve equilibrium in the market, because silver (and gold) for delivery as far as three months out - largely unavailable - was too cheap.

There's a lot of background knowledge into Maguire's analysis and it's difficult for anyone without an understanding of how futures markets work (almost everybody) to follow, but the bottom line, according to the expert, is that gold and silver were not negatively affected long term and are still on their ways to higher prices in the near and long term.

For anybody in already invested in or thinking about investing in gold or silver, this is a good video to view as it points up the gamesmanship in the futures market and the need for more transparency in an effort toward true price discovery.



With price discovery in mind, Downtown Magazine's Money Daily is planning to launch a new page devoted to real prices for smaller gold and silver purchases, mainly one ounce coins and bars, quoting major bullion dealers and actual sale prices on eBay for these common, high demand items. An alpha test page will be launched this Sunday along with the usual WEEKEND WRAP.

Friday looks like it could be more signal than the usual noise, with European markets stressed and US futures pointing toward an open to the downside.

Play nice. See you on Sunday.

At the Close, Thursday, August 13, 2020:
Dow: 27,896.72, -80.12 (-0.29%)
NASDAQ: 11,042.50, +30.26 (+0.27%)
S&P 500: 3,373.43, -6.92 (-0.20%)
NYSE: 12,919.15, -55.68 (-0.43%)