Shifting forces were at work the second last week of July, and while the winds of change didn't quite blow stocks away, the dollar's value, precious metals and bond yields saw wild swings.
Bloomberg's dollar index finished the week at 94.435, edging below the level seen at the trough of the March stock market lows (94.895), and lower for the year (96.389, 12/31/19). It was also the lowest recorded reading since September 2018 (94.220).
While the dollar may have been reeling against competing fiat currencies, it was dealt a knockdown blow by precious metals, especially silver, which had it's best week in more than 40 years. Spot Silver closed at 19.33 per ounce on July 17, traded as high as 23.00 on July 22 before settling into a close at 22.77 on the 24th, a gain of 17.80% in just five trading days.
Gold was also making headlines, with spot gold closing out the week at 1,902.02, a record closing price, surpassing the previous high in US$ of 1895.60 from 2011. While the dollar's weakness was a contributing factor in the rise of precious metals, it wasn't the only one. Continued strong demand, which many dealers are calling "unprecedented", massive purchases by the gold and silver ETF funds, and shortages due to mining shutdowns over the past four months have all been weighing on gold and silver prices.
With faith in fiat currencies and the governments that rule by them weakening, gold, silver, and other hard assets are beginning to be looked upon more favorably as the global economy melts away, multi-national protests persist, and unemployment rages. The first rise in initial weekly US unemployment claims in nearly four months sent shock waves across markets and had a dampening effect on stocks in particular.
WTI crude oil, which had remained moored around the $40/barrel mark for most of the month, was bid slightly higher during the week, closing above $41 for the first time since March. Producers, desperate for higher prices see the falling dollar as an aid to their plight. Global prices are in flux, especially with China buying directly from many producers, including Russia and Iran, bypassing the long-standing dollar hegemony completely. If the dollar continues to decline, the price of oil will certainly rise, affecting just about every finished product in some manner. The condition appears ripe for $50 oil and $2.00 gas at the pump though seasonal demand could keep a lid on prices through the fall.
Treasury yields fell on the long end, with the 30-year taking the brunt of the action, closing out the week at 1.23%, a decline of a full 10 basis points from the previous Friday reading. The benchmark 10-year note slipped from 0.64% to 0.59%, and persisted through Thursday and Friday at that level. Even the one-month maturity bill fell from 0.11 to 0.10%, cramming the entire complex into a 113 basis point box.
The shift in sentiment from bullish on stocks to mildly bearish was, in the main, attributable to the decimation in second quarter earnings as companies lost ground across the equity spectrum. Tech, energy, finance, consumer, and industrial sectors were all affected by the shutdowns and stay-at-home orders prevalent during the second quarter and that was reflected in some very dismal reports, especially from banks and finance stocks, which were forced to add significantly to credit loss reserves over the quarter.
With the reopening of most state economies in the US, there was hope for some relief and a return to pre-COVID conditions, but the recent rise of infections in many states has caused a reversal of the reopening protocols and has tempered enthusiasm for a quick recovery. The COVID crisis seems to have a long-lasting effect, not just on people's health but on the economy in general. The outlook for the fall is not particularly promising either.
Wrapping up this Weekend Wrap, here are the most current prices - including shipping - for select precious metal items on eBay:
Item: Low / High / Average / Median
1 oz silver coin: 27.11 / 46.85 / 35.34 / 34.97
1 oz silver bar: 28.00 / 51.95 / 34.33 / 33.75
1 oz gold coin: 1,850.00 / 2,045.42 / 1,982.27 / 1,995.10
1 oz gold bar: 1,985.22 / 2,019.69 / 2,006.68 / 2,010.15
At the Close, Friday, July 24, 2020:
Dow: 26,469.89, -182.44 (-0.68%)
NASDAQ: 10,363.18, -98.24 (-0.94%)
S&P 500: 3,215.63, -20.03 (-0.62%)
NYSE: 12,461.78, -49.09 (-0.39%)
For the Week:
Dow: -202.06 (-0.76%)
NASDAQ: -140.01 (1.33%)
S&P 500: -9.10 (-0.28%)
NYSE: +59.04 (+0.48%)
Showing posts with label currencies. Show all posts
Showing posts with label currencies. Show all posts
Sunday, July 26, 2020
Thursday, September 5, 2019
Stocks Churn Higher; Currency Backed by Gold or Silver Is Possible
Churning continued on Wednesday, wiping up the losses from Tuesday. The up-and-down action in stocks is likely to continue for the near term, and quite possibly the longer term, as Fed officials and their global central banking brethren have severe solvency problems.
There is no abatement in the mammoth bond rally which has sent sovereign debt into negative yields in much of the developed world. The US has thus far escaped negativity, though the 10-year-note continues to dive, heading below a yield of 1.46% on Wednesday. The slow, grinding erosion of yield in bonds is a symptom of dying currencies. Negative interest yields will be discovered to be both symptoms AND causes of death. The Japanese yen is likely to die first, then the euro, followed by capitulation of the US dollar.
Evisceration of capital will be complete, widespread, and unrelenting as central banks cannot contain the over-saturation of debt, of individuals, companies, and governments. A new currency will be needed to replace the failed ones, and it's likely to be global and crypto.
Any country with the nerve to create and back its own currency with anything tangible will attract both the ire of central bankers (with attendant name-calling and possible military intervention) and the interest of investors seeking not just yield, but safety and security.
With global currencies facing serious headwinds, there has been talk of gold or silver-backed currencies from Greece to Mexico to Canada. Naysayers contend that there isn't enough of the precious metals to suitably service global commerce, though that argument depends entirely upon control of gold and silver prices. If the central banking cartel were to lose control of pricing via their deviate trading in the futures markets, the metals would explode exponentially. Gold might reach $5000 or $10,000 per ounce, silver would be priced in hundreds of dollars.
The solution is partial backing with precious metals. Sovereign governments issuing national currencies could readily assign a percentage of such to be backed by either gold or silver, or both, with the backing in a percentage of anywhere from 10% to 40% of the buck, loonie, yen, what have you.
Thus, the metals prices would not necessarily skyrocket beyond reason and debt would no longer be part of the formula for currency. While such a scenario may be a financial fantasy for now, history favors such, though the future, shaped by the current regime, would have to be radically different from the present state.
At the Close, Wednesday, September 4, 2019:
Dow Jones Industrial Average: 26,355.47, +237.45 (+0.91%)
NASDAQ: 7,976.88, +102.72 (+1.30%)
S&P 500: 2,937.78, +31.51 (+1.08%)
NYSE Composite: 12,796.32, +132.92 (+1.05%)
There is no abatement in the mammoth bond rally which has sent sovereign debt into negative yields in much of the developed world. The US has thus far escaped negativity, though the 10-year-note continues to dive, heading below a yield of 1.46% on Wednesday. The slow, grinding erosion of yield in bonds is a symptom of dying currencies. Negative interest yields will be discovered to be both symptoms AND causes of death. The Japanese yen is likely to die first, then the euro, followed by capitulation of the US dollar.
Evisceration of capital will be complete, widespread, and unrelenting as central banks cannot contain the over-saturation of debt, of individuals, companies, and governments. A new currency will be needed to replace the failed ones, and it's likely to be global and crypto.
Any country with the nerve to create and back its own currency with anything tangible will attract both the ire of central bankers (with attendant name-calling and possible military intervention) and the interest of investors seeking not just yield, but safety and security.
With global currencies facing serious headwinds, there has been talk of gold or silver-backed currencies from Greece to Mexico to Canada. Naysayers contend that there isn't enough of the precious metals to suitably service global commerce, though that argument depends entirely upon control of gold and silver prices. If the central banking cartel were to lose control of pricing via their deviate trading in the futures markets, the metals would explode exponentially. Gold might reach $5000 or $10,000 per ounce, silver would be priced in hundreds of dollars.
The solution is partial backing with precious metals. Sovereign governments issuing national currencies could readily assign a percentage of such to be backed by either gold or silver, or both, with the backing in a percentage of anywhere from 10% to 40% of the buck, loonie, yen, what have you.
Thus, the metals prices would not necessarily skyrocket beyond reason and debt would no longer be part of the formula for currency. While such a scenario may be a financial fantasy for now, history favors such, though the future, shaped by the current regime, would have to be radically different from the present state.
At the Close, Wednesday, September 4, 2019:
Dow Jones Industrial Average: 26,355.47, +237.45 (+0.91%)
NASDAQ: 7,976.88, +102.72 (+1.30%)
S&P 500: 2,937.78, +31.51 (+1.08%)
NYSE Composite: 12,796.32, +132.92 (+1.05%)
Thursday, August 22, 2019
Stocks Bounce As Germany Sells First Negative-Yielding 30-Year Bond
The "scary" thing - mentioned here yesterday - that sent traders rushing for the exits on Tuesday in major markets from Germany, to France, to the United States, was probably anxiety and anticipation of Germany pricing the first 30-year bond at a negative interest rate.
Germany was looking to sell $2 billion of the bonds, but managed to only sell $965 million of the debt, which eventually priced out at a yield of -0.11%. So, essentially, it was a failed auction, with the Bundesbank scooping up the rest, allegedly to be sold later on to other suckers, er, investors.
Now, that may not sound like a big deal at the outset, but losing a little more than a tenth of one percent on your money over 30 years can add right up. On $1 million, in the first year, it would be $1,100 that you'd just let go. Each year, the amount you'd lose would be lower, but it would still be 0.11%.
Just rounding it off, you'd lose about $30,000 of your money, leaving $970,000. If there was inflation during that period of time, the money would be worth much less in buying power at maturity in 2050.
There are some very bad implications surrounding negative interest rates. First, they are money destroyers. In the fiat money, fractional reserve banking system now in play worldwide, all money is debt. The Fed or other central banks create money (more accurately, "currency") by floating bonds, selling them to interested parties, at interest, creating a debt. The primary dealers, who are the principal buyers of the Fed's bonds (treasuries), create more debt by reselling the bonds or loaning money to companies or individuals.
However, bonds with negative interest rates cause negative debt, or, rather, a surplus, to the Fed, but this money extinguishes debt rather than creating it. If the supply of negative interest-bearing bonds becomes too large, it will cause a contraction in the money supply, which is what is happening in Germany and most of Europe presently. All of Germany's sovereign bonds are yielding negative returns, as are most of Europe's.
The continuation of such a program, especially if it catches on and sends yields further into the red, like one, two, or even three percent, would have the effect of choking off the money supply completely, destroying, once and for all, that currency.
The math is straightforward. If you have a million dollar bond with a -3.00% yield, you lose $30,000 the first year, and smaller amounts each consecutive year, since your principal is getting smaller year-over-year.
If that bond is for 10 years, it's going to lose somewhere in the neighborhood of 25% of its value, leaving you with $750,000 of your original million dollars. At three percent for 30 years, the result is the loss of up to 90% of your original investment, if the bond (at par), continues to pay -3% on one million dollars.
I may not have that exactly right, but the principle is correct and the money supply will be shrunk by negative yielding bonds. This is a very dangerous situation which bears close scrutiny because it very well may be the signal that global central banks are on the verge of forcing all sovereigns into default, destroying the money supply of many nations, and replacing national currencies with a worldwide unit of exchange.
It is, as the conspiracy theorists contend, what the globalists have had in mind for many years. With negative interest rates, they can slowly kill off the yen first, then the euro, then the US dollar. What will happen with the Chinese yuan or Russian ruble and other not-so-mainstream currencies remains to be seen, but a calamity of this proportion is likely to leave most other countries begging for some kind of solution, which the central banks will gladly supply.
At the Close, Wednesday, August 21, 2019:
Dow Jones Industrial Average: 26,202.73, +240.29 (+0.93%)
NASDAQ: 8,020.21, +71.65 (+0.90%)
S&P 500: 2,924.43, +23.92 (+0.82%)
NYSE Composite: 12,697.01, +97.61 (+0.77%)
Just for fun, somebody posted this on Zero Hedge the other day:
Nostradamus: (Cent. 8 Quat. 28)
Les simulacres d'or & argent enflez,
Qu'apres le rapt au lac furent gettez
Au desouvert estaincts tous & troublez.
Au marbre script prescript intergetez.
Translates as:
The copies of gold and silver inflated,
which after the theft were thrown into the lake,
at the discovery that all is exhausted and dissipated by the debt.
All scripts and bonds will be wiped out.
or,
The simulacra of gold and silver swell,
After the lake rapture were gone
At the open all are overcome & trouble.
At the marble script prescript intergetez.
Germany was looking to sell $2 billion of the bonds, but managed to only sell $965 million of the debt, which eventually priced out at a yield of -0.11%. So, essentially, it was a failed auction, with the Bundesbank scooping up the rest, allegedly to be sold later on to other suckers, er, investors.
Now, that may not sound like a big deal at the outset, but losing a little more than a tenth of one percent on your money over 30 years can add right up. On $1 million, in the first year, it would be $1,100 that you'd just let go. Each year, the amount you'd lose would be lower, but it would still be 0.11%.
Just rounding it off, you'd lose about $30,000 of your money, leaving $970,000. If there was inflation during that period of time, the money would be worth much less in buying power at maturity in 2050.
There are some very bad implications surrounding negative interest rates. First, they are money destroyers. In the fiat money, fractional reserve banking system now in play worldwide, all money is debt. The Fed or other central banks create money (more accurately, "currency") by floating bonds, selling them to interested parties, at interest, creating a debt. The primary dealers, who are the principal buyers of the Fed's bonds (treasuries), create more debt by reselling the bonds or loaning money to companies or individuals.
However, bonds with negative interest rates cause negative debt, or, rather, a surplus, to the Fed, but this money extinguishes debt rather than creating it. If the supply of negative interest-bearing bonds becomes too large, it will cause a contraction in the money supply, which is what is happening in Germany and most of Europe presently. All of Germany's sovereign bonds are yielding negative returns, as are most of Europe's.
The continuation of such a program, especially if it catches on and sends yields further into the red, like one, two, or even three percent, would have the effect of choking off the money supply completely, destroying, once and for all, that currency.
The math is straightforward. If you have a million dollar bond with a -3.00% yield, you lose $30,000 the first year, and smaller amounts each consecutive year, since your principal is getting smaller year-over-year.
If that bond is for 10 years, it's going to lose somewhere in the neighborhood of 25% of its value, leaving you with $750,000 of your original million dollars. At three percent for 30 years, the result is the loss of up to 90% of your original investment, if the bond (at par), continues to pay -3% on one million dollars.
I may not have that exactly right, but the principle is correct and the money supply will be shrunk by negative yielding bonds. This is a very dangerous situation which bears close scrutiny because it very well may be the signal that global central banks are on the verge of forcing all sovereigns into default, destroying the money supply of many nations, and replacing national currencies with a worldwide unit of exchange.
It is, as the conspiracy theorists contend, what the globalists have had in mind for many years. With negative interest rates, they can slowly kill off the yen first, then the euro, then the US dollar. What will happen with the Chinese yuan or Russian ruble and other not-so-mainstream currencies remains to be seen, but a calamity of this proportion is likely to leave most other countries begging for some kind of solution, which the central banks will gladly supply.
At the Close, Wednesday, August 21, 2019:
Dow Jones Industrial Average: 26,202.73, +240.29 (+0.93%)
NASDAQ: 8,020.21, +71.65 (+0.90%)
S&P 500: 2,924.43, +23.92 (+0.82%)
NYSE Composite: 12,697.01, +97.61 (+0.77%)
Just for fun, somebody posted this on Zero Hedge the other day:
Nostradamus: (Cent. 8 Quat. 28)
Les simulacres d'or & argent enflez,
Qu'apres le rapt au lac furent gettez
Au desouvert estaincts tous & troublez.
Au marbre script prescript intergetez.
Translates as:
The copies of gold and silver inflated,
which after the theft were thrown into the lake,
at the discovery that all is exhausted and dissipated by the debt.
All scripts and bonds will be wiped out.
or,
The simulacra of gold and silver swell,
After the lake rapture were gone
At the open all are overcome & trouble.
At the marble script prescript intergetez.
Saturday, August 11, 2018
Weekend Wrap: Dow Slammed, Wiping Out August Gains
Against the backdrop of news that Turkey's lira was crashing against foreign currencies, stocks were hammered lower in nearly every market around the world Friday, the hardest hit regionally being Germany's DAX (-1.99%), Brazil's Ibovesta (-2.86%), and Japan's NIKKEI 255 (-1.33%).
The lira, Turkey's official currency fell 20% on Friday, a dramatic move seldom seen in FX markets.
The American bourses being the last to finish out the week, the results were expectably negative, though not nearly approaching the levels seen in Europe and Asia.
The decline was, however, significant enough to send three of the four major US indices to weekly losses. For the Dow, S&P, and NASDAQ Composite, this week ended a string of five consecutive winners. The NASDAQ posted its fourth gain in the past six weeks. Even though Friday's 52-point loss on the NAZ was harrowing, the tech-laden index still closed within 100 points of its all-time high.
The issue of Turkey's lira crashing is made all the more intriguing by its geographical location, at the nexus of Europe, Asia, and the Middle East. With a population of 80 million, the diverse ethnicity of its population has trended more toward Islam in recent years, troubling to the visionaries of the greater world's economies, especially since it is a NATO ally and member of the European Union, though it does not share the common euro currency.
Some European banks with heavy exposure may be at risk from the turmoil in the crossroads nation, though the financial concerns run side by side with political and military issues.
While stocks took a hit, the US dollar was bolstered, rising to 96.27, its highest level in over a year. That reaction translated to lower prices for crude oil. Gold and silver, along with other commodities, trended lower. Gold closed out the week at 1,219.20. Silver ended at 15.28, trending at levels not seen in two years.
In a general sense, the week served as a reminder to traders that despite optimistic sentiment, troubling, nettlesome issues are bubbling up just beneath the superficial veneer of global economies.
Dow Jones Industrial Average August Scorecard:
At the Close, Friday, August 10, 2018:
Dow Jones Industrial Average: 25,313.14, -196.09 (-0.77%)
NASDAQ: 7,839.11, -52.67 (-0.67%)
S&P 500: 2,833.28, -20.30 (-0.71%)
NYSE Composite: 12,843.49, -113.17 (-0.87%)
For the Week:
Dow: -149.44 (-0.59%)
NASDAQ: +27.10 (+0.35%)
S&P 500: -7.07 (-0.25%)
NYSE Composite: -109.85 (-0.85%)
The lira, Turkey's official currency fell 20% on Friday, a dramatic move seldom seen in FX markets.
The American bourses being the last to finish out the week, the results were expectably negative, though not nearly approaching the levels seen in Europe and Asia.
The decline was, however, significant enough to send three of the four major US indices to weekly losses. For the Dow, S&P, and NASDAQ Composite, this week ended a string of five consecutive winners. The NASDAQ posted its fourth gain in the past six weeks. Even though Friday's 52-point loss on the NAZ was harrowing, the tech-laden index still closed within 100 points of its all-time high.
The issue of Turkey's lira crashing is made all the more intriguing by its geographical location, at the nexus of Europe, Asia, and the Middle East. With a population of 80 million, the diverse ethnicity of its population has trended more toward Islam in recent years, troubling to the visionaries of the greater world's economies, especially since it is a NATO ally and member of the European Union, though it does not share the common euro currency.
Some European banks with heavy exposure may be at risk from the turmoil in the crossroads nation, though the financial concerns run side by side with political and military issues.
While stocks took a hit, the US dollar was bolstered, rising to 96.27, its highest level in over a year. That reaction translated to lower prices for crude oil. Gold and silver, along with other commodities, trended lower. Gold closed out the week at 1,219.20. Silver ended at 15.28, trending at levels not seen in two years.
In a general sense, the week served as a reminder to traders that despite optimistic sentiment, troubling, nettlesome issues are bubbling up just beneath the superficial veneer of global economies.
Dow Jones Industrial Average August Scorecard:
| Date | Close | Gain/Loss | Cum. G/L |
| 8/1/18 | 25,333.82 | -81.37 | -81.37 |
| 8/2/18 | 25,326.16 | -7.66 | -89.03 |
| 8/3/18 | 25,462.58 | +136.42 | +55.05 |
| 8/6/18 | 25,502.18 | +39.60 | +94.65 |
| 8/7/18 | 25,628.91 | +126.73 | +221.38 |
| 8/8/18 | 25,583.75 | -45.16 | +176.22 |
| 8/9/18 | 25,509.23 | -74.52 | +101.70 |
| 8/10/18 | 25,313.14 | -196.09 | -94.39 |
At the Close, Friday, August 10, 2018:
Dow Jones Industrial Average: 25,313.14, -196.09 (-0.77%)
NASDAQ: 7,839.11, -52.67 (-0.67%)
S&P 500: 2,833.28, -20.30 (-0.71%)
NYSE Composite: 12,843.49, -113.17 (-0.87%)
For the Week:
Dow: -149.44 (-0.59%)
NASDAQ: +27.10 (+0.35%)
S&P 500: -7.07 (-0.25%)
NYSE Composite: -109.85 (-0.85%)
Friday, August 10, 2018
Stocks Stall Out, Dow Down Second Straight Day; Turkey Sparks Global Sell-Off
Things began turning ugly late on Thursday as the Dow - for the second day in a row - fell sharply nearing the close of the session.
Stocks had been trading nearly unchanged heading into the final hour, but dropped deep into the red to end the day down nearly 75 points. While the drop is hardly more than a rounding error (0.29%), the pattern of losing ground at the end of the session is troubling.
Notice has been taken by market participants. As of Friday morning, Asian bourses closed lower and European indices were off significantly, with the German DAX off by two percent.
In the US, futures are pointing to a large sell-off at the opening bell. The culprit appears to be the currency crisis in Turkey, where the Lira was down more than 12% on the day against the US dollar and is down 66% on the year.
It appears that Turkey is on the verge of a major collapse as President Erdogan defies his critics by refusing to raise interest rates in order to stave off incipient inflation.
The Dow is up just over 40 points for the week. A negative close could end a streak of five straight winning weeks for the 30 blue chip stocks.
Dow Jones Industrial Average August Scorecard:
At the Close, Thursday, August 9, 2018:
Dow Jones Industrial Average: 25,509.23, -74.52 (-0.29%)
NASDAQ: 7,891.78, +3.46 (+0.04%)
S&P 500 2,853.58, -4.12 (-0.14%)
NYSE Composite: 12,956.66, -31.25 (-0.24%)
Stocks had been trading nearly unchanged heading into the final hour, but dropped deep into the red to end the day down nearly 75 points. While the drop is hardly more than a rounding error (0.29%), the pattern of losing ground at the end of the session is troubling.
Notice has been taken by market participants. As of Friday morning, Asian bourses closed lower and European indices were off significantly, with the German DAX off by two percent.
In the US, futures are pointing to a large sell-off at the opening bell. The culprit appears to be the currency crisis in Turkey, where the Lira was down more than 12% on the day against the US dollar and is down 66% on the year.
It appears that Turkey is on the verge of a major collapse as President Erdogan defies his critics by refusing to raise interest rates in order to stave off incipient inflation.
The Dow is up just over 40 points for the week. A negative close could end a streak of five straight winning weeks for the 30 blue chip stocks.
Dow Jones Industrial Average August Scorecard:
| Date | Close | Gain/Loss | Cum. G/L |
| 8/1/18 | 25,333.82 | -81.37 | -81.37 |
| 8/2/18 | 25,326.16 | -7.66 | -89.03 |
| 8/3/18 | 25,462.58 | +136.42 | +55.05 |
| 8/6/18 | 25,502.18 | +39.60 | +94.65 |
| 8/7/18 | 25,628.91 | +126.73 | +221.38 |
| 8/8/18 | 25,583.75 | -45.16 | +176.22 |
| 8/9/18 | 25,509.23 | -74.52 | +101.70 |
At the Close, Thursday, August 9, 2018:
Dow Jones Industrial Average: 25,509.23, -74.52 (-0.29%)
NASDAQ: 7,891.78, +3.46 (+0.04%)
S&P 500 2,853.58, -4.12 (-0.14%)
NYSE Composite: 12,956.66, -31.25 (-0.24%)
Monday, November 20, 2017
Stocks Ignore Political Risks, China Regulations; Glint App Takes Gold Digital
Early morning in Europe and the Western Hemisphere were looking downright dreary to open the week's financial escapades, until buyers (central banks) emerged from the shadows (crypts), quickly erasing concerns over China's new rules to crimp the burgeoning shadow banking uprising and the failure of German Chancellor Angela Merkel to form a coalition government.
While futures were down sharply - especially on the European news - they were quickly corrected. China's markets quickly went from negative, staging a day-long rally, while European bourses were mostly positive and US stocks rallied sharply from the opening bell.
However, the euphoria flagged in the US as the session wore on, with stocks finishing off their highs of the day. Still, the results were much more cheerful than what might have happened if markets and investors were left alone, barring the blatant interventionism that seems to pervade trading in all markets.
The new paradigm is such that stocks cannot fail, but only go higher, valuations be damned, while gold and silver are routinely taken out to the woodshed for a weekly beating, such as occurred this morning, prior to the opening bell on Wall Street and throughout the day.
The setup isn't all so new at all. Since 2012, gold and silver have been mercilessly suppressed, to the point at which some staunch supporters are rethinking their love for shiny metals. This is exactly what central bankers wish, that wealth protectors give up and resign themselves to the fiat money regimen, but it is also precisely the time - if one is guided by sound investment stratagems - to begin loading up on what most would be shunning.
In that regard, London-based Glint launched a mobile app today that sets gold sailing into the digital age, offering Glintpay as a means by which to hold gold in a Swiss-based vault with the ability to spend one's holdings via a complementary MasterCard.
The app, which is available for download through the Apple App Store, works on iPhones and iPads using Apple's iOS operating system and is promising to provide quick and easy debit access to gold and a host of other currencies, with millions of locations worldwide accepting MasterCard.
How well the start-up will fare is an open question, but it does raise an interesting alternative to Bitcoin and other cryptocurrencies, which have witnessed monumental growth over the past six months and continue to raise eyebrows in the conventional banking universe.
The world is at a crossroads in terms of currencies. Trust in the debt-slavery central bank system continues to wane in various places as the rise of cryptos offers a glimpse of a possible future and precious metal devotees cling to long-held beliefs in money that is backed by physical assets.
Currency events are historically long-winded affairs, taking years or decades in which to sort themselves out. The ongoing forays between fiat, crypto, and physical seems to have gained some momentum today.
Investors with an eye on the global financial landscape would be wise to hold some of each, allocating more toward the digital and physical as events warrant as old systems are dying and may have been dealt an unrecoverable blow during the Great Financial Crisis of 2007-09.
At the Close, Monday, November 20, 2017:
Dow: 23,430.33, +72.09 (+0.31%)
NASDAQ: 6,790.71, +7.92 (+0.12%)
S&P 500: 2,582.14, +3.29 (+0.13%)
NYSE Composite: 12,320.77, +17.88 (+0.15%)
While futures were down sharply - especially on the European news - they were quickly corrected. China's markets quickly went from negative, staging a day-long rally, while European bourses were mostly positive and US stocks rallied sharply from the opening bell.
However, the euphoria flagged in the US as the session wore on, with stocks finishing off their highs of the day. Still, the results were much more cheerful than what might have happened if markets and investors were left alone, barring the blatant interventionism that seems to pervade trading in all markets.
The new paradigm is such that stocks cannot fail, but only go higher, valuations be damned, while gold and silver are routinely taken out to the woodshed for a weekly beating, such as occurred this morning, prior to the opening bell on Wall Street and throughout the day.
The setup isn't all so new at all. Since 2012, gold and silver have been mercilessly suppressed, to the point at which some staunch supporters are rethinking their love for shiny metals. This is exactly what central bankers wish, that wealth protectors give up and resign themselves to the fiat money regimen, but it is also precisely the time - if one is guided by sound investment stratagems - to begin loading up on what most would be shunning.
In that regard, London-based Glint launched a mobile app today that sets gold sailing into the digital age, offering Glintpay as a means by which to hold gold in a Swiss-based vault with the ability to spend one's holdings via a complementary MasterCard.
The app, which is available for download through the Apple App Store, works on iPhones and iPads using Apple's iOS operating system and is promising to provide quick and easy debit access to gold and a host of other currencies, with millions of locations worldwide accepting MasterCard.
How well the start-up will fare is an open question, but it does raise an interesting alternative to Bitcoin and other cryptocurrencies, which have witnessed monumental growth over the past six months and continue to raise eyebrows in the conventional banking universe.
The world is at a crossroads in terms of currencies. Trust in the debt-slavery central bank system continues to wane in various places as the rise of cryptos offers a glimpse of a possible future and precious metal devotees cling to long-held beliefs in money that is backed by physical assets.
Currency events are historically long-winded affairs, taking years or decades in which to sort themselves out. The ongoing forays between fiat, crypto, and physical seems to have gained some momentum today.
Investors with an eye on the global financial landscape would be wise to hold some of each, allocating more toward the digital and physical as events warrant as old systems are dying and may have been dealt an unrecoverable blow during the Great Financial Crisis of 2007-09.
At the Close, Monday, November 20, 2017:
Dow: 23,430.33, +72.09 (+0.31%)
NASDAQ: 6,790.71, +7.92 (+0.12%)
S&P 500: 2,582.14, +3.29 (+0.13%)
NYSE Composite: 12,320.77, +17.88 (+0.15%)
Tuesday, January 3, 2017
Stocks Up On First Trading Day Of Year, Signifying Nothing
Having - i some small ways - dispelled the concept that reaching for fantastic numbers such as Dow 20,000 is somehow productive, traders today took no heed of... well, anything, and pushed the DJIA close to the historic, albeit meaningless, mark.
That was early in the day. Shortly after the noon hour, the Dow had given up nearly all of the gains (all 160+ points) and was close to UNCH for the day. At the same time, the big run-up in WTI crude - to its highest level in 18 months (July 2015) - quickly was eviscerated, sending crude back below the break-even point for the day and into the red, where it closed on the NYMEX (53.49, -1.17).
However, the trading was not over on the stock exchanges and market participants seemed determined to open 2017 on a positive note, which they did, the major averages closing about 25% off their high points of the day.
Gains were well distributed, with nine of ten sectors positive, led by basic materials and energy. The only loser was utilities, though the loss was mild (-0.07%).
None of this one-day-one-off momentum-fest should be cause for alarm nor excitement. It's a new year, loaded with new ideas and fresh money and that money needs to go to work. While there are still impediments and potholes on the road to a brighter economic future and higher stock prices, none of that appeared to be of any consequence today.
Tomorrow may be another story with the very good possibility that the Dow will pierce the golden 20,000 mark and go well beyond. On the other hand, the evidence from the final two weeks of 2016 was robust in telling that the Trump rally from election day forward had run out of steam, so sideways could be the order of the day.
Money Daily was correct in predicting that Dow 20,000 would not be achieved in 2016. The second hypothesis was that it wouldn't reach that number until June of this year. Our third and most bombastic call was to say that Dow 20,000 may not be hit until 2023. Note the word MAY. We did not say the Dow would NOT reach 20,000 by that time, only that it MAY NOT. Big difference, but the call is based on a nascent understanding that everything in finance-land is not as rosy as the fake news media might have all of us believe.
The concept is very deep and rooted in a theory that the bulk of stock gains since the GFC of 2008 were achieved only though the means of depreciating and nearly decapitating currencies around the world. If money is cheaper today than it was yesterday, assets will accordingly be priced appropriately higher. Of course, should this free-money regime persist (we think it won't) then Dow 20,000 is not only achievable in the short run, Dow 30,000 would be in the kluge lights in short order, as would Apple at 250, and sirloin steaks at $24 a pound. In other words, inflation, then hyperinflation - such as is the case in Venezuela today - would make pricing irrelevant. Survival on $100,000 a year would be challenging and nobody is looking forward to that kind of nightmare scenario.
So, we see the gains of the last eight years as chimeras, and fading. And, if they fade, they will continue to fade until they are almost all gone. Not that a major, dramatic, collapse in prices would be a panacea for a better world, but only one which could be called closer to rational.
That's the view.
At the Close: 1.3.17:
Dow: 19,881.76, +119.16 (0.60%)
NASDAQ: 5,429.08, +45.97 (0.85%)
S&P 500: 2,257.83, +19.00 (0.85%)
NYSE Composite: 11,154.35, +97.46 (0.88%)
That was early in the day. Shortly after the noon hour, the Dow had given up nearly all of the gains (all 160+ points) and was close to UNCH for the day. At the same time, the big run-up in WTI crude - to its highest level in 18 months (July 2015) - quickly was eviscerated, sending crude back below the break-even point for the day and into the red, where it closed on the NYMEX (53.49, -1.17).
However, the trading was not over on the stock exchanges and market participants seemed determined to open 2017 on a positive note, which they did, the major averages closing about 25% off their high points of the day.
Gains were well distributed, with nine of ten sectors positive, led by basic materials and energy. The only loser was utilities, though the loss was mild (-0.07%).
None of this one-day-one-off momentum-fest should be cause for alarm nor excitement. It's a new year, loaded with new ideas and fresh money and that money needs to go to work. While there are still impediments and potholes on the road to a brighter economic future and higher stock prices, none of that appeared to be of any consequence today.
Tomorrow may be another story with the very good possibility that the Dow will pierce the golden 20,000 mark and go well beyond. On the other hand, the evidence from the final two weeks of 2016 was robust in telling that the Trump rally from election day forward had run out of steam, so sideways could be the order of the day.
Money Daily was correct in predicting that Dow 20,000 would not be achieved in 2016. The second hypothesis was that it wouldn't reach that number until June of this year. Our third and most bombastic call was to say that Dow 20,000 may not be hit until 2023. Note the word MAY. We did not say the Dow would NOT reach 20,000 by that time, only that it MAY NOT. Big difference, but the call is based on a nascent understanding that everything in finance-land is not as rosy as the fake news media might have all of us believe.
The concept is very deep and rooted in a theory that the bulk of stock gains since the GFC of 2008 were achieved only though the means of depreciating and nearly decapitating currencies around the world. If money is cheaper today than it was yesterday, assets will accordingly be priced appropriately higher. Of course, should this free-money regime persist (we think it won't) then Dow 20,000 is not only achievable in the short run, Dow 30,000 would be in the kluge lights in short order, as would Apple at 250, and sirloin steaks at $24 a pound. In other words, inflation, then hyperinflation - such as is the case in Venezuela today - would make pricing irrelevant. Survival on $100,000 a year would be challenging and nobody is looking forward to that kind of nightmare scenario.
So, we see the gains of the last eight years as chimeras, and fading. And, if they fade, they will continue to fade until they are almost all gone. Not that a major, dramatic, collapse in prices would be a panacea for a better world, but only one which could be called closer to rational.
That's the view.
At the Close: 1.3.17:
Dow: 19,881.76, +119.16 (0.60%)
NASDAQ: 5,429.08, +45.97 (0.85%)
S&P 500: 2,257.83, +19.00 (0.85%)
NYSE Composite: 11,154.35, +97.46 (0.88%)
Tuesday, April 19, 2016
Silver Pops Above $17/oz.; Intel Slashes 11,000 Jobs; Markets Steady
...and the beat goes on.
How long will it take before the majority of traders realize they've been fed a pack of lies in non-GAAP earnings reports, loaded with non-recurring, one-time charges, which oddly keep cropping up every other quarter, and profits that are the result of stock buybacks (fewer shares equals higher EPS)?
For most, the answer is "too long." Since Wall Street can only make money if stocks appear to be good investments - and that concept is quickly fleeing the coop - and have the confidence of investors, the con game of lowered expectations and "beats" will keep the dancers dancing well past midnight and into the wee hours of the morning.
When the party does finally end, there are going to be a lot of long faces, hung-over losers and poor explanations for why the market simply didn't keep going up forever and ever and ever. Central bankers the world over will be falling over each other before that happens, though, because where goes Wall Street, so goes central bank - and thus, fiat money - credibility, and that must be maintained at all costs, which just might include printing trillions and trillions more dollars, euros and yen before the money finds its justifiable price, that being the cost of ink on paper, or, essentially, nothing.
So, when pensioners find their nest eggs shattered and barren, and are being told that the paper promises are not going to be honored, it will be too late for the masses.
Only those free of debt, with some reasonable amount of hard assets - land, building, machinery, tools, art, gemstones, silver, and gold - will be whole and beholding to nobody. The rest will have to fend for themselves and their families as best as they can.
It is against this backdrop that the recent rise in the value of silver becomes important. Gold's little brother has risen from an even $14/ounce to close today just under 17 dollars an ounce, making it the best-performing asset of the year, passing by gold in the process.
There are numerous reasons that silver has been set afire in recent days. Less than a week ago, Deustche Bank agreed to settle lawsuits claiming the bank had engaged in price manipulation of silver as well as gold. This admission really put the afterburners to an already hopped-up commodity. Gold has been slower to respond, likely because silver had been manipulated much lower for much longer.
Traditionally, silver had been valued in relation to gold at anywhere from 16 to 20 ounces of silver to one ounce of gold. Earlier this year, the gold:silver ratio screamed above 80, signifying that silver was likely undervalued by a magnitude of four. In other words, the true value of silver must come back to historical norms, either by the price of gold falling dramatically, or the price of silver rising astronomically (i.e., silver, at a 16:1 ratio to gold, would be selling for $78/ounce, with gold at $1250, where it currently resides).
What is a more plausible outcome is that - and this process could take several years, maybe as many as ten - both gold and silver will rise, though silver will rise at a much faster pace, eventually coming in line at 20:1 per ounce of gold. Both precious metals will see enormous advances in coming years as currencies depreciate and eventually die, paramount among them the Japanese Yen, the Euro, and the US Dollar, since the currencies of the most developed nations are also the most at risk, due to many factors, not the least of which being the excessive levels of debt held by the general public and government.
The Fed, the ECB and the BOJ will print to infinity, eventually bankrupting their counties and their currencies. Holders of gold and silver will be rewarded for both their vision and their patience.
The process has begun, but only those willing to hold an asset that offers no interest or rate of return, but also does not carry any counter-party risk, will prosper. Dollars, Yen and Euro will eventually devalue and finally default.
In the words of James Pierpont (J.P.) Morgan, spoken in 1912, a year before he helped launch the Federal Reserve:
Today's closing figures:
S&P 500: 2,100.80, +6.46 (0.31%)
Dow: 18,053.60, +49.44 (0.27%)
NASDAQ: 4,940.33, -19.69 (0.40%)
Crude Oil 42.46 +3.08% Gold 1,251.80 +1.36% EUR/USD 1.1359 +0.41% 10-Yr Bond 1.78 +0.56% Corn 383.50 +0.66% Copper 2.23 +2.84% Silver 16.96 +4.35% Natural Gas 2.09 +7.63% Russell 2000 1,140.23 +0.08% VIX 13.24 -0.82% BATS 1000 20,682.61 0.00% GBP/USD 1.4394 +0.82% USD/JPY 109.1975 +0.33%
How long will it take before the majority of traders realize they've been fed a pack of lies in non-GAAP earnings reports, loaded with non-recurring, one-time charges, which oddly keep cropping up every other quarter, and profits that are the result of stock buybacks (fewer shares equals higher EPS)?
For most, the answer is "too long." Since Wall Street can only make money if stocks appear to be good investments - and that concept is quickly fleeing the coop - and have the confidence of investors, the con game of lowered expectations and "beats" will keep the dancers dancing well past midnight and into the wee hours of the morning.
When the party does finally end, there are going to be a lot of long faces, hung-over losers and poor explanations for why the market simply didn't keep going up forever and ever and ever. Central bankers the world over will be falling over each other before that happens, though, because where goes Wall Street, so goes central bank - and thus, fiat money - credibility, and that must be maintained at all costs, which just might include printing trillions and trillions more dollars, euros and yen before the money finds its justifiable price, that being the cost of ink on paper, or, essentially, nothing.
So, when pensioners find their nest eggs shattered and barren, and are being told that the paper promises are not going to be honored, it will be too late for the masses.
Only those free of debt, with some reasonable amount of hard assets - land, building, machinery, tools, art, gemstones, silver, and gold - will be whole and beholding to nobody. The rest will have to fend for themselves and their families as best as they can.
It is against this backdrop that the recent rise in the value of silver becomes important. Gold's little brother has risen from an even $14/ounce to close today just under 17 dollars an ounce, making it the best-performing asset of the year, passing by gold in the process.
There are numerous reasons that silver has been set afire in recent days. Less than a week ago, Deustche Bank agreed to settle lawsuits claiming the bank had engaged in price manipulation of silver as well as gold. This admission really put the afterburners to an already hopped-up commodity. Gold has been slower to respond, likely because silver had been manipulated much lower for much longer.
Traditionally, silver had been valued in relation to gold at anywhere from 16 to 20 ounces of silver to one ounce of gold. Earlier this year, the gold:silver ratio screamed above 80, signifying that silver was likely undervalued by a magnitude of four. In other words, the true value of silver must come back to historical norms, either by the price of gold falling dramatically, or the price of silver rising astronomically (i.e., silver, at a 16:1 ratio to gold, would be selling for $78/ounce, with gold at $1250, where it currently resides).
What is a more plausible outcome is that - and this process could take several years, maybe as many as ten - both gold and silver will rise, though silver will rise at a much faster pace, eventually coming in line at 20:1 per ounce of gold. Both precious metals will see enormous advances in coming years as currencies depreciate and eventually die, paramount among them the Japanese Yen, the Euro, and the US Dollar, since the currencies of the most developed nations are also the most at risk, due to many factors, not the least of which being the excessive levels of debt held by the general public and government.
The Fed, the ECB and the BOJ will print to infinity, eventually bankrupting their counties and their currencies. Holders of gold and silver will be rewarded for both their vision and their patience.
The process has begun, but only those willing to hold an asset that offers no interest or rate of return, but also does not carry any counter-party risk, will prosper. Dollars, Yen and Euro will eventually devalue and finally default.
In the words of James Pierpont (J.P.) Morgan, spoken in 1912, a year before he helped launch the Federal Reserve:
Gold is Money. Everything Else is Credit.
Today's closing figures:
S&P 500: 2,100.80, +6.46 (0.31%)
Dow: 18,053.60, +49.44 (0.27%)
NASDAQ: 4,940.33, -19.69 (0.40%)
Crude Oil 42.46 +3.08% Gold 1,251.80 +1.36% EUR/USD 1.1359 +0.41% 10-Yr Bond 1.78 +0.56% Corn 383.50 +0.66% Copper 2.23 +2.84% Silver 16.96 +4.35% Natural Gas 2.09 +7.63% Russell 2000 1,140.23 +0.08% VIX 13.24 -0.82% BATS 1000 20,682.61 0.00% GBP/USD 1.4394 +0.82% USD/JPY 109.1975 +0.33%
Wednesday, January 29, 2014
Bernanke's Departure Marks the End of the Bull Market as Stocks Slump Again
There were so many moving parts to the economic and trading landscape since yesterday's close, it may be most instructive to review them in chronological order.
First, around 5:00 pm ET, the Turkish central bank raised overnight lending rates - along with all other key rates - from 7.75% to 12%. That's the overnight rate, the rate at which the central bank lends to member banks. Ouch! The move immediately sent US stock futures soaring, as though the global economy had been saved by this one clumsy, desperate stroke of policy.
At 9:00 pm ET, the impostor-in-chief, Barrack Obama, gave his fifth state of he union address, grossly misrepresenting the overall health and stability of the United States and glibly calling on American businesses to give employees a raise.
The euphoria spread to Asian markets, which were higher on the day, the Nikkei gaining more than 400 points on the session.
However, by the time the sun began to rise on Europe, the glad tidings had turned back to fear, as the Turkish Lira began to come under continued pressure from other currencies. Most European indices were trending lower, though marginally, with losses of under one percent on the majors.
By early morning in the US, the trend had completely reversed course, with stock futures deeply negative. At the open, the Dow Jones Industrials fell by roughly 120 points and held in that range until the 2:00 pm ET Fed policy announcement.
Widely expected to taper their bond purchases by another $10 billion per month, dropping the total to $65 billion, the Fed did exactly that, to the ultimate dismay of equity investors. Those who had made the correct call prior to the action continued pulling money out of stocks, rotating, as it seemed prudent, into bonds, which continued to fall in the aftermath of the Fed's announcement.
By the end of the session, stocks had put in severe losses once again, with the Dow leading the way lower. Bonds reacted by rallying sharply, the 10-year-note finishing at its lowest yield - 2.68% - in more than two months. In addition to bonds, the main beneficiary of the Fed's reckless monetary policy at this juncture were precious metals, as gold and silver rallied throughout the day.
What becomes of equities, sovereign currencies and the global economy as the Federal Reserve says good-bye to Ben Bernanke (this was his final FOMC meeting as Fed chairman) and hello to Janet Yellen, is now an open question, though with obvious clues.
If the Fed continues to taper its bond purchases by an additional $10 billion per month, they would be completely out of the market sometime around September, though it is unlikely that the Fed's path will be so resolute and straightforward. Already, it's apparent that stocks are going to suffer in the short term, while bonds enjoy a day or two in the sun. With returns on equities becoming more and more risky endeavors, bonds will appear as a safe have, forcing more investors to rush in, thus, sending yields lower.
While a crash in the equity market may not exactly be what the fed had in mind, it may be unavoidable, as there is no neat way to unwind their massive QE program which unfolded over the past five years and should come to an end. As reckless as was Bernanke's policy directives of QE and ZIRP, unwinding these programs is going to cause massive economic disruptions and further fuel a gathering global deflation trade. It only makes sense. If the Fed withdraws liquidity, economies will suffer. At least it's a plan that makes some sense, though nobody really wants to endure the pain that comes from such an unwinding. In the long run, it may be the only way back to something resembling normalcy.
The pain will be acute - and already has been so - in emerging markets, where most of the hot money had been headed during the Fed's money-printing spree. Look for developed nations to maintain an aura of stability, while the rest of the world, in places as diverse as South Africa, Turkey, Argentina, Brazil, Indonesia, Mexico, India and eventually, China, become somewhat ungled, economically-speaking.
With money fleeing these former hotbeds of investment, their currencies will devalue against the rest of the developed world, Japan, the US and Europe remaining as the centrist states and most stable currencies... for a while. The risk is contagion from the emerging markets into the developed, as the destruction of deflation engulfs the globe.
Bonds should fare well. An expectation of the US 10-year note below two percent would be rational. However, carry trades, such as a Euro-Yen or Dollar-Yen might lose much of their luster, the better plays to be short the emerging currencies.
Of course, with dislocations of capital everywhere, gold and silver should be afforded a top-shelf position, though their advance will, as always, be suppressed by the concerted efforts of the central banks. Still, in a devaluing environment, the ultimate price of the precious metals, as measured against various currencies, may indeed become a top choice for wealth preservation.
With the current path of the Fed set in place (for now, because they can, have, and will move the goal posts), it would be safe to conclude that the bull market in stocks has come to an abrupt end and money in 401k and other accounts of storage will become victims of a nasty, clawing bear that has no regard for the future, only a perception of the unfolding present, complete with companies that are presently overvalued, have limited earnings growth potential and have to be unwound.
Unless the major indices can find a way to turn the tide and rally past recent highs, the bull market, spurred on by vast wasted sums of money from the Federal Reserve and other sources, is over.
From a technical perspective, Wednesday's trade was an outright disaster. Declining issues led advancers by a 7:2 margin and new lows exceeded new highs for the third day in the last four.
DOW 15,738.79, -189.77 (-1.19%)
NASDAQ 4,051.43, -46.53 (-1.14%)
S&P 1,774.20, -18.30 (-1.02%)
10-Yr Note 100.26, +0.97 (+0.97%) Yield: 2.68%
NASDAQ Volume 2.05 Bil
NYSE Volume 3.93 Bil
Combined NYSE & NASDAQ Advance - Decline: 1289-4441
Combined NYSE & NASDAQ New highs - New lows: 66-128
WTI crude oil: 97.36, -0.05
Gold: 1,262.20, +11.40
Silver: 19.55, +0.049
Corn: 427.50, -4.50
First, around 5:00 pm ET, the Turkish central bank raised overnight lending rates - along with all other key rates - from 7.75% to 12%. That's the overnight rate, the rate at which the central bank lends to member banks. Ouch! The move immediately sent US stock futures soaring, as though the global economy had been saved by this one clumsy, desperate stroke of policy.
At 9:00 pm ET, the impostor-in-chief, Barrack Obama, gave his fifth state of he union address, grossly misrepresenting the overall health and stability of the United States and glibly calling on American businesses to give employees a raise.
The euphoria spread to Asian markets, which were higher on the day, the Nikkei gaining more than 400 points on the session.
However, by the time the sun began to rise on Europe, the glad tidings had turned back to fear, as the Turkish Lira began to come under continued pressure from other currencies. Most European indices were trending lower, though marginally, with losses of under one percent on the majors.
By early morning in the US, the trend had completely reversed course, with stock futures deeply negative. At the open, the Dow Jones Industrials fell by roughly 120 points and held in that range until the 2:00 pm ET Fed policy announcement.
Widely expected to taper their bond purchases by another $10 billion per month, dropping the total to $65 billion, the Fed did exactly that, to the ultimate dismay of equity investors. Those who had made the correct call prior to the action continued pulling money out of stocks, rotating, as it seemed prudent, into bonds, which continued to fall in the aftermath of the Fed's announcement.
By the end of the session, stocks had put in severe losses once again, with the Dow leading the way lower. Bonds reacted by rallying sharply, the 10-year-note finishing at its lowest yield - 2.68% - in more than two months. In addition to bonds, the main beneficiary of the Fed's reckless monetary policy at this juncture were precious metals, as gold and silver rallied throughout the day.
What becomes of equities, sovereign currencies and the global economy as the Federal Reserve says good-bye to Ben Bernanke (this was his final FOMC meeting as Fed chairman) and hello to Janet Yellen, is now an open question, though with obvious clues.
If the Fed continues to taper its bond purchases by an additional $10 billion per month, they would be completely out of the market sometime around September, though it is unlikely that the Fed's path will be so resolute and straightforward. Already, it's apparent that stocks are going to suffer in the short term, while bonds enjoy a day or two in the sun. With returns on equities becoming more and more risky endeavors, bonds will appear as a safe have, forcing more investors to rush in, thus, sending yields lower.
While a crash in the equity market may not exactly be what the fed had in mind, it may be unavoidable, as there is no neat way to unwind their massive QE program which unfolded over the past five years and should come to an end. As reckless as was Bernanke's policy directives of QE and ZIRP, unwinding these programs is going to cause massive economic disruptions and further fuel a gathering global deflation trade. It only makes sense. If the Fed withdraws liquidity, economies will suffer. At least it's a plan that makes some sense, though nobody really wants to endure the pain that comes from such an unwinding. In the long run, it may be the only way back to something resembling normalcy.
The pain will be acute - and already has been so - in emerging markets, where most of the hot money had been headed during the Fed's money-printing spree. Look for developed nations to maintain an aura of stability, while the rest of the world, in places as diverse as South Africa, Turkey, Argentina, Brazil, Indonesia, Mexico, India and eventually, China, become somewhat ungled, economically-speaking.
With money fleeing these former hotbeds of investment, their currencies will devalue against the rest of the developed world, Japan, the US and Europe remaining as the centrist states and most stable currencies... for a while. The risk is contagion from the emerging markets into the developed, as the destruction of deflation engulfs the globe.
Bonds should fare well. An expectation of the US 10-year note below two percent would be rational. However, carry trades, such as a Euro-Yen or Dollar-Yen might lose much of their luster, the better plays to be short the emerging currencies.
Of course, with dislocations of capital everywhere, gold and silver should be afforded a top-shelf position, though their advance will, as always, be suppressed by the concerted efforts of the central banks. Still, in a devaluing environment, the ultimate price of the precious metals, as measured against various currencies, may indeed become a top choice for wealth preservation.
With the current path of the Fed set in place (for now, because they can, have, and will move the goal posts), it would be safe to conclude that the bull market in stocks has come to an abrupt end and money in 401k and other accounts of storage will become victims of a nasty, clawing bear that has no regard for the future, only a perception of the unfolding present, complete with companies that are presently overvalued, have limited earnings growth potential and have to be unwound.
Unless the major indices can find a way to turn the tide and rally past recent highs, the bull market, spurred on by vast wasted sums of money from the Federal Reserve and other sources, is over.
From a technical perspective, Wednesday's trade was an outright disaster. Declining issues led advancers by a 7:2 margin and new lows exceeded new highs for the third day in the last four.
DOW 15,738.79, -189.77 (-1.19%)
NASDAQ 4,051.43, -46.53 (-1.14%)
S&P 1,774.20, -18.30 (-1.02%)
10-Yr Note 100.26, +0.97 (+0.97%) Yield: 2.68%
NASDAQ Volume 2.05 Bil
NYSE Volume 3.93 Bil
Combined NYSE & NASDAQ Advance - Decline: 1289-4441
Combined NYSE & NASDAQ New highs - New lows: 66-128
WTI crude oil: 97.36, -0.05
Gold: 1,262.20, +11.40
Silver: 19.55, +0.049
Corn: 427.50, -4.50
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