Despite Friday's massive rally, this past week was one of the worst on record for Wall Street, as the Dow lost another 10 percent and the NYSE Composite, the broadest measure of equities in the United States, dropped more than 12 percent, below levels last seen in late 2016.
With all the major indices ensconced in bear market territory (-20%), which the Dow entered on Wednesday afternoon, Friday's jaunt to the upside was more short-covering and a boatload of pent-up, falsely-placed optimism than anything positive, manifesting itself in the final 27 minutes of trading while President Trump was declaring a national emergency over the COVID-19 crisis, the outbreak declared a global pandemic by the World Health Organization (WHO) two days prior.
The week in financial markets was literally one for the record books, with record gains and losses recorded on all US indices, Friday's meteoric rise becoming the largest one-day gain on the Dow, NASDAQ, and S&P 500, just a day after the biggest point losses. Market volatility has been off the charts as well, as the VIX has remained at an inflated level over the past three weeks, rising as high as 77.54 on Friday before coming down through the week-ending rally.
Putting that into perspective, the VIX closed at 17.08 on February 21. On Thursday, March 12, it ended the session at 75.47, and Friday, 57.83. These are extraordinary numbers.
It wasn't just stocks that were battered and bruised during the week. Bonds took painful hits at the long end of the curve, the 10-year note yield rising from 0.54% on Monday to 0.94% on Friday. Yield on the 20-year was up 44 basis points, from 0.87 to 1.31%. The 30-year bond yield went from 0.99 to 1.56, an enormous, 57 basis point move in just four days.
Shorter duration offerings were bought, sending yields in the other direction, which helped steepen the curve and iron out most of the inversion. Top-to-bottom, the curve was at a mere 73 basis points on Monday, increasing to 128 by Friday.
The most perplexing trade had to be precious metals, which were whipsawed to unforeseen levels as the week wore on. Gold, which had rocketed to 1683.65 on March 6, plummeted to 1529.90 on Friday. Silver fell from a high of 18.78 on February 24 to a close Friday of 14.69. That puts the gold:silver ratio at a record, 104.15.
Closings and cancellations were all the rage late in the week. The NBA canceled their remaining regular season games, as did the NHL. The NCAA cancelled the annual Men's and Women's basketball tournaments and all the major conferences canceled the remainder of their championships. Major League Baseball suspended all Spring Training games and pushed back the opening of the regular season temporarily by two weeks, from March 26th to April 9, at the earliest.
Broadway shows were cancelled in New York, as were any gatherings of 500 or more, throughout the state. California banned gatherings of 250 or more. Disney closed all of its major resort properties, including Disney World in Florida, and halted production on a number of films in progress.
More than 46,000 schools had announced closures by week's end. In Europe, Italy closed its borders, followed by Spain on Saturday. Just about any kind of social activity involving an audience has been shut down indefinitely. DollyWorld in Tennessee closed its doors on Friday. Augusta National postponed the Masters golf tournament and did not specify a date for when it would be held.
For many people, the cancellation of sporting events, shows, and theme parks leaves them with little to do. All cruise lines are on hiatus and President Trump imposed a travel ban to and from Europe and included Great Britain and Ireland on Saturday.
Shopping for essentials seemed to be on the mind of quite a few. Stores like Costco, Wal-Mart and other large grocery chains (Kroger's, Wegman's) saw some shelves emptied quickly, especially the staples, bread, milk, and toilet paper, which was apparently the hottest commodity on the planet this past week. The Players Championship, which was halted on Thursday due to darkness, never got the second round started, cancelling the event and dividing half the prize money evenly among players.
What will continue is the pursuit of money and all its derivatives in equity, bond, and commodity markets, as of this writing. Markets should open Monday as scheduled, though floor traders at the NYSE will surely be screened upon entering the building. Most trading is done electronically, and many traders are working from home instead of offices on Wall Street, throughout Manhattan and in New Jersey and Connecticut.
The Fed has promised as much as $1.5 trillion in repo operations and probably more will be needed. Additionally, the FOMC meeting this Tuesday and Wednesday promises to be of paramount interest, with expectations of another 75 to 100 basis points cut to the federal funds rate, bringing it effectively to the zero bound. The Fed executed an emergency cut of 50 basis points on March 3rd, bringing the overnight lending rate to 1.00-1.25% The Bank of England cut its main bank rate to 0.25% with a 50 basis point slash on March 11.
As the economy weighs the impacts of COVID-19 on the business community and global economies, the threat of recession looms large in all developed nations. With markets turning decidedly bearish since the spread of the disease expanded out of mainland China, companies are looking at major disruptions to business and first quarter earnings. If the crisis is an extended one, second quarter results will also be impacted to a greater degree than they already are.
Estimates for US GDP in the first quarter were already low, teetering around 1.5 to 2.0 percent and that will certainly come in lower than expected, but economists believe the hit to the second quarter (April-June) will be even greater, with some calling for a GDP decline of three to four percent.
With all that's gone on over the course of the past three weeks, nothing is for certain as the market searches for a bottom. While it's nearly assured that Thursday's knee-shaking rout will not prove to be the ultimate drop point, it brings some interesting perspectives to light, particularly, what if the virus does actually peter out with the onset of warmer weather and all this emergency preparedness turns out to be major overkill in addition to being a major buzz kill?
If conditions begin to improve rapidly, the impact to the second quarter would be minimal and first quarter results might actually be skewed positively due to all the panic buying by the general public. That would certainly wrong-foot any number of investors, sending alternate shock waves back at the bears.
Opinion is still out on how long this state of emergency will exist and whether measures will become more severe in coming weeks remains to be seen. The outbreak in the United States has not been particularly alarming, with 2,569 cases and now, 51 deaths, though those numbers continue to accelerate and probably will exceed 8,000 and 200 over the coming week. Most cases are mild, but lack of testing due to fumbling incompetence at the CDC and being slow in preparing overall might cause the numbers to spike.
Whatever the case, the money people will carry on, Washington will bail out anybody and anything with freshly printed greenbacks and the deficit will soar even further into the stratosphere. The global economy has reached a point of no return and is rapidly applying the principles of Modern Monetary Theory (MMT) to a system that has basically be dysfunctional since October 2008.
At the Close, Friday, March 13, 2020:
Dow Jones Industrial Average: 23,185.62, +1,985.00 (+9.36%)
NASDAQ: 7,874.88, +673.07 (+9.35%)
S&P 500: 2,711.02, +230.38 (+9.29%)
NYSE: 10,851.98, +791.21 (+7.86%)
For the Week:
Dow: -2679.16 (-10.36%)
NASDAQ: -700.74 (-8.17%)
S&P 500: -261.35 (-8.79%)
NYSE: -1500.06 (-12.14%)
Showing posts with label Federal Reserve. Show all posts
Showing posts with label Federal Reserve. Show all posts
Saturday, March 14, 2020
Friday, March 6, 2020
Stocks Struck, Bonds Bought, Gold Soaring As COVID-19 Coronavirus Continues to Prompt Worldwide Response; Fed Powerless
While no records were broken on Thursday, US stocks gave back most of the gains made on Wednesday, as volatility remained elevated. The most-widely quoted measure of volatility, the VIX, spiked to 46.25, a level not seen since the onset of the Great Financial Crisis (GFC) in October 2008. A normal range for the VIX is between 12 and 18. The measure is currently indicating extreme stress in equity markets.
Another gauge of how severe this latest foray into and out of correction territory is the treasury yield curve and individual duration yields. The benchmark of the treasury complex is the 10-year note, which continues to be bought, sending the yield spiraling downward to unprecedented levels.
On Thursday, yields across the treasury complex were hammered lower. The 10-year-note fell from 1.02% on Wednesday to as low as 0.87% on Thursday, finally settling at another new record low of 0.92%. As long as equities remain under pressure - a timeline which could extend not just days or weeks, but months - bonds will be the safe haven and yields will fall.
The 30-year bond, which began the year at 2.33% and was at 2.09% as recently as February 12, crashed another nine basis points on the day, to a record low 1.56%. Shorter duration bills and notes were also being bought, sending yields skidding. The 2-year note was yielding 1.44% a month ago, closed out Thursday at 0.59%. The 1-year continues to offer the lowest yield, 0.48%, while the shortest duration, the 1-month bill yields 0.92. The short end is inverted, signaling economic chokepoints dead ahead.
All of this market turmoil has been the cause of the widely-spread coronavirus, or COVID-19, its official name. With worldwide cases now over 100,000, deaths over 3,400, and the increase in daily infections outside of mainland China now surpassing those from inside China, there's little doubt that the pandemic has reached crisis proportions.
The current hotspots continue to be South Korea (6,593 cases), Iran (4,747) and Italy (3,858), though countries in Europe are beginning to spike higher, especially in Germany, France, Spain, and Switzerland.
The United States is currently reporting 233 cases, though the lack of preparedness and test kits assures that the number is higher by orders of magnitude. With an asymptomatic (not showing obvious symptoms of infection) period of up to 27 days in which the carrier can spread the virus, the number of cases in the United States - as wel as everywhere else - is likely to spike higher within the next week or two. While this is speculation, it is based upon recognizable patterns of the virus, from evidence gathered in South Korea, Italy and on the cruise ship, Diamond Princess, which was ported in Japan for a month and served as a kind of petri dish for study of the disease.
With quarantine the most effective measure to mitigate the spread of coronavirus, the fear in markets is that entire communities will become isolated, workplaces shuttered, large events cancelled. Those scenarios and more have already been evidenced in China, South Korea, Italy and elsewhere. There's no escaping the realities of this global outbreak.
Along the lines of seeking out safe havens, gold has been a superstar, at a seven year high, $1,686.30 per ounce. Silver has lagged, but continues to appreciate, the current price $17.46 per ounce.
Crude oil continues to languish as global demand has collapsed. Even after OPEC announced a cut of half a million barrels a day, the price of WTI crude oil slipped further, currently at $44.06 per barrel.
In what has to be the most inconsequential data release in recent memory, the Labor Department released the February non-farm payroll report, which showed employers added 273,000 jobs nationwide, dropping the unemployment rate to 3.5%, though all of this data is viewed through a lens that was looking prior to the extreme global outbreak of COVID-19.
Markets will remain unsettled as long as the virus remains in its virulent form. With no good remedies or a vaccine readily available, fear will dominate financial markets and it is more likely to get worse before it gets any better. The United States has not yet seen the effects of widespread outbreak, which is all but certain to occur.
Even with Thursday's large losses, stocks are still ahead for the week from two to three percent, depending on the index in question. Bank stocks have suffered tremendous losses, as have airlines, but the damage to stocks has been pretty much an all-in matter. 90% of stocks on the S&P 500 are trading below their 10-day moving averages.
As of Friday morning, the Dow is still ahead by 2.80% on the week, but the market is poised for another down day and the near-term bottom of 24,681.01 (intraday) is certain to be tested in short order.
The Federal Reserve, which cut the federal funds rate by 50 basis points in an emergency cut on Tuesday, meets on March 17-18, with the market calling for a 50 to 75 basis point cut, which would bring the rate down below one percent. Even though the Fed will likely cut the rate at the meeting - and again at its April meeting - it is unlikely to offer much in the way of relief. The Fed cannot print a vaccine, nor halt the spread of an invisible, virulent virus which is rampaging around the world.
At the Close, Thursday, March 5, 2020:
Dow Jones Industrial Average: 26,121.28, -969.58 (-3.58%)
NASDAQ: 8,738.59, -279.49 (-3.10%)
S&P 500: 3,023.94, -106.18 (-3.39%)
NYSE: 12,593.03, -416.93 (-3.20%)
Another gauge of how severe this latest foray into and out of correction territory is the treasury yield curve and individual duration yields. The benchmark of the treasury complex is the 10-year note, which continues to be bought, sending the yield spiraling downward to unprecedented levels.
On Thursday, yields across the treasury complex were hammered lower. The 10-year-note fell from 1.02% on Wednesday to as low as 0.87% on Thursday, finally settling at another new record low of 0.92%. As long as equities remain under pressure - a timeline which could extend not just days or weeks, but months - bonds will be the safe haven and yields will fall.
The 30-year bond, which began the year at 2.33% and was at 2.09% as recently as February 12, crashed another nine basis points on the day, to a record low 1.56%. Shorter duration bills and notes were also being bought, sending yields skidding. The 2-year note was yielding 1.44% a month ago, closed out Thursday at 0.59%. The 1-year continues to offer the lowest yield, 0.48%, while the shortest duration, the 1-month bill yields 0.92. The short end is inverted, signaling economic chokepoints dead ahead.
All of this market turmoil has been the cause of the widely-spread coronavirus, or COVID-19, its official name. With worldwide cases now over 100,000, deaths over 3,400, and the increase in daily infections outside of mainland China now surpassing those from inside China, there's little doubt that the pandemic has reached crisis proportions.
The current hotspots continue to be South Korea (6,593 cases), Iran (4,747) and Italy (3,858), though countries in Europe are beginning to spike higher, especially in Germany, France, Spain, and Switzerland.
The United States is currently reporting 233 cases, though the lack of preparedness and test kits assures that the number is higher by orders of magnitude. With an asymptomatic (not showing obvious symptoms of infection) period of up to 27 days in which the carrier can spread the virus, the number of cases in the United States - as wel as everywhere else - is likely to spike higher within the next week or two. While this is speculation, it is based upon recognizable patterns of the virus, from evidence gathered in South Korea, Italy and on the cruise ship, Diamond Princess, which was ported in Japan for a month and served as a kind of petri dish for study of the disease.
With quarantine the most effective measure to mitigate the spread of coronavirus, the fear in markets is that entire communities will become isolated, workplaces shuttered, large events cancelled. Those scenarios and more have already been evidenced in China, South Korea, Italy and elsewhere. There's no escaping the realities of this global outbreak.
Along the lines of seeking out safe havens, gold has been a superstar, at a seven year high, $1,686.30 per ounce. Silver has lagged, but continues to appreciate, the current price $17.46 per ounce.
Crude oil continues to languish as global demand has collapsed. Even after OPEC announced a cut of half a million barrels a day, the price of WTI crude oil slipped further, currently at $44.06 per barrel.
In what has to be the most inconsequential data release in recent memory, the Labor Department released the February non-farm payroll report, which showed employers added 273,000 jobs nationwide, dropping the unemployment rate to 3.5%, though all of this data is viewed through a lens that was looking prior to the extreme global outbreak of COVID-19.
Markets will remain unsettled as long as the virus remains in its virulent form. With no good remedies or a vaccine readily available, fear will dominate financial markets and it is more likely to get worse before it gets any better. The United States has not yet seen the effects of widespread outbreak, which is all but certain to occur.
Even with Thursday's large losses, stocks are still ahead for the week from two to three percent, depending on the index in question. Bank stocks have suffered tremendous losses, as have airlines, but the damage to stocks has been pretty much an all-in matter. 90% of stocks on the S&P 500 are trading below their 10-day moving averages.
As of Friday morning, the Dow is still ahead by 2.80% on the week, but the market is poised for another down day and the near-term bottom of 24,681.01 (intraday) is certain to be tested in short order.
The Federal Reserve, which cut the federal funds rate by 50 basis points in an emergency cut on Tuesday, meets on March 17-18, with the market calling for a 50 to 75 basis point cut, which would bring the rate down below one percent. Even though the Fed will likely cut the rate at the meeting - and again at its April meeting - it is unlikely to offer much in the way of relief. The Fed cannot print a vaccine, nor halt the spread of an invisible, virulent virus which is rampaging around the world.
At the Close, Thursday, March 5, 2020:
Dow Jones Industrial Average: 26,121.28, -969.58 (-3.58%)
NASDAQ: 8,738.59, -279.49 (-3.10%)
S&P 500: 3,023.94, -106.18 (-3.39%)
NYSE: 12,593.03, -416.93 (-3.20%)
Sunday, March 1, 2020
Coronavirus (COVID-19) Crushes Stocks, Commodities, Oil, Gold, Silver; Crisis Appears To Be Accelerating
(Simultaneously published at Downtown Magazine)
As ugly goes, this past week ranks right up there with bearded lady or three-eyed ogre status.
Over the course of just five trading sessions, stocks lost more than ten percent on all the main indices. The Dow topped the list with a drop of 12.36%. The week and the preceding Thursday and Friday (all but the NASDAQ are sporting seven-day losing streaks marked the fastest that stocks fell into correction territory, officially designated as a 10% slide.
What's worse - if there's anything worse than shaving a couple trillion off the American market cap balance sheet - is that the rush to sell hardly seems to be over. The last week of February looks more like the beginning of something more severe, and with the spread of the coronavirus (COVID-19) just beginning to make an impact in the United States, there isn't much talk about "buying the dip" at this particular juncture.
Just because everybody loves numbers, here are the current losses from the respective tops and the levels needed to reach down to a 20% loss, the designated level at which would kick in a bear market. Bear in mind that stocks recently hit all-time highs.
Dow: Top: 29,551.42 (2/12/20); Current: 25,409.36 (-14.02%); Bear Market (-20%): 23,641.14
NASDAQ: Top: 9,817.18 (2/19/20); Current: 8,567.37 (-12.74%); Bear Market(-20%): 7,853.74
S&P 500: Top: 3,386.15 (2/19/20); Current: 2,954.22 (-13.76%); Bear Market (-20%): 2,708.92
NYSE: Top: 14,183.20 (1/17/20); Current: 12,380.97 (-12.71%); Bear Market (-20%): 11,346.56
The potential for a bear market are palpable for more reasons than just the threat of COVID-19 spreading across the great expanse of the United States. A widespread outbreak, like the one in China, would be devastating, but already there are strong indications that community transmission has already taken place in the state of Washington, in Chicago, and in California.
Widespread infections that close schools and businesses would only be the tip of the issue. Large public gatherings - and that is a concern with baseball's regular season less than a month away - would carry warnings to the public. Many would likely stay away just out of personal caution, but hope is that the department of Heath and Human Services (HHS), CDC and Vice President Pence's executive branch team will keep community outbreaks well contained. However, France and Switzerland have banned large gatherings over 5,000, and cancelled all sporting events. Imagine the same for the United States in just a few weeks. It could happen. It may not.
Possibly also working against the virus is time. Many similar viruses, like the flu, die off naturally or lose their effectiveness and ability to transmit and spread.
On he other hand, the aftereffects from China's production slowdown have not been fully felt and won't be evident until companies report first quarter results. That's early April and beyond, giving the markets more than a month to navigate whatever trend emerges.
Stocks were significantly overvalued when the slide began; today they are less so, though still hanging in the high end in the valuation regimen. There is more room on the downside. All through 2019, companies were not reporting robust results. The S&P was generally flat on earnings yet stocks rose. Capacity Utilization and Productivity have also shown signs of a slowdown, even prior to the coronavirus event.
While unemployment remains a bright spot, business expansion has been slow to nearly nothing. A slew of variables - in effect the market's wall of worry - are mixed and unresolved. With sentiment now having shifted violently from greed to fear, any bad or marginal data is going to get the bum's rush, encouraging more selling.
Elsewhere, crude oil took a massive hit during the week. WTI crude closed at $54.88 on February 20, but by Friday of this week had dropped to $44.76 per barrel, a slide of 18.45%.
Precious metals abruptly went negative midweek after rallying for the better part of the last month. The silver continuous contract closed Friday at $16.46, the lowest price since last July. Gold topped out at $1691.70 per ounce on Monday, but by Friday could be purchased for $1566.70, more than a hundred dollar discount. Four straight down days snapped a rally in gold that started in late November, 2019. The gold price remains elevated, having only caught down to a price that was last seen the first week of February.
Particularly telling was action in the treasury market and bonds overall. The entire yield curve was decimated with the benchmark 10-year note checking in at an all-time low of 1.13%. The 30-year bond also posted a record low yield at 1.65% on Friday. With inversion on the short end - the 6-month bill is yielding 1.11 - the 2-year, 3-year, and 5-year are yielding 0.86%, 0.85%, and 0.89%, respectively.
With everybody from President Trump on down calling on the Federal Reserve to get into the act, rumors began circulating late Thursday that the Fed would coordinate with other central banks for some kind of symmetric cuts in overnight rates as early as Sunday, though as of this writing, nothing has come of it. The Fed is virtually guaranteed to cut by at least 25 basis points at its next FOMC meeting, on March 17-18, though for many in the markets, that seems a long time off and may in fact be too late to have much influence.
It wasn't just treasuries feeling the heat. According to Doug Noland's Credit Bubble Bulletin, "There were no investment-grade deals for the first time in 18 months, as $25bn of sales were postponed awaiting more favorable market conditions."
If credit markets begin to seize up, which appears to be the evolving case, the Fed will have no choice but to lower the federal funds rate prior to the meeting. 50 basis points would appear appropriate if the virus continues to spread not just in the US, but around the world. More than 60 countries have at least one case of the virus and the United States, Australia, and Thailand have reported their first deaths just in the past 24 hours.
Preparedness is the key to surviving whatever form the crisis takes, be it medical or economic. Households should have on hand at least a three-week supply of food and other essentials at the minimum. Investors should have moved money into safe havens, as many did. Money market funds and bonds provide some relief from the roller coaster of stocks. Precious metals usually provide some protection, but, as was the case in 2008, gold and silver fell off dramatically as stores of the metals were sold in order to shore up cash liquidity. Back then, they were the first commodities to recover, besting the markets by a number of months, though right now, they don't appear to be stunning buying opportunities.
If the worst case scenario occurs and there are wide ranging quarantines, travel restrictions and cancelation of public gatherings, expect nothing short of a complete meltdown of the financial system and conditions which have never been seen before. A stock market decline of 60-70 percent would be a real possibility. The entire rip to the downside could take as long as 18 months or as little as six.
That's not to say that a total collapse will occur. There may be mitigating factors in the interim, plus the advent of warmer weather with higher humidity might slow down the virus, but market direction has turned violently to the negative. Now is not the time to jump in a buy equities as most rallies will likely be met with strong resistance and more selling.
Presently, everything is up in the air, including the virus and the world's finances.
At the Close, Friday, February 28, 2020:
Dow Jones Industrial Average: 25,409.36, -357.28 (-1.39%)
NASDAQ: 8,567.37, +0.89 (+0.01%)
S&P 500: 2,954.22, -24.54 (-0.82%)
NYSE: 12,380.97, -166.29 (-1.33%)
For the Week:
Dow: -3583.05 (-12.36%)
NASDAQ: -1009.22 (-10.54%)
S&P 500: -383.53 (-11.49%)
NYSE: -1594.81 (-11.41%)
As ugly goes, this past week ranks right up there with bearded lady or three-eyed ogre status.
Over the course of just five trading sessions, stocks lost more than ten percent on all the main indices. The Dow topped the list with a drop of 12.36%. The week and the preceding Thursday and Friday (all but the NASDAQ are sporting seven-day losing streaks marked the fastest that stocks fell into correction territory, officially designated as a 10% slide.
What's worse - if there's anything worse than shaving a couple trillion off the American market cap balance sheet - is that the rush to sell hardly seems to be over. The last week of February looks more like the beginning of something more severe, and with the spread of the coronavirus (COVID-19) just beginning to make an impact in the United States, there isn't much talk about "buying the dip" at this particular juncture.
Just because everybody loves numbers, here are the current losses from the respective tops and the levels needed to reach down to a 20% loss, the designated level at which would kick in a bear market. Bear in mind that stocks recently hit all-time highs.
Dow: Top: 29,551.42 (2/12/20); Current: 25,409.36 (-14.02%); Bear Market (-20%): 23,641.14
NASDAQ: Top: 9,817.18 (2/19/20); Current: 8,567.37 (-12.74%); Bear Market(-20%): 7,853.74
S&P 500: Top: 3,386.15 (2/19/20); Current: 2,954.22 (-13.76%); Bear Market (-20%): 2,708.92
NYSE: Top: 14,183.20 (1/17/20); Current: 12,380.97 (-12.71%); Bear Market (-20%): 11,346.56
The potential for a bear market are palpable for more reasons than just the threat of COVID-19 spreading across the great expanse of the United States. A widespread outbreak, like the one in China, would be devastating, but already there are strong indications that community transmission has already taken place in the state of Washington, in Chicago, and in California.
Widespread infections that close schools and businesses would only be the tip of the issue. Large public gatherings - and that is a concern with baseball's regular season less than a month away - would carry warnings to the public. Many would likely stay away just out of personal caution, but hope is that the department of Heath and Human Services (HHS), CDC and Vice President Pence's executive branch team will keep community outbreaks well contained. However, France and Switzerland have banned large gatherings over 5,000, and cancelled all sporting events. Imagine the same for the United States in just a few weeks. It could happen. It may not.
Possibly also working against the virus is time. Many similar viruses, like the flu, die off naturally or lose their effectiveness and ability to transmit and spread.
On he other hand, the aftereffects from China's production slowdown have not been fully felt and won't be evident until companies report first quarter results. That's early April and beyond, giving the markets more than a month to navigate whatever trend emerges.
Stocks were significantly overvalued when the slide began; today they are less so, though still hanging in the high end in the valuation regimen. There is more room on the downside. All through 2019, companies were not reporting robust results. The S&P was generally flat on earnings yet stocks rose. Capacity Utilization and Productivity have also shown signs of a slowdown, even prior to the coronavirus event.
While unemployment remains a bright spot, business expansion has been slow to nearly nothing. A slew of variables - in effect the market's wall of worry - are mixed and unresolved. With sentiment now having shifted violently from greed to fear, any bad or marginal data is going to get the bum's rush, encouraging more selling.
Elsewhere, crude oil took a massive hit during the week. WTI crude closed at $54.88 on February 20, but by Friday of this week had dropped to $44.76 per barrel, a slide of 18.45%.
Precious metals abruptly went negative midweek after rallying for the better part of the last month. The silver continuous contract closed Friday at $16.46, the lowest price since last July. Gold topped out at $1691.70 per ounce on Monday, but by Friday could be purchased for $1566.70, more than a hundred dollar discount. Four straight down days snapped a rally in gold that started in late November, 2019. The gold price remains elevated, having only caught down to a price that was last seen the first week of February.
Particularly telling was action in the treasury market and bonds overall. The entire yield curve was decimated with the benchmark 10-year note checking in at an all-time low of 1.13%. The 30-year bond also posted a record low yield at 1.65% on Friday. With inversion on the short end - the 6-month bill is yielding 1.11 - the 2-year, 3-year, and 5-year are yielding 0.86%, 0.85%, and 0.89%, respectively.
With everybody from President Trump on down calling on the Federal Reserve to get into the act, rumors began circulating late Thursday that the Fed would coordinate with other central banks for some kind of symmetric cuts in overnight rates as early as Sunday, though as of this writing, nothing has come of it. The Fed is virtually guaranteed to cut by at least 25 basis points at its next FOMC meeting, on March 17-18, though for many in the markets, that seems a long time off and may in fact be too late to have much influence.
It wasn't just treasuries feeling the heat. According to Doug Noland's Credit Bubble Bulletin, "There were no investment-grade deals for the first time in 18 months, as $25bn of sales were postponed awaiting more favorable market conditions."
If credit markets begin to seize up, which appears to be the evolving case, the Fed will have no choice but to lower the federal funds rate prior to the meeting. 50 basis points would appear appropriate if the virus continues to spread not just in the US, but around the world. More than 60 countries have at least one case of the virus and the United States, Australia, and Thailand have reported their first deaths just in the past 24 hours.
Preparedness is the key to surviving whatever form the crisis takes, be it medical or economic. Households should have on hand at least a three-week supply of food and other essentials at the minimum. Investors should have moved money into safe havens, as many did. Money market funds and bonds provide some relief from the roller coaster of stocks. Precious metals usually provide some protection, but, as was the case in 2008, gold and silver fell off dramatically as stores of the metals were sold in order to shore up cash liquidity. Back then, they were the first commodities to recover, besting the markets by a number of months, though right now, they don't appear to be stunning buying opportunities.
If the worst case scenario occurs and there are wide ranging quarantines, travel restrictions and cancelation of public gatherings, expect nothing short of a complete meltdown of the financial system and conditions which have never been seen before. A stock market decline of 60-70 percent would be a real possibility. The entire rip to the downside could take as long as 18 months or as little as six.
That's not to say that a total collapse will occur. There may be mitigating factors in the interim, plus the advent of warmer weather with higher humidity might slow down the virus, but market direction has turned violently to the negative. Now is not the time to jump in a buy equities as most rallies will likely be met with strong resistance and more selling.
Presently, everything is up in the air, including the virus and the world's finances.
At the Close, Friday, February 28, 2020:
Dow Jones Industrial Average: 25,409.36, -357.28 (-1.39%)
NASDAQ: 8,567.37, +0.89 (+0.01%)
S&P 500: 2,954.22, -24.54 (-0.82%)
NYSE: 12,380.97, -166.29 (-1.33%)
For the Week:
Dow: -3583.05 (-12.36%)
NASDAQ: -1009.22 (-10.54%)
S&P 500: -383.53 (-11.49%)
NYSE: -1594.81 (-11.41%)
Friday, January 17, 2020
Confluence Of Impeachment, Virginia State Of Emergency, Peter Schweizer Book Could Damage Stocks
With stocks soaring to even higher new record highs again on Thursday, there's little doubt over the levles of irrationality and exuberance being displayed by the hoi poloi investing elite, their magic money spigot at the Fed and their marvelous algorithms which interpret all news as positive for stocks.
It is precisely in conditions such as these (the Dow Jones Industrial Average has vaulted over 29,000 with ease and is up a stunning 3,219 points since October 3rd, a 12.3% gain in just three-and-a-half months. The time period in question coincides neatly with the Federal Reserve's stoking engagement into the repo market, pumping, by some estimates, over $1.5 trillion into the hands of primary dealers and hedge funds, ramping the Fed's own balance sheet by more than $413.7 billion since the end of August.
The Fed's particular brand of irrational exuberance is at a pace reminiscent of prior bouts of QE in 2009, 2010-11, and 2012-14, even though the Fed cutely insists this is "not QE." Balderdash.
Normally, nobody gets alarmed over gigantic gains in stocks, giving their overall pleasant scent (go ahead, you know you want to sniff your currency) and beneficial purchasing power, but this severe repricing of stocks is beginning to look Weimar-like, when stocks in 1920s Weimar Germany rose by obscene percentages, but cashing in hundreds of shares could only purchase a day's worth of food due to the overarching hyperinflation of the currency.
Not to say that the same is or will be happening in the United States, though signs of runaway inflation are prevalent, but something may go wrong at some point that tears the social construct and eventually affects stocks and currency.
Consider that a confluence of events are about to take place between now and Tuesday, January 21. Equity and security markets will be closed over the weekend and on Monday, Martin Luther King Day, a national holiday. In the meantime, there's already a state of emergency declared in Richmond, Virginia with concern over the gun rights rally set up for Lobby Day on Monday.
On Tuesday, the impeachment trial of President Trump begins in the Senate.
Also on Tuesday, Peter Schweizer's new book, Profiles in Corruption drops. On the book's cover are the faces of Elizabeth Warren, Joe Biden, Bernie Sanders and others. Uh, Oh, it's already at #3 on Amazon's Best Sellers list.
Tuesday may be too late to get out of positions, so if there's some quiet pullback on Friday, it could be a tell.
At the Close, Thursday, January 16, 2020:
Dow Jones Industrial Average: 29,297.64, +267.44 (+0.92%)
NASDAQ: 9,357.13, +98.43 (+1.06%)
S&P 500: 3,316.81, +27.52 (+0.84%)
NYSE Composite: 14,141.78, +88.58 (+0.63%)
It is precisely in conditions such as these (the Dow Jones Industrial Average has vaulted over 29,000 with ease and is up a stunning 3,219 points since October 3rd, a 12.3% gain in just three-and-a-half months. The time period in question coincides neatly with the Federal Reserve's stoking engagement into the repo market, pumping, by some estimates, over $1.5 trillion into the hands of primary dealers and hedge funds, ramping the Fed's own balance sheet by more than $413.7 billion since the end of August.
The Fed's particular brand of irrational exuberance is at a pace reminiscent of prior bouts of QE in 2009, 2010-11, and 2012-14, even though the Fed cutely insists this is "not QE." Balderdash.
Normally, nobody gets alarmed over gigantic gains in stocks, giving their overall pleasant scent (go ahead, you know you want to sniff your currency) and beneficial purchasing power, but this severe repricing of stocks is beginning to look Weimar-like, when stocks in 1920s Weimar Germany rose by obscene percentages, but cashing in hundreds of shares could only purchase a day's worth of food due to the overarching hyperinflation of the currency.
Not to say that the same is or will be happening in the United States, though signs of runaway inflation are prevalent, but something may go wrong at some point that tears the social construct and eventually affects stocks and currency.
Consider that a confluence of events are about to take place between now and Tuesday, January 21. Equity and security markets will be closed over the weekend and on Monday, Martin Luther King Day, a national holiday. In the meantime, there's already a state of emergency declared in Richmond, Virginia with concern over the gun rights rally set up for Lobby Day on Monday.
On Tuesday, the impeachment trial of President Trump begins in the Senate.
Also on Tuesday, Peter Schweizer's new book, Profiles in Corruption drops. On the book's cover are the faces of Elizabeth Warren, Joe Biden, Bernie Sanders and others. Uh, Oh, it's already at #3 on Amazon's Best Sellers list.
Tuesday may be too late to get out of positions, so if there's some quiet pullback on Friday, it could be a tell.
At the Close, Thursday, January 16, 2020:
Dow Jones Industrial Average: 29,297.64, +267.44 (+0.92%)
NASDAQ: 9,357.13, +98.43 (+1.06%)
S&P 500: 3,316.81, +27.52 (+0.84%)
NYSE Composite: 14,141.78, +88.58 (+0.63%)
Thursday, January 16, 2020
SNAFU Market Thrives On Chaos As China Deal Signed, Trump Impeached (again)
Since it's probably naive to believe that US equity markets are anything other than "fair and open," Wednesday's solid gains - record highs all around - have more to do with internal tinkering than any outside effects. Algorithms that apparently think sending articles of impeachment against President Donal J. Trump from the House of Representatives over to the Senate (after a month-long delay) is not as important an event as the signing of Phase 1 of the US-Chaina trade accord, both of which occurred almost simultaneously.
One can wonder exactly what traders are thinking these early days of 2020, but the algos may be on the right track given that the impeachment drama has been and ought to have been discounted as bad theatre, whereas the trade deal might turn out to be a big deal for global commerce.
No matter the details, stocks continue to soar, practically every day notching new record highs, without as much as a superfluous pullback every few weeks or so. The driver of this irrationals madness has recently been the Fed's easy money via daily repo injections, with the Federal Reserve providing ready cash in exchange for treasury bills, notes, and bonds they sold to primary dealers just days prior.
It's an open secret that the Fed's balance sheet is growing by monstrous proportions again, having begun in September and continued to burgeon through the holidays and into the new year. The Fed has plans to cease such onerous operations sometime in April, though there's ample consideration that such a move might prompt a dipsy-doo on the order of the ones that accompanied rate tightening in October and again in December of 2018.
For now, the bloom is on the rose and for all intents manages to stay blushing through impeachments, royal defections, plane crashes, Middle East noise, and all other hyperbolic geopolitical events. If nothing is done to stop the SNAFU (Situation Normal, All F--ked Up) 2020 could end up being a lot like 2019, replete with outsized gains for everybody, despite chaos all around.
At the Close, Wednesday. January 15, 2020:
Dow Jones Industrial Average: 29,030.22, +90.55 (+0.31%)
NASDAQ: 9,258.70, +7.37 (+0.08%)
S&P 500: 3,289.29, +6.14 (+0.19%)
NYSE Composite: 14,053.23, +16.10 (+0.11)
One can wonder exactly what traders are thinking these early days of 2020, but the algos may be on the right track given that the impeachment drama has been and ought to have been discounted as bad theatre, whereas the trade deal might turn out to be a big deal for global commerce.
No matter the details, stocks continue to soar, practically every day notching new record highs, without as much as a superfluous pullback every few weeks or so. The driver of this irrationals madness has recently been the Fed's easy money via daily repo injections, with the Federal Reserve providing ready cash in exchange for treasury bills, notes, and bonds they sold to primary dealers just days prior.
It's an open secret that the Fed's balance sheet is growing by monstrous proportions again, having begun in September and continued to burgeon through the holidays and into the new year. The Fed has plans to cease such onerous operations sometime in April, though there's ample consideration that such a move might prompt a dipsy-doo on the order of the ones that accompanied rate tightening in October and again in December of 2018.
For now, the bloom is on the rose and for all intents manages to stay blushing through impeachments, royal defections, plane crashes, Middle East noise, and all other hyperbolic geopolitical events. If nothing is done to stop the SNAFU (Situation Normal, All F--ked Up) 2020 could end up being a lot like 2019, replete with outsized gains for everybody, despite chaos all around.
At the Close, Wednesday. January 15, 2020:
Dow Jones Industrial Average: 29,030.22, +90.55 (+0.31%)
NASDAQ: 9,258.70, +7.37 (+0.08%)
S&P 500: 3,289.29, +6.14 (+0.19%)
NYSE Composite: 14,053.23, +16.10 (+0.11)
Friday, January 3, 2020
Federal Reserve's QE Today is The Big Short Revisited in a Bigger Manner
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| Steve Carell and Ryan Gosling in scene from "The Big Short" |
That's the truth of the matter, usually every day, so long as the Federal Reserve continues to pump fresh capital into the already bloated financial system. The trouble with the Fed's desire to keep Wall Street flush with cash is that enriching a small number of already-wealthy people hasn't had the desired effect of "trickling down" to the general population.
It didn't work when the Fed rescued the financial system in 2007-09, hasn't since, and won't in the future. Known generally as QE (Quantitative Easing) it's a failed policy that produces nothing other than overpriced financial assets, monstrous bubbles, and eventually, mass damage to the very system it's purported to be protecting. Since September of last year (2019) the Fed has already pumped nearly a trillion dollars into the Wall Street casino and it's balance sheet has exploded by another $500 billion.
To say that the Fed's promotion of QE is as bad as the systemic fraud that ran rampant within the sub-prime mortgage bundling that triggered the GFC in 2007-09 might be taking the comparison a step too far, but it surely is worth nominal consideration.
The players are mostly the same: Wall Street tycoons representing trading firms of the biggest banks bent on maximizing profits, relaxed, corrupted, and often incompetent regulators, an unsuspecting public that eventually gets fleeced.
In comparison to the sub-prime hustle, the rollers and managers of the mortgage bundling are now - as before - manned by the trading desks of the big Wall Street firms. The Fed is the enabler, a la the ratings agencies during sub-prime, and mouth-breathing borrowers with low credit scores seeking to purchase a home are replaced today by anybody participating in a pension fund, college fund, 401k or other managed investment vehicle. That's why sub-prime was called the housing bubble and the ongoing, current arrangement is called the "everything bubble." Everything is up for grabs and everything is at stake.
This all has been tied together neatly since the GFC, as, after $750 billion in TARP was exhausted, three bouts of QE commenced, secret loans from the Fed to foreign banks were proffered, and nobody of any importance went to jail over the excesses of the sub-prime boom and subsequent bust. Nobody. They're mostly all still there, having cashed mammoth bonus checks provided by the TARP bailout, plotting the next windfall.
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| Lewis' book is revealing and riveting, available everywhere, for a song. |
In the film, Ryan Gosling plays Jared Vennett, the fictional character based on the real-life Deutsche Bank trader, Greg Lippman. Christian Bale plays the real-life Michael Burry, the Scion Asset Management leader who risked his firm and cashed in when MBS and CDOs went bust, but the lion of the story comes n the character of Mark Baum (Steve Eisman in real life) played passionately by Steve Carell as the angry, perplexed head of Frontline Partners, the independent Morgan Stanley trading unit that bet against CDOs and made millions in the sub-prime collapse.
Carell, as Mark Baum, sets up the character and the film's premise in his first scene, railing against big banks charging outrageous fees for overdrafts. His defiant, conflicted, crusading manner defined, Carell storms through the film wide-eyed and aghast at what's about to happen to the global financial structure, outspoken and often outrageous. Nearing the end, he - and the character of Ben Rickert (based on real life, former JP Morgan trader, Ben Hockett, and portrayed in a sublimated, almost solemn manner by Brad Pitt) - realizes that he is betting on the collapse of the bedrock of global finance, the US housing industry, and trillions of dollars will be lost, millions of people will lose homes. The fate of the world weighs heavy upon him.
The Big Short film is well worth watching again, as is a thorough reading of the original Michael Lewis book by the same name. In case you haven't seen the movie or read the book, this qualifies as a MUST, if you have money at risk in any kind of investment because it all is happening again, in a different venue, on an even larger, more obscene scale. Sub-prime took years to grow, metastasize and engulf the financial system. The ongoing "everything bubble," with pension and other long-term passive investments as the target, will literally take decades, and it's already well underway.
It's all happening again in a bigger and more destructive way and it's happening right NOW.
The book and film are available at screaming low prices on Ebay, Amazon and various streaming services (for the film). A purchase is likely to be some of the best investment money ever spent and an understanding of the process will reveal the fraud and deceit being parlayed right beneath the public's noses. Both the book and the film are revealing, frightening, and true.
EDIT: Money Daily may not always be on top of the news, but today's major blast posting may turn out to be prescient. Just moments ago, Wall Street On Parade, the noteworthy blog published by Wall Street insiders, Russ and Pam Martens, released a related post: The Doomsday Machine Returns: Citibank Has Sold Protection On $858 Billion of Credit Default Swaps. In the article, the writers contend that the dark doom of 2008 may be hanging over the canyons of Wall Street once again, as not just Citibank, but JP Morgan Chase as well, have taken big positions in Credit Default Swaps "that are being used to reignite the synthetic Collateralized Loan Obligation (synthetic CDO) market - which vastly added to the leverage that blew up Wall Street in 2008."
Stay tuned.
A few choice clips from the film:
At the Close, Thursday, January 2, 2020:
Dow Jones Industrial Average: 28,868.80, +330.36 (+1.16%)
NASDAQ: 9,092.19, +119.58 (+1.33%)
S&P 500: 3,257.85, +27.07 (+0.84%)
NYSE Composite: 14,002.49, +89.46 (+0.64%)
Tuesday, December 17, 2019
Trade Deal Sparks Rally, Enough for New All-Time Highs
Approaching year end, Monday's trading was like a toast to prosperity.
"New highs all around," was the buzz, even though stocks had taken back half of the morning's gains by the closing bell. Still, it was enough to entertain thoughts of bigger Christmas presents, newer cars, more trinkets and shiny toys for the kids and assorted other trivialities.
Phase one of the US-China trade deal was delivered, with tariffs postponed or to be curtailed by both parties to the agreement and plenty of the details still to be worked out on either side of the Pacific.
The general consensus seemed to be a relief that something concrete was finally emerging from nearly eighteen months of haranguing, harassing, arguing, pointing, posturing and persuading.
China has apparently agreed to double its import of commodities from the US, among other conditions.
Markets were pleased, but not overjoyed. Tuesday, it's back to the grind of watching the Fed and its REPO operations for the year-end "turn," a situation that has more than enough nuance to spark off volatility in either direction. There's definitely a liquidity problem somewhere, maybe everywhere, but most of the participants - the central banks, commercial banks, and primary dealers, have chosen to be pretty much mum on the details.
The Fed will just continue with extraordinary measures with daily injections via purchases and loans through the end of the year and into the next, with announced activities extending through mid-January. How much of this freshly-minted capital gets put to use in stocks is still unknown. There are funding needs and tax payments to be made, but the overall appearance is that the Fed has a handle on it and will continue to monitor it until their overnight and longer term monetary assistance is no longer needed.
And there's the rub. After these auctions, purchases, loans, and repurchases are complete and we're into 2020, will the Fed be able to turn down the spigot to more reasonable levels and eventually turn it off altogether?
That's a query for the future, unanswerable in the present.
At the Close, Monday, December 16, 2019:
Dow Jones Industrial Average: 28,235.89, +100.51 (+0.36%)
NASDAQ: 8,814.23, +79.35 (+0.91%)
S&P 500: 3,191.45, +22.65 (+0.71%)
NYSE Composite: 13,795.15, +97.81 (+0.71%)
"New highs all around," was the buzz, even though stocks had taken back half of the morning's gains by the closing bell. Still, it was enough to entertain thoughts of bigger Christmas presents, newer cars, more trinkets and shiny toys for the kids and assorted other trivialities.
Phase one of the US-China trade deal was delivered, with tariffs postponed or to be curtailed by both parties to the agreement and plenty of the details still to be worked out on either side of the Pacific.
The general consensus seemed to be a relief that something concrete was finally emerging from nearly eighteen months of haranguing, harassing, arguing, pointing, posturing and persuading.
China has apparently agreed to double its import of commodities from the US, among other conditions.
Markets were pleased, but not overjoyed. Tuesday, it's back to the grind of watching the Fed and its REPO operations for the year-end "turn," a situation that has more than enough nuance to spark off volatility in either direction. There's definitely a liquidity problem somewhere, maybe everywhere, but most of the participants - the central banks, commercial banks, and primary dealers, have chosen to be pretty much mum on the details.
The Fed will just continue with extraordinary measures with daily injections via purchases and loans through the end of the year and into the next, with announced activities extending through mid-January. How much of this freshly-minted capital gets put to use in stocks is still unknown. There are funding needs and tax payments to be made, but the overall appearance is that the Fed has a handle on it and will continue to monitor it until their overnight and longer term monetary assistance is no longer needed.
And there's the rub. After these auctions, purchases, loans, and repurchases are complete and we're into 2020, will the Fed be able to turn down the spigot to more reasonable levels and eventually turn it off altogether?
That's a query for the future, unanswerable in the present.
At the Close, Monday, December 16, 2019:
Dow Jones Industrial Average: 28,235.89, +100.51 (+0.36%)
NASDAQ: 8,814.23, +79.35 (+0.91%)
S&P 500: 3,191.45, +22.65 (+0.71%)
NYSE Composite: 13,795.15, +97.81 (+0.71%)
Monday, December 16, 2019
WEEKEND WRAP: Trump Charged, Johnson Elected, Fed Throws Money to the Wind
What a week!
Not only was President Trump brought up on impeachment charges of abuse of power and obstruction of congress (whatever that is) by Jerry Nadler's gutless judiciary committee, it came on the heels of a crushing conservative victory for Boris Johnson in England. And that came just after the Federal Reserve's FOMC decided to keep the federal funds interest rate right where it was, at 1.50-1.75%.
All of this happened on Wednesday, Thursday, and Friday. There was little time, in between, for the United States and China to announce, denounce, defer, define, defend, and eventually demystify the outlines of some vague phase one trade deal, which still hasn't happened, but is supposed to, any time, any day now.
So there it was, except for a few details that may have slipped over the transom or under the proverbial rug, like the Federal Reserve supplying $500 billion in liquidity to REPO markets to handle "the turn" from December 31, 2019 to January 1, 2020.
That little nugget came and went. Everybody was too much involved over impeachment and Boris and the trade deal to notice. Such an amount of money just to get from 2019 to 2020? It sounded absurd, spending half a trillion dollars to change the calendar. Remember, there was $700 billion in TARP, back in 2009, and that supposedly rescued the entire global financial system. This amount is more than two thirds of that.
In a related story, Lee Adler of The Wall Street Examiner purports that the Federal Reserve has bought up 90% of the government's issuance of treasury bills, notes, and bonds since September 16, effectively monetizing the debt.
So, this $500 billion of liquidity from the benevolent Fed, is it a precursor of more debt monetization, or simply a safeguard against some hedge fund or larger institution crashing as one year turns to the next? Its hard to say. Like recessions, the world will likely have to wait until after the fact to find out.
On a weekly basis, the Dow has gained in seven of the last 10 weeks. The S&P was up nine of the last 10, the NASDAQ moved higher nine of the last 11, and the Composite Index finished higher nine out of the last 10 and this week closed at an all-time high, proving, once again, that it's folly to fight the Fed.
As a footnote to the coming week, the full house is expected to vote on articles of impeachment on Wednesday.
At the Close, Friday, December 13, 2019:
Dow Jones Industrial Average: 28,135.38, +3.28 (+0.01%)
NASDAQ: 8,734.88, +17.56 (+0.20%)
S&P 500: 3,168.80, +0.23 (+0.01%)
NYSE Composite: 13,697.34, -0.06 (-0.00%)
For the Week:
Dow: +120.32 (+0.43%)
NASDAQ: +78.35 (+0.91%)
S&P 500: +22.89 (+0.73%)
NYSE Composite: +109.05 (+0.80%)
Not only was President Trump brought up on impeachment charges of abuse of power and obstruction of congress (whatever that is) by Jerry Nadler's gutless judiciary committee, it came on the heels of a crushing conservative victory for Boris Johnson in England. And that came just after the Federal Reserve's FOMC decided to keep the federal funds interest rate right where it was, at 1.50-1.75%.
All of this happened on Wednesday, Thursday, and Friday. There was little time, in between, for the United States and China to announce, denounce, defer, define, defend, and eventually demystify the outlines of some vague phase one trade deal, which still hasn't happened, but is supposed to, any time, any day now.
So there it was, except for a few details that may have slipped over the transom or under the proverbial rug, like the Federal Reserve supplying $500 billion in liquidity to REPO markets to handle "the turn" from December 31, 2019 to January 1, 2020.
That little nugget came and went. Everybody was too much involved over impeachment and Boris and the trade deal to notice. Such an amount of money just to get from 2019 to 2020? It sounded absurd, spending half a trillion dollars to change the calendar. Remember, there was $700 billion in TARP, back in 2009, and that supposedly rescued the entire global financial system. This amount is more than two thirds of that.
In a related story, Lee Adler of The Wall Street Examiner purports that the Federal Reserve has bought up 90% of the government's issuance of treasury bills, notes, and bonds since September 16, effectively monetizing the debt.
So, this $500 billion of liquidity from the benevolent Fed, is it a precursor of more debt monetization, or simply a safeguard against some hedge fund or larger institution crashing as one year turns to the next? Its hard to say. Like recessions, the world will likely have to wait until after the fact to find out.
On a weekly basis, the Dow has gained in seven of the last 10 weeks. The S&P was up nine of the last 10, the NASDAQ moved higher nine of the last 11, and the Composite Index finished higher nine out of the last 10 and this week closed at an all-time high, proving, once again, that it's folly to fight the Fed.
As a footnote to the coming week, the full house is expected to vote on articles of impeachment on Wednesday.
At the Close, Friday, December 13, 2019:
Dow Jones Industrial Average: 28,135.38, +3.28 (+0.01%)
NASDAQ: 8,734.88, +17.56 (+0.20%)
S&P 500: 3,168.80, +0.23 (+0.01%)
NYSE Composite: 13,697.34, -0.06 (-0.00%)
For the Week:
Dow: +120.32 (+0.43%)
NASDAQ: +78.35 (+0.91%)
S&P 500: +22.89 (+0.73%)
NYSE Composite: +109.05 (+0.80%)
Thursday, December 12, 2019
Fed Holds Rates Steady; Repo Madness Debunked
There was little reaction to the final FOMC policy decision of 2019, as the Fed chose to stand pat on the federal funds rate, adding that they expected to be no rate movement at all in 2020.
Keeping rates fixed for the next 12 months may be wishful thinking, but it also may be a level-headed approach, since, after all, 2020 will be an election year, the country has been through all manner of pain and suffering for the past three years, and a bit of stability would surely be welcome to many.
Coming from the Fed and the sobering mellow intonations of Chairman Jay Powell, the calming effect on not just markets, but society as a whole may provide a soothing tonic. With steady interest rates, businesses can plan with more confidence, individuals can maintain their standards of living and maybe balance their budgets for a change. It's a welcome relief.
At the press conference, Chairman Powell fielded one question on the intriguing REPO malaise, but didn't express any kind of apprehension or surprise. Perhaps the whole thing has been a little overblown by various pundits and press people. One article in which the Repo scare is debunked by Jeff Snider at Alhambra Partners suggests that there never was a reason to be worried about a market crash or any other unforeseen, nasty event in the first place.
So, as the holiday season continues apace, the Fed has apparently managed to calm the markets, albeit temporarily, but with an eye toward the future. If there are no interest rate changes in the coming year, that would be a feat worthy of high praise toward an institution - the Federal Reserve - that is normally the butt of jokes and the object of roundhouse criticism.
If, come late December 2020, the federal funds rate remains at 1.50-1.75%, we can call it a "Christmas miracle." For now, we can temper our optimism, relying on the scattered and unpredictable nature of world events and markets to prove the Fed wrong.
At the Close, Wednesday, December 11, 2019:
Dow Jones Industrial Average: 27,911.30, +29.58 (+0.11%)
NASDAQ: 8,654.05, +37.87 (+0.44%)
S&P 500: 3,141.63, +9.11 (+0.29%)
NYSE Composite: 13,579.92, +34.62 (+0.26%)
Keeping rates fixed for the next 12 months may be wishful thinking, but it also may be a level-headed approach, since, after all, 2020 will be an election year, the country has been through all manner of pain and suffering for the past three years, and a bit of stability would surely be welcome to many.
Coming from the Fed and the sobering mellow intonations of Chairman Jay Powell, the calming effect on not just markets, but society as a whole may provide a soothing tonic. With steady interest rates, businesses can plan with more confidence, individuals can maintain their standards of living and maybe balance their budgets for a change. It's a welcome relief.
At the press conference, Chairman Powell fielded one question on the intriguing REPO malaise, but didn't express any kind of apprehension or surprise. Perhaps the whole thing has been a little overblown by various pundits and press people. One article in which the Repo scare is debunked by Jeff Snider at Alhambra Partners suggests that there never was a reason to be worried about a market crash or any other unforeseen, nasty event in the first place.
So, as the holiday season continues apace, the Fed has apparently managed to calm the markets, albeit temporarily, but with an eye toward the future. If there are no interest rate changes in the coming year, that would be a feat worthy of high praise toward an institution - the Federal Reserve - that is normally the butt of jokes and the object of roundhouse criticism.
If, come late December 2020, the federal funds rate remains at 1.50-1.75%, we can call it a "Christmas miracle." For now, we can temper our optimism, relying on the scattered and unpredictable nature of world events and markets to prove the Fed wrong.
At the Close, Wednesday, December 11, 2019:
Dow Jones Industrial Average: 27,911.30, +29.58 (+0.11%)
NASDAQ: 8,654.05, +37.87 (+0.44%)
S&P 500: 3,141.63, +9.11 (+0.29%)
NYSE Composite: 13,579.92, +34.62 (+0.26%)
Wednesday, December 11, 2019
Waiting On The Fed Futility Amid Repo Crisis
Back in mid-September, as many will no doubt recall, the Fed had to step into the REPO market and provide liquidity via collateral auctions, mainly in the form of treasury bills and notes, and mortgage-backed securities (yes, the deadly MBS), which are still out there, floating around, handled like hot potatoes.
Since that time, the Fed has kept up appearances by continuing to provide POMO and TOMO (Permanent (P) and Temporary (T) Open Market Operations) to the tune of anywhere from $30 billion to $60 billion per day. That's right, PER DAY, and it's often been more. That's how big the overnight lending business is. Huge. The REPO market is also what triggered the Great Financial Crisis of 2008, when first, Bear Stearns, then, Lehman Brothers, were forced into bankruptcy by being unable to borrow from the overnight REPO market.
The problem with both Bear and Lehman was that their collateral consisted of highly toxic, dodgy MBS, or as is commonly referenced, sub-prime packaged loans. Lenders on the other side of the ledger were hesitant to lend to either, fearing that not only was the collateral of a suspect nature, the firms - Bear and Lehman - were buying more of them as an integral part of their business structure.
In 2008, this all blew up, the Fed stepped in, flooded the world with liquidity (buying up all the toxic MBS it could) and the collapse of the global financial system was averted.
Note that the collapse was averted, not solved, not cured, not by a long shot. The Fed's been busy keeping markets in some degree of stability ever since.
On Wednesday (today), the Fed's FOMC will likely announce no change n the federal funds rate, but that, besides being a foregone conclusion, isn't the real story. For that, in the interest of time and space, Money Daily bids adieu to this commentary, and offers a couple of links that may or may not render the REPO markets as something understandable to the reader.
First, this excellent video with Paddy Hirsh explaining just how the REPO market operates (about 8 minutes of time well spent):
Then, just to make matters a little more interesting, this ZeroHedge story featuring Zoltan Pozsar claiming that the REPO market is about to explode again, and that a stock market crash is imminent.
Take that ZeroHedge article with as many grains of salt or sugar your risk appetite will absorb, but bear in mind that Mr. Pozsar was, as ZeroHedge purports,...
The Fed's FOMC policy meeting concludes at 2:00 pm ET on Wednesday, with the release of their statement followed by a press conference headed by Fed Chairman, Jay Powell, who will try his best to avoid answering direct questions dealing with the REPO market, for obvious reasons.
Party on!
At the Close, Tuesday, October 10, 2019:
Dow Jones Industrial Average: 27,881.72, -27.88 (-0.10%)
NASDAQ: 8,616.18, -5.64 (-0.07%)
S&P 500: 3,132.52, -3.44 (-0.11%)
NYSE Composite: 13,545.31, -9.77 (-0.07%)
Since that time, the Fed has kept up appearances by continuing to provide POMO and TOMO (Permanent (P) and Temporary (T) Open Market Operations) to the tune of anywhere from $30 billion to $60 billion per day. That's right, PER DAY, and it's often been more. That's how big the overnight lending business is. Huge. The REPO market is also what triggered the Great Financial Crisis of 2008, when first, Bear Stearns, then, Lehman Brothers, were forced into bankruptcy by being unable to borrow from the overnight REPO market.
The problem with both Bear and Lehman was that their collateral consisted of highly toxic, dodgy MBS, or as is commonly referenced, sub-prime packaged loans. Lenders on the other side of the ledger were hesitant to lend to either, fearing that not only was the collateral of a suspect nature, the firms - Bear and Lehman - were buying more of them as an integral part of their business structure.
In 2008, this all blew up, the Fed stepped in, flooded the world with liquidity (buying up all the toxic MBS it could) and the collapse of the global financial system was averted.
Note that the collapse was averted, not solved, not cured, not by a long shot. The Fed's been busy keeping markets in some degree of stability ever since.
On Wednesday (today), the Fed's FOMC will likely announce no change n the federal funds rate, but that, besides being a foregone conclusion, isn't the real story. For that, in the interest of time and space, Money Daily bids adieu to this commentary, and offers a couple of links that may or may not render the REPO markets as something understandable to the reader.
First, this excellent video with Paddy Hirsh explaining just how the REPO market operates (about 8 minutes of time well spent):
Then, just to make matters a little more interesting, this ZeroHedge story featuring Zoltan Pozsar claiming that the REPO market is about to explode again, and that a stock market crash is imminent.
Take that ZeroHedge article with as many grains of salt or sugar your risk appetite will absorb, but bear in mind that Mr. Pozsar was, as ZeroHedge purports,...
instrumental during his tenure at both the US Treasury and the New York Fed in laying the foundations of the modern repo market, orchestrating the response to the global financial crisis and the ensuing policy debate (as virtually nobody at the Fed knew more about repo at the time than Pozsar), serving as point person on market developments for Fed, Treasury and White House officials throughout the crisis (yes, Kashkari was just the figurehead); playing the key role in building the TALF to backstop the ABS market, and advising the former head of the Fed's Markets Desk, Brian Sack, on just how the NY Fed should implement its various market interventions without disrupting and breaking the most important market of all: the multi-trillion repo market.
The Fed's FOMC policy meeting concludes at 2:00 pm ET on Wednesday, with the release of their statement followed by a press conference headed by Fed Chairman, Jay Powell, who will try his best to avoid answering direct questions dealing with the REPO market, for obvious reasons.
Party on!
At the Close, Tuesday, October 10, 2019:
Dow Jones Industrial Average: 27,881.72, -27.88 (-0.10%)
NASDAQ: 8,616.18, -5.64 (-0.07%)
S&P 500: 3,132.52, -3.44 (-0.11%)
NYSE Composite: 13,545.31, -9.77 (-0.07%)
Tuesday, December 10, 2019
Stocks Struggle Second Straight Monday; Paul Volker Passes
In what is beginning to look like a recurrent theme, stocks struggled to open the week, with all the major US indices down on the day.
This is the same condition that prevailed last week. Stocks were down hard to start the week, only to be rescued on Friday by a surprisingly good jobs report.
That may not be the case this time around. There will be no salvation by numbers later on the week. Market participants will have to deal with the troika of incessant impeachment hearings, troubling trade talks, and fruitless Federal Reserve operations.
It's no secret that the Fed has opened the spigots again, starting in September with what they're currently calling "not QE," a series of open market operations conducted on a daily basis that was originally intended to ease the malaise in overnight lending markets, and, while still performing that function, has morphed into another monstrosity, already having increased the size of the Fed balance sheet by some $300 billion.
And this will go on at least through the first quarter of next year, and probably further, because once the Fed shuts down the free money booth, there will be carnage, which is not to say there won't be carnage beforehand or that they will ever be able to completely close down their operations of largesse to the yield-starved banks.
Beyond the ordinary absurdities that has become the financial world, a moment of pause was given to mourn the passing of former Fed Chairman Paul Volker, who served in that post from August 1979 to August 1987, under presidents Carter and Reagan. Widely credited as the man to defeat the high inflation of the 70s and 80s through the use of tight money controls and ridiculously high interest rates, Volker was first seen as ridiculous, then hated, and finally emerged an American hero, rescuing the US economy from a terrific bout of inflation, unemployment, and a deep recession - caused, in part, by his raising of the federal funds rate from 11% to a record 20% - in 1981-82, that lasted 16 months.
Volker died Sunday. He was 92.
At the Close, Monday, December 9, 2019:
Dow Jones Industrial Average: 27,909.60, -105.46 (-0.38%)
NASDAQ: 8,621.83, -34.70 (-0.40%)
S&P 500: 3,135.96, -9.95 (-0.32%)
NYSE Composite: 13,555.07, -33.22 (-0.24%)
This is the same condition that prevailed last week. Stocks were down hard to start the week, only to be rescued on Friday by a surprisingly good jobs report.
That may not be the case this time around. There will be no salvation by numbers later on the week. Market participants will have to deal with the troika of incessant impeachment hearings, troubling trade talks, and fruitless Federal Reserve operations.
It's no secret that the Fed has opened the spigots again, starting in September with what they're currently calling "not QE," a series of open market operations conducted on a daily basis that was originally intended to ease the malaise in overnight lending markets, and, while still performing that function, has morphed into another monstrosity, already having increased the size of the Fed balance sheet by some $300 billion.
And this will go on at least through the first quarter of next year, and probably further, because once the Fed shuts down the free money booth, there will be carnage, which is not to say there won't be carnage beforehand or that they will ever be able to completely close down their operations of largesse to the yield-starved banks.
Beyond the ordinary absurdities that has become the financial world, a moment of pause was given to mourn the passing of former Fed Chairman Paul Volker, who served in that post from August 1979 to August 1987, under presidents Carter and Reagan. Widely credited as the man to defeat the high inflation of the 70s and 80s through the use of tight money controls and ridiculously high interest rates, Volker was first seen as ridiculous, then hated, and finally emerged an American hero, rescuing the US economy from a terrific bout of inflation, unemployment, and a deep recession - caused, in part, by his raising of the federal funds rate from 11% to a record 20% - in 1981-82, that lasted 16 months.
Volker died Sunday. He was 92.
At the Close, Monday, December 9, 2019:
Dow Jones Industrial Average: 27,909.60, -105.46 (-0.38%)
NASDAQ: 8,621.83, -34.70 (-0.40%)
S&P 500: 3,135.96, -9.95 (-0.32%)
NYSE Composite: 13,555.07, -33.22 (-0.24%)
Wednesday, November 27, 2019
Gold Is Real Money; Goldbacks Are Real Currency In Utah; South Carolina Proposes Gold and Silver as Legal Tender
Like rich stouts, the Dow Industrials, S&P 500, and NASDAQ indices all closed Tuesday at new all-time highs and it's not even Black Friday yet. Sure enough, many investors will give thanks to the stock market and their portfolio managers come Thursday.
The world needs to continue on this path of ever-increasing wealth for some reason, even though it defies logic because the global economy is not growing very rapidly. In fact, some European countries are on the brink of a recession if not already ensconced in one, and the future prospects of Germany, Italy, France, and most of the members of the European Union are, due to demographics, not likely to sustain any growth whatsoever in the coming decade (2020s).
But stocks, representing shares in massive multi-national companies, continue to rise, as though the future is already cast in gold.
Speaking of gold, it was revealed Tuesday that the South Carolina House of Representatives has prefiled a bill that would make gold and silver legal tender in the state.
The bill was introduced on November 20, but there was almost no news coverage in the mainstream media. If passed by the full legislature and signed by the governor, it would make the Palmetto State the fourth to recognize precious metals on a par with Federal Reserve Notes (AKA, US dollars, $). Utah, Wyoming, and Oklahoma have passed similar measures.
The movement to return back to constitutional money is gaining momentum as people become more aware and fearful of the profligate spending by the federal government and its use of the Federal reserve as a currency printing press.
Utah has teamed with the United Precious Metals Association (UPMA) to promote what it calls the "goldback," a paper certificate much like a dollar bill, that has actual gold embedded in its form. Individuals and merchants in Utah are using the goldback for transactions within the state, and the UPMA offers online gold, silver and goldback accounts to people and businesses anywhere in the world.
As the Federal Reserve and other central banks continue to fiddle with their fiat currencies, some states are taking the initiative and striking back with money that has the backing of the US constitution. The United States Constitution states in Article I, Section 10, “No State shall…make any Thing but gold and silver Coin a Tender in Payment of Debts.”
With a federal debt of $23 trillion dollars, perhaps people are finally awakening to the fact that the Federal Reserve System is a private bank lacking proper oversight by congress, unconstitutional, which issues debt-based currency at interest.
Therein lies the root of many of the problems within our great nation. While Democrats and other liberal and radical elements within government and the media trouble US citizens with phony "impeachment" claims and feeble attempts to dispose of a legally-elected president, the Federal Reserve continues to undermine our freedoms via debt servitude at every level, from the federal government down to the individual.
Gold and silver remain the only real money in a world overrun by fiat currencies.
At the Close, Tuesday, November 26, 2019:
Dow Jones Industrial Average: 28,121.68, +55.21 (+0.20%)
NASDAQ: 8,647.93, +15.44 (+0.18%)
S&P 500: 3,140.52, +6.88 (+0.22%)
NYSE Composite: 13,559.71, +26.82 (+0.20%)
The world needs to continue on this path of ever-increasing wealth for some reason, even though it defies logic because the global economy is not growing very rapidly. In fact, some European countries are on the brink of a recession if not already ensconced in one, and the future prospects of Germany, Italy, France, and most of the members of the European Union are, due to demographics, not likely to sustain any growth whatsoever in the coming decade (2020s).
But stocks, representing shares in massive multi-national companies, continue to rise, as though the future is already cast in gold.
Speaking of gold, it was revealed Tuesday that the South Carolina House of Representatives has prefiled a bill that would make gold and silver legal tender in the state.
The bill was introduced on November 20, but there was almost no news coverage in the mainstream media. If passed by the full legislature and signed by the governor, it would make the Palmetto State the fourth to recognize precious metals on a par with Federal Reserve Notes (AKA, US dollars, $). Utah, Wyoming, and Oklahoma have passed similar measures.
The movement to return back to constitutional money is gaining momentum as people become more aware and fearful of the profligate spending by the federal government and its use of the Federal reserve as a currency printing press.
Utah has teamed with the United Precious Metals Association (UPMA) to promote what it calls the "goldback," a paper certificate much like a dollar bill, that has actual gold embedded in its form. Individuals and merchants in Utah are using the goldback for transactions within the state, and the UPMA offers online gold, silver and goldback accounts to people and businesses anywhere in the world.
As the Federal Reserve and other central banks continue to fiddle with their fiat currencies, some states are taking the initiative and striking back with money that has the backing of the US constitution. The United States Constitution states in Article I, Section 10, “No State shall…make any Thing but gold and silver Coin a Tender in Payment of Debts.”
With a federal debt of $23 trillion dollars, perhaps people are finally awakening to the fact that the Federal Reserve System is a private bank lacking proper oversight by congress, unconstitutional, which issues debt-based currency at interest.
Therein lies the root of many of the problems within our great nation. While Democrats and other liberal and radical elements within government and the media trouble US citizens with phony "impeachment" claims and feeble attempts to dispose of a legally-elected president, the Federal Reserve continues to undermine our freedoms via debt servitude at every level, from the federal government down to the individual.
Gold and silver remain the only real money in a world overrun by fiat currencies.
At the Close, Tuesday, November 26, 2019:
Dow Jones Industrial Average: 28,121.68, +55.21 (+0.20%)
NASDAQ: 8,647.93, +15.44 (+0.18%)
S&P 500: 3,140.52, +6.88 (+0.22%)
NYSE Composite: 13,559.71, +26.82 (+0.20%)
Tuesday, November 5, 2019
JP Morgan and the Federal Reserve "Not QE" Money Spigot
Monday, Monday, can't trust that day...
So said the Mamas and Papas back in the 60s. We can still hear the echoes of their lament on the highways to work, in the coffee drive-throughs, and back seats of car pools (some people still do this).
Papers scattered over desks, it's time to get down to business, earn the paycheck, do whatever it is you do to keep yourself afloat.
Monday mornings are a grind, unless, that is, you happen to be a big bank, a global systemically important bank, otherwise known around financial circles as a G-SIB. Then, Monday is just another day to goose your bottom line. And this Monday was a good one.
Thanks to algo-spiking headlines suggesting - for about the 20th time in the past six months - that a China-US trade deal was on the way to becoming reality, stocks roared out of the gate at the opening bell, sending the Dow, S&P, and NASDAQ to all-time closing highs. All-time highs are all well and good, mind you, except when they're built on the back of a drama that never ends, like the ongoing US-China trade deal.
Since the US and China have been engaged in this delicate dance markets have soared every time a possible breakthrough is mentioned and fallen whenever snags are discovered. It's what happens when computers run markets instead of people, even though the computer algorithms were programmed, supposedly, by humans (ahem).
More interesting, however, is the lack of news surrounding the ongoing implosion in repo markets that began in late September and continued through October, now extending into November. It's a real crisis, but now it appears that all of this was triggered by the good people at JP Morgan, yes, that G-SIB bank at the top of the list in the up-article link.
According to the usual somewhat reliable folks at Zero Hedge, JPM was going about its work to keep the economy humming along by selling loans and buying long-dated bonds, according to rules laid out by none other than the Federal Reserve.
How tidy, for Morgan and CEO, Jamie Dimon, to have the incredible good fortune to be able to make more money selling loans than making them (not making this up; it's what happens when interest rates are too low). But, because of JPM's massive portfolio, it cause a not-insignificant disruption in the overnight lending market (repo), that prompted the Fed - hearing the wailing of cash-poor clients - to offer up some emergency TOMO (Temporary Open Market Operations) overnight auctions and eventually cede to POMO (Permanent) and "not QE," to quiet the troubled sector at the heart of the global economy.
So far, it seems to be working, though the general public doesn't even notice, probably because of the fabulous Dodd-Frank legislation that allows the Fed to do essentially bailouts on an ongoing basis without having to go to congress, as was the case in 2008 with TARP.
Jimmy Dore, with help from Dylan Ratigan explain in the 12-minute video below (worth the watch):
John Pepin chines in with pithy commentary from his incapp.org blog:
Monday, Monday, can't trust that day. Worry not, the week is just getting started.
At the Close, Monday, November 4, 2019:
Dow Jones Industrial Average: 27,462.11, +114.75 (+0.42%)
NASDAQ: 8,433.20, +46.80 (+0.56%)
S&P 500: 3,078.27, +11.36 (+0.37%)
NYSE Composite: 13,355.44, +55.14 (+0.41%)
So said the Mamas and Papas back in the 60s. We can still hear the echoes of their lament on the highways to work, in the coffee drive-throughs, and back seats of car pools (some people still do this).
Papers scattered over desks, it's time to get down to business, earn the paycheck, do whatever it is you do to keep yourself afloat.
Monday mornings are a grind, unless, that is, you happen to be a big bank, a global systemically important bank, otherwise known around financial circles as a G-SIB. Then, Monday is just another day to goose your bottom line. And this Monday was a good one.
Thanks to algo-spiking headlines suggesting - for about the 20th time in the past six months - that a China-US trade deal was on the way to becoming reality, stocks roared out of the gate at the opening bell, sending the Dow, S&P, and NASDAQ to all-time closing highs. All-time highs are all well and good, mind you, except when they're built on the back of a drama that never ends, like the ongoing US-China trade deal.
Since the US and China have been engaged in this delicate dance markets have soared every time a possible breakthrough is mentioned and fallen whenever snags are discovered. It's what happens when computers run markets instead of people, even though the computer algorithms were programmed, supposedly, by humans (ahem).
More interesting, however, is the lack of news surrounding the ongoing implosion in repo markets that began in late September and continued through October, now extending into November. It's a real crisis, but now it appears that all of this was triggered by the good people at JP Morgan, yes, that G-SIB bank at the top of the list in the up-article link.
According to the usual somewhat reliable folks at Zero Hedge, JPM was going about its work to keep the economy humming along by selling loans and buying long-dated bonds, according to rules laid out by none other than the Federal Reserve.
How tidy, for Morgan and CEO, Jamie Dimon, to have the incredible good fortune to be able to make more money selling loans than making them (not making this up; it's what happens when interest rates are too low). But, because of JPM's massive portfolio, it cause a not-insignificant disruption in the overnight lending market (repo), that prompted the Fed - hearing the wailing of cash-poor clients - to offer up some emergency TOMO (Temporary Open Market Operations) overnight auctions and eventually cede to POMO (Permanent) and "not QE," to quiet the troubled sector at the heart of the global economy.
So far, it seems to be working, though the general public doesn't even notice, probably because of the fabulous Dodd-Frank legislation that allows the Fed to do essentially bailouts on an ongoing basis without having to go to congress, as was the case in 2008 with TARP.
Jimmy Dore, with help from Dylan Ratigan explain in the 12-minute video below (worth the watch):
John Pepin chines in with pithy commentary from his incapp.org blog:
If the demand for debt exceeds the banks ability to loan then one of several things must happen. Either the interest rate rises, (and we all know that is unacceptable), or the banks have to take hidden loans from the federal Reserve to cover that demand for debt.
Monday, Monday, can't trust that day. Worry not, the week is just getting started.
At the Close, Monday, November 4, 2019:
Dow Jones Industrial Average: 27,462.11, +114.75 (+0.42%)
NASDAQ: 8,433.20, +46.80 (+0.56%)
S&P 500: 3,078.27, +11.36 (+0.37%)
NYSE Composite: 13,355.44, +55.14 (+0.41%)
Monday, September 23, 2019
Weekend Wrap: Cash Crunch Easing, Though Culprits Remain Anonymous
Ending a streak of three consecutive weekly gains, all major US indices took an about-face when Friday's quad-witching day sent stocks South.
Losses were not large, though they were widespread, as fear of a looming recession and confusion over the Fed's four straight days of repo auctions took away market enthusiasm.
Make that five straight days, as the Fed held another $75 billion repo auction on Monday, prior to the opening of equity markets in the US. Signs that the cash crunch was easing, only $66.75 billion was accepted as collateral by the Fed, making the auction officially undersubscribed.
On Friday, the Fed had also announced that it would conduct overnight repo auctions every day until October 10, and additionally would provide three 14-day term repo operations for an aggregate amount of at least $30 billion each, Tuesday, Thursday, and Friday of this week.
While nobody is certain which banks - or single institution - is having a hard time balancing its nightly books, any sense of panic has been effectively blunted by the Fed's actions.
As markets open the final week of trading for the third quarter, it will be instructive to note how markets respond, especially on Thursday and Friday. With the close of the quarter, some firms traditionally buy stocks in favor, as so called "window dressing," though it appears that this quarter might have a wholly different tone, given the stress in the system.
In what could be a most important week for markets, any words from Fed speakers should also be quantified in relation to ongoing cash shortages and the global condition.
At the Close, Friday, September 20, 2019:
Dow Jones Industrial Average: 26,935.07, -159.73 (-0.59%)
NASDAQ: 8,117.67, -65.21 (-0.80%)
S&P 500: 2,992.07, -14.72 (-0.49%)
NYSE Composite: 13,093.80, -17.50 (-0.13%)
For the Week:
Dow: -284.45 (-1.05%)
NASDAQ: -59.04 (-0.72%)
S&P 500: -15.32 (-0.51%)
NYSE Composite: -30.54 (-0.23%)
Losses were not large, though they were widespread, as fear of a looming recession and confusion over the Fed's four straight days of repo auctions took away market enthusiasm.
Make that five straight days, as the Fed held another $75 billion repo auction on Monday, prior to the opening of equity markets in the US. Signs that the cash crunch was easing, only $66.75 billion was accepted as collateral by the Fed, making the auction officially undersubscribed.
On Friday, the Fed had also announced that it would conduct overnight repo auctions every day until October 10, and additionally would provide three 14-day term repo operations for an aggregate amount of at least $30 billion each, Tuesday, Thursday, and Friday of this week.
While nobody is certain which banks - or single institution - is having a hard time balancing its nightly books, any sense of panic has been effectively blunted by the Fed's actions.
As markets open the final week of trading for the third quarter, it will be instructive to note how markets respond, especially on Thursday and Friday. With the close of the quarter, some firms traditionally buy stocks in favor, as so called "window dressing," though it appears that this quarter might have a wholly different tone, given the stress in the system.
In what could be a most important week for markets, any words from Fed speakers should also be quantified in relation to ongoing cash shortages and the global condition.
At the Close, Friday, September 20, 2019:
Dow Jones Industrial Average: 26,935.07, -159.73 (-0.59%)
NASDAQ: 8,117.67, -65.21 (-0.80%)
S&P 500: 2,992.07, -14.72 (-0.49%)
NYSE Composite: 13,093.80, -17.50 (-0.13%)
For the Week:
Dow: -284.45 (-1.05%)
NASDAQ: -59.04 (-0.72%)
S&P 500: -15.32 (-0.51%)
NYSE Composite: -30.54 (-0.23%)
Thursday, September 12, 2019
Global Banker Duplicity: Draghi Cuts ECB Overnight Rate to -0.50%
At Thursday's announcement, the ECB's Chief Governing Council (sounds impressive, doesn't it?) cut the bank’s overnight deposit rate, trimmed by 10 basis points, to −0.50%, meaning that commercial banks must effectively pay just a little bit more to the ECB to hold their excess cash balances overnight.
There were other policy moves, such as a restart to the ECB's Asset Purchase Program, otherwise known as QE, with an unlimited timeline. The bank will purchase assets at a rate of 20 billion euros per month, until they see inflation begin to tick up, so, essentially, forever, or, until the currency is completely worthless or eviscerated by the continuous destruction of capital by negative interest rates.
It would be easy to say that the central bankers don't know what they're doing, because all of the stimulus applied to economies around the world for the past ten years hasn't produced anything close to a desired result, either increased inflation (which isn't good, by the way), or rising GDP in developed nations.
What the ECB and other central banks like the BoJ and the US Federal Reserve are doing is choking down the currency in desperate, disparate attempts to conceal the rot within the system, which essentially imploded in 2008.
Nothing has been done at the micro level to induce business formation. It's all been macro level stuff, aiding governments and big corporations, which have a stranglehold on the most profitable franchises worldwide.
This is apparently good for asset prices in risky segments, such as stocks, but also for gold and silver, which have popped on the news, but will no doubt retreat.
The end game is a global depression, which some claim we've been in since 2008, but that's splitting hairs. The final blow comes when currencies backed by nothing are thrown out with the bathwater by populations tired of being taxed to death and dragged roundly their ears and noses with shifting central bank tricksterism.
Negative interest rates, if they prevail, will destroy all fiat currency. It's just math.
At the Close, Wednesday, September 11, 2019:
Dow Jones Industrial Average: 27,137.04, +227.64 (+0.85%)
NASDAQ: 8,169.68, +85.52 (+1.06%)
S&P 500: 3,000.93, +21.54 (+0.72%)
NYSE Composite: 13,082.41, +88.41 (+0.68%)
There were other policy moves, such as a restart to the ECB's Asset Purchase Program, otherwise known as QE, with an unlimited timeline. The bank will purchase assets at a rate of 20 billion euros per month, until they see inflation begin to tick up, so, essentially, forever, or, until the currency is completely worthless or eviscerated by the continuous destruction of capital by negative interest rates.
It would be easy to say that the central bankers don't know what they're doing, because all of the stimulus applied to economies around the world for the past ten years hasn't produced anything close to a desired result, either increased inflation (which isn't good, by the way), or rising GDP in developed nations.
What the ECB and other central banks like the BoJ and the US Federal Reserve are doing is choking down the currency in desperate, disparate attempts to conceal the rot within the system, which essentially imploded in 2008.
Nothing has been done at the micro level to induce business formation. It's all been macro level stuff, aiding governments and big corporations, which have a stranglehold on the most profitable franchises worldwide.
This is apparently good for asset prices in risky segments, such as stocks, but also for gold and silver, which have popped on the news, but will no doubt retreat.
The end game is a global depression, which some claim we've been in since 2008, but that's splitting hairs. The final blow comes when currencies backed by nothing are thrown out with the bathwater by populations tired of being taxed to death and dragged roundly their ears and noses with shifting central bank tricksterism.
Negative interest rates, if they prevail, will destroy all fiat currency. It's just math.
At the Close, Wednesday, September 11, 2019:
Dow Jones Industrial Average: 27,137.04, +227.64 (+0.85%)
NASDAQ: 8,169.68, +85.52 (+1.06%)
S&P 500: 3,000.93, +21.54 (+0.72%)
NYSE Composite: 13,082.41, +88.41 (+0.68%)
Wednesday, January 23, 2019
Burnout
Over the course of the Martin Luther King Jr. holiday weekend, I burned out.
I no longer had any interest in penning my "Weekend Wrap," as it has come to be known. The stock market was no longer of any interest to me. I didn't write my usual column, and, I didn't write my daily market commentary on Tuesday either.
It's not as if this was a sudden, knee-jerk reaction to anything. This has been brewing inside me for a long time. Obviously, I don't even care anymore to write in the third person, as has been the usual mode of this blog. It's just not important, just as money and markets aren't important, to me, at least.
Maybe money is important to you. Maybe the ups and downs of Wall Street matter to you, to your feelings of well being, to your existence. Money and markets are not existential prerogatives to me. Never have been. And now, they really don't matter at all.
I took an interest in stocks, bonds, money, and business when I was very young. At the age of six, I was intrigued by the small type in the newspaper displaying the gains and losses of big companies. To me, at such a tender age, the world of business and finance was a fantastic place populated by titans of industry, upstanding men of character and wisdom who employed their thinking and inventiveness to build fabulous engines of wealth. Such a fascination with money and business served me well along my path through adolescence and into adulthood. I conceived any number of business ideas, launched most, failed at many, until finally, by age 30, I found success in the newspaper business.
Perhaps the rude awakening to how business actually operated was where my burnout began and it just took a long time for me to realize it. I don't like the way business is conducted anymore. When I was in business - in the 80s, before the internet - an office, a phone, and a car were just about all one needed to get oneself on the path to riches. Almost all of the deals and ad sales I did were in person. A few were done by phone, but a follow-up personal visit was always required. I did business with people, in person. Try that today and you'll be laughed out of most places. It's an email, a text, a slick website and an electronic funds transfer. Done.
Wall Street, for all it's glamor and glory, is different now as well. A quarter point or half point gain - which used to be a big deal - is now 0.25 or 0.50, and it's nothing. Hedge funds, fake news, the Federal Reserve, and a host of unseen forces - algorithms, HFTs, ETFs, the PPT - have destroyed whatever was left of free markets and the "old Wall Street after the ravages of 9/11/2001. There's no Louis Rukeyser's "Wall Street Week" on Friday nights. Today it's CNBC, wall-to-wall, all the time, blaring the trumpets for the honorable necessity of owning stocks all day long, all night long.
It's boring, and most of the time, it's meaningless, or downright wrong. Stocks all move in tandem today. There's no science; only emotion, and mine is spent.
My personal short literary demise - which this is - may have more to do with anxiety over the fate of our nation than my dislike for the current rigors of finance. Everything is in chaos and there doesn't seem to be any end to it. Nor is there any sense to it, anymore. Tucker Carlson's tirade from a few weeks back encapsulates much of what I'm feeling, but, for me, there's more.
There has to be more than stocks. When I figure out what that is, I'll be back.
I no longer had any interest in penning my "Weekend Wrap," as it has come to be known. The stock market was no longer of any interest to me. I didn't write my usual column, and, I didn't write my daily market commentary on Tuesday either.
It's not as if this was a sudden, knee-jerk reaction to anything. This has been brewing inside me for a long time. Obviously, I don't even care anymore to write in the third person, as has been the usual mode of this blog. It's just not important, just as money and markets aren't important, to me, at least.
Maybe money is important to you. Maybe the ups and downs of Wall Street matter to you, to your feelings of well being, to your existence. Money and markets are not existential prerogatives to me. Never have been. And now, they really don't matter at all.
I took an interest in stocks, bonds, money, and business when I was very young. At the age of six, I was intrigued by the small type in the newspaper displaying the gains and losses of big companies. To me, at such a tender age, the world of business and finance was a fantastic place populated by titans of industry, upstanding men of character and wisdom who employed their thinking and inventiveness to build fabulous engines of wealth. Such a fascination with money and business served me well along my path through adolescence and into adulthood. I conceived any number of business ideas, launched most, failed at many, until finally, by age 30, I found success in the newspaper business.
Perhaps the rude awakening to how business actually operated was where my burnout began and it just took a long time for me to realize it. I don't like the way business is conducted anymore. When I was in business - in the 80s, before the internet - an office, a phone, and a car were just about all one needed to get oneself on the path to riches. Almost all of the deals and ad sales I did were in person. A few were done by phone, but a follow-up personal visit was always required. I did business with people, in person. Try that today and you'll be laughed out of most places. It's an email, a text, a slick website and an electronic funds transfer. Done.
Wall Street, for all it's glamor and glory, is different now as well. A quarter point or half point gain - which used to be a big deal - is now 0.25 or 0.50, and it's nothing. Hedge funds, fake news, the Federal Reserve, and a host of unseen forces - algorithms, HFTs, ETFs, the PPT - have destroyed whatever was left of free markets and the "old Wall Street after the ravages of 9/11/2001. There's no Louis Rukeyser's "Wall Street Week" on Friday nights. Today it's CNBC, wall-to-wall, all the time, blaring the trumpets for the honorable necessity of owning stocks all day long, all night long.
It's boring, and most of the time, it's meaningless, or downright wrong. Stocks all move in tandem today. There's no science; only emotion, and mine is spent.
My personal short literary demise - which this is - may have more to do with anxiety over the fate of our nation than my dislike for the current rigors of finance. Everything is in chaos and there doesn't seem to be any end to it. Nor is there any sense to it, anymore. Tucker Carlson's tirade from a few weeks back encapsulates much of what I'm feeling, but, for me, there's more.
There has to be more than stocks. When I figure out what that is, I'll be back.
Sunday, January 13, 2019
Weekend Wrap: The Fed Never Had Control, And What They Now Have Is As Fake As Fake News
What a week it was for equity holders and speculators!
Friday's very minor declines snapped five-day winning streaks for the major indices, with the exception of the NYSE Composite, which continued gaining for a sixth straight session.
Solid for the past three weeks, the current rally has managed to relieve the stress from steep losses incurred in December though the majors still have plenty of distance to travel. For instance, the Dow Jones Industrial Average lost 4034.23 from December 4 through Christmas Eve (Dec. 24), and has since gained 2203.75, nearly half of that amount regained the day after Christmas (Dec. 26), setting a one-day record by picking up 1086.25 points.
The other indices have exhibited similar patterns, with sudden acceleration in the final trading days of December and continuing smaller, albeit significant, positive closes on nine of the twelve sessions from December 26 through January 11.
Catalysts for the post-holiday rally continue to be diverse, the most significant strong data point coming from the BLS, which showed the economy adding 312,000 jobs for December in the most recent non-farm payroll report, released last Friday. So far beyond expectations was that number that it appeared to have kept sentiment positive for a full week after its release.
The week's most important data release was Friday's CPI number, which - thanks largely to the price of gasoline - declined 0.1% in December, and slowed to 1.9% in year-over-year measure. Core was +0.2% (mom) and +2.2% (yoy).
Slowing inflation, or perhaps, outright deflation, is anathema to the Federal Reserve, despite their all-too-frequent suggestions that they exist to keep inflation under check. The entire monetary scheme of the Fed and the global economy would disintegrate without inflation, thus the Fed will be diligent in regards to interest rates going forward. After hiking the federal funds rate at a pace of 25 basis points per quarter for the past two years, the Fed has received warnings aplenty, first from the cascading declines in the stock market, and second, from a squashing of inflation.
That CPI data, for all intents and purposes, killed any idea of a March rate hike, just as the market drop caused Treasury Secretary Mnuchin to frantically call in the Plunge Protection Team just before Christmas. The results from that plea for help have been grossly evident the past three weeks.
While the Fed believes it can control the economy, the truth is that it absolutely cannot. Bond prices and yields point that out in spades. The benchmark 10-year note yield dropped as low as 2.54% (1/3) in the face of all the recent rate hikes. As of Friday, the 2s-10s spread fell to 16 basis points. Already inverted are the 1-year and 2-year notes as related to the 5s. The 1-year closed on Friday with a yield of 2.58%; the 2-year at 2.55%; the 5-year at 2.52%, the 7-year at 2.60, and the 10-year at 2.60%.
The 2s-10s spread is the most cited and closely watched, but the 1s-7s are just two basis points from inversion, the cause, undeniably, the Fed's incessant pimping of the overnight rate.
If bond traders are acting in such a manner that they prefer short-dated maturities over the longer run, the signal is danger just ahead. Talk of an impending recession has tapered off in recent days, but the bond market's insistent buying patterns suggest that the Fed did indeed go too far, too fast with the rate hikes, spurring disinvestment and eventually, a recession.
What the Fed cannot control are human decisions. Noting the sentiment in bonds, the latest stock market gains have been contrived from the start and are certain to reverse course. As has been stated here countless times, bull markets do not last forever and Dow Theory has already signaled primary trend change twice in 2018 (in March-April and October).
The major indices have not escaped correction territory and all are trading below both their 50-and-200-day moving averages. Further those averages are upside-down, with the 200-day below the 50-day. The death crosses having already occurred, stocks will resume their reversion to the mean in the very near future.
Dow Jones Industrial Average January Scorecard:
At the Close, Friday, January 11, 2019:
Dow Jones Industrial Average: 23,995.95, -5.97 (-0.02%)
NASDAQ: 6,971.48, -14.59 (-0.21%)
S&P 500: 2,596.26, -0.38 (-0.01%)
NYSE Composite: 11,848.01, +8.70 (+0.07%)
For the Week:
Dow: +562.79 (+2.40%)
NASDAQ: +232.62 (+3.45%)
S&P 500: +64.32 (+2.54%)
NYSE Composite: +314.67 (+2.73%)
Friday's very minor declines snapped five-day winning streaks for the major indices, with the exception of the NYSE Composite, which continued gaining for a sixth straight session.
Solid for the past three weeks, the current rally has managed to relieve the stress from steep losses incurred in December though the majors still have plenty of distance to travel. For instance, the Dow Jones Industrial Average lost 4034.23 from December 4 through Christmas Eve (Dec. 24), and has since gained 2203.75, nearly half of that amount regained the day after Christmas (Dec. 26), setting a one-day record by picking up 1086.25 points.
The other indices have exhibited similar patterns, with sudden acceleration in the final trading days of December and continuing smaller, albeit significant, positive closes on nine of the twelve sessions from December 26 through January 11.
Catalysts for the post-holiday rally continue to be diverse, the most significant strong data point coming from the BLS, which showed the economy adding 312,000 jobs for December in the most recent non-farm payroll report, released last Friday. So far beyond expectations was that number that it appeared to have kept sentiment positive for a full week after its release.
The week's most important data release was Friday's CPI number, which - thanks largely to the price of gasoline - declined 0.1% in December, and slowed to 1.9% in year-over-year measure. Core was +0.2% (mom) and +2.2% (yoy).
Slowing inflation, or perhaps, outright deflation, is anathema to the Federal Reserve, despite their all-too-frequent suggestions that they exist to keep inflation under check. The entire monetary scheme of the Fed and the global economy would disintegrate without inflation, thus the Fed will be diligent in regards to interest rates going forward. After hiking the federal funds rate at a pace of 25 basis points per quarter for the past two years, the Fed has received warnings aplenty, first from the cascading declines in the stock market, and second, from a squashing of inflation.
That CPI data, for all intents and purposes, killed any idea of a March rate hike, just as the market drop caused Treasury Secretary Mnuchin to frantically call in the Plunge Protection Team just before Christmas. The results from that plea for help have been grossly evident the past three weeks.
While the Fed believes it can control the economy, the truth is that it absolutely cannot. Bond prices and yields point that out in spades. The benchmark 10-year note yield dropped as low as 2.54% (1/3) in the face of all the recent rate hikes. As of Friday, the 2s-10s spread fell to 16 basis points. Already inverted are the 1-year and 2-year notes as related to the 5s. The 1-year closed on Friday with a yield of 2.58%; the 2-year at 2.55%; the 5-year at 2.52%, the 7-year at 2.60, and the 10-year at 2.60%.
The 2s-10s spread is the most cited and closely watched, but the 1s-7s are just two basis points from inversion, the cause, undeniably, the Fed's incessant pimping of the overnight rate.
If bond traders are acting in such a manner that they prefer short-dated maturities over the longer run, the signal is danger just ahead. Talk of an impending recession has tapered off in recent days, but the bond market's insistent buying patterns suggest that the Fed did indeed go too far, too fast with the rate hikes, spurring disinvestment and eventually, a recession.
What the Fed cannot control are human decisions. Noting the sentiment in bonds, the latest stock market gains have been contrived from the start and are certain to reverse course. As has been stated here countless times, bull markets do not last forever and Dow Theory has already signaled primary trend change twice in 2018 (in March-April and October).
The major indices have not escaped correction territory and all are trading below both their 50-and-200-day moving averages. Further those averages are upside-down, with the 200-day below the 50-day. The death crosses having already occurred, stocks will resume their reversion to the mean in the very near future.
Dow Jones Industrial Average January Scorecard:
| Date | Close | Gain/Loss | Cum. G/L |
| 1/2/19 | 23,346.24 | +18.78 | +18.78 |
| 1/3/19 | 22,686.22 | -660.02 | -641.24 |
| 1/4/19 | 23,433.16 | +746.94 | +105.70 |
| 1/7/19 | 23,531.35 | +98.19 | +203.89 |
| 1/8/19 | 23,787.45 | +256.10 | +459.99 |
| 1/9/19 | 23,879.12 | +91.67 | +551.66 |
| 1/10/19 | 24,001.92 | +122.80 | +674.46 |
| 1/11/19 | 23,995.95 | -5.97 | +669.49 |
At the Close, Friday, January 11, 2019:
Dow Jones Industrial Average: 23,995.95, -5.97 (-0.02%)
NASDAQ: 6,971.48, -14.59 (-0.21%)
S&P 500: 2,596.26, -0.38 (-0.01%)
NYSE Composite: 11,848.01, +8.70 (+0.07%)
For the Week:
Dow: +562.79 (+2.40%)
NASDAQ: +232.62 (+3.45%)
S&P 500: +64.32 (+2.54%)
NYSE Composite: +314.67 (+2.73%)
Tuesday, January 8, 2019
PPT And/Or The Fed Working Overtime To Keep Stocks Elevated
Not exactly proof, but here's a mainstream article calling out the central banks for market intervention, otherwise known as manipulation, or, preventing a crash.
Call it anything you want, including PPT, but there are surely unseen forces at work. Consider, if you will, that since central banks have the power to goose markets upwards, they also possess the power to depress them. Sobering thought, isn't it?
Valuation will become a concern this year as soon as earnings reports commence. First quarter reports may not be all that impactful, but second quarter corporate earnings and revenue reports may validate the theory that a combination of easy fed policies, low interest rates, buybacks, and a willingness to believe that the Fed would backstop any sizable decline were responsible for the last ten years of gains.
If some of the more astute forecasters are correct, an earnings and profit recession is due sometime in 2019, and the likelihood of such an occurrence will accelerate throughout the year. If corporations are going to slow down in 2019, stocks should follow, but, in the parallel universe that has become Wall Street and end of the business cycle as we once knew it, anything could happen.
The rally since Christmas appears to be based on just about nothing. Noting that, how long it will last has only one correct solution. Out will last until holders of stocks find a comfortable exit price because the major indices are still in correction.
Dow Jones Industrial Average January Scorecard:
At the Close, Tuesday, January 8, 2019:
Dow Jones Industrial Average: 23,787.45, +256.10 (+1.09%)
NASDAQ: 6,897.00, +73.53 (+1.08%)
S&P 500: 2,574.41, +24.72 (+0.97%)
NYSE Composite: 11,716.23, +110.27 (+0.95%)
Call it anything you want, including PPT, but there are surely unseen forces at work. Consider, if you will, that since central banks have the power to goose markets upwards, they also possess the power to depress them. Sobering thought, isn't it?
Valuation will become a concern this year as soon as earnings reports commence. First quarter reports may not be all that impactful, but second quarter corporate earnings and revenue reports may validate the theory that a combination of easy fed policies, low interest rates, buybacks, and a willingness to believe that the Fed would backstop any sizable decline were responsible for the last ten years of gains.
If some of the more astute forecasters are correct, an earnings and profit recession is due sometime in 2019, and the likelihood of such an occurrence will accelerate throughout the year. If corporations are going to slow down in 2019, stocks should follow, but, in the parallel universe that has become Wall Street and end of the business cycle as we once knew it, anything could happen.
The rally since Christmas appears to be based on just about nothing. Noting that, how long it will last has only one correct solution. Out will last until holders of stocks find a comfortable exit price because the major indices are still in correction.
Dow Jones Industrial Average January Scorecard:
| Date | Close | Gain/Loss | Cum. G/L |
| 1/2/19 | 23,346.24 | +18.78 | +18.78 |
| 1/3/19 | 22,686.22 | -660.02 | -641.24 |
| 1/4/19 | 23,433.16 | +746.94 | +105.70 |
| 1/7/19 | 23,531.35 | +98.19 | +203.89 |
| 1/8/19 | 23,787.45 | +256.10 | +459.99 |
At the Close, Tuesday, January 8, 2019:
Dow Jones Industrial Average: 23,787.45, +256.10 (+1.09%)
NASDAQ: 6,897.00, +73.53 (+1.08%)
S&P 500: 2,574.41, +24.72 (+0.97%)
NYSE Composite: 11,716.23, +110.27 (+0.95%)
Saturday, January 5, 2019
Weekend Wrap: Friday's Big Gains Offset Thursday's Huge Loss, Dow Up Just 105 In 2019
Wall Street's week straddled 2018 and 2019, as Monday's session was the last of the prior year, and Wednesday, Thursday, and Friday starting off the new year.
Thus, the following final closing prices for the major indices, which will be instructive as we plow through the weeks, months, and quarters ahead:
Dow Industrials 12/31/18: 23,327.46
Dow Transports 12/31/18: 9,170.40
NASDAQ 12/31/18: 6,635.28
S&P 500 12/31/18: 2,506.85
NYSE Composite 12/31/18: 11,374.39
Two big trading days happened back-to-back, in opposite directions. Thursday's (1/3) downdraft was largely attributable to Apple's announcement that revenue for its fiscal first quarter (4th quarter) results would come in well below analyst estimates. December PMI from the ISM was also a contributing factor, insinuating a slowdown in the general economy, much of it tied to US-China trade tensions.
A blowout December jobs report was responsible Friday's about-face. Words from Fed Chairman Jerome Powell added fuel to the ascending fire. Powell stated quite plainly that the Fed was going to be flexible about raising rates and drawing down its balance sheet, which is pulling $50 billion a month out of the bond market.
After all was said and done, the week was just so-so, though the bias was obviously trending positive. There's some inkling of manipulation and coordination of and by the PPT, especially since the Fed was so compliant with its dovish commentary. Nobody really wants a bear market, and the data from Friday's release of the December non-farm payroll report (312K actual vs. 122K projected) suggests that the economy is humming right along and President Trump's promise to create more US jobs is being kept.
The Fed's jawboning was well-timed, coming a day after a confidence-shaking 660-point drop on the Dow, but the remarks by Chairman Powell won't be the last time the Fed has moved the goal posts in search of expediency.
Dow Jones Industrial Average January Scorecard:
At the Close, Friday, January 4, 2019:
Dow Jones Industrial Average: 23,433.16, +746.94 (+3.29%)
NASDAQ: 6,738.86, +275.35 (+4.26%)
S&P 500: 2,531.94, +84.05 (+3.43%)
NYSE Composite: 11,533.34, +342.90 (+3.06%)
For the Week:
Dow: +370.76 (+1.61%)
NASDAQ: +154.34 (+2.34%)
S&P 500: +46.20 (+1.86%)
NYSE Composite: +242.39 (+2.15%)
Thus, the following final closing prices for the major indices, which will be instructive as we plow through the weeks, months, and quarters ahead:
Dow Industrials 12/31/18: 23,327.46
Dow Transports 12/31/18: 9,170.40
NASDAQ 12/31/18: 6,635.28
S&P 500 12/31/18: 2,506.85
NYSE Composite 12/31/18: 11,374.39
Two big trading days happened back-to-back, in opposite directions. Thursday's (1/3) downdraft was largely attributable to Apple's announcement that revenue for its fiscal first quarter (4th quarter) results would come in well below analyst estimates. December PMI from the ISM was also a contributing factor, insinuating a slowdown in the general economy, much of it tied to US-China trade tensions.
A blowout December jobs report was responsible Friday's about-face. Words from Fed Chairman Jerome Powell added fuel to the ascending fire. Powell stated quite plainly that the Fed was going to be flexible about raising rates and drawing down its balance sheet, which is pulling $50 billion a month out of the bond market.
After all was said and done, the week was just so-so, though the bias was obviously trending positive. There's some inkling of manipulation and coordination of and by the PPT, especially since the Fed was so compliant with its dovish commentary. Nobody really wants a bear market, and the data from Friday's release of the December non-farm payroll report (312K actual vs. 122K projected) suggests that the economy is humming right along and President Trump's promise to create more US jobs is being kept.
The Fed's jawboning was well-timed, coming a day after a confidence-shaking 660-point drop on the Dow, but the remarks by Chairman Powell won't be the last time the Fed has moved the goal posts in search of expediency.
Dow Jones Industrial Average January Scorecard:
| Date | Close | Gain/Loss | Cum. G/L |
| 1/2/19 | 23,346.24 | +18.78 | +18.78 |
| 1/3/19 | 22,686.22 | -660.02 | -641.24 |
| 1/4/19 | 23,433.16 | +746.94 | +105.70 |
At the Close, Friday, January 4, 2019:
Dow Jones Industrial Average: 23,433.16, +746.94 (+3.29%)
NASDAQ: 6,738.86, +275.35 (+4.26%)
S&P 500: 2,531.94, +84.05 (+3.43%)
NYSE Composite: 11,533.34, +342.90 (+3.06%)
For the Week:
Dow: +370.76 (+1.61%)
NASDAQ: +154.34 (+2.34%)
S&P 500: +46.20 (+1.86%)
NYSE Composite: +242.39 (+2.15%)
Wednesday, December 12, 2018
Federal Reserve Loses $66 Billion; Volatility Meets Fibonacci Sequence As Sucker Rally Extends
Here's a fun headline:
Fed piles up $66 billion in debt.
Now, since the Federal Reserve System has been known to conjure up money out of thin air, how can they incur losses, and, if they somehow manage that feat of economic alchemy, do they even matter. The author of the article says no, but the reality is that our fiat money system - and, with it hose of the rest of the world - are fantasies. The money created is all debt. Nothing but debt. Most of it is incurred when the US treasury - or the treasury of some other nation - issues a bond. It's debt, and it's bought by the Fed or one of their agents, and, viola! instant money is created.
Most of government-issued debt is never paid off, which is why the United States has a $21 trillion - and growing - debt. Some of it is owed to other countries, some to private investors (like the Fed), and some of it is owed elsewhere.
Getting back to the Fed and their debt, how they managed to get into debt themselves is pretty simple. They bought a ton of near-worthless paper called Mortgage Backed Securities (MBS) back in the halcyon days of sub-prime lending (2006-2011), and that paper is worth today, as some of it is maturing, worth less than what they paid. They did so to bail out their friends, the big banks, and now the piper is being paid. This will continue for some time, as theses MBS mature at different times. Like most mortgages, some won't mature for 30 years, so think 2036-2041 before they're all exhausted, though some will mature well before those dates.
The Fed wants to shrink its balance sheet, so this is how they're doing it, retiring debt. Do they care? Not particularly. To them, gains and losses are ledger entires and nothing more. They exist in a parallel universe from the rest of us who can't just roll over our debts indefinitely. The Fed will outlast all of us, and they know it.
As far as the impact this will have on the economy and markets and currencies, it's likely not good, but it isn't something to lose sleep over either. The Fed's money machine is massive and they'll just print more if they run into problems. However, for the rest of us, that may be inflationary, though that wasn't a huge issue all the time they were engaged in QE, printing to their heart's content to save the world from economic ruin.
As long as everyone keeps using their money, it's fine. If other countries shy away from the glorious dollar - something that some countries already are doing - it could get a bit rough in the international trade venues. Until very many people, businesses, and nations lose faith in the almighty greenback, we're all good, however. But the Fed will still be losing money for the foreseeable future. Nothing to worry about. They can - and will - make more.
As far as the stock markets are concerned, today was day two of the Mother of all Sucker Rallies which was presented yesterday. Stocks were once again bid higher, with the Dow up more than 450 points. Once again, the afternoon was telling, as sellers took control, leaving the Dow and other indices with reasonable gains.
With the rally ongoing, it might be instructive to concern ourselves with Fibonacci levels, as detailed below.
Using Fibonacci numbers to exploit the current rally - using intra-day numbers on the Dow - maths out like this:
December 3 high: 25,980.21
December 10 low: 23,881.37
Difference: -2,098.84
First resistance (23.6%): 495.33 points = 24,376.70 (Dow closed at 24,370.24 on Tuesday, December 11; Close enough!)
Second resistance (38.2%): 801.76 points = 24,683.13 (the Dow exceeded this level today, but pulled back below it at the close. Watch for direction on Thursday.
Third resistance (50%): 1,049.42 = 24,930.79
Fourth resistance (61.8%): 1,297.08 = 25,178.45 (this is usually the key, where resistance is very high and a pullback can be expected. If the Dow powers through this level, expect it to go all the way back to where it started, i.e., 25,980.21 (100% retracement).
This should give a signal of when the current sucker rally is about to expire. After that, the resistance points will become support, and if the Dow plummets through them, get ready for another round of massive losing days.
Happy Holidays.
Dow Jones Industrial Average December Scorecard:
At the Close, Wednesday, December 12, 2018:
Dow Jones Industrial Average: 24,527.27, +157.03 (+0.64%)
NASDAQ: 7,098.31, +66.48 (+0.95%)
S&P 500: 2,651.07, +14.29 (+0.54%)
NYSE Composite: 11,943.29, +82.64 (+0.70%)
Fed piles up $66 billion in debt.
Now, since the Federal Reserve System has been known to conjure up money out of thin air, how can they incur losses, and, if they somehow manage that feat of economic alchemy, do they even matter. The author of the article says no, but the reality is that our fiat money system - and, with it hose of the rest of the world - are fantasies. The money created is all debt. Nothing but debt. Most of it is incurred when the US treasury - or the treasury of some other nation - issues a bond. It's debt, and it's bought by the Fed or one of their agents, and, viola! instant money is created.
Most of government-issued debt is never paid off, which is why the United States has a $21 trillion - and growing - debt. Some of it is owed to other countries, some to private investors (like the Fed), and some of it is owed elsewhere.
Getting back to the Fed and their debt, how they managed to get into debt themselves is pretty simple. They bought a ton of near-worthless paper called Mortgage Backed Securities (MBS) back in the halcyon days of sub-prime lending (2006-2011), and that paper is worth today, as some of it is maturing, worth less than what they paid. They did so to bail out their friends, the big banks, and now the piper is being paid. This will continue for some time, as theses MBS mature at different times. Like most mortgages, some won't mature for 30 years, so think 2036-2041 before they're all exhausted, though some will mature well before those dates.
The Fed wants to shrink its balance sheet, so this is how they're doing it, retiring debt. Do they care? Not particularly. To them, gains and losses are ledger entires and nothing more. They exist in a parallel universe from the rest of us who can't just roll over our debts indefinitely. The Fed will outlast all of us, and they know it.
As far as the impact this will have on the economy and markets and currencies, it's likely not good, but it isn't something to lose sleep over either. The Fed's money machine is massive and they'll just print more if they run into problems. However, for the rest of us, that may be inflationary, though that wasn't a huge issue all the time they were engaged in QE, printing to their heart's content to save the world from economic ruin.
As long as everyone keeps using their money, it's fine. If other countries shy away from the glorious dollar - something that some countries already are doing - it could get a bit rough in the international trade venues. Until very many people, businesses, and nations lose faith in the almighty greenback, we're all good, however. But the Fed will still be losing money for the foreseeable future. Nothing to worry about. They can - and will - make more.
As far as the stock markets are concerned, today was day two of the Mother of all Sucker Rallies which was presented yesterday. Stocks were once again bid higher, with the Dow up more than 450 points. Once again, the afternoon was telling, as sellers took control, leaving the Dow and other indices with reasonable gains.
With the rally ongoing, it might be instructive to concern ourselves with Fibonacci levels, as detailed below.
Fibonacci numbers are often used in technical analysis to determine support and resistance levels for stock price movement. Analysts find the two most extreme points (peak and trough) on a stock chart and divide by the Fibonacci ratios of 23.6 percent, 38.2 percent, 50 percent, 61.8 percent and 100 percent.
Using Fibonacci numbers to exploit the current rally - using intra-day numbers on the Dow - maths out like this:
December 3 high: 25,980.21
December 10 low: 23,881.37
Difference: -2,098.84
First resistance (23.6%): 495.33 points = 24,376.70 (Dow closed at 24,370.24 on Tuesday, December 11; Close enough!)
Second resistance (38.2%): 801.76 points = 24,683.13 (the Dow exceeded this level today, but pulled back below it at the close. Watch for direction on Thursday.
Third resistance (50%): 1,049.42 = 24,930.79
Fourth resistance (61.8%): 1,297.08 = 25,178.45 (this is usually the key, where resistance is very high and a pullback can be expected. If the Dow powers through this level, expect it to go all the way back to where it started, i.e., 25,980.21 (100% retracement).
This should give a signal of when the current sucker rally is about to expire. After that, the resistance points will become support, and if the Dow plummets through them, get ready for another round of massive losing days.
Happy Holidays.
Dow Jones Industrial Average December Scorecard:
| Date | Close | Gain/Loss | Cum. G/L |
| 12/3/18 | 25,826.43 | +287.97 | +287.97 |
| 12/4/18 | 25,027.07 | -799.36 | -511.39 |
| 12/6/18 | 24,947.67 | -79.40 | -590.79 |
| 12/7/18 | 24,388.95 | -558.72 | -1149.51 |
| 12/10/18 | 24,423.26 | +34.31 | -1115.20 |
| 12/11/18 | 24,370.24 | -53.02 | -1168.22 |
| 12/12/18 | 24,527.27 | +157.03 | -1011.19 |
At the Close, Wednesday, December 12, 2018:
Dow Jones Industrial Average: 24,527.27, +157.03 (+0.64%)
NASDAQ: 7,098.31, +66.48 (+0.95%)
S&P 500: 2,651.07, +14.29 (+0.54%)
NYSE Composite: 11,943.29, +82.64 (+0.70%)
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