WEEKEND WRAP: Stocks End Long Weekly Win Streaks; Negative Interest Rates Will Destroy Advanced Economies

Oh, Snap! Weekly winning steaks were ended with the first down week in the last eight on the NASDAQ. The S&P 500 and NYSE Composite saw their winning streaks ended at six weeks, while the Dow saw the underside of the unchanged line after four straight positives.

That US stock indices were all lower by less than one-half of one percent points up the resiliency and absurdity of the markets. Eminently malleable, stocks have been guided higher seemingly by Adam Smith's invisible hand, the one that keeps pension plans from imploding, sovereign governments from defaulting, and fiat currencies from the ruinous effects of unacceptability.

Putting into focus the NASDAQ, its seven-week upside move was the second-longest of the year. It began 2019 with an eight-week short-crushing rally on the heels of the final two weeks of 2018, which saw the index rise from the December ashes of a 6,190 low. While that 10-week advance boosted the index by some 1400 points, the most recent weekly gains accounted for only 800 additional points, although it recorded a new high in the week prior to the most recent and has backed down only slightly.

Anyone wise enough to have put all their money into the NASDAQ at the start of this year would be up a whopping 25% with just over a month remaining to add onto those lush profits. For ordinary folks locked into a buy and hold fund strategy, the gains since the highs of August-September 2018 to the present add up to only five percent. That's a more realistic figure for the real world and one which fits like a glove with the slowing pace of GDP and the generally dull data drops over these past 14 months.

While the stock markets may have the appearance of being big, bold, large and in charge, the truth is a somewhat more sobering landscape. Recovering so quickly from 20% losses has kept the investing public soothed and subdued, the politics of passive investing intact, and the wheels of industry churning, albeit at a lower crunch rate.

While stocks took this brief pre-holiday pause, interest rates were moving in the same direction, only with quickened pace. Negative interest rates rode across the plain of developed nations (Europe, Japan), suggesting that US treasuries were underpriced. Indeed, the long end of the curve was where most of the drama occurred, with the 30-year bond trimmed 21 basis points - from 2.41% to 2.22% - since November 8 (10 trading days). The 10-year note shed 17 basis points, slumping from 1.84% to 1.77% over the same period.

That's a trend sure to continue, as it represents a massive carry trade for investors outside the US. With yields in their native nations prefaced with minus signs, your bold-thinking French, German, Swiss, or Japanese investor is afforded a nearly risk-free two percent or more on money that otherwise would be eroded over time if held in sovereign securities. It's a neat trick that only the biggest and richest can perform. The rest of the population is unwittingly blinded by the stagnation and destruction ongoing behind the scenes.

Only a savvy few see negative interest rates for what they really are: a devious central bank device designed to wind down the fiat currency regime. In thirty to fifty years, the euro, yen, pound and even the dollar will be remnants of the industrial and information ages, replaced by something, we hope. while that may sound like a distant projection into the future, anybody in their 20s, 30s, or 40s might be best to be scared to death, because currency death-watches and funerals are morbid events played out over long periods of time.

Those of advanced age may better survive the utterly deflationary effects of negative interest rates and the impending currency decapitation in lower prices on everyday goods, but saving for retirement might best be measured in canned goods and precious metals instead of scraps of paper with important people on them or digitized numerical amounts on smart phone screens.

For many, the future is going to be destroyed before it arrives.

That's right. The world as it is now known will be a vastly different place in 2050 and it's unlikely to be prettier unless one has made the proper preparations into hard assets that will maintain value over harder times. Keeping up with the Joneses will be replaced by outrunning the Zombies. Fuel, food, water, shelter, and arable land - which, by the way, can be had on the cheap in some areas - are life-sustaining. Debt will be repudiated and rejected by a class of people similar to those of the depression era, whose lives were ruined by the influence of a currency they did not control, one which held neither value nor promise for a generation after 1929.

In case one is unconvinced of the effects of negative interest rates, just consider the math. Most pension plans in developed nations are already underfunded and have targets of six or seven percent annual gains written into their accountancy. If the best one can expect is two percent or less, a long-term shortfall is not only inevitable, it is assured.

All of this occurs over a long period of time, not all at once, but the effects on economies will nevertheless be devastating. Pension plans will not fail nor will sovereign debt default outright, but like rows of dominoes falling in super-slow motion, major currencies and first-world economies will gradually, inexorably decline and self-destruct.

Ah, but you say, these are negative thoughts marring the cheery landscape of the holidays.

Nay, if you get coal in your stockings this Christmas, consider yourself lucky. At least you will stay warm over the coming long winter.

At the Close, Friday, November 22, 2019:
Dow Jones Industrial Average: 27,875.62, +109.32 (+0.39%)
NASDAQ: 8,519.88, +13.67 (+0.16%)
S&P 500: 3,110.29, +6.75 (+0.22%0
NYSE Composite: 13,440.95, +34.55 (+0.26%)

For the week:
Dow: -129.27 (-0.46%)
NASDAQ: -20.94 (-0.25%)
S&P 500: -10.17 (-0.335)
NYSE Composite: -52.01 (-0.39%)