It's quite simple, and sensible, in respect to the working parts of the macro-economy of financial markets. When the dollar is weak, longer-duration bonds are as well (higher yields), and equities generally perform positively. The troika of moving parts was evident this week and has been a prime indicator since the beginning of the COVID panic.
Thus, for the past year, investors have had a reliable set of markers by which to set their targets. For any trader worth his or her salt, the gains off the March 2020 lows have been easily taken with generous infusions and injections of spendable currency from the Federal Reserve and the government.
The week just past was exceptionally kind.
The Dow was higher every day last week amd enters next week riding a six-day winning streak along with the NYSE Composite. Following a Monday blood-letting, the NASDAQ, despite being down three of the five days, ended the week with a three percent gain. The S&P was the laggard of the bunch but still put up 101 fresh points, making all-time highs in the process, joined by the Dow Industrials and NYSE.
It was the best week for stocks since the beginning of November, 2020.
There really isn't much more to be said about the remarkable week for stocks other than to point out that the passage of massive stimulus bills usually produce positive results on Wall Street and this big one, signed into law by Joe Biden on Thursday, was no exception.
Also of interest was the renewed battle over GameStop (GME), or, rather, the battle upon GameStop stock, wherein all measurement of fundamental price and value has been discarded by bulls and bears alike, the platform upon which the stocks and options trade turned into an arcade game replete with villians and heroes, anti-heroes, antagonists and saviors.
The merry fellows from reddit.com group, r/wallstreetbets continue to buy into the stock to the utter dismay of the short-sided hedge funds which have renewed their efforts to wring out a profit from the beleaguered company's shares. Playing both sides of the trade are Wall Street sharpies, always ready to pounce upon an amoral or immoral situation with vigor.
Shares of the stock embarked upon another wild ride this week, opening Monday at 153, soaring to an apex at 344 on Wednesday, then abruptly dropping like a rock to 198 before recovering to close the day at 263. Thursday and Friday were mildly amusing, as shares changed hands on lower volume, but finished the week at 264. Chalk up a winning week for the whiz kids at wallstreetbets. The wizened hands at the hedge funds vow revenge as the battle for absurdly-valued trades rages.
Making life for stock jocks just a little more complex was the unusual action in the treasury complex, which was somehow managed into containment for the first four days of the week. Closing out at 1.56% and 2.28% on Friday, March 5, by Thursday, the 10-year and 30-year bond yields stood at 1.54% and 2.29%, respectively, still elevated, but seemingly within some controlled range.
Friday's abrupt sell-off changed the dynamic, as yields jumped to 1.64% on the 10-year note and 2.40% on the 30-year bond. Moves of 10 basis points over the course of one day on long-dated bonds are not normal occurrance, but stock traders barely noticed. All the indices but the NASDAQ were higher on Friday, though gains were pared down during the session.
This massive repricing in what is normally one of the more stable markets in the world is likely the result of two forces operating under similar principles. First, loss of faith in the Fed's ability to control the entire curve - from near-zero at the short end all the way out to 30-years - and, secondly, rising prospects in equity markets are producing monstrous imbalances and outflows. With the Fed sopping up most of the issuance, they're basically unwilling to pay a premium for securities yielding much less than the rate of inflation, which, according to the laughable CPI figures released Wednesday, was only higher by 0.4% in February and up 1.7% from a year ago.
The Producer Price Index (PPI) for final demand (Thursday, March 11 release) increased 0.5 percent in February, as prices for final demand goods rose 1.4 percent, and the index for final demand services advanced 0.1 percent. The final demand index increased 2.8 percent for the 12 months ended in February.
Realists assume the government numbers to be off by orders of magnitude, with true inflation closer to eight to 10 percent year-over-year. Studies like the Chapwood index and John Williams' Shadow Stats offer a more honest appraisal of consumer prices, rendering bond investments among the worst in terms of preservation of capital.
Speaking of preserving capital, bitcoin and other cryptocurrencies continue to rise as individuals and corporations seek safer harbors for their money. Bitcoin, quickly becoming the de facto reserve cryptocurrency, was bid higher through the week, eventually reaching a record high Saturday, vaulting over $60,000 to an all-time high of $61,788.45.
That bitcoin continues to rise at a nearly hyperbolic rate comes as no surprise to the serious adherents who have done their due diligence on he crypto universe and bitcoin in particular. As adoption becomes more widespread, since there are a finite amount of bitcoins available (21 million), price will reflect the desirability of ownership. This should be the same for precious metals, but, as has been proven without doubt, the central banking system's reliance upon suppression of currencies competing (gold, silver) with all forms of fiat (yen, euro, dollars, pounds, loonies, etc.) is a feature of debt-based economies, whereas bitcoin - via blockchain - has proven to be impenetrable, unmaleable, and reliable.
There is mathematical certainty in the price of bitcoin. It will rise until all participants are satisfied with the level of their individual holding, the cumulative effect being upwards in relation to depreciating currencies.
Looking at bitcoin's price from another perspective, it reflects the devaluation of fiat, allowing for some variance due to the level of satisfaction (or dissatisfaction) in respective currencies.
When all participants are secure in their holdings and satisfied with the price/value constituent, bitcoin will become less a tradable asset and more a medium of exchange. With more than 100 million bitcoin wallets worldwide and an estimated 11% of Americans owning some bitcoin, penetration into the mainstream is likely still in its infancy. As fiat currencies continue to devalue and self-destruct, alternatives such as bitcoin and etherium will be sought, bought, and held.
In addition to openly and aggressively devaluing their currencies by massive issuance, central banks and their respective governments will continue to try to infiltrate, control, or otherwise degrade, dismiss, or regulate cryptos. This creates a virtuous cycle (for bitcoin), as the more governments and central banks attempt control, the faster adoption will occur.
Considering that the market capitalization of gold in existence at current prices is just north of $10 trillion ad bitcoin is just over $1 trillion, it's obvious why masses and corporates alike are flocking to the crypto universe.
Precious metals continue to be under pressure and may be shunned even more as interest rates in long-dated US treasuries rise, though that particular gauge of value may itself be tested as underlying currencies are continually debased. It is only because of the LBMA's daily price fixing mechanism and outrageous shorting in the futures market that gold and silver haven't skyrocketed.
On the week, gold was up, from $1700.80 to $1,726.85, while silver advanced from $25.24 to $26.60 on the COMEX.
Here are the most recent sale prices on eBay for common gold and silver items (numismatics excluded, shipping - often free - included):
Item: Low / High / Average / Median
1 oz silver coin: 35.50 / 54.00 / 43.94 / 41.90
1 oz silver bar: 35.00 / 60.00 / 45.80 / 44.95
1 oz gold coin: 1,833.77 / 1,994.01 / 1,926.17 / 1,931.24
1 oz gold bar: 1,800.00 / 1,879.20 / 1,842.98 / 1,835.41
It remains apparent that individuals are still willing to pay premiums for small amounts of gold or silver, but especially silver, which, to many, remains the most undervalued asset on the planet. Judging by shipping delays, minimum purchase requirements, and stock shortages in silver at almost every online dealer and the premium prices on eBay, gold and silver are still being bought aggressively, despite the efforts of the manipulators.
This week's Single Ounce Silver Market Price Benchmark (SOSMPB) rebounded from $42.62 per ounce to $44.15, a 66% premium over the COMEX price. The wide gap indicates that individual buyers of finished pieces of silver coins and bars for immediate delivery are not cowed by paper prices. Dealers, being in competitive conditions, may be reluctant to raise prices to dizzying levels, but even their premia over spot have been high for many months and even higher recently.
The price of a barrel of oil seems to have stabilized, at least so during the past week, as a barrel of WTI crude fell from $66.09 (March 5) to $65.56 (March 12). Today's price is more than double what is was a year ago, when a barrel was under $30 and collapsing, he glut eventually producing a crater at -$37.63, when sellers could literally not even give the stuff away in mid-April, 2020.
While the current number may be deceivingly high, there is the potential for a quick reversal, though the voices of industry will insist that the economy is on the mend and there is increased demand. Neither of those statements can be backed up with much in the way of fact. There are still more than 20 million Americans on unemployment, many businesses have closed up for good, and the only thing keeping the US economy afloat are timely checks to consumers, increased unemployment benefits and massive infusions of capital to states and municipalities.
Prices for gas at the pump have risen from around $2.00 a gallon a year ago to a national average of $2.86 in the United States. When oil prices bottomed in April of last year, the national average sank to decades-low $1.74. Nothing will put the brakes on economic recovery with as much force as high gas prices. With many states already over $3.00 a gallon, either the government will have to step in at some point and put on controls (a distinct possibility considering the current makeup of socialist Democrats in Washington, DC), or the natural supply-demand apparatus be allowed to prevail over speculation.
In summation, thanks to the passage of the $1.9 trillion stimulus package, the week was a grand one for equities, horrid for bonds, solid for precious metals and commodities overall, and especially robust for bitcoin - which is the leading asset of 2021 with an impressive gain of over 100% thus far - and other cryptos.
Signs of runaway inflation are beginning to emerge in places like gas stations, grocery stores, home improvement centers, used car lots, and the PPI. There is simply no way the government can dole out free currency every few months without prices being affected. Even though the government wishes to reassure everybody that inflation is under control via the CPI, the PPI year-over-year increase of 2.8 percent is notable as underlying commodity prices have been on the move.
Protecting oneself from rampant government overreach and spiraling inflation is quickly becoming an international frenzy.
That's the WEEKEND WRAP.
At the Close, Friday, March 12, 2021:
Dow: 32,778.64, +293.05 (+0.90%)
NASDAQ: 13,319.86, -78.81 (-0.59%)
S&P 500: 3,943.34, +4.00 (+0.10%)
NYSE: 15,715.21, +67.20 (+0.43%)
For the Week:
Dow: +1282.34 (+4.07%)
NASDAQ: +399.72 (+3.09%)
S&P 500: +101.40 (+2.64%)
NYSE: +463.37 (+3.04%)
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