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:

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%)

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 Industrials Down 8th Straight Day, Damage Spreading

Well, there goes (almost) all of the gains made on the Dow between June 1 and June 11. Eight-day losing streaks (as any addicted gambler will tell you) can do nasty things to your bottom line. In this case, it's looking squarely at end-of-quarter results, which, at this exact juncture, is a small gain. April was +50.81, May +252.59, June +45.86, for a whopping grand total of 349.26, a little short of 1 1/2 percent gain.

While there are still six trading days left in June and in the quarter, there's the distinct possibility that the Dow, already in a confirmed bear market since April 9, is heading still lower, looking at the recent (March 23) bottom of 23,533.20 for any kind of support.

As the Dow continues the longest consecutive daily slide in the past 40 years, dating back to 1978, the recent losses have wiped out all gains for the year, leaving the Dow down one percent YTD. The record for longest daily losing Dow streak is 11 days, that level of pain occurring in 1971 (Nixon closes the gold window) and 1973 (OPEC?).

All is not gloom and doom, however. The NASDAQ is still 12% higher for the year and the S&P 500 is holding onto about a three percent gain for the year.

Losses are beginning to spread. The S&P has lost 37 points since June 12, and the NASDAQ was down 68 points just today. Whether these losses will stick and markets begin to behave more rationally, like the Dow, is a matter for the future. Since the February correction, analysts have warned investors that this is a stock pickers' market, noting that the easy days of just buying an index fund or playing the widely held stocks has come to an end. It's more about being adroit and making in-and-out moves, much like a day-trader. It's really nowhere for long term investors to be playing, as many stocks are still near all-time highs and are still carrying overpriced valuations, many based on earnings that have been manipulated higher by buyback sleight-of-hand.

Non-believers in the Dow Theory, which confirmed a primary trend change from a bull to a bear market on April 9, may be getting a bit nervous, though the recent bidding on the NASDAQ and Russell 2000 would suggest otherwise.

Once the floodgates are fully open, a condition which feels very much like all of this week, there will be no place to run to, nowhere to hide, except, maybe bonds, which have been stubborn but steady, the 10-year-note holding at 2.90% as of today, though there are indications the yield could go lower, given the number of investors seeking a safe place for their money.

So much for the Fed's grand plan to hike interest rates and unload their massive balance sheet into the public sphere. Since they play with make-believe money which they themselves conjured out of thin air, losses don't really matter to them, since they can make it all up with a few kind keystrokes on their magical money-printing computers.

As usual, it's the serfs that will get forty lashes in the form of lower stock prices and higher consumer prices... so, make that 80 lashes.

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
6/8/18	25,316.53	+75.12	+900.69
6/11/18	25,322.31	+5.78	+906.47
6/12/18	25,320.73	-1.58	+904.89
6/13/18	25,201.20	-119.53	+785.36
6/14/18	25,175.31	-25.89	+759.47
6/15/18	25,090.48	-84.83	+674.64
6/18/18	24,987.47	-103.01	+571.63
6/19/18	24,700.21	-287.26	+284.37
6/20/18	24,657.80	-42.41	+241.96
6/21/18	24,461.70	-196.10	+45.86

At the Close, Thursday, June 21, 2018:
Dow Jones Industrial Average: 24,461.70, -196.10 (-0.80%)
NASDAQ: 7,712.95, -68.56 (-0.88%)
S&P 500: 2,749.76, -17.56 (-0.63%)
NYSE Composite: 12,560.24, -88.50 (-0.70%)

Weekend Wrap: Stocks Pop and Stop After FOMC Meeting

With the Fed's $4.4 trillion balance sheet overhanging the global economy, US stocks spent Thursday and Friday treading water as investors try to figure out just how the added weight from tranches of MBS and various maturities of treasury bonds will affect liquidity and markets in the coming months and years.

While the Fed's stated goal is to reduce the size of its balance sheet alongside an attempt to normalize interest rates, the structure of their policies leaves open many questions and uncertainties, chief among them being just wo is supposed to sop up all of the excess the Fed will be releasing into markets.

More than likely it will be the usual suspects, money center banks, hedge funds, and possibly sovereign wealth funds, which may consider buying up bonds on the cheap a strategy for preserving wealth rather than increasing it.

Equity markets being particularly overvalued by nearly any metric, large players should be more cautious than they have been during eight years of unprecedented gains in US markets.

How it all plays out may turn out to be an exercise in futility from the sidelines because the Fed and their inner workings are not generally what one would call transparent.

Effects from the whirlwind of bond offerings in private settings will probably only be felt after the fact and in widely-varied segments of the economy. One thing is certain: the Fed is intent on unloading some highly toxic assets in the case of the mortgage-backed securities, something that could lead to unforeseen circumstances with homeowners and real estate speculators possibly exposed to long-standing, but previously hidden, claims.

With uncertainty as a backdrop following Wednesday's FOMC announcement, the record highs from Monday and Tuesday were not built upon, US equity indices generally taking a wait-and-see attitude into the weekend.

At the Close, Friday, September 22, 2017:
Dow: 22,349.59, -9.64 (-0.04%)
NASDAQ: 6,426.92, +4.23 (+0.07%)
S&P 500: 2,502.22, +1.62 (+0.06%)
NYSE Composite: 12,151.79, +18.17 (+0.15%)

For the week:
DOW: +81.25 (+0.36%)
NASDAQ: -21.55 (-0.33%)
S&P 500: +1.99 (+0.08%)
NYSE Composite: +71.66 (+0.59%)

Witch Doctors at the Fed Brewing Something Wicked?

Eventually, everything matters.

Whether it's a hurricane ravaging Houston, Miami, or Puerto Rico, Toys 'R Us going chapter 11, or JP Morgan Chase CEO Jamie Dimon bashing cryptocurrencies in general and Bitcoin in the specific, all actions have consequences. It's the butterfly flapping its wings in Africa resulting in the subtropical windstorm, pure physics, action, reaction, cause and effect.

Thus it is consequential that the Fed's announcement in June indicating that it would begin to sell off it's hefty bag of assets - confirmed just yesterday - beginning in October (a scant ten days from now) should have some noticeable effect.

Market reaction to the announcement three months ago was muted. It was more serious yesterday and took on a gloomy tone today as all of the major indices retreated from all-time highs, the hardest hit being the speculative NASDAQ index, though one could posit that the knee-jerk nature of the selling today was nothing more than casual.

Suppose it is more than that.

Wouldn't the biggest players in the investing universe be monitoring market movements closely, making incremental moves, buying insurance? Of course. None of them want to tip their hand, but, they are concerned that the Federal Reserve has lost control of the monetary side of the equation. After all, ZIRP (zero interest rate policy) didn't work, nor did quantitative easing (QE). With all of their bullets spent, the Fed has nonchalantly called the financial crisis over and done and signaled to the market that they are going to raise interest rates, sell off the assets they've been hoarding for some six, seven, or eight years and the economy of the United States - and the world - will suddenly and magically be wonderful again.

As Dana Carvey playing the "Church Lady" might say, "how convenient!"

The Fed is at a loss and has been for eight or nine years running (some may say longer), because they cannot control distant event, geological occurrences, sunrises, or the whims of people with money. They are what Ayn Rand and Rollo May might have called witch doctors whose power is derived from people's belief in their so-called powers.

When the Fed begins selling their cache of securities (mostly treasury bonds and mortgage-backed securities) expect some degree of howling from various quarters, notably those who have been calling the central bank's attempts to control global markets a scam, sham, or film-flam from the start.

Especially when it comes to the mortgage-backed securities (MBS) there will be great gnashing of teeth, especially deep inside the bowels of the Eccles Building, where it cannot be heard, as Fed governors (a number of them already jumping ship) bemoan their dissatisfaction over the task at hand.

They are about to become scorned, and with good reason. They've mismanaged other people's money (practically everybody's) to their own profit. Bernie Madoff would look like a saint compared to the crimes the people at the Fed have committed. Those crimes continue, and they will be manifest in the "great unwind."

As the case may be, all of these high priests and witch doctors of finance will claim they didn't see the carnage coming, but come it will. There's a place for people who use deceit and obfuscation to achieve their ends, and it's certainly not in heaven.

Keep a close eye on three things: the price of silver, the price of corn and wheat, and the performance of the major stock indices. If suspicions play out, all three (or two of three, with the only gainer being silver) will decline for months before there's true confirmation that, in the long scheme of things, the Fed officials, from Greenspan to Bernanke to Yellen, knew exactly what they were doing but did it anyway.

Today's position: Fetal.

At the Close, Thursday, September 21, 2017:
Dow: 22,359.23, -53.36 (-0.24%)
NASDAQ: 6,422.69, -33.35 (-0.52%)
S&P 500: 2,500.60, -7.64 (-0.30%)
NYSE Composite: 12,133.62, -13.88 (-0.11%)

Counterfeiting and Money Laundering At Its Finest: Fed To Begin Balance Sheet Unwind

If there's one thing everybody can be sure of after today's FOMC rate announcement (spoiler alert: fed funds remain unchanged), it's that the officials at the Federal Reserve will continue to tell everybody that everything is under control, until it's obvious that nothing is under control.

What the Fed will embark upon beginning in October is selling off the assets it purchased during and after the Great Financial Collapse (GFC), thos being primarily mortgage backed securities (MBS, AKA, toxic bond waste) and Treasury bills, notes, and bonds.

Of the two, the treasury issuance will be much less of a problem unloading than the MBS, since treasuries come with an implied guarantee that they're as good as the federal government's full faith and credit promise to repay... with interest and return of principal.

Those toxic mortgage backed securities, which the Fed likely purchased at or near par (100% of value), will be more of a challenge, but, being the central banker to the world, the Fed has nothing about which to worry.
Many of these MBS contain tranches of mortgages minted during the sub-prime crisis. Many of them are worthless. Many more are worth less than half of par value.

But, that does not worry the Federal Reserve, because, since they want to shrink their balance sheet, they can just sell them at whatever price they can get, because they - unlike just about any other entity in the known universe - can just print more money if they need it.

So, $4.4 trillion is going to be wound down to probably under $1 trillion over the course of six to ten years. Some of the mortgage backed securities are performing, many are not. They're in default. Somebody will buy them, ostensibly, because if not, they remain on the Fed's balance sheet - at par value.

It's ludicrous. The Fed will, let's say, sell what they consider to be $500 billion of MBS which is in fact worth maybe, $100 billion. They'll write the $400 billion off their books, in effect, taking a loss. It won't matter. It's gone. It's all just accounting, and, since the Fed doesn't report to the IRS, IMF, BIS, or anybody for that matter, they'll just whistle past the grave of homes lost or stolen by vicious, unscrupulous bankers, who, by the way, will probably be the ones repurchasing - at pennies on the dollar - the very same MBS they unloaded onto the Fed.

And, just for good measure, those very same banks will try to enforce their rights on those bonds, triggering another round of financial shenanigans, this time going after people who thought they bought properties with good title, only to learn that there are claims on them, claims that were hidden in the bowels of the Fed's books for five, six, seven or eight years.

It's the best counterfeiting and money laundering operation that's ever been hatched, and it will all be done out in the open because 99% of the people in the world don't actually understand how it all works.

In the long run, it's all flimflammery of the flimsiest variety, but our glorious central counterfeiters and money launderers just do business that way.

As they say in investing, gambling, and, supposedly, now, banking, "easy come, easy go."

At the close, Wednesday, September 20, 2017:
Dow: 22,412.59, +41.79 (+0.19%)
NASDAQ: 6,456.04, -5.28 (-0.08%)
S&P 500: 2,508.24, +1.59 (+0.06%)
NYSE Composite: 12,147.50, +15.77 (+0.13%)

Stocks Close Week Trending Lower; Trouble Brewing

After Thursday's all-around rout, traders entered Friday's session with apprehension and doubt, pondering whether the recovery facade had finally been broken, exposing the wickedly overpriced nature of global equites, and especially US stocks.

After a sluggish start to trading, stocks eventually turned positive midday, but failed to keep an even keel as the major indices fell in unison for the second consecutive day, ending the week on an ominous note.

While Friday's losses were nothing compared to those from the day prior, they were, nevertheless, a continuation of the downdraft since last week's North Korea scare sent stocks well below their prior highs and, in the case of the S&P 500 and NASDAQ, below their 50-day moving averages.

In addition to the uniformity of the declines, stocks spent their second straight week on the downside for only the fourth time since the election of Donald Trump as president.

The Dow Jones Industrial Average, which had been the leader in the gains for the year, finished just above its 50-dma, the signs of slowing clearly evident.

With earnings reports from the second quarter winding down, analysts and traders will be focused on economic data, which has been - for years - less than stellar. Also of concern is the Federal Reserve's stance on tightening credit and unwinding their massive balance sheet, at the same time congress and the president will be engaging in budget and debt ceiling wrangling, making for a September to remember.

Still not an absolute trend - stocks are generally down only 2-3% the past two weeks - there will eventually come a time when the long bull run since March, 2009 will come to an end, and it figures not be be pretty. Anyone with short-term views will be taken aback at any sign of decay in the financial system, though, for those old enough and wizened enough to understand past history and general economics, a general pullback will be nothing more than the ordinariness of the business cycle, this one interrupted by the machinations and experimental policies of the global central bank cartel, led the the Fed, the ECB, the Bank of Japan (BOJ), and the People's Bank of China (PBOC), which together have stuffed more than $16 trillion onto their collective balance sheets.

Unwinding this massive spending spree without collateral damage will be a monumental task, even for those empowered to oversee the world's financial order.

Fireworks are coming. Stock up on adult beverages and snacks.

At the Close, Friday, August 18, 2017:
Dow: 21,674.51, -76.22 (-0.35%)
NASDAQ: 6,216.53, -5.39 (-0.09%)
S&P 500 2,425.55, -4.46 (-0.18%)
NYSE Composite: 11,699.83, -12.88 (-0.11%)

For the Week:
Dow: -183.81 (-0.84%)
NASDAQ: -40.03 (-0.64%)
S&P 500: -15.77 (-0.65%)
NYSE Composite: -63.38 (-0.54%)

What Janet Yellen Said To Congress...

Janet Yellen, Fed Chairwoman, blathered on about the economy, monetary and fiscal policy on Wednesday before the House Financial Services Committee, at one point saying that chances for the economy to improve or decline were roughly equal.

Those words set off the market like a bottle rocket, essentially painting the Fed as "dovish," meaning that both interest rate hikes and the winding down of its enormous balance sheet were subject to adjustments.

In other words, easy money as far as the eyes can see, and Wall Street took up the baton and ran with it, sending the Dow to new all-time highs and the NASDAQ up sharply.

Janet Yellen obviously doesn't know squat about the economy. Anybody capable of fogging a mirror could have made a statement such as hers, as in, "oh, sure, the economy might improve, or maybe not."

It's amazing that people put so much faith (and money matters) into the hands of fools such as Yellen and her fellow central bankers, all of whom have as their primary interest, themselves, not you, not the consumer, not the economy of any nation.

On Thursday, Yellen testifies before the Senate Banking Committee.

Cheers!

At the Close, 7/12/17:
Dow: 21,532.14, +123.07 (0.57%)
NASDAQ: 6,261.17, +67.87 (1.10%)
S&P 500: 2,443.25, +17.72 (0.73%)
NYSE Composite: 11,825.90, +81.13 (0.69%)

Fed Minutes Scare Traders, Turns Big Gains Into Losses

The headline says it all.

After perusing the minutes from the most recent FOMC meeting (mid-March), analysts and traders saw some language they didn't exactly like, even though it was probably a long-overdue dose of reality for the Wall Street speculators.

The Dow was up nearly 200 points prior to the release of the minutes at 2:00 pm ET, but quickly reversed course ending with a 41-point loss. The NASDAQ had been at all-time record levels, but closed down 14.

The two most blaring commentaries gleaned from the minutes were that some members of the committee saw stock prices as unreasonably high and a discussion about ratcheting down the Fed's bloated balance sheet, which balooned to over $4 trillion after the financial meltdown in 2008-09.

At the Close, April 5, 2017:
Dow: 20,648.15, -41.09 (-0.20%)
NASDAQ:5,864.48, -34.13 (-0.58%)
S&P 500: 2,352.95, -7.21 (-0.31%)
NYSE Composite: 11,423.36, -47.18 (-0.41%)