6.64 Million Unemployment Claims; Stocks Take a Hit; Gold, Silver Selling at Premium

(Simultaneously published at Downtown Magazine)

Wednesday was April Fool's Day, appropriate for the general public, which is being actively conned into giving up civil liberties at an alarming rate, and also for those who are stuck in passive investments like college or retirement funds, as stocks got hammered again on the day.

Meanwhile, mega banks and major corporations, which gorged themselves on stock buybacks and executive bonuses over the past decade, are being rewarded for their insouciant, self-serving behavior with loans and grants from the Treasury and Federal Reserve, which are rapidly coalescing into a single entity.

Since completing a near-perfect Fibonacci retrace of 38% to the 22,500 level on the Dow (22,552.17), the blue chip index has given up more than 1,500 points over the past two sessions and are threatening to retest the lows of March 23 (18,213.65). ADP private payroll data released Wednesday showed job losses of 27,000, which did not include the end of March when most of the recent layoffs and furloughs occurred. Despite exception of the brunt of a widespread voluntary quarantine imposed by most states the number was the first time ADP reported monthly job losses since 2017. Their next data release is expected to be much more sobering.

With the Federal Reserve firmly in control of the stock and bond markets, equity prices still have a long distance to travel on a downward slope to reach any reasonable level of valuation. While most heavily-traded stocks were wildly overvalued they are still trading at unsustainable levels, especially considering that business and commerce has very nearly ground to a halt globally.

There will be questions about the level of involvement in equity markets by the Fed, especially on days like Wednesday when losses cascaded down the wall of worry. While it's certainly the case that the Fed could buy up all the ETFs, stocks and mutual funds it pleases, their main approach is in the bond market, where they are actively purchasing commercial paper through its proxy, the Treasury. Guaranteeing that the corporations represented in the NASDAQ, Dow, S&P, and NYSE are still able to finance continuing operations is of primary concern. Price levels of individual stocks or even whole indices are of a secondary nature. Massive gains will be available to the Fed and their insider (congress) associates once stocks are reduced to a massive junk heap of debt, enriched management, and damaged operations.

Currently being touted by the financial insiders is the notion that the stock market and the nation will bounce back quickly once the coronavirus is conquered, though that concept is fatally flawed for a number of reasons. First, the goal is to have zero deaths from COVID-19, a near impossibility given that the infection number has not even cracked the one percent level, with the US currently at 217,000 confirmed cases with 5,137 deaths. Second, many small businesses will not reopen when the "all clear" is given, whether that be at the end of April, or some time in July. Third, with most working-age Americans at home or out of a job, the spending level upon the return to some semblance of normalcy will be vastly reduced. GDP growth is likely to be negative for the second and third quarters and the entire year of 2020 will go down as one in which the US economy was running in reverse.

At this point, anyone who has not taken steps to remove money from the stock and bond markets is facing a world of hurt which could have been avoided. The appropriate investment stance at this juncture would likely be 75% cash and 25% in hard assets (real estate, precious metals). Sadly, the gullible American passive investment class has been conditioned to believe stocks will always bounce back and that bonds represent safety. Neither claim can be proven within the present paradigm. Stocks may bounce back, but that bounce may not occur for many years. Bonds may be safe, but at interest rates that are comparable to stuffing matresses with Federal Reserve Notes. And, it's probably not beyond the realm of probability that the almighty dollar will not survive in its current form. At the very least, as severe devaluation is in the cards.

Treasury yields were smashed lower, the curve significantly flattened on the day, with the 30-year bond at 1.27%, the 10-year note at 0.62%, and the full breadth of the curve a mere 124 basis points, down from 130 a day ago and 145 a week prior. These are serious declines, significant moves in a market that is supposed to be stable. The portent is for more dislocation, desperation, and, eventually, negative rates which will obliterate the currency as is happening in Japan and Europe.

Gold and silver are still largely unavailable from regular dealers even though prices on the futures exchanges are dropping, defying the laws of supply and demand. The best place to purchase precious metals in any form is currently ebay, where the market is brisk and one ounce gold coins can be purchased and quickly delivered for prices between $1690 and $1861 while the futures price hovers around $1590.

Silver is in an even better position for sellers, tacking on premiums of up to 100% to the posted price of $14.25 on the futures exchanges. On eBay, the lowest price for a one ounce coin or bar is currently $21.50, with most ranging from $23.00 to $29.00 and uncirculated coins fetching more, up to absurd prices in the $40 and higher range. With mines shut down in many countries, the shortage of bullion is only just beginning. A metal mania is upon us.

Oil prices have caught bids early Thursday morning, with WTI crude priced at $22.37, Brent at $27.19 at the time of this writing. With a supply glut and the Saudis pumping at nearly-full capacity and offering discounts, it's likely that these prices do not reflect reality on the ground nor are they likely to maintain their gains for long.

As another trading day approaches, regular people may be wondering when they will receive their bailout $1200 check or direct deposit from the government and how they will pay their rent or mortgage without a job or some form of assistance. It has been two weeks since Treasury Secretary Steven Mnuchin and President Trump suggested that individuals would receive money within two weeks and nobody has seen a nickel. The bill to provide such assistance was passed last week by the Senate, House, and signed into law by President Trump.

On Wednesday, Mnuchin announced that Social Security recipients who do not regularly file tax returns will receive their checks or direct deposits without having to file "simple returns" as the IRS advised, according to TheHill.com. An actual date for dissemination of the monies was not disclosed, though it may be assumed that these recipients will receive their money along with their regular monthly payments. For the rest of the country, the waiting game continues, despite corporations already having trillions of dollars available to them via loans, loan guarantees or outright purchases of private debt issuance by the Federal Reserve, most of which is outside the Fed's normal chartered activities.

As for rent or mortgage payments, those are individual decisions. It is advisable to contact the landlord or mortgagee to work out payment options. Some landlords are deferring April rent payments while most lenders (represented in the main by servicers) have remained fairly tight-lipped on general guidelines relating to mortgage payments. Deferral is a likely solution, with the principal and interest being added to the end of the amortization schedule.

Just now, the Labor Department announced that unemployment insurance claims for the week ended March 28 doubled over the previous week to 6.64 million.

April and the second quarter is off to a very discouraging start.

At the Close, Wednesday, April 1, 2020:
Dow Jones Industrial Average: 20,943.51, -973.69 (-4.44%)
NASDAQ: 7,360.58, -339.52 (-4.41%)
S&P 500: 2,470.50, -114.09 (-4.41%)
NYSE: 9,844.85, -457.05 (-4.44%)

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.

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%)

Dow Rally Fades, NASDAQ Drops From New Highs; Bonds Rally Sharply

As the first full week of June trudged forward, stocks ripped higher in the New York morning before hitting afternoon speed bumps that saw the Dow fade from the day's highs and the NASDAQ retreat from Wednesday's new all-time highs.

Late in the day, treasury yields were hammered lower. The 10-year note was bid dramatically, the yield falling from the 3.00% level to 2.89% on heavy demand.

Markets were generally orderly except for the flash-crash action in the treasury market. While the 10-year was being bid, so was the 30-year bond, as the spread between the two longest-dated securities fell to 16-18 basis points, the obvious elephant in the room fear of an inverted curve.

The treasury curve has been flat and flattening for over a year, ever since the Federal Reserve announced plans to sell assets on their bloated balance sheet while also raising rates via the federal funds rate.

If anything is clear from recent market action it is that high levels of volatility are evident in everything from oil prices to stocks to bonds.

As far as the Dow is concerned, the past five sessions have seen the index ramp higher by 825 points, the only pause a 13-point decline on Tuesday. For chartists, the industrial index was approaching the higher end of its recent Bollinger band range and also nearing critical Fibonacci levels.

Astute market observers are likely unsurprised by recent activity, noting that the June meeting of the FOMC - at which a new, higher federal funds rate is likely to be announced - is just days away. Market veterans are trimming exposure and limiting risk, shifting their positions from stocks to bonds. The Fed's action in the coming week will culminate on Wednesday when the policy decision will be announced to the general public.

The Fed has been adamant in its position to raise rates, though it is still unclear whether they will hike three or four times this year. One rate increase is already in the books, and June's increase has been well-publicized. With the Fed actively affecting the treasury market, a 10-year note consistently above three percent poses a significant threat to the stock market, which has been shown to be at risk extremes this year. The safety of bonds appears to be more and more appealing as risk aversion rises with every violent action in stocks.

The NASDAQ continues to amaze and amuse, reaching an all-time high on Wednesday prior to Thursday's retreat. It's an outlier to the other major indices as the Dow, S&P and NYSE Composite continue to be range-bound below the January high points.

Something has to give in this scenario, since the Fed cannot have it both ways. A galloping stock market and rising bond yields cannot coexist in a peaceable manner. The money flows currently support a flight to the safety of bonds and Thursday's treasury stampede is more proof that smart money is quietly abandoning the most risky positions in stocks.

Dow Jones Industrial Average June Scorecard:

Date	Close	Gain/Loss	Cum. G/L
6/1/18	24,635.21	+219.37	+219.37
6/4/18	24,813.69	+178.48	+397.85
6/5/18	24,799.98	-13.71	+384.14
6/6/18	25,146.39	+346.41	+730.55
6/7/18	25,241.41	+95.02	+825.57

At the Close, Thursday, June 7, 2018:
Dow Jones Industrial Average: 25,241.41, +95.02 (+0.38%)
NASDAQ: 7,635.07, -54.17 (-0.70%)
S&P 500: 2,770.37, -1.98 (-0.07%)
NYSE Composite: 12,788.50, +10.27 (+0.08%)

Stocks Stage Strong Rebound To Finish Week Green

While volatility has subsided for the time being, so also has volume, down significantly since the crash-like VIX episode at the beginning of the month. Some may be taking the view that gains on the Dow and other indices are positive, regardless of volume, but the number of shares bought since the early February wash-out are far below those sold during that earlier episode.

Market breadth - gainers versus losers - along with a track of new highs and lows - will continue to help determine short-term direction in the market. Friday's positive close brought the Dow back beyond the 50% Fibonacci retracement though gains for the week were rather modest.

Interest rates remain elevated as compared to a month ago and a year ago, and bond yields will also go a long way toward determining trader conviction. The Dow is the index to watch most closely, because all of the stocks comprising the industrial average pay dividends, some of them at or better than current 10-year treasury yields.

The confounding factor of rising rates and falling stock prices is that dividend yields actually rise in the short term, but that may be seen as a false hope indicator. If companies are not only losing value to stockholders, the real possibility of declining earnings could also erupt into slashing of dividends as companies scramble to horde or save cash.

Considering the massive size of stock repurchases in recent years, the scenario exists that companies could find themselves in a real bind, forced to sell shares back to the public at lower prices than at which they were repurchased, causing an erosion in earnings and a potentially vicious negative feedback loop.

The most savvy investors will be looking for companies which have repurchased inordinate amounts of their own shares and are therefore exposed to a wicked downward price spiral.

If bond yields stabilize at or near current levels (below three percent on the 10-year-note) such a condition will not appear, but stabilizing yields in an environment in which the Fed has telegraphed its intention to raise the federal funds rate and sell (form $20 to $60 billion a month this year) into the market at the same time should - in an ideal, actual free market - cause yields to continue climbing.

Stocks may be nearing a dangerous Rubicon, whereas buyers of bonds should experience bargain prices and healthier yields going forward.

Dow Jones Industrial Average February Scorecard:

Date	Close	Gain/Loss	Cum. G/L
2/1/18	26,186.71	+37.32	+37.32
2/2/18	25,520.96	-665.75	-628.43
2/5/18	24,345.75	-1,175.21	-1,803.64
2/6/18	24,912.77	+567.02	-1,236.62
2/7/18	24,893.35	-19.42	-1,256.04
2/8/18	23,860.46	-1,032.89	-2288.93
2/9/18	24,190.90	+330.44	-1958.49
2/12/18	24,601.27	+410.37	-1548.12
2/13/18	24,640.45	+39.18	-1508.94
2/14/18	24,893.49	+253.04	-1255.90
2/15/18	25,200.37	+306.88	-949.02
2/16/18	25,219.38	+19.01	-930.01
2/20/18	24,964.75	-254.63	-1184.64
2/21/18	24,797.78	-166.97	-1351.61
2/22/18	24,962.48	+164.70	-1186.91
2/23/18	25,309.99	+347.51	-839.40

At the Close, Friday, February 23, 2018:
Dow Jones Industrial Average: 25,309.99, +347.51 (+1.39%)
NASDAQ: 7,337.39, +127.31, (+1.77%)
S&P 500: 2,747.30, +43.34 (+1.60%)
NYSE Composite: 12,884.11, +172.36 (+1.36%)

For the Week:
Dow: +90.61 (+0.36%)
NASDAQ: +97.93 (+1.35%)
S&P 500: +15.08 (+0.55%)
NYSE Composite: +9.75 (+0.08%)

Bifurcated Markets a Sure Sign of Trouble In Fantasy Finance Land

It should be pain as the day that there are many issues and headwinds facing financial markets in the current crisis situation. Today's trading, taking bounces up and down in a directionless trading session is yet another indictment of the power players' control - or lack thereof - during a turbulent period.

When markets react in odd ways, as similar ones diverge, correlations break down and generally things zig when they are expected to zag, one index is up while another is down, it's a sign of malaise and weariness, signifying not only trouble in the current time frame, but of more problems to come.

After Wednesday's hockey stick save off the lows on a temporary reversal of sentiment regarding Europe - which was wholly manufactured and false, by the way - in which all the major indices moved in the same direction at the same time, today's sloppiness could be attributed to speculative bets in different sectors, though the possibility that there are diverging opinions driving indices in different directions is palpable.

Even though the day's range - 120 points on the Dow; 32 points on the NASDAQ, the two did not move in anything even remotely resembling synchronicity. The Dow finished to the positive, the NASDAQ ended in the red.

Some may posit that these moves are by design, though that's a bit of a stretch even in this space, in which all conspiracy theories are given ample credit at least for the fact that somebody's paying attention.

In what was one of the least-inspiring trading days of the past two weeks, the best that can be said of today's performance was that it was at least back to the norm of low volume and moves without conviction. Europe has been quieted for the time being (don't worry, that will change), the Facebook IPO malaise is fading from the news cycle and JP Morgan is still losing money on the "London Whale" non-hedge hedge.

Eventually, all of these items and more either get swept under the Wall Street rug of fraud and collusion or explode in the faces of the criminal cartel that traverses the canyons of lower Manhattan as glad-handing gentlemen.

One would suppose that a break in the action might be a good thing, though if one is circumspect enough to check the recent charts of the major indices, one would have to be blind not to notice that the Dow, S&P and NASDAQ are all trading well below their 50-day moving averages and hovering just above their 200-DMA, a dangerous position. They're also taken off about 50% of the move higher from mid-December to the end of April, a retracement that adherents of Fibonacci will note as an area of support. In that regard, the indices have moved in synchronous fashion, though with their own idiosyncratic tendencies.

Two telling signs from market internals suggest there easily could be more downside in days and weeks to come. The advance-decline line has been negative 12 of the last 17 sessions, while there have been more new lows than new highs for 10 consecutive sessions and on 14 of the last 15 trading days.

This is an interesting time for markets, stuck in no-man's land without the support of earnings, driven by news, events and data flow.

Dow 12,529.75, +33.60 (0.27%)
NASDAQ 2,839.38, -10.74 (0.38%)
S&P 500 1,320.68, -1.82 (0.14%)
NYSE Composite 7,552.35, -11.45 (0.15%)
NASDAQ Volume 1,737,819,375
NYSE Volume 3,776,796,750
Combined NYSE & NASDAQ Advance - Decline: 3082-2527
Combined NYSE & NASDAQ New highs - New lows: 55-111
WTI crude oil: 90.66, +0.76
Gold: 1,557.50, +9.10
Silver: 28.16, +0.64

Another New High for the Dow

The Dow Jones Industrial Average added 44.10 on Friday to reach another all-time closing high today of 15,556.08. The market moved forward on average volume, and all other indices closed in positive territory. What's becoming fairly evident in the percentage gains is that the Dow is beginning to lag the other indices (especially the Nasdaq), as today's top was almost exactly a 33% rise from the previous peak of 11,722.98 on January 14, 2000, 7 short years ago. Fibonacci, anyone?

Of course, some of us remember well what happened just months after that 2000 peak, but the scenarios are widely different. The 2000 peak and subsequent major correction came after an extended period of wild speculative activity with a great deal of new money coming into the market and a gain of well over 100% during the previous five years.

Nevertheless, coming off the March 11, 2003 bottom of 7524.06, today's overall gain checks in at a very healthy 107% in just less than four years.

The market should be close to a top, but there's so much money with a vested interest in this bull run that a correction in the near term seems less likely every day - and that's exactly why it's coming and coming soon.

Just like the sell-off of 2000, it's probably going to appear unannounced, but I'd lay money that it will be tied to a geopolitical event that will occur - or has already been set in motion - over time. The coming correction will not be as severe as others, but careful attention to this quarter's earnings numbers and corporate outlooks for the year may give more of an indication.

I'm only half certain that a correction will occur in the next 3-6 months, considering the momentum of this aging bull. I am convinced that keeping a lid on losses will separate the winners from losers in 2007, however.