Stocks, bonds, oil and precious metals all had their ups and downs on Thursday, as the focus early was on stocks, which put on impressive gains, only to give half of them back in afternoon trading.
Oil was higher in early trading, spiking to $26.27 a barrel for WTI crude before collapsing all the way down to $23.13.
With a turn right after noon, money began to flow away from riskier assets and into safe havens, with bonds, gold, and silver all being bid as the day wore onward.
Silver started the day at $14.81, languished early, and finished sharply higher, at $15.36. Gold was also cold in the morning, but found its legs later, moving from Wednesday's NY close of $1684.10 to finish at $1718.00.
Treasuries were bought with unusual gusto on the long end. The yield on the 5-year note moved from 0.37% to 0.29% on the day, the 10-year yield went from 0.72% to 0.63%, and the 30-year dropped 10 basis points, from 1.41% to 1.31%. The curve flatted out by 10 basis points, 121 bips covering the entire complex.
All of this activity was against a backdrop of 3.2 million initial unemployment claims, bringing the recent total to 33 million over the past seven weeks.
April non-farm payrolls were also on the mind, with the number - expected to be a record for one month - due out Friday morning.
Argentina (silvery) is about to default on $65 billion of its foreign debt today, Friday, May 8, as bondholders and the government are at loggerheads over a restructuring, though the government appeared to be willing to make some concessions late Thursday. A harder deadline comes May 22, when the country could enter certain default, as a grace period for $500 million of interest payments comes to an end. The clock is ticking for the nation that has defaulted on debt eight times previously.
Argentina could be the doomsday clock the financial world is watching. Other nations are sure to be on the brink of debt default and currency crises after weeks and months of lockdowns, supply chain breakdowns, social unrest, and deaths caused by COVID-19.
Is this the beginning of the end of the stock market rally and a rush to the safety of hard assets? The Dow popped above 24,000 intraday, but it's been unable to surpass the seven-week high of 24,633.66, which is roughly a half retrace of the March pullback. Another failure at this level would signal a short-term selling condition.
Just moments ago, the BLS reported April non-farm payrolls, registering a loss of 20.5 million jobs, pushing the unemployment rate to 14.7%.
With COVID-19 continuing to cause dislocations in everything from meat distribution to pro sports to education, the debate over whether this economic maelstrom will eventually result in a sharp rebound or a long, drawn out recession or even a depression.
Siding with the sharp rebound are those who gave up the ghost back in March with lockdowns, the government, media, and most of the financial community following the lead of the Federal Reserve.
Naysayers, viewing the global economy at a severe breaking point with no good solutions, include James Rickards, Mike Maloney of goldsilver.com, Peak Prosperity's Chris Martenson, Peter Schiff (a fiat money perma-bear and gold perma-bull) and others.
Greg Mannarino, the Robin Hood of Wall Street adds some perspective:
At the Close, Thursday, May 7, 2020:
Dow: 23,875.89, +211.25 (+0.89%)
NASDAQ: 8,979.66, +125.27 (+1.41%)
S&P 500: 2,881.19, +32.77 (+1.15%)
NYSE: 11,121.67, +121.68 (+1.11%)
Showing posts with label interest rates. Show all posts
Showing posts with label interest rates. Show all posts
Friday, May 8, 2020
Sunday, March 1, 2020
Coronavirus (COVID-19) Crushes Stocks, Commodities, Oil, Gold, Silver; Crisis Appears To Be Accelerating
(Simultaneously published at Downtown Magazine)
As ugly goes, this past week ranks right up there with bearded lady or three-eyed ogre status.
Over the course of just five trading sessions, stocks lost more than ten percent on all the main indices. The Dow topped the list with a drop of 12.36%. The week and the preceding Thursday and Friday (all but the NASDAQ are sporting seven-day losing streaks marked the fastest that stocks fell into correction territory, officially designated as a 10% slide.
What's worse - if there's anything worse than shaving a couple trillion off the American market cap balance sheet - is that the rush to sell hardly seems to be over. The last week of February looks more like the beginning of something more severe, and with the spread of the coronavirus (COVID-19) just beginning to make an impact in the United States, there isn't much talk about "buying the dip" at this particular juncture.
Just because everybody loves numbers, here are the current losses from the respective tops and the levels needed to reach down to a 20% loss, the designated level at which would kick in a bear market. Bear in mind that stocks recently hit all-time highs.
Dow: Top: 29,551.42 (2/12/20); Current: 25,409.36 (-14.02%); Bear Market (-20%): 23,641.14
NASDAQ: Top: 9,817.18 (2/19/20); Current: 8,567.37 (-12.74%); Bear Market(-20%): 7,853.74
S&P 500: Top: 3,386.15 (2/19/20); Current: 2,954.22 (-13.76%); Bear Market (-20%): 2,708.92
NYSE: Top: 14,183.20 (1/17/20); Current: 12,380.97 (-12.71%); Bear Market (-20%): 11,346.56
The potential for a bear market are palpable for more reasons than just the threat of COVID-19 spreading across the great expanse of the United States. A widespread outbreak, like the one in China, would be devastating, but already there are strong indications that community transmission has already taken place in the state of Washington, in Chicago, and in California.
Widespread infections that close schools and businesses would only be the tip of the issue. Large public gatherings - and that is a concern with baseball's regular season less than a month away - would carry warnings to the public. Many would likely stay away just out of personal caution, but hope is that the department of Heath and Human Services (HHS), CDC and Vice President Pence's executive branch team will keep community outbreaks well contained. However, France and Switzerland have banned large gatherings over 5,000, and cancelled all sporting events. Imagine the same for the United States in just a few weeks. It could happen. It may not.
Possibly also working against the virus is time. Many similar viruses, like the flu, die off naturally or lose their effectiveness and ability to transmit and spread.
On he other hand, the aftereffects from China's production slowdown have not been fully felt and won't be evident until companies report first quarter results. That's early April and beyond, giving the markets more than a month to navigate whatever trend emerges.
Stocks were significantly overvalued when the slide began; today they are less so, though still hanging in the high end in the valuation regimen. There is more room on the downside. All through 2019, companies were not reporting robust results. The S&P was generally flat on earnings yet stocks rose. Capacity Utilization and Productivity have also shown signs of a slowdown, even prior to the coronavirus event.
While unemployment remains a bright spot, business expansion has been slow to nearly nothing. A slew of variables - in effect the market's wall of worry - are mixed and unresolved. With sentiment now having shifted violently from greed to fear, any bad or marginal data is going to get the bum's rush, encouraging more selling.
Elsewhere, crude oil took a massive hit during the week. WTI crude closed at $54.88 on February 20, but by Friday of this week had dropped to $44.76 per barrel, a slide of 18.45%.
Precious metals abruptly went negative midweek after rallying for the better part of the last month. The silver continuous contract closed Friday at $16.46, the lowest price since last July. Gold topped out at $1691.70 per ounce on Monday, but by Friday could be purchased for $1566.70, more than a hundred dollar discount. Four straight down days snapped a rally in gold that started in late November, 2019. The gold price remains elevated, having only caught down to a price that was last seen the first week of February.
Particularly telling was action in the treasury market and bonds overall. The entire yield curve was decimated with the benchmark 10-year note checking in at an all-time low of 1.13%. The 30-year bond also posted a record low yield at 1.65% on Friday. With inversion on the short end - the 6-month bill is yielding 1.11 - the 2-year, 3-year, and 5-year are yielding 0.86%, 0.85%, and 0.89%, respectively.
With everybody from President Trump on down calling on the Federal Reserve to get into the act, rumors began circulating late Thursday that the Fed would coordinate with other central banks for some kind of symmetric cuts in overnight rates as early as Sunday, though as of this writing, nothing has come of it. The Fed is virtually guaranteed to cut by at least 25 basis points at its next FOMC meeting, on March 17-18, though for many in the markets, that seems a long time off and may in fact be too late to have much influence.
It wasn't just treasuries feeling the heat. According to Doug Noland's Credit Bubble Bulletin, "There were no investment-grade deals for the first time in 18 months, as $25bn of sales were postponed awaiting more favorable market conditions."
If credit markets begin to seize up, which appears to be the evolving case, the Fed will have no choice but to lower the federal funds rate prior to the meeting. 50 basis points would appear appropriate if the virus continues to spread not just in the US, but around the world. More than 60 countries have at least one case of the virus and the United States, Australia, and Thailand have reported their first deaths just in the past 24 hours.
Preparedness is the key to surviving whatever form the crisis takes, be it medical or economic. Households should have on hand at least a three-week supply of food and other essentials at the minimum. Investors should have moved money into safe havens, as many did. Money market funds and bonds provide some relief from the roller coaster of stocks. Precious metals usually provide some protection, but, as was the case in 2008, gold and silver fell off dramatically as stores of the metals were sold in order to shore up cash liquidity. Back then, they were the first commodities to recover, besting the markets by a number of months, though right now, they don't appear to be stunning buying opportunities.
If the worst case scenario occurs and there are wide ranging quarantines, travel restrictions and cancelation of public gatherings, expect nothing short of a complete meltdown of the financial system and conditions which have never been seen before. A stock market decline of 60-70 percent would be a real possibility. The entire rip to the downside could take as long as 18 months or as little as six.
That's not to say that a total collapse will occur. There may be mitigating factors in the interim, plus the advent of warmer weather with higher humidity might slow down the virus, but market direction has turned violently to the negative. Now is not the time to jump in a buy equities as most rallies will likely be met with strong resistance and more selling.
Presently, everything is up in the air, including the virus and the world's finances.
At the Close, Friday, February 28, 2020:
Dow Jones Industrial Average: 25,409.36, -357.28 (-1.39%)
NASDAQ: 8,567.37, +0.89 (+0.01%)
S&P 500: 2,954.22, -24.54 (-0.82%)
NYSE: 12,380.97, -166.29 (-1.33%)
For the Week:
Dow: -3583.05 (-12.36%)
NASDAQ: -1009.22 (-10.54%)
S&P 500: -383.53 (-11.49%)
NYSE: -1594.81 (-11.41%)
As ugly goes, this past week ranks right up there with bearded lady or three-eyed ogre status.
Over the course of just five trading sessions, stocks lost more than ten percent on all the main indices. The Dow topped the list with a drop of 12.36%. The week and the preceding Thursday and Friday (all but the NASDAQ are sporting seven-day losing streaks marked the fastest that stocks fell into correction territory, officially designated as a 10% slide.
What's worse - if there's anything worse than shaving a couple trillion off the American market cap balance sheet - is that the rush to sell hardly seems to be over. The last week of February looks more like the beginning of something more severe, and with the spread of the coronavirus (COVID-19) just beginning to make an impact in the United States, there isn't much talk about "buying the dip" at this particular juncture.
Just because everybody loves numbers, here are the current losses from the respective tops and the levels needed to reach down to a 20% loss, the designated level at which would kick in a bear market. Bear in mind that stocks recently hit all-time highs.
Dow: Top: 29,551.42 (2/12/20); Current: 25,409.36 (-14.02%); Bear Market (-20%): 23,641.14
NASDAQ: Top: 9,817.18 (2/19/20); Current: 8,567.37 (-12.74%); Bear Market(-20%): 7,853.74
S&P 500: Top: 3,386.15 (2/19/20); Current: 2,954.22 (-13.76%); Bear Market (-20%): 2,708.92
NYSE: Top: 14,183.20 (1/17/20); Current: 12,380.97 (-12.71%); Bear Market (-20%): 11,346.56
The potential for a bear market are palpable for more reasons than just the threat of COVID-19 spreading across the great expanse of the United States. A widespread outbreak, like the one in China, would be devastating, but already there are strong indications that community transmission has already taken place in the state of Washington, in Chicago, and in California.
Widespread infections that close schools and businesses would only be the tip of the issue. Large public gatherings - and that is a concern with baseball's regular season less than a month away - would carry warnings to the public. Many would likely stay away just out of personal caution, but hope is that the department of Heath and Human Services (HHS), CDC and Vice President Pence's executive branch team will keep community outbreaks well contained. However, France and Switzerland have banned large gatherings over 5,000, and cancelled all sporting events. Imagine the same for the United States in just a few weeks. It could happen. It may not.
Possibly also working against the virus is time. Many similar viruses, like the flu, die off naturally or lose their effectiveness and ability to transmit and spread.
On he other hand, the aftereffects from China's production slowdown have not been fully felt and won't be evident until companies report first quarter results. That's early April and beyond, giving the markets more than a month to navigate whatever trend emerges.
Stocks were significantly overvalued when the slide began; today they are less so, though still hanging in the high end in the valuation regimen. There is more room on the downside. All through 2019, companies were not reporting robust results. The S&P was generally flat on earnings yet stocks rose. Capacity Utilization and Productivity have also shown signs of a slowdown, even prior to the coronavirus event.
While unemployment remains a bright spot, business expansion has been slow to nearly nothing. A slew of variables - in effect the market's wall of worry - are mixed and unresolved. With sentiment now having shifted violently from greed to fear, any bad or marginal data is going to get the bum's rush, encouraging more selling.
Elsewhere, crude oil took a massive hit during the week. WTI crude closed at $54.88 on February 20, but by Friday of this week had dropped to $44.76 per barrel, a slide of 18.45%.
Precious metals abruptly went negative midweek after rallying for the better part of the last month. The silver continuous contract closed Friday at $16.46, the lowest price since last July. Gold topped out at $1691.70 per ounce on Monday, but by Friday could be purchased for $1566.70, more than a hundred dollar discount. Four straight down days snapped a rally in gold that started in late November, 2019. The gold price remains elevated, having only caught down to a price that was last seen the first week of February.
Particularly telling was action in the treasury market and bonds overall. The entire yield curve was decimated with the benchmark 10-year note checking in at an all-time low of 1.13%. The 30-year bond also posted a record low yield at 1.65% on Friday. With inversion on the short end - the 6-month bill is yielding 1.11 - the 2-year, 3-year, and 5-year are yielding 0.86%, 0.85%, and 0.89%, respectively.
With everybody from President Trump on down calling on the Federal Reserve to get into the act, rumors began circulating late Thursday that the Fed would coordinate with other central banks for some kind of symmetric cuts in overnight rates as early as Sunday, though as of this writing, nothing has come of it. The Fed is virtually guaranteed to cut by at least 25 basis points at its next FOMC meeting, on March 17-18, though for many in the markets, that seems a long time off and may in fact be too late to have much influence.
It wasn't just treasuries feeling the heat. According to Doug Noland's Credit Bubble Bulletin, "There were no investment-grade deals for the first time in 18 months, as $25bn of sales were postponed awaiting more favorable market conditions."
If credit markets begin to seize up, which appears to be the evolving case, the Fed will have no choice but to lower the federal funds rate prior to the meeting. 50 basis points would appear appropriate if the virus continues to spread not just in the US, but around the world. More than 60 countries have at least one case of the virus and the United States, Australia, and Thailand have reported their first deaths just in the past 24 hours.
Preparedness is the key to surviving whatever form the crisis takes, be it medical or economic. Households should have on hand at least a three-week supply of food and other essentials at the minimum. Investors should have moved money into safe havens, as many did. Money market funds and bonds provide some relief from the roller coaster of stocks. Precious metals usually provide some protection, but, as was the case in 2008, gold and silver fell off dramatically as stores of the metals were sold in order to shore up cash liquidity. Back then, they were the first commodities to recover, besting the markets by a number of months, though right now, they don't appear to be stunning buying opportunities.
If the worst case scenario occurs and there are wide ranging quarantines, travel restrictions and cancelation of public gatherings, expect nothing short of a complete meltdown of the financial system and conditions which have never been seen before. A stock market decline of 60-70 percent would be a real possibility. The entire rip to the downside could take as long as 18 months or as little as six.
That's not to say that a total collapse will occur. There may be mitigating factors in the interim, plus the advent of warmer weather with higher humidity might slow down the virus, but market direction has turned violently to the negative. Now is not the time to jump in a buy equities as most rallies will likely be met with strong resistance and more selling.
Presently, everything is up in the air, including the virus and the world's finances.
At the Close, Friday, February 28, 2020:
Dow Jones Industrial Average: 25,409.36, -357.28 (-1.39%)
NASDAQ: 8,567.37, +0.89 (+0.01%)
S&P 500: 2,954.22, -24.54 (-0.82%)
NYSE: 12,380.97, -166.29 (-1.33%)
For the Week:
Dow: -3583.05 (-12.36%)
NASDAQ: -1009.22 (-10.54%)
S&P 500: -383.53 (-11.49%)
NYSE: -1594.81 (-11.41%)
Wednesday, February 26, 2020
Bloodbath Continues As Stocks Respond To Coronavirus Fears; Bond Yields Achieve Fresh Lows; A Black Swan Moment?
So, is this "the big one?"
Is this the beginning of the inevitable late-stage bull market crash?
It very well could be, with the coronavirus taking up residence in market perceptions as the black swan, the mythical entity so eloquently devised and demonstrably argued in Nassim Nicholas Taleb's book by the same name in 2007.
To those unfamiliar with the concept, black swans are rare, some say even non-existent, and Talib posits that rare, unpredictable events do happen, and their appearance can manifest itself in positive or negative ways.
Thus, the coronavirus (COVID-19) qualifies as a black swan event, as it appeared almost from nowhere, without warning, without announcement, and without restraint. It could be said that the virus itself is not the black swan, but what turned it into a major event for markets and economies was the fumbled handling of it and attempts to contain it in its early days of spread in China.
Had the virus been less contagious, less virulent, better contained, it might have had little to no effect on markets, but, as has been seen over the past two months, it managed to spread across almost all of mainland China, escaped its borders and eventually has been contracted in now forty countries, as far-flung as Sri Lanka, Bahrain, Finland, and the United States.
It is out there, it is virulent, it is deadly in some cases. Invisible, untouchable, it is an ideal psy-op by which the mainstream and financial media can whip up fear into a tornado of emotion, to whirl about Wall Street and global financial centers and create a panic.
The truth - and there have been more than enough variants of that to render objective opinion nearly moot - is that the virus is apparently not as deadly as other natural disasters might be. It is not even keeping pace with deaths by accident or from the more common flu, but the media coverage and government response to it has been nothing short of ghastly and draconian. Mass quarantines are not something most people alive today have ever experienced, but the world is getting a first-hand view - albeit somewhat clouded by China's command - of entire cities and provinces on lockdown, now followed by similar experience in South Korea and Italy and elsewhere, and possibly, we have been warned, coming to a neighborhood near you.
So, while fear is stoked in the general populace over the chance of catching the disease, possibly dying from it and possibly having to live isolated for weeks, the financial world sees disruption to the normal conduct of business, anathema of the first order.
Starting with the supply lines for parts to finished products out of China and ending with entire huge swaths of populations unable to transact in an orderly manner, the spread of the virus has the potential of putting the entire planet on hold, unable to work, pay bills, advance production, build, grow. COVID-19 is the potion, media and government the ice and the straw that sirs the drink (hat tip to Mr. October, Reggie Jackson for the apropos analogy), and it is all connected.
Whether or not the spread of the virus, its immediate health effects and reaction to it will be enough to send economies into reverse is still unknown, though it's looking more and more likely that whatever carnage it is producing is not about to stop soon and will continue until either it mutates itself out of existence or is contained to a level at which people can work, travel, and interact freely without fear.
So far, it has not been contained to any satisfactory level and appears to be spreading further into the general population in many countries.
With what we know, and the reaction thus far - by China first and the rest of the world after that - COVID-19 may not decimate the world's population, but the fear of it, the media coverage of it, and various government responses to it have the potential to crash markets around the world.
The financial environment has quickly shifted from greed over to fear and fear is not backing down. Investors are seeking safety rather than profit. Companies are reviewing disaster plans and procedures rather than seeking expansion and growth. These conditions will likely prevail for months, long enough to send stocks spiraling into a death trap, bonds soaring, and eventually gold and silver to unforeseen levels (though precious metals took a thumping on Tuesday thanks to the unseen hands of interlopers in the paper markets).
On Tuesday, the Dow took another huge step down, as did the NASDAQ, S&P, and other indices around the world, especially in Europe, which after China, looms the most precarious. Europe was already been on edge, close to recession, prior to the emergence of the coronavirus threat and they may be reeling uncontrollable into an abyss should the population experience widespread or even minor contraction.
In the United States, the slowdown has begun, with automakers concerned about parts en route from China and whether such essential production parts will arrive in an orderly manner. It's probable that they will not. Other industries have a similar connection to China and elsewhere, and anecdotal evidence suggests that slowdowns and possible layoffs lie straight ahead.
Bond yields have cratered like a failed bundt cake. Yield on the 10-year note crashed through its all-time low, stopping finally at 1.33%, two basis points below the prior low from July 5th and 8th of 2016 (1.37%). The 30-year bond dipped to 1.80%. The three and five-year notes mark the bottom of the treasury curve at 1.16, dangerous levels for capital markets.
In conclusion, unless events somehow take a radical turn for the better, conditions exist in spades for massive market turmoil to the downside. Beyond the idea that most liquid equity markets and individual securities have been extremely overbought and propped up by Fed injections and corporate buybacks, the effect from coronavirus and reaction to it should continue to offer nothing good in terms of upside impetus for the foreseeable future, though the first quarter and well into the second.
Global recession or worse is a viable consideration.
At the Close, Tuesday, February 25, 2020:
Dow Jones Industrial Average: 27,081.36, -879.44 (-3.15%)
NASDAQ: 8,965.61, -255.67 (-2.77%)
S&P 500: 3,128.21, -97.68 (-3.03%)
NYSE: 13,143.73, -390.37 (-2.88%)
If all this is too much for you to bear, then sit back, relax, and enjoy music from a better time, the Beatles' Revolver album.
Is this the beginning of the inevitable late-stage bull market crash?
It very well could be, with the coronavirus taking up residence in market perceptions as the black swan, the mythical entity so eloquently devised and demonstrably argued in Nassim Nicholas Taleb's book by the same name in 2007.
 |
| Talib's tome is on the mark. |
To those unfamiliar with the concept, black swans are rare, some say even non-existent, and Talib posits that rare, unpredictable events do happen, and their appearance can manifest itself in positive or negative ways.
Thus, the coronavirus (COVID-19) qualifies as a black swan event, as it appeared almost from nowhere, without warning, without announcement, and without restraint. It could be said that the virus itself is not the black swan, but what turned it into a major event for markets and economies was the fumbled handling of it and attempts to contain it in its early days of spread in China.
Had the virus been less contagious, less virulent, better contained, it might have had little to no effect on markets, but, as has been seen over the past two months, it managed to spread across almost all of mainland China, escaped its borders and eventually has been contracted in now forty countries, as far-flung as Sri Lanka, Bahrain, Finland, and the United States.
It is out there, it is virulent, it is deadly in some cases. Invisible, untouchable, it is an ideal psy-op by which the mainstream and financial media can whip up fear into a tornado of emotion, to whirl about Wall Street and global financial centers and create a panic.
The truth - and there have been more than enough variants of that to render objective opinion nearly moot - is that the virus is apparently not as deadly as other natural disasters might be. It is not even keeping pace with deaths by accident or from the more common flu, but the media coverage and government response to it has been nothing short of ghastly and draconian. Mass quarantines are not something most people alive today have ever experienced, but the world is getting a first-hand view - albeit somewhat clouded by China's command - of entire cities and provinces on lockdown, now followed by similar experience in South Korea and Italy and elsewhere, and possibly, we have been warned, coming to a neighborhood near you.
So, while fear is stoked in the general populace over the chance of catching the disease, possibly dying from it and possibly having to live isolated for weeks, the financial world sees disruption to the normal conduct of business, anathema of the first order.
Starting with the supply lines for parts to finished products out of China and ending with entire huge swaths of populations unable to transact in an orderly manner, the spread of the virus has the potential of putting the entire planet on hold, unable to work, pay bills, advance production, build, grow. COVID-19 is the potion, media and government the ice and the straw that sirs the drink (hat tip to Mr. October, Reggie Jackson for the apropos analogy), and it is all connected.
Whether or not the spread of the virus, its immediate health effects and reaction to it will be enough to send economies into reverse is still unknown, though it's looking more and more likely that whatever carnage it is producing is not about to stop soon and will continue until either it mutates itself out of existence or is contained to a level at which people can work, travel, and interact freely without fear.
So far, it has not been contained to any satisfactory level and appears to be spreading further into the general population in many countries.
With what we know, and the reaction thus far - by China first and the rest of the world after that - COVID-19 may not decimate the world's population, but the fear of it, the media coverage of it, and various government responses to it have the potential to crash markets around the world.
 |
| Note the variance between the rise in price (up) and the bottom panel. That is the correlation with the S&P 500, which the Dow underperformed all through 2019 and into 2020. |
On Tuesday, the Dow took another huge step down, as did the NASDAQ, S&P, and other indices around the world, especially in Europe, which after China, looms the most precarious. Europe was already been on edge, close to recession, prior to the emergence of the coronavirus threat and they may be reeling uncontrollable into an abyss should the population experience widespread or even minor contraction.
In the United States, the slowdown has begun, with automakers concerned about parts en route from China and whether such essential production parts will arrive in an orderly manner. It's probable that they will not. Other industries have a similar connection to China and elsewhere, and anecdotal evidence suggests that slowdowns and possible layoffs lie straight ahead.
Bond yields have cratered like a failed bundt cake. Yield on the 10-year note crashed through its all-time low, stopping finally at 1.33%, two basis points below the prior low from July 5th and 8th of 2016 (1.37%). The 30-year bond dipped to 1.80%. The three and five-year notes mark the bottom of the treasury curve at 1.16, dangerous levels for capital markets.
In conclusion, unless events somehow take a radical turn for the better, conditions exist in spades for massive market turmoil to the downside. Beyond the idea that most liquid equity markets and individual securities have been extremely overbought and propped up by Fed injections and corporate buybacks, the effect from coronavirus and reaction to it should continue to offer nothing good in terms of upside impetus for the foreseeable future, though the first quarter and well into the second.
Global recession or worse is a viable consideration.
At the Close, Tuesday, February 25, 2020:
Dow Jones Industrial Average: 27,081.36, -879.44 (-3.15%)
NASDAQ: 8,965.61, -255.67 (-2.77%)
S&P 500: 3,128.21, -97.68 (-3.03%)
NYSE: 13,143.73, -390.37 (-2.88%)
If all this is too much for you to bear, then sit back, relax, and enjoy music from a better time, the Beatles' Revolver album.
Sunday, January 26, 2020
WEEKEND WRAP: Coronavirus Affecting Markets; Turbulent Week Ahead; Oil Already Whacked
Last week, as the the wealthy and infamous gathered for the annual World Economic Forum (WEF) in Davos, Switzerland, markets were focusing on more compelling domestic and international issues, primarily, the impeachment trial of President Donald J. Trump and the outbreak of the deadly coronavirus which has spread outward from its source in mainland China, now reaching around the world, particularly in the Northern Hemisphere, where nearly all the developed nations are anchored.
While the impeachment hearings were less impactful, being that the first few days of the trial consisted of one session for rule-making and three days of Democrat managers from the House of Representatives reiterating their tired claims from months of investigations stemming from a single phone call, the spread of a killer virus caught everybody's attention.
The number of deaths officially reported by the Chinese government grew from 16 on Wednesday to 23 to 41 to 56 by Sunday. As the week progressed, the number of reported cases grew considerably - by Sunday, nearly 2,000 in China alone - along with the number of countries discovering outbreaks. By Sunday morning, instances of reported cases had been registered in France, South Korea, Japan, Nepal, Thailand, Singapore, Vietnam, Taiwan, Australia, and the United States.
Similar to the SARS (severe acute respiratory syndrome) outbreak, which killed more than 750 people in 2002-2003, the threat is that this particular virus is spreading at a much faster rate as transmissibility is increasing.
By Monday morning, the toll will likely exceed 90, but there's widespread speculation that China has been and continues to understate not only the number of cases reported, but also the death toll.
This is the kind of thing some students of the dark science of economics might consider a "black swan," an unusual event or occurrence with a low probability that nobody sees coming. Already, the coronavirus outbreak has affected markets, but none more profoundly than oil. With travel bans in effect already in some Chinese cities and many presumably taking precautions to avoid crowds and people who may be infected, the world's second-largest user of oil and distillates is bound to experience a sharp demand decline that will affect prices globally.
WTI crude fell, over the course of the week, from $58.58 per barrel to $54.19, a decline of 7.5%. Brent dropped from an opening at $65.65 on Monday to $59.85 by week's end, losing nearly nine percent.
Stocks were also hit, as increasingly dire stories continued to mount over the course of the week, limiting upside on all exchanges, and squelching rallies on Tuesday, and especially in the US on Friday, when the Chinese government announced the rising death toll and cancellation of many Lunar New Year festivities, the biggest holiday in the country.
China, already on the brink of an extended financial downturn, saw severe damage to equity markets.
If the coronavirus continues to spread to other countries and becomes a pandemic, declines on the major indices (the Dow was down for the fourth straight day as of Friday) could turn what appeared as a minor fluctuation into an avalanche. Limiting movement, be it out of fear or by government dictates, would seriously hamper economic activity anyway, and, if the contagion becomes global in nature, which it appears to be doing, the effect may be long-lasting.
So, that's how normal operating markets turn into dungeons of doom. There is no silver lining, other than, you guessed it, silver and gold, both of which turned in the opposite direction from stocks, both tumbling on Tuesday but gaining the remainder of the week. Gold finished at $1571.60 per ounce; silver closed out the week at $18.10 per ounce. There is likely to be a further, faster advance in precious metals should the virus continue to spread.
With an FOMC meeting up next week (January 28-29) bonds saw high demand, moving interest rates on treasuries to their lowest levels since October, 2019. The 10-year-note closed out the week at 1.70% yield, with the 30-year bond closing at 2.14%.
Also upcoming in the week ahead, a slew of earnings reports, many of them notable as most will be for the fourth quarter of 2019 and the full year.
On Monday, homebuilder D.R. Horton (DHI) and telecom Sprint (S) get the earnings parade started. A loaded Tuesday has Lockheed Martin (LMT), 3M (MMM), Phizer (PFE), United Technologies (UTX), Nucor (NUE), and PulteGroup (PHM). Apple (APPL) and eBay (EBAY) report after the close.
On Wednesday, Dow components Boeing (BA), AT&T (T), and McDonald's (MCD) present, along with Mastercard (MA), General Electric (GE), and Dow Chemical (DOW). Tesla (TSLA), Microsoft (MSFT), Facebook (F), and PayPal (PYPL) report after the close. Thursday's offerings include some titans. Coca-Cola (K), UPS (UPS), and Verizon (VZ) report prior to the opening bell. Amazon (AMZN) and Visa (V) are up after the close.
Prior to Friday's market open, ExxonMobil (XOM), Chevron (CVX), and Caterpillar (CAT) close out the earnings deluge.
It's going to be a busy week with plenty of engaging, diverging stories. In case that's not enough, the impeachment trial could conceivably wrap up by Friday, possibly sooner, the Super Bowl is Sunday, February 2nd, and the first presidential primary, the Iowa caucus, convenes on Monday, February 3rd.
If the coronavirus continues to spread, it's not likely to slow down, so this coming week could be an opportunity to take profits and/or shed losers before markets get any ideas about tanking. Depending on how severe the virus becomes, how quickly and how far it spreads, appropriate defensive actions may be entertained.
With stocks close to all-time highs, there's hardly a case to be made for buying at this point, which, in itself may provide good enough reason for some spirited selling.
At the Close, Friday, January 24, 2020:
Dow Jones Industrial Average: 28,989.73, -170.36 (-0.58%)
NASDAQ: 9,314.91, -87.57 (-0.93%)
S&P 500: 3,295.47, -30.07 (-0.90%)
NYSE: 13,978.47, -123.57 (-0.88%)
For the Week:
Dow: -358.37 (-1.12%)
NASDAQ: -74.03 (-0.79%)
S&P 500: -343.15 (-1.03%)
NYSE: -123.57 (-0.8*%)
While the impeachment hearings were less impactful, being that the first few days of the trial consisted of one session for rule-making and three days of Democrat managers from the House of Representatives reiterating their tired claims from months of investigations stemming from a single phone call, the spread of a killer virus caught everybody's attention.
The number of deaths officially reported by the Chinese government grew from 16 on Wednesday to 23 to 41 to 56 by Sunday. As the week progressed, the number of reported cases grew considerably - by Sunday, nearly 2,000 in China alone - along with the number of countries discovering outbreaks. By Sunday morning, instances of reported cases had been registered in France, South Korea, Japan, Nepal, Thailand, Singapore, Vietnam, Taiwan, Australia, and the United States.
Similar to the SARS (severe acute respiratory syndrome) outbreak, which killed more than 750 people in 2002-2003, the threat is that this particular virus is spreading at a much faster rate as transmissibility is increasing.
By Monday morning, the toll will likely exceed 90, but there's widespread speculation that China has been and continues to understate not only the number of cases reported, but also the death toll.
This is the kind of thing some students of the dark science of economics might consider a "black swan," an unusual event or occurrence with a low probability that nobody sees coming. Already, the coronavirus outbreak has affected markets, but none more profoundly than oil. With travel bans in effect already in some Chinese cities and many presumably taking precautions to avoid crowds and people who may be infected, the world's second-largest user of oil and distillates is bound to experience a sharp demand decline that will affect prices globally.
WTI crude fell, over the course of the week, from $58.58 per barrel to $54.19, a decline of 7.5%. Brent dropped from an opening at $65.65 on Monday to $59.85 by week's end, losing nearly nine percent.
Stocks were also hit, as increasingly dire stories continued to mount over the course of the week, limiting upside on all exchanges, and squelching rallies on Tuesday, and especially in the US on Friday, when the Chinese government announced the rising death toll and cancellation of many Lunar New Year festivities, the biggest holiday in the country.
China, already on the brink of an extended financial downturn, saw severe damage to equity markets.
If the coronavirus continues to spread to other countries and becomes a pandemic, declines on the major indices (the Dow was down for the fourth straight day as of Friday) could turn what appeared as a minor fluctuation into an avalanche. Limiting movement, be it out of fear or by government dictates, would seriously hamper economic activity anyway, and, if the contagion becomes global in nature, which it appears to be doing, the effect may be long-lasting.
So, that's how normal operating markets turn into dungeons of doom. There is no silver lining, other than, you guessed it, silver and gold, both of which turned in the opposite direction from stocks, both tumbling on Tuesday but gaining the remainder of the week. Gold finished at $1571.60 per ounce; silver closed out the week at $18.10 per ounce. There is likely to be a further, faster advance in precious metals should the virus continue to spread.
With an FOMC meeting up next week (January 28-29) bonds saw high demand, moving interest rates on treasuries to their lowest levels since October, 2019. The 10-year-note closed out the week at 1.70% yield, with the 30-year bond closing at 2.14%.
Also upcoming in the week ahead, a slew of earnings reports, many of them notable as most will be for the fourth quarter of 2019 and the full year.
On Monday, homebuilder D.R. Horton (DHI) and telecom Sprint (S) get the earnings parade started. A loaded Tuesday has Lockheed Martin (LMT), 3M (MMM), Phizer (PFE), United Technologies (UTX), Nucor (NUE), and PulteGroup (PHM). Apple (APPL) and eBay (EBAY) report after the close.
On Wednesday, Dow components Boeing (BA), AT&T (T), and McDonald's (MCD) present, along with Mastercard (MA), General Electric (GE), and Dow Chemical (DOW). Tesla (TSLA), Microsoft (MSFT), Facebook (F), and PayPal (PYPL) report after the close. Thursday's offerings include some titans. Coca-Cola (K), UPS (UPS), and Verizon (VZ) report prior to the opening bell. Amazon (AMZN) and Visa (V) are up after the close.
Prior to Friday's market open, ExxonMobil (XOM), Chevron (CVX), and Caterpillar (CAT) close out the earnings deluge.
It's going to be a busy week with plenty of engaging, diverging stories. In case that's not enough, the impeachment trial could conceivably wrap up by Friday, possibly sooner, the Super Bowl is Sunday, February 2nd, and the first presidential primary, the Iowa caucus, convenes on Monday, February 3rd.
If the coronavirus continues to spread, it's not likely to slow down, so this coming week could be an opportunity to take profits and/or shed losers before markets get any ideas about tanking. Depending on how severe the virus becomes, how quickly and how far it spreads, appropriate defensive actions may be entertained.
With stocks close to all-time highs, there's hardly a case to be made for buying at this point, which, in itself may provide good enough reason for some spirited selling.
At the Close, Friday, January 24, 2020:
Dow Jones Industrial Average: 28,989.73, -170.36 (-0.58%)
NASDAQ: 9,314.91, -87.57 (-0.93%)
S&P 500: 3,295.47, -30.07 (-0.90%)
NYSE: 13,978.47, -123.57 (-0.88%)
For the Week:
Dow: -358.37 (-1.12%)
NASDAQ: -74.03 (-0.79%)
S&P 500: -343.15 (-1.03%)
NYSE: -123.57 (-0.8*%)
Friday, January 24, 2020
Stocks Flat As Lagarde Offers Inflation Policy Change in Europe
For the second consecutive day, stocks posted mediocre results, most likely a pause in the overall giant run they've been on since late September of 2019, and hardly anything over which to be concerned.
The manners in which these last two trading sessions found the same end were radically different, a chartists' dilemma in which Wednesday started on the upside before relenting late in the day and Thursday found stocks mired deep in the red, finding salvation in the afternoon.
Essentially, the indices produced an elongated "V" pattern, stretching over two sessions.
Being that the market is run by algorithms and influenced heavily by macro momentum, this recent spate of weakness is probably going to be downplayed by the uber-bulls and supported by dovish tones from the Federal Reserve along with more sloshing capital from their burgeoning balance sheet.
The Fed's FOMC convenes on Tuesday and Wednesday of next week, but the market seems uninterested in whatever they might announce, being that they will almost surely keep interest rates precisely at the present level, the federal funds rate in a sweet spot between 1.50 and 1.75 percent, good enough to attract investors to bonds and other fixed income products and not onerous enough to preclude lending to all but the least worthy.
In Europe, newly-installed ECB head, Christine Lagarde quipped about inflation, launching a review of the bank's policies and hinting that the long-standing target of two percent might be few tenths too high under the current environment of negative interest rates and slowing national economies.
Inflation in the Eurozone has been nearly non-existent since the turn of the century, last year checking in at a subdued 1.3 percent. The call for a policy review by Lagarde is a timorous one, since practically anyone with a rudimentary understanding of economics realizes that the "Japanization" of Europe is well underway and that lowering the target for inflation to 1.6 or 1.5% is just more posturing by the central bank which has no control over the forces of mass immigration, low birth rates, and over-juiced financial markets.
Perhaps Ms. Largarde is on to something, however. Could she actually be headed for an Austrian awakening in which an epiphany guides her to understanding that any inflation is unnatural in a world of sound money?
Next thing you know, she'll be calling for a new currency to replace the flawed fiat euro, one backed by gold and silver.
Surely there would be many who scoff at the idea, but, when even negative interest rates fail to produce positive results, isn't it time to stop examining policy and start critiquing the currency itself.
Partially-backed gold and silver backed money - be it digital, paper, or coinage - may not seem such a bad idea, especially to people drowning in debt.
Central bankers have engaged in lunacy for the better part of 50 years (since Nixon's closing of the gold window in 1971). Maybe it's time for sound thinking and sound money.
At the Close, Thursday, January 23, 2020:
Dow Jones Industrial Average: 29,160.09, -26.18 (-0.09%)
NASDAQ: 9,402.48, +18.71 (+0.20%)
S&P 500: 3,325.54, +3.79 (+0.11%)
NYSE: 14,102.04, -8.20 (-0.06%)
The manners in which these last two trading sessions found the same end were radically different, a chartists' dilemma in which Wednesday started on the upside before relenting late in the day and Thursday found stocks mired deep in the red, finding salvation in the afternoon.
Essentially, the indices produced an elongated "V" pattern, stretching over two sessions.
Being that the market is run by algorithms and influenced heavily by macro momentum, this recent spate of weakness is probably going to be downplayed by the uber-bulls and supported by dovish tones from the Federal Reserve along with more sloshing capital from their burgeoning balance sheet.
The Fed's FOMC convenes on Tuesday and Wednesday of next week, but the market seems uninterested in whatever they might announce, being that they will almost surely keep interest rates precisely at the present level, the federal funds rate in a sweet spot between 1.50 and 1.75 percent, good enough to attract investors to bonds and other fixed income products and not onerous enough to preclude lending to all but the least worthy.
In Europe, newly-installed ECB head, Christine Lagarde quipped about inflation, launching a review of the bank's policies and hinting that the long-standing target of two percent might be few tenths too high under the current environment of negative interest rates and slowing national economies.
Inflation in the Eurozone has been nearly non-existent since the turn of the century, last year checking in at a subdued 1.3 percent. The call for a policy review by Lagarde is a timorous one, since practically anyone with a rudimentary understanding of economics realizes that the "Japanization" of Europe is well underway and that lowering the target for inflation to 1.6 or 1.5% is just more posturing by the central bank which has no control over the forces of mass immigration, low birth rates, and over-juiced financial markets.
Perhaps Ms. Largarde is on to something, however. Could she actually be headed for an Austrian awakening in which an epiphany guides her to understanding that any inflation is unnatural in a world of sound money?
Next thing you know, she'll be calling for a new currency to replace the flawed fiat euro, one backed by gold and silver.
Surely there would be many who scoff at the idea, but, when even negative interest rates fail to produce positive results, isn't it time to stop examining policy and start critiquing the currency itself.
Partially-backed gold and silver backed money - be it digital, paper, or coinage - may not seem such a bad idea, especially to people drowning in debt.
Central bankers have engaged in lunacy for the better part of 50 years (since Nixon's closing of the gold window in 1971). Maybe it's time for sound thinking and sound money.
At the Close, Thursday, January 23, 2020:
Dow Jones Industrial Average: 29,160.09, -26.18 (-0.09%)
NASDAQ: 9,402.48, +18.71 (+0.20%)
S&P 500: 3,325.54, +3.79 (+0.11%)
NYSE: 14,102.04, -8.20 (-0.06%)
Tuesday, January 7, 2020
War Is Good For the Market, So Is Peace, Or Baseball, Or Beer, Or...
Fearing that a possible escalation of hostilities in the Middle East could spill over to affect the US economy, stocks opened sharply lower on Monday. Gold, silver and crude oil futures were bid higher.
As the day wore on, stocks regained their footings, the precious metal and oil rallies evaporated and eventually all the US indices closed well into positive territory.
None of that was by accident.
Consider the stock market a proxy narrative for the American impulse emotions. Fear, greed, tranquility, volatility, are all rolled into one great tableau of the American experience, especially when there's trouble on the horizon. Monday's action consisted of mandatory panicked selling as the day began, the hand of calm mid-morning, and eventually the all-clear sign that nothing bad will happen, in a "we got this" kind of virtue-signal, sending stocks higher, where they're supposed to be going in our vast and glorious economy.
It all happens without public comment nor input because large shareholders control enormous amounts of stock and with that, the ability to move markets in whichever non-random ways they desire. A tweak to an algo here, a few well-timed block trades there, and entire averages can move in not-so-mysterious ways.
Especially since the disasters of the 2000 dot-com bust and the 2007-09 sub-prime implosion, there's been a vested interest in this country to keep the charts moving in a left to right, upward=headed, diagonal line.
That's not an accident, either.
Because there is so much wealth and so much of the future concentrated almost exclusively in stocks, the markets cannot be allowed to wither. We've witnessed this same happenstance over and over and over again, on a daily basis in times of crisis, and with a more elongated time expanse when it comes to policy issues like the direction of interest rates, presidential politics, tax cuts, or long-range unemployment trends.
If the US kills an Iranian general and some other people who happen to be in the wrong place at the right time, stocks may take a temporary hit. The Dow may drop 100 or 200 points, but it will be back on its game by the afternoon, or maybe within the next day or two.
If the US sends 200,000 troops to Iraq or Iran to squelch - once and for all - an evil regime, stocks may initially descend, but in the long term, they will outperform the underlying economy. See charts from 2003-2005 for example, of how the Gulf War boosted stocks out of a deep hole.
While it doesn't have to be this way, that's just the way it is, and the sooner one comes to the rationalization that the markets are handled, mangled, and managed, the sooner one can come to grips with the deficiencies in one's own portfolio.
Whether this is good or not is a debatable point, but what is not a subject ripe for speculation is the fact that holders of large amounts of underlying securities can make markets move in whatever direction they please. And for now, that direction - make no mistake about this - is up.
At the Close, Monday, January 6, 2020:
Dow Jones Industrial Average: 28,703.38, +68.50 (+0.24%)
NASDAQ: 9,071.46, +50.70 (+0.56%)
S&P 500: 3,246.28, +11.43 (+0.35%)
NYSE Composite: 13,941.80, +24.75 (+0.18%)
As the day wore on, stocks regained their footings, the precious metal and oil rallies evaporated and eventually all the US indices closed well into positive territory.
None of that was by accident.
Consider the stock market a proxy narrative for the American impulse emotions. Fear, greed, tranquility, volatility, are all rolled into one great tableau of the American experience, especially when there's trouble on the horizon. Monday's action consisted of mandatory panicked selling as the day began, the hand of calm mid-morning, and eventually the all-clear sign that nothing bad will happen, in a "we got this" kind of virtue-signal, sending stocks higher, where they're supposed to be going in our vast and glorious economy.
It all happens without public comment nor input because large shareholders control enormous amounts of stock and with that, the ability to move markets in whichever non-random ways they desire. A tweak to an algo here, a few well-timed block trades there, and entire averages can move in not-so-mysterious ways.
Especially since the disasters of the 2000 dot-com bust and the 2007-09 sub-prime implosion, there's been a vested interest in this country to keep the charts moving in a left to right, upward=headed, diagonal line.
That's not an accident, either.
Because there is so much wealth and so much of the future concentrated almost exclusively in stocks, the markets cannot be allowed to wither. We've witnessed this same happenstance over and over and over again, on a daily basis in times of crisis, and with a more elongated time expanse when it comes to policy issues like the direction of interest rates, presidential politics, tax cuts, or long-range unemployment trends.
If the US kills an Iranian general and some other people who happen to be in the wrong place at the right time, stocks may take a temporary hit. The Dow may drop 100 or 200 points, but it will be back on its game by the afternoon, or maybe within the next day or two.
If the US sends 200,000 troops to Iraq or Iran to squelch - once and for all - an evil regime, stocks may initially descend, but in the long term, they will outperform the underlying economy. See charts from 2003-2005 for example, of how the Gulf War boosted stocks out of a deep hole.
While it doesn't have to be this way, that's just the way it is, and the sooner one comes to the rationalization that the markets are handled, mangled, and managed, the sooner one can come to grips with the deficiencies in one's own portfolio.
Whether this is good or not is a debatable point, but what is not a subject ripe for speculation is the fact that holders of large amounts of underlying securities can make markets move in whatever direction they please. And for now, that direction - make no mistake about this - is up.
At the Close, Monday, January 6, 2020:
Dow Jones Industrial Average: 28,703.38, +68.50 (+0.24%)
NASDAQ: 9,071.46, +50.70 (+0.56%)
S&P 500: 3,246.28, +11.43 (+0.35%)
NYSE Composite: 13,941.80, +24.75 (+0.18%)
Tuesday, November 19, 2019
Follow Through for Stocks Beyond New Highs; European Pensions In Deep Trouble
After Friday's epic melt-up brought last week to a positive conclusion, traders on Monday though the diea of higher asset prices a good one, so pushed stocks to even higher all-time highs, a trend that could easily accelerate as the holiday season of irrational goodness begins.
At the bottom of rising equity valuations is the need to keep economies afloat for as long as humanly possible. By enhancing the price of stocks, asset values create the perception of wealth, though the main beneficiaries of higher asset values happen to be the top 10% of the income spread, mostly focused in the top one percent, who own the majority of equities. For the bottom 90% of the population, the effect of increased stock prices is negligible at best.
A corollary to stock market gains being the only game in town (or, There Is No Alternative, TINA) is the pain felt by savers, both individual and institutional. Pension funds have been under stress to keep assets growing. As employees retire and become not contributors, but receivers as pensioners, funds need to increase their asset base, a task made more difficult by lower and negative interest rates.
Funds have charters that require they purchase certain types of investments, making their job even more difficult, as they are forced into negative-yielding government bonds, especially in Europe, but also in the US, where the pain has yet to be felt in any real way outside of places like Detroit, which cut pension benefits massively in order to rebalance the city's finances.
Europe is already in the throes of a crisis, the latest victims being Dutch pensioners in the Netherlands, where cuts are planned or already in the works. Europe's fascination with negative interest rates have wreaked havoc in the pension universe.
The current condition is nothing compared to what is coming if the ECB and member nations of the EU don't reverse course on interest rates. They are clearly having more negative consequences than anticipated when the Dutch first entertained negative yields in 2009, to be followed quickly by Japan and a slew of other European nations.
Pension problems haven't happened overnight. Money Daily was warning about them as early as 2006, and conditions have deteriorated exceedingly since then.
Don't expect the politicians and bankers to change their tune, however. As Money Daily has repeatedly noted, negative interest rates are currency killers, and they are quickly becoming much more of a destructive force than initially imagined.
As investing and economies become more and more intertwined, complex and convoluted, don't look for concrete solutions from politicians, bankers, or financial advisors. They created these problems and should not be relied upon to provide solutions. They will offer blankets for the cold, soup for the hungry, and limited shelter for the homeless. In other words, they will only be able to limit the suffering, not eliminate it.
To accentuate the level of madness permeating through the financial class consider this:
Somebody needs to point out to Mr. Ailman that many millennials are already living in their parents' basements!
At the Close, Monday, November 18, 2019:
Dow Jones Industrial Average: 28,036.22, +31.33 (+0.11%)
NASDAQ: 8,549.94, +9.11 (+0.11%)
S&P 500: 3,122.03, +1.57 (+0.05%)
NYSE Composite: 13,483.81, -9.15 (-0.07%)
At the bottom of rising equity valuations is the need to keep economies afloat for as long as humanly possible. By enhancing the price of stocks, asset values create the perception of wealth, though the main beneficiaries of higher asset values happen to be the top 10% of the income spread, mostly focused in the top one percent, who own the majority of equities. For the bottom 90% of the population, the effect of increased stock prices is negligible at best.
A corollary to stock market gains being the only game in town (or, There Is No Alternative, TINA) is the pain felt by savers, both individual and institutional. Pension funds have been under stress to keep assets growing. As employees retire and become not contributors, but receivers as pensioners, funds need to increase their asset base, a task made more difficult by lower and negative interest rates.
Funds have charters that require they purchase certain types of investments, making their job even more difficult, as they are forced into negative-yielding government bonds, especially in Europe, but also in the US, where the pain has yet to be felt in any real way outside of places like Detroit, which cut pension benefits massively in order to rebalance the city's finances.
Europe is already in the throes of a crisis, the latest victims being Dutch pensioners in the Netherlands, where cuts are planned or already in the works. Europe's fascination with negative interest rates have wreaked havoc in the pension universe.
A one percentage point fall in long-term interest rates will increase liabilities of a typical pension scheme by around 20 per cent, but the value of their assets would only go up by about 10 per cent, estimates Ros Altmann, a former UK pensions minister.
The current condition is nothing compared to what is coming if the ECB and member nations of the EU don't reverse course on interest rates. They are clearly having more negative consequences than anticipated when the Dutch first entertained negative yields in 2009, to be followed quickly by Japan and a slew of other European nations.
Pension problems haven't happened overnight. Money Daily was warning about them as early as 2006, and conditions have deteriorated exceedingly since then.
Don't expect the politicians and bankers to change their tune, however. As Money Daily has repeatedly noted, negative interest rates are currency killers, and they are quickly becoming much more of a destructive force than initially imagined.
As investing and economies become more and more intertwined, complex and convoluted, don't look for concrete solutions from politicians, bankers, or financial advisors. They created these problems and should not be relied upon to provide solutions. They will offer blankets for the cold, soup for the hungry, and limited shelter for the homeless. In other words, they will only be able to limit the suffering, not eliminate it.
To accentuate the level of madness permeating through the financial class consider this:
“In 20 years we may find ourselves with a real global crisis where we haven’t saved enough money for retirement,” says Calstrs’ Mr Ailman. “Returns can fluctuate, but longevity has been extended dramatically . . . We just have to explain to millennials that their parents might have to move back in with them.”
Somebody needs to point out to Mr. Ailman that many millennials are already living in their parents' basements!
At the Close, Monday, November 18, 2019:
Dow Jones Industrial Average: 28,036.22, +31.33 (+0.11%)
NASDAQ: 8,549.94, +9.11 (+0.11%)
S&P 500: 3,122.03, +1.57 (+0.05%)
NYSE Composite: 13,483.81, -9.15 (-0.07%)
Thursday, October 31, 2019
Fed's FOMC Delivers Rate Cut; Markets Respond Positively
Following the Fed's FOMC announcement of another 25 basis point cut to he federal funds rate - the thrid in the last four months - stocks took off for new heights, with the S&P posting another new all-time high, just two days after breaking through to a record close.
The Dow Jones Industrial Average ended the session 212 points off its all-time high, the NASDAQ just 36 points shy of a record, and the NYSE Composite closed less than 400 points from its January 2018 record.
With three-quarters of a point shaved off the key target interest rate for Fed watchers, the overnight lending rate stands in a range of 1.5% to 1.75% and the Fed's language suggests that it will not cut rates automatically at its next meeting (December) or any future meeting.
What the somewhat hawkish stance means for markets is that the flow of money is going to be stanched at some point, and that point may have already occurred, though adroit rate watchers expect further pressures on the economy that would force the Fed's hand in the first and second quarter of next year.
There are already signs that the economy is slipping, though the first estimate of third quarter GDP came in above expectations (1.6%) at 1.9% for the recently closed-out time frame, so it's not apparent that the US economy will be facing recession any time soon.
All of this makes for an interest final two months of the year for investors. Will we see a repeat of last year's December dive or are there enough animal spirits to keep the stock market churning higher?
Only time will tell.
At the Close, Wednesday, October 30, 2019:
Dow Jones Industrial Average: 27,186.69, +115.29 (+0.43%)
NASDAQ: 8,303.98, +27.13 (+0.33%)
S&P 500: 3,046.77, +9.88 (+0.33%)
NYSE Composite: 13,244.01, +34.41 (+0.26%)
The Dow Jones Industrial Average ended the session 212 points off its all-time high, the NASDAQ just 36 points shy of a record, and the NYSE Composite closed less than 400 points from its January 2018 record.
With three-quarters of a point shaved off the key target interest rate for Fed watchers, the overnight lending rate stands in a range of 1.5% to 1.75% and the Fed's language suggests that it will not cut rates automatically at its next meeting (December) or any future meeting.
What the somewhat hawkish stance means for markets is that the flow of money is going to be stanched at some point, and that point may have already occurred, though adroit rate watchers expect further pressures on the economy that would force the Fed's hand in the first and second quarter of next year.
There are already signs that the economy is slipping, though the first estimate of third quarter GDP came in above expectations (1.6%) at 1.9% for the recently closed-out time frame, so it's not apparent that the US economy will be facing recession any time soon.
All of this makes for an interest final two months of the year for investors. Will we see a repeat of last year's December dive or are there enough animal spirits to keep the stock market churning higher?
Only time will tell.
At the Close, Wednesday, October 30, 2019:
Dow Jones Industrial Average: 27,186.69, +115.29 (+0.43%)
NASDAQ: 8,303.98, +27.13 (+0.33%)
S&P 500: 3,046.77, +9.88 (+0.33%)
NYSE Composite: 13,244.01, +34.41 (+0.26%)
Tuesday, September 10, 2019
Stocks Flat; Britain Should Leave The EU ASAP
Markets - whatever is left of them - seemed to be running on fumes Monday, as no Trump tweets nor economic news were sufficient to move stocks in general either way.
This kind of quiet may be just what investors are seeking: less volatility, less media madness, a more sanguine environment and some degree of security and safety. With all the talk of recession, the past few months have spooked some of the more ardent longs, but the market is still not conducive to short trades in any form.
One could conclude from recent action that stocks will hold their ground and move to new highs, as has been the case throughout the run from 2009 (buy the dip philosophy), and with another 1/4 point rate cut from the Fed a sure thing next week, that is the likely trading strategy for the day-trader and short-termer. Long term investors should be seeking value or growth, best, a combination of the two. With interest rates so low, dividend-yielding stocks with long track records are the safest and surest, plus, many will survive well under difficult conditions, should a recession actually arrive.
Central banks still have control of markets, a condition that may persist for quite a long time. It should serve memory well to reconsider the aftermath of the 2008 crash, wherein central banks coordinated to save everything, even unworthy companies, from default.
This might be a prime time to move from passive to active investing, with individual stocks preferred over ETFs or mutuals. Expect some noisy ups and downs over the next few months, though the next major event is Brexit, with a hard-line, no-deal escape from the EU by Great Britain set for October 31 by Boris Johnson, the most recent Prime Minister of the country.
It's been more than three years since jolly ole' England voted to leave the EU. Parliamentarians and stubborn bureaucrats have delayed the wishes of the people for too long and the wait may soon be over. Anything short of England removing itself from the EU - without onerous conditions - will be very bad for markets. The hyperbole of the media and those on the "remain" side of the issue have played the hysterics card for all it's worth.
Time is up. Populism should prevail in England and the result of leaving the EU, while dramatic, does not have to be traumatic.
At the Close, Monday, September 9, 2019:
Dow Jones Industrial Average: 26,835.51, +38.05 (+0.14%)
NASDAQ: 8,087.44, -15.64 (-0.19%)
S&P 500: 2,978.43, -0.28 (-0.01%)
NYSE Composite: 12,960.72, +27.34 (+0.21%)
This kind of quiet may be just what investors are seeking: less volatility, less media madness, a more sanguine environment and some degree of security and safety. With all the talk of recession, the past few months have spooked some of the more ardent longs, but the market is still not conducive to short trades in any form.
One could conclude from recent action that stocks will hold their ground and move to new highs, as has been the case throughout the run from 2009 (buy the dip philosophy), and with another 1/4 point rate cut from the Fed a sure thing next week, that is the likely trading strategy for the day-trader and short-termer. Long term investors should be seeking value or growth, best, a combination of the two. With interest rates so low, dividend-yielding stocks with long track records are the safest and surest, plus, many will survive well under difficult conditions, should a recession actually arrive.
Central banks still have control of markets, a condition that may persist for quite a long time. It should serve memory well to reconsider the aftermath of the 2008 crash, wherein central banks coordinated to save everything, even unworthy companies, from default.
This might be a prime time to move from passive to active investing, with individual stocks preferred over ETFs or mutuals. Expect some noisy ups and downs over the next few months, though the next major event is Brexit, with a hard-line, no-deal escape from the EU by Great Britain set for October 31 by Boris Johnson, the most recent Prime Minister of the country.
It's been more than three years since jolly ole' England voted to leave the EU. Parliamentarians and stubborn bureaucrats have delayed the wishes of the people for too long and the wait may soon be over. Anything short of England removing itself from the EU - without onerous conditions - will be very bad for markets. The hyperbole of the media and those on the "remain" side of the issue have played the hysterics card for all it's worth.
Time is up. Populism should prevail in England and the result of leaving the EU, while dramatic, does not have to be traumatic.
At the Close, Monday, September 9, 2019:
Dow Jones Industrial Average: 26,835.51, +38.05 (+0.14%)
NASDAQ: 8,087.44, -15.64 (-0.19%)
S&P 500: 2,978.43, -0.28 (-0.01%)
NYSE Composite: 12,960.72, +27.34 (+0.21%)
Wednesday, September 4, 2019
Stocks Slide As Economic Realities Continue to Worsen; Gold, Silver Soar
September didn't start out very well as stocks lost ground on all indices. Perhaps more concerning was the level to which yield on the 10-year note plunged, dipping to a low of 1.46% before closing out at 1.47%.
Low yields are indicative of demand, and, with some $19 trillion of government bonds globally yielding negative numbers, US bonds are attractive by comparison. This dynamic is not going to end soon, as Japan and the Euro area - the two economies with the most negative yields - are in no-win conditions, with inflation impossible to produce and a swirling drain of deflation threatening the confidence of their currencies.
If low yields are intriguing, consider the gains in gold and silver to be nothing short of demanding attention. Both metals have been on a hyperbolic flight path since May. On Tuesday, silver rocketed through the $19/ounce level, with a gain of more than 8 cents per ounce. Gold topped $1550, and is trading at record levels in most of the world. Only the super-strong dollar is keeping gold's level down, but only in the United States.
Stocks are going to continue a fluctuation with emphasis on the downside for the foreseeable future due to deteriorating economic conditions globally.
Cash is becoming king-like in many countries, with a focus on US dollars, but that dynamic will play out to flatten the wallets of nearly everyone holding hope in fiat currency. Central bankers have reached the proverbial brick wall, with nothing to save economies from crashing headlong into a solvency crisis, an immovable force from which there is no return, literally, as there will not only be no return on capital, but, in many regards - as is the case with negative rates - no return OF capital.
At the Close, Tuesday, September 3, 2019:
Dow Jones Industrial Average: 26,118.02, -285.26 (-1.08%)
NASDAQ: 7,874.16, -88.72 (-1.11%)
S&P 500: 2,906.27, -20.19 (-0.69%)
NYSE Composite: 12,663.40, -73.48 (-0.58%)
Low yields are indicative of demand, and, with some $19 trillion of government bonds globally yielding negative numbers, US bonds are attractive by comparison. This dynamic is not going to end soon, as Japan and the Euro area - the two economies with the most negative yields - are in no-win conditions, with inflation impossible to produce and a swirling drain of deflation threatening the confidence of their currencies.
If low yields are intriguing, consider the gains in gold and silver to be nothing short of demanding attention. Both metals have been on a hyperbolic flight path since May. On Tuesday, silver rocketed through the $19/ounce level, with a gain of more than 8 cents per ounce. Gold topped $1550, and is trading at record levels in most of the world. Only the super-strong dollar is keeping gold's level down, but only in the United States.
Stocks are going to continue a fluctuation with emphasis on the downside for the foreseeable future due to deteriorating economic conditions globally.
Cash is becoming king-like in many countries, with a focus on US dollars, but that dynamic will play out to flatten the wallets of nearly everyone holding hope in fiat currency. Central bankers have reached the proverbial brick wall, with nothing to save economies from crashing headlong into a solvency crisis, an immovable force from which there is no return, literally, as there will not only be no return on capital, but, in many regards - as is the case with negative rates - no return OF capital.
At the Close, Tuesday, September 3, 2019:
Dow Jones Industrial Average: 26,118.02, -285.26 (-1.08%)
NASDAQ: 7,874.16, -88.72 (-1.11%)
S&P 500: 2,906.27, -20.19 (-0.69%)
NYSE Composite: 12,663.40, -73.48 (-0.58%)
Wednesday, August 28, 2019
Stocks Gain, Gold, Silver Gain More; 2s-10s Remain Inverted
Stocks. More noise.
And it will remain that way as long as the 2-year and 10-year notes remain inverted.
On Tuesday, the 2-year was yielding 1.53, the 10-year, 1.49.
On Wednesday, the 2-year was at 1.50, the 10-year, 1.47.
Gold and silver continue to outperform stocks by enormous margins. Spot silver closed the day in the US at $18.315 per ounce. Gold spot was $1538.70.
Keep a close watch on your 401K. It could vanish at a moment's notice. While that is not probable, the chances for it losing price are very good.
The global financial system is on the verge of complete collapse. Some say it has been since 2008. There is unlikely to be a bell rung when it all falls apart, but a steady, slow, wrenching decline is in the cards now that the marginal utility of a dollar is less than one.
The central bankers know this. Politicians know this. It's best to be informed.
At the Close, Wednesday, August 28, 2019:
Dow Jones Industrial Average: 26,036.10, +258.20 (+1.00%)
NASDAQ: 7,856.88, +29.94 (+0.38%)
S&P 500: 2,887.94, +18.78 (+0.65%)
NYSE Composite: 12,559.23, +85.18 (+0.68%)
And it will remain that way as long as the 2-year and 10-year notes remain inverted.
On Tuesday, the 2-year was yielding 1.53, the 10-year, 1.49.
On Wednesday, the 2-year was at 1.50, the 10-year, 1.47.
Gold and silver continue to outperform stocks by enormous margins. Spot silver closed the day in the US at $18.315 per ounce. Gold spot was $1538.70.
Keep a close watch on your 401K. It could vanish at a moment's notice. While that is not probable, the chances for it losing price are very good.
The global financial system is on the verge of complete collapse. Some say it has been since 2008. There is unlikely to be a bell rung when it all falls apart, but a steady, slow, wrenching decline is in the cards now that the marginal utility of a dollar is less than one.
The central bankers know this. Politicians know this. It's best to be informed.
At the Close, Wednesday, August 28, 2019:
Dow Jones Industrial Average: 26,036.10, +258.20 (+1.00%)
NASDAQ: 7,856.88, +29.94 (+0.38%)
S&P 500: 2,887.94, +18.78 (+0.65%)
NYSE Composite: 12,559.23, +85.18 (+0.68%)
Tuesday, August 27, 2019
Amid Turmoil, Stocks Jump to Open Week
Despite Friday's stock slide and confused rhetoric from the G7, investors appeared unconcerned as trading opened the week, with all the major averages up sharply on the day.
Bounces such as the one witnessed on Monday are normal in times of high volatility and anxiety. They can be generally disregarded as more noise than anything meaningful. The gains only half erased Friday's losses, leaving the Dow, NASDAQ, S&P, and Composite all hanging between their 50 and 200-day moving averages, a sign of indecision among market makers.
Gold and silver held onto gains, bonds continued to rally, with the two-year and 10-year notes even, with yields of 2.54% at the end of the day.
With trade talks stalled, traders may be seeking more information on the economy. The Conference Board's gauge of consumer sentiment is due out shortly after the markets open at 10:00 am ET.
At the Close, Monday, August 26, 2019:
Dow Jones Industrial Average: 25,898.83, +269.93 (+1.05%)
NASDAQ: 7,853.74, +101.97 (+1.32%)
S&P 500: 2,878.38, +31.27 (+1.10%)
NYSE Composite: 12,519.62, +103.17 (+0.83%)
Bounces such as the one witnessed on Monday are normal in times of high volatility and anxiety. They can be generally disregarded as more noise than anything meaningful. The gains only half erased Friday's losses, leaving the Dow, NASDAQ, S&P, and Composite all hanging between their 50 and 200-day moving averages, a sign of indecision among market makers.
Gold and silver held onto gains, bonds continued to rally, with the two-year and 10-year notes even, with yields of 2.54% at the end of the day.
With trade talks stalled, traders may be seeking more information on the economy. The Conference Board's gauge of consumer sentiment is due out shortly after the markets open at 10:00 am ET.
At the Close, Monday, August 26, 2019:
Dow Jones Industrial Average: 25,898.83, +269.93 (+1.05%)
NASDAQ: 7,853.74, +101.97 (+1.32%)
S&P 500: 2,878.38, +31.27 (+1.10%)
NYSE Composite: 12,519.62, +103.17 (+0.83%)
Sunday, August 25, 2019
Weekend Wrap: Trade, Recession, Currency Fears Stoke Week-Ending Sell-Off
These days, it doesn't take much to spook markets.
That stands to reason, with all of the US major indices near all-time highs conjoined with a divisive political environment, global trade tensions, and a corrupted financial system run by central bankers bent on the globalization of currencies and nations.
Thus, on Friday, after Fed Chairman, Jay Powell, spoke to the assembled cognoscenti at Jackson Hole, Wyoming, and President Trump doubled down on his tariff mandate towards China, the runners, scalpers, and money-changers on Wall Street were so spooked that one might have assumed they'd seen the ghost of legendary China short-seller, Jim Chanos, stalking the trading floor, even though - as far as is known - Mr. Chanos is still alive and kicking the shorts out of the Chinese market.
Stocks had opened only marginally in the red on Friday and were improving into the eleven o'clock hour before suddenly reversing course, heading into the abyss, the Dow shedding more than 400 points in a matter of minutes.
With Wall Street struggling to regain some semblance of balance and propriety, stocks drifted lower, cratering in the final hour with the Dow Industrials down nearly 750 points before gaining back another hundred into the closing bell.
It was ugly. It was impressive. At the end of the day, it seemed completely appropriate.
The fuel for growth was fading fast and has been since well before Friday's melt-down. All of the fancy tricks the Fed and their central banking buddies had employed to goose equities skyward over the past decade were being exposed as fraudulent, artificial, unnecessary, and eventually harmful to the operation of what previously had been free markets.
Wall Street has lost confidence in the Fed's forward guidance, which, according to Mr. Powell, is decidedly negative. The Trump tariffs are a sideshow to the already-failing economies of the developed nations, slowing precipitously and taking down the emerging giants of China and India with them.
Over the weekend, while the leaders of the G7 powerhouse nations debate and will likely confirm that globalization is a crumbling edifice of one-percenter greed and that the world needs to be adjusted toward something that serves people other than just the mega-corporate interests and the skimming habits of the ultra-wealthy.
As has been of considerable mention here the past few days, negative interest-bearing sovereign debt instruments - those wildly popular $19 trillion worth of bonds - are ringing the death-knell of fiat currencies and central bank interference with the normal operation of capitalist design.
For now, the shock waves of fading confidence in the global Ponzi and counterfeit schemes of stock buybacks, quantitative easing, and negative interest rates is contained largely to the Wall Street crowd, but, it is spreading and the uproar will increase as stocks fall, ordinary people worry about their jobs and their futures, and the central bankers moan and cajole and mumble and stumble and fall.
Remnants of the global economic structure previously known as Bretton Woods are being shredded on a daily basis. A new world order is on the way, but any transition - like the one which dashed national currencies into one euro a few decades past - is going to be painful and consequential.
Sadly, when all the smoke is blown away and the dust settled, the planet will still largely be governed by the same morons and their predecessors who brought all of this upon us and their economic agents of destruction. The new currency regiment will be talked about as more fair, more balanced, more equitable, but those in the know will have already understood that it will be more of the same, damaging to the middle classes while barely scraping off a scintilla of the assets held by the rich and powerful.
Americans, Europeans, Japanese and all citizens are being shafted, and it's going to hurt.
The long-delayed reckoning from the global crisis of 2008 is about to be unleashed. Unless one holds hard assets such as precious metals, real estate, and/or income-producing assets like a productive business or needed service, one is likely to feel more pain than would otherwise be prescribed by the lords of finance.
At the Close, Friday, August 23, 2019:
Dow Jones Industrial Average: 25,628.90, -623.34 (-2.37%)
NASDAQ: 7,751.77, -239.62 (-3.00%)
S&P 500: 2,847.11, -75.84 (-2.59%)
NYSE Composite: 12,416.45, -272.01 (-2.14%)
For the Week:
Dow: -257.11 (-0.99%)
NASDAQ: -144.23 (-1.83%)
S&P 500: -41.57 (-1.44%)
NYSE Composite: -163.96 (-1.30%)
Dow Transports: -227.58 (-2.28%)
That stands to reason, with all of the US major indices near all-time highs conjoined with a divisive political environment, global trade tensions, and a corrupted financial system run by central bankers bent on the globalization of currencies and nations.
Thus, on Friday, after Fed Chairman, Jay Powell, spoke to the assembled cognoscenti at Jackson Hole, Wyoming, and President Trump doubled down on his tariff mandate towards China, the runners, scalpers, and money-changers on Wall Street were so spooked that one might have assumed they'd seen the ghost of legendary China short-seller, Jim Chanos, stalking the trading floor, even though - as far as is known - Mr. Chanos is still alive and kicking the shorts out of the Chinese market.
Stocks had opened only marginally in the red on Friday and were improving into the eleven o'clock hour before suddenly reversing course, heading into the abyss, the Dow shedding more than 400 points in a matter of minutes.
With Wall Street struggling to regain some semblance of balance and propriety, stocks drifted lower, cratering in the final hour with the Dow Industrials down nearly 750 points before gaining back another hundred into the closing bell.
It was ugly. It was impressive. At the end of the day, it seemed completely appropriate.
The fuel for growth was fading fast and has been since well before Friday's melt-down. All of the fancy tricks the Fed and their central banking buddies had employed to goose equities skyward over the past decade were being exposed as fraudulent, artificial, unnecessary, and eventually harmful to the operation of what previously had been free markets.
Wall Street has lost confidence in the Fed's forward guidance, which, according to Mr. Powell, is decidedly negative. The Trump tariffs are a sideshow to the already-failing economies of the developed nations, slowing precipitously and taking down the emerging giants of China and India with them.
Over the weekend, while the leaders of the G7 powerhouse nations debate and will likely confirm that globalization is a crumbling edifice of one-percenter greed and that the world needs to be adjusted toward something that serves people other than just the mega-corporate interests and the skimming habits of the ultra-wealthy.
As has been of considerable mention here the past few days, negative interest-bearing sovereign debt instruments - those wildly popular $19 trillion worth of bonds - are ringing the death-knell of fiat currencies and central bank interference with the normal operation of capitalist design.
For now, the shock waves of fading confidence in the global Ponzi and counterfeit schemes of stock buybacks, quantitative easing, and negative interest rates is contained largely to the Wall Street crowd, but, it is spreading and the uproar will increase as stocks fall, ordinary people worry about their jobs and their futures, and the central bankers moan and cajole and mumble and stumble and fall.
Remnants of the global economic structure previously known as Bretton Woods are being shredded on a daily basis. A new world order is on the way, but any transition - like the one which dashed national currencies into one euro a few decades past - is going to be painful and consequential.
Sadly, when all the smoke is blown away and the dust settled, the planet will still largely be governed by the same morons and their predecessors who brought all of this upon us and their economic agents of destruction. The new currency regiment will be talked about as more fair, more balanced, more equitable, but those in the know will have already understood that it will be more of the same, damaging to the middle classes while barely scraping off a scintilla of the assets held by the rich and powerful.
Americans, Europeans, Japanese and all citizens are being shafted, and it's going to hurt.
The long-delayed reckoning from the global crisis of 2008 is about to be unleashed. Unless one holds hard assets such as precious metals, real estate, and/or income-producing assets like a productive business or needed service, one is likely to feel more pain than would otherwise be prescribed by the lords of finance.
At the Close, Friday, August 23, 2019:
Dow Jones Industrial Average: 25,628.90, -623.34 (-2.37%)
NASDAQ: 7,751.77, -239.62 (-3.00%)
S&P 500: 2,847.11, -75.84 (-2.59%)
NYSE Composite: 12,416.45, -272.01 (-2.14%)
For the Week:
Dow: -257.11 (-0.99%)
NASDAQ: -144.23 (-1.83%)
S&P 500: -41.57 (-1.44%)
NYSE Composite: -163.96 (-1.30%)
Dow Transports: -227.58 (-2.28%)
Friday, August 23, 2019
Hawkish Harker, George Bundesbank Comments, Fed Minutes Spill Stocks
Coincidence?
Just about the same time Germany's Bundesbank put the kibosh on stimulus, Philadelphia Fed President, Patrick Harker, and later, KC President, Esther George, indicated they would not be supportive of future rate cuts.
Notably, though Harker is not a voting FOMC member, there was a supposed "gag order" on Fed officials issued recently by Fed Chairman, Jay Powell. Apparently, not everybody got the memo, or, with Powell's Friday morning Jackson Hole speech in focus, it's open season on interest rate jawboning.
The hawkish commentary sent the two-year note soaring, plunging in yield below the 10-year. Inversion, again.
Later in the trading day, the Fed minutes from the July meeting were released, with a number of officials calling the 25 basis point rate cut a "mid-cycle adjustment," a laughable notion in the face of an expansion that has exceeded all others in US history, at 10 years, five months, and counting.
Since central bank commentary and interest rate movement in the bond market is just about the only thing Wall Street currently cares about, stocks sold off in afternoon trading.
We have entered bizarro-world.
At the Close, Thursday, August 22, 2019:
Dow Jones Industrial Average: 26,252.24, +49.51 (+0.19%)
NASDAQ: 7,991.39, -28.82 (-0.36%)
S&P 500: 2,922.95, -1.48 (-0.05%)
NYSE Composite: 12,688.46, -8.55 (-0.07%)
Just about the same time Germany's Bundesbank put the kibosh on stimulus, Philadelphia Fed President, Patrick Harker, and later, KC President, Esther George, indicated they would not be supportive of future rate cuts.
Notably, though Harker is not a voting FOMC member, there was a supposed "gag order" on Fed officials issued recently by Fed Chairman, Jay Powell. Apparently, not everybody got the memo, or, with Powell's Friday morning Jackson Hole speech in focus, it's open season on interest rate jawboning.
The hawkish commentary sent the two-year note soaring, plunging in yield below the 10-year. Inversion, again.
Later in the trading day, the Fed minutes from the July meeting were released, with a number of officials calling the 25 basis point rate cut a "mid-cycle adjustment," a laughable notion in the face of an expansion that has exceeded all others in US history, at 10 years, five months, and counting.
Since central bank commentary and interest rate movement in the bond market is just about the only thing Wall Street currently cares about, stocks sold off in afternoon trading.
We have entered bizarro-world.
At the Close, Thursday, August 22, 2019:
Dow Jones Industrial Average: 26,252.24, +49.51 (+0.19%)
NASDAQ: 7,991.39, -28.82 (-0.36%)
S&P 500: 2,922.95, -1.48 (-0.05%)
NYSE Composite: 12,688.46, -8.55 (-0.07%)
Monday, August 5, 2019
WEEKEND WRAP: Worst Week Of Year For Stocks
Stocks were pretty well hammered this week, as shown in the figures below.
What did them in was not that the FOMC eased for the first time since 2008, but that it was only 25 basis points. Everybody, including President Trump, was looking for a 50 basis point cut, and they didn't get it, so market participants, already concerned at the ongoing tariff war with China, sold the news (after buying the rumor).
The drop was hardly anything to get excited over as all markets were down less than four percent. The coming week may outdo this last one however, as China has upped the ante Monday by devaluing the yuan (further proof that the Chinese are currency manipulators, along with everything else we don't like about them) and halting US agricultural imports.
These developments are very bad for a jittery market and this one has a case of the DTs. Watch for either a cascading, waterfall type event or some intervention by our friends at the NY Fed, those hale and hearty fellows that saved the Dow with a 200-point boost in the final half hour of trading on Friday. They're likely to be quite busy buying stocks again this week.
Keep a close eye on the divergence between big caps and small-to-mid caps. The smaller stocks are in danger of entering correction or even bear markets for some. They're not supported by the funds nor the fed, so they may be the first dominoes to fall in a crisis, which is entirely possible at this juncture.
Since the federal government has already put in place a moratorium on the debt ceiling, don't expect a September swoon, as we've seen so often when the government can't agree on a budget. With the agreement signed last week, the Trump administration and the congress has committed to spending well beyond whatever is allocated or budgeted. A trillion dollar deficit has now become the norm, though tariff income may begin to whittle away at that (there is some silver lining to the tariffs).
Generally, markets are looking quite unstable and another 3-4% decline could be in the cards. There are few catalysts for upside development. Gold and silver are not going anywhere, despite the howls coming from the Goldbugs and Silver Surfers. The rally has topped out. There may be a little movement to the upside, but it won't be allowed to develop into anything outstanding. When gold goes past $1500 and silver sells for more than $18 an ounce, that may be the time to change one's outlook.
WTI crude is going to end up in the $40s per barrel price by October, if not sooner. There's a massive glut and the economy is by no means overheating. Besides, nobody in the oil business wants to correctly identify the impact of solar, wind, increased efficiency in auto engines, or conservation by US drivers (who are getting older by the day and thus drive less and less).
The world is not going to come to an end this week, but we may be treated to a preview of what it will look like. 2023 is the outlier.
BTW: The 10-year treasury note is likely to sink below 1.50% THIS YEAR. Good for bond sellers and debtors. There is no inflation than cannot be sidestepped with alternatives or smart shopping.
At the Close, Friday, August 2, 2019:
Dow Jones Industrial Average: 26,485.01, -98.41 (-0.37%)
NASDAQ: 8,004.07, -107.05 (-1.32%)
S&P 500: 2,932.05, -21.51 (-0.73%)
NYSE COMPOSITE: 12,839.51, -81.31 (-0.63%)
For the Week:
Dow: -707.44 (-2.60%)
Dow Transports: -402.24 (-3.73%)
NASDAQ: -326.14 (-3.92%)
S&P 500: -93.81 (-3.10%)
NYSE COMPOSITE: -396.00 (-2.99%)
What did them in was not that the FOMC eased for the first time since 2008, but that it was only 25 basis points. Everybody, including President Trump, was looking for a 50 basis point cut, and they didn't get it, so market participants, already concerned at the ongoing tariff war with China, sold the news (after buying the rumor).
The drop was hardly anything to get excited over as all markets were down less than four percent. The coming week may outdo this last one however, as China has upped the ante Monday by devaluing the yuan (further proof that the Chinese are currency manipulators, along with everything else we don't like about them) and halting US agricultural imports.
These developments are very bad for a jittery market and this one has a case of the DTs. Watch for either a cascading, waterfall type event or some intervention by our friends at the NY Fed, those hale and hearty fellows that saved the Dow with a 200-point boost in the final half hour of trading on Friday. They're likely to be quite busy buying stocks again this week.
Keep a close eye on the divergence between big caps and small-to-mid caps. The smaller stocks are in danger of entering correction or even bear markets for some. They're not supported by the funds nor the fed, so they may be the first dominoes to fall in a crisis, which is entirely possible at this juncture.
Since the federal government has already put in place a moratorium on the debt ceiling, don't expect a September swoon, as we've seen so often when the government can't agree on a budget. With the agreement signed last week, the Trump administration and the congress has committed to spending well beyond whatever is allocated or budgeted. A trillion dollar deficit has now become the norm, though tariff income may begin to whittle away at that (there is some silver lining to the tariffs).
Generally, markets are looking quite unstable and another 3-4% decline could be in the cards. There are few catalysts for upside development. Gold and silver are not going anywhere, despite the howls coming from the Goldbugs and Silver Surfers. The rally has topped out. There may be a little movement to the upside, but it won't be allowed to develop into anything outstanding. When gold goes past $1500 and silver sells for more than $18 an ounce, that may be the time to change one's outlook.
WTI crude is going to end up in the $40s per barrel price by October, if not sooner. There's a massive glut and the economy is by no means overheating. Besides, nobody in the oil business wants to correctly identify the impact of solar, wind, increased efficiency in auto engines, or conservation by US drivers (who are getting older by the day and thus drive less and less).
The world is not going to come to an end this week, but we may be treated to a preview of what it will look like. 2023 is the outlier.
BTW: The 10-year treasury note is likely to sink below 1.50% THIS YEAR. Good for bond sellers and debtors. There is no inflation than cannot be sidestepped with alternatives or smart shopping.
At the Close, Friday, August 2, 2019:
Dow Jones Industrial Average: 26,485.01, -98.41 (-0.37%)
NASDAQ: 8,004.07, -107.05 (-1.32%)
S&P 500: 2,932.05, -21.51 (-0.73%)
NYSE COMPOSITE: 12,839.51, -81.31 (-0.63%)
For the Week:
Dow: -707.44 (-2.60%)
Dow Transports: -402.24 (-3.73%)
NASDAQ: -326.14 (-3.92%)
S&P 500: -93.81 (-3.10%)
NYSE COMPOSITE: -396.00 (-2.99%)
Wednesday, July 31, 2019
Did You Fall For the Fakery? Fed Eases, Stocks Slide, Dollar Gains; Silver Overbought
Today, July 31, 2019, the FOMC of the Federal Reserve System cut the federal funds rate by 25 basis points, as expected.
What was unexpected was the response from the market, which stumbled badly on the news. It was a classic case of "buy the rumor, sell the news," herd mentality. The Fed did not have to cut rates, obviously, just as they were wrong to raise them every quarter by 25 basis points since December, 2015.
The Fed is still out in uncharted territory, unable to raise rates because the economy is just chugging along at less than three percent growth, which is fine, in reality. The trouble is that investors want more. They are chasing yield, but what they're really doing is pushing on a string, exacerbating an already overbought market at or near record highs.
Here's the truth of the matter:
The system broke in 2008 and it was not fixed, just patched up with lots of liquidity thanks to Uncle Sugars at the Fed, BoJ, PBOC, ECB, SNB.
Fiat is an arbitrary order. In other words, this is "money." It's not. Yen, euros, dollars are currency. The intrinsic value of all fiat is zero.
This fakery will continue until there's nothing left except mega-corporations, governments, central banks, and slaves (almost everybody).
Noting that we're phasing through a zombie economy, much like that of Japan, with an aging demographic, systemic debt problems, and myopic, corrupt governments worldwide, there is little the Fed or any central bank can do but to continue the fakery until the public is completely bereft of all assets. Then they will declare the global economy dead, start a new order, promise prosperity for everyone, and deliver a global depression.
There's no way around it. All developed nations are bankrupt. The central banks create money (actually, currency) out of thin air, sell it as debt to governments, at interest, collect their skim and enrich themselves. The central banks work for themselves, not the governments they shadily represent, nor the citizens who make use of the currency.
They have no way out. Government debts (the US is already $22 trillion behind) will never be repaid, so the central banks can only perpetuate the fraud until they can't.
As far as precious metals are concerned, they will continued to be whipped like a rented mule. The recent run-up was only a diversion, a ruse, designed to get more people to buy the stuff. Now, gold and silver will be sold off and the bankers will eventually accumulate at lower prices.
That is why I haven't changed my position or bought into the silver rally from $14.50 to $16.50 per ounce. The bulk of the move came about when the dollar was weakening. Now it is strengthening again, meaning you will buy less gold with the same amount of dollars. The math is simple.
All told, stocks are overbought. the metals are currently overbought, but not for long. Bonds have much more rally in them than may be evident superficially. The bond rally has been ongoing for 35 years and it's not going to stop here. The eventual end-point is negative rates, or NIRP (Negative Interest Rate Policy), as is the current regime in the rest of the world. More than $13 trillion in bonds are priced at negative yields, which tells much about the future prospects for developed nations (and semi-developed China and India).
I continue to be targeting silver for $12.35 by 2021 or sooner. If it goes above $20, that would be a shock and a sign that the global financial system is melting away faster than anyone thought, but it's not likely to happen.
The global economy is a train wreck in super-slow motion. It is unlikely to implode before 2021, so there is still time to prepare for TEOTWAWKI.
That is all for now. Good luck.
At The Close, Wednesday, July 31, 2019:
Dow Jones Industrial Average: 26,864.27, -333.75 (-1.23%)
NASDAQ: 8,175.42, -98.19 (-1.19%)
S&P 500: 2,980.38, -32.80 (-1.09%)
NYSE COMPOSITE: 13,066.60, -120.61 (-0.91%)
Thursday, April 11, 2019
Silver Is Testing $14/ounce Again; How Low Can It Go?
![Silver Technical chart [Kitco Inc.]](https://www.kitco.com/lfgif/ag0730lf_ma.gif) |
| Blue line=30 day MA; Green Line=200-day MA |
It's something of a relief to be able to write as I speak, discarding the strictures, stultification and distance of the third person.
That means I can mean what I say, say what I mean, directly, closing the space between me, and you, the reader (2nd person).
Enough semantics and style, for now. Let's get right to the subject matter.
Silver has long been a favorite investment of mine, though over the past number of years - since the heady days of 2010-11, when the price rose close to $50/ounce - it has been rather disappointing. My holdings did, however, manage to provide some relief against rising interest rates on credit cards in 2017 and 2018, as I was able to liquidate to cash and pay off the loan sharks otherwise known as banks and credit issuers.
Since my basis was right around $17/ounce and buyers paid a hefty (15-30%) premium on my offerings, I was actually able to cash out at a profit and still maintain something of a stash for future purposes.
As an aside, that's what investments are about. Generally, people don't hold assets for the sake of holding them, except, of course for precious metals, gems, art, and some real estate. Eventually, they want to convert to cash to spend on something else. In my case, cutting up a couple of credit cards which were obliging me with ungodly - and rising - interest rates was the purpose of some of my silver. The rest, I continue to hold as a store of value, even though that's still a questionable proposition.
As anyone who plays in the gold and silver markets already knows all too well, the metals have been squashed in recent years by central banks because the metals pose competition to fiat currencies. That's all right if one manages to ignore the Sprotts and Caseys of the world who insist with regularity that gold and silver are on the verge of a breakout. Nothing could be further from the truth.
Gold and silver have been in a slow, long, excruciating bear market since mid-2011. They have been and continue to be relentlessly beaten down in the speculative futures markets and they will continue to be for the foreseeable future.
![Silver Technical chart [Kitco Inc.]](https://www.kitco.com/lfgif/ag3650lf_ma.gif) |
| Blue line=30 day MA; Green Line=200-day MA |
The most recent bottom came in 2015, when silver struck out at $13.71 on December 14. In 2018, it approached that figure, but never quite made it, bottoming at $13.97 on the 14th of November. This year, the low was $15.025, on April 2.
With no bounce in the charts other than the usual 1-3% noise, silver is headed back in the
14s soon, likely within the next week. Stocks and first quarter earnings will be all the rage for the next three weeks, so there's no interest in shiny metals, presenting a tempting opportunity.
It might be prudent to avoid that temptation, because the commodity will have every opportunity to set a three-year low. Like any asset, the time to buy is when everybody else has given up. Silver may never again get to $48/ounce, but it's also likely that it will never again sell for $6 or $7, which was the norm in the 1990s, prior to the great awakening.
I do believe $12 or even $11 per ounce or lower is possible, and, if you're doing your investing right - buying small amounts on a set schedule - you may be able to dollar-cost average your way to a very low basis for your holdings. Of course, anybody who got in at $16 or $17 last year may still be buying right now, and nobody can blame them for lowering their basis.
What it will take to get silver to some more reasonable valuation - say $20-22 - is anybody's guess and a fool's game. Silver is a hedge and it's certainly better than paying 18% interest on credit cards or blowing your money on dinners out, vacations or other life-changing "experiences."
Having a vault full of 1, 10, and 100-ounce bars is likely to be a more life-changing, exceptional, and satisfying experience.
Per Aspera Ad Astra,
Fearless Rick
Coincidentally, this article on silver - by a (ahem) respected investment writer - popped up right as I was publishing mine. Of course, his conclusive approach is completely incorrect.
Saturday, January 5, 2019
Weekend Wrap: Friday's Big Gains Offset Thursday's Huge Loss, Dow Up Just 105 In 2019
Wall Street's week straddled 2018 and 2019, as Monday's session was the last of the prior year, and Wednesday, Thursday, and Friday starting off the new year.
Thus, the following final closing prices for the major indices, which will be instructive as we plow through the weeks, months, and quarters ahead:
Dow Industrials 12/31/18: 23,327.46
Dow Transports 12/31/18: 9,170.40
NASDAQ 12/31/18: 6,635.28
S&P 500 12/31/18: 2,506.85
NYSE Composite 12/31/18: 11,374.39
Two big trading days happened back-to-back, in opposite directions. Thursday's (1/3) downdraft was largely attributable to Apple's announcement that revenue for its fiscal first quarter (4th quarter) results would come in well below analyst estimates. December PMI from the ISM was also a contributing factor, insinuating a slowdown in the general economy, much of it tied to US-China trade tensions.
A blowout December jobs report was responsible Friday's about-face. Words from Fed Chairman Jerome Powell added fuel to the ascending fire. Powell stated quite plainly that the Fed was going to be flexible about raising rates and drawing down its balance sheet, which is pulling $50 billion a month out of the bond market.
After all was said and done, the week was just so-so, though the bias was obviously trending positive. There's some inkling of manipulation and coordination of and by the PPT, especially since the Fed was so compliant with its dovish commentary. Nobody really wants a bear market, and the data from Friday's release of the December non-farm payroll report (312K actual vs. 122K projected) suggests that the economy is humming right along and President Trump's promise to create more US jobs is being kept.
The Fed's jawboning was well-timed, coming a day after a confidence-shaking 660-point drop on the Dow, but the remarks by Chairman Powell won't be the last time the Fed has moved the goal posts in search of expediency.
Dow Jones Industrial Average January Scorecard:
At the Close, Friday, January 4, 2019:
Dow Jones Industrial Average: 23,433.16, +746.94 (+3.29%)
NASDAQ: 6,738.86, +275.35 (+4.26%)
S&P 500: 2,531.94, +84.05 (+3.43%)
NYSE Composite: 11,533.34, +342.90 (+3.06%)
For the Week:
Dow: +370.76 (+1.61%)
NASDAQ: +154.34 (+2.34%)
S&P 500: +46.20 (+1.86%)
NYSE Composite: +242.39 (+2.15%)
Thus, the following final closing prices for the major indices, which will be instructive as we plow through the weeks, months, and quarters ahead:
Dow Industrials 12/31/18: 23,327.46
Dow Transports 12/31/18: 9,170.40
NASDAQ 12/31/18: 6,635.28
S&P 500 12/31/18: 2,506.85
NYSE Composite 12/31/18: 11,374.39
Two big trading days happened back-to-back, in opposite directions. Thursday's (1/3) downdraft was largely attributable to Apple's announcement that revenue for its fiscal first quarter (4th quarter) results would come in well below analyst estimates. December PMI from the ISM was also a contributing factor, insinuating a slowdown in the general economy, much of it tied to US-China trade tensions.
A blowout December jobs report was responsible Friday's about-face. Words from Fed Chairman Jerome Powell added fuel to the ascending fire. Powell stated quite plainly that the Fed was going to be flexible about raising rates and drawing down its balance sheet, which is pulling $50 billion a month out of the bond market.
After all was said and done, the week was just so-so, though the bias was obviously trending positive. There's some inkling of manipulation and coordination of and by the PPT, especially since the Fed was so compliant with its dovish commentary. Nobody really wants a bear market, and the data from Friday's release of the December non-farm payroll report (312K actual vs. 122K projected) suggests that the economy is humming right along and President Trump's promise to create more US jobs is being kept.
The Fed's jawboning was well-timed, coming a day after a confidence-shaking 660-point drop on the Dow, but the remarks by Chairman Powell won't be the last time the Fed has moved the goal posts in search of expediency.
Dow Jones Industrial Average January Scorecard:
| Date | Close | Gain/Loss | Cum. G/L |
| 1/2/19 | 23,346.24 | +18.78 | +18.78 |
| 1/3/19 | 22,686.22 | -660.02 | -641.24 |
| 1/4/19 | 23,433.16 | +746.94 | +105.70 |
At the Close, Friday, January 4, 2019:
Dow Jones Industrial Average: 23,433.16, +746.94 (+3.29%)
NASDAQ: 6,738.86, +275.35 (+4.26%)
S&P 500: 2,531.94, +84.05 (+3.43%)
NYSE Composite: 11,533.34, +342.90 (+3.06%)
For the Week:
Dow: +370.76 (+1.61%)
NASDAQ: +154.34 (+2.34%)
S&P 500: +46.20 (+1.86%)
NYSE Composite: +242.39 (+2.15%)
Thursday, January 3, 2019
Stocks Slammed, Bonds Rally As Global Slowdown Fears Rise
Apple computer, maker of the iconic iPhone, was the cause of much of today's equity angst, as the tech giant warned that fourth quarter sales were likely to come in under revenue estimates.
Apple CEO Tim Cook issued a letter late Wednesday to investors advising that a slowdown in China sales would cause fourth quarter revenue to decline 4.8% year over year to $84 billion, well below analyst estimates. It's not that Apple is losing money - far from that - it's just not making as much as expected. Shares of Apple (AAPL) were down nearly 10% on the news, the largest one-day loss in six years.
Combined with a report from the Institute for Supply Management (ISM) that had December's PMI fall by the most since the financial crisis of 2008, stocks were on the defensive all day long. The report concluded that December PMI fell from 59.3 to 54.1, a descent of 5.4%. While anything over 50 is considered expansion, the falloff is considered to be a harbinger of worse data to come, as many participants in the survey blamed trade tensions with China as a leading cause for the slowdown.
Thus, the 1000+ point gain from December 26 was cut down by two-thirds on Thursday, just a week later, sending the Dow and other major indices closer to bear market territory once again.
January has gotten off to a horrible start, as though December's rout hadn't ended, which, of course, would be correct. Losses on stocks are only just beginning. By March of this year, expect stocks to be another 10-15% lower than where they stand today, and, even then, with signs of a global slowdown flashing red, a bottom won't likely be put in until the market has flushed out all of the weak hands and sent fund managers scurrying in even greater numbers to cash and bonds.
Presently, the treasuries are telling an interesting story about the economy. While the Federal Reserve insisted on raising rates four times in 2019, the bond market has expressed extreme displeasure, sending the yield on the 10-year note to 2.56%, down ten basis points just today, marking the lowest yield since January of last year. Additionally, short-maturity bills spiked (thanks to Fed hikes at the low end) with the one-year yielding 2.50%, as compared to 2.39% for the 2-year and 2.37% for the five-year note. Inversion in accelerating at the short end of the curve.
While this is traditionally not the pairs that signal recession, that distinction belonging to the 2s-10s spread, it is highly unusual. Bond traders are saying they don't want to issue longer-term, for fear that the economy will weaken as time progresses. The 30-year also was slammed lower, yielding 2.92%, down five basis points from yesterday.
2019 is looking to be an even worse year for equity investors, and a rout in the stock market could cause panic to spread to many diverse levels of economic activity. A recession within the next three to twelve months is looking more a certainty with each passing day.
Dow Jones Industrial Average January Scorecard:
At the Close, Thursday, January 3, 2019:
Dow Jones Industrial Average: 22,686.22, -660.02 (-2.83%)
NASDAQ: 6,463.50, -202.43 (-3.04%)
S&P 500: 2,447.89, -62.14 (-2.48%)
NYSE Composite: 11,190.44, -193.09 (-1.70%)
Apple CEO Tim Cook issued a letter late Wednesday to investors advising that a slowdown in China sales would cause fourth quarter revenue to decline 4.8% year over year to $84 billion, well below analyst estimates. It's not that Apple is losing money - far from that - it's just not making as much as expected. Shares of Apple (AAPL) were down nearly 10% on the news, the largest one-day loss in six years.
Combined with a report from the Institute for Supply Management (ISM) that had December's PMI fall by the most since the financial crisis of 2008, stocks were on the defensive all day long. The report concluded that December PMI fell from 59.3 to 54.1, a descent of 5.4%. While anything over 50 is considered expansion, the falloff is considered to be a harbinger of worse data to come, as many participants in the survey blamed trade tensions with China as a leading cause for the slowdown.
Thus, the 1000+ point gain from December 26 was cut down by two-thirds on Thursday, just a week later, sending the Dow and other major indices closer to bear market territory once again.
January has gotten off to a horrible start, as though December's rout hadn't ended, which, of course, would be correct. Losses on stocks are only just beginning. By March of this year, expect stocks to be another 10-15% lower than where they stand today, and, even then, with signs of a global slowdown flashing red, a bottom won't likely be put in until the market has flushed out all of the weak hands and sent fund managers scurrying in even greater numbers to cash and bonds.
Presently, the treasuries are telling an interesting story about the economy. While the Federal Reserve insisted on raising rates four times in 2019, the bond market has expressed extreme displeasure, sending the yield on the 10-year note to 2.56%, down ten basis points just today, marking the lowest yield since January of last year. Additionally, short-maturity bills spiked (thanks to Fed hikes at the low end) with the one-year yielding 2.50%, as compared to 2.39% for the 2-year and 2.37% for the five-year note. Inversion in accelerating at the short end of the curve.
While this is traditionally not the pairs that signal recession, that distinction belonging to the 2s-10s spread, it is highly unusual. Bond traders are saying they don't want to issue longer-term, for fear that the economy will weaken as time progresses. The 30-year also was slammed lower, yielding 2.92%, down five basis points from yesterday.
2019 is looking to be an even worse year for equity investors, and a rout in the stock market could cause panic to spread to many diverse levels of economic activity. A recession within the next three to twelve months is looking more a certainty with each passing day.
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 |
At the Close, Thursday, January 3, 2019:
Dow Jones Industrial Average: 22,686.22, -660.02 (-2.83%)
NASDAQ: 6,463.50, -202.43 (-3.04%)
S&P 500: 2,447.89, -62.14 (-2.48%)
NYSE Composite: 11,190.44, -193.09 (-1.70%)
Tuesday, December 4, 2018
Stocks Spurt On Tariff Truce; 3-5 Yield Curve Inverts
There was good news on the trade front, but bad news concerning a possible recession.
At the conclusion of the G20 meeting in Buenos Aires, President Trump and his Chinese counterpart, Xi Jinping, announced a 90-day moratorium on tariffs set to take effect on January 1, 2019. Some of the tariffs already in place were set to increase while new tariffs on a variety of goods were to take effect on the new year, but the leaders of the world's two largest economies decided on a cooling-off period and further talks before proceeding.
That good news sent futures soaring in pre-market trading, the euphoria spilling over into the regular session. Barely noticed - and un-noted by the financial press - was a minor inversion in interest rates, with the yield on the 5-year note (2.83%) falling below that of the 3-year treasury note (2.84%).
Though it's not the inversion that most economists are looking for in terms of portending a recession, the minor inversion is a warning shot. The 2-year and 10-year notes are the fear standard, with an inverted curve of those rates consistently preceding every recession since 1955. Currently the 2-year note stands at a yield of 2.83%, while the 10-year holds at 2.98%, notably below 3.00%, after Fed Chairman Jerome Powell softened his stance on rate hikes last week.
Thus, there's a split narrative that threatens to put a lid on gains in the near term. Trade wars have been postponed, for now, but 90 days isn't long enough to establish new guidelines between China and the USA. With the Fed set to raise and check, interest rates are going to give them some maneuverability, though not much, with the federal funds rate settling in somewhere between 2.25 and 2.50%.
Bond vigilantes brought the 10-year note down below the Maginot Line of 3.0% on the first trading day of December. That's more than enough speculation as to where interest rates are headed. In a word, nowhere. The ancillary note is on growth - both domestic and global - which has had a bit of a bump thanks to US strength, but pockets of malaise are popping up everywhere. There seems to be no smooth path heading into 2019, so, after a boost from the Fed and another from the international trading community, this early December rally may not have enough gusto to carry it past the FOMC meeting and through the holidays.
Much emphasis will be put on consumer spending, though with an early Thanksgiving, holiday spending might just peter out a week before Christmas.
It's not all doom and gloom. It's more like murky, with a light at the end of some tunnel.
Dow Jones Industrial Average December Scorecard:
At the Close, Monday, December 3, 2018:
Dow Jones Industrial Average: 25,826.43, +287.97 (+1.13%)
NASDAQ: 7,441.51, +110.98 (+1.51%)
S&P 500: 2,790.37, +30.20 (+1.09%)
NYSE Composite: 12,577.54, +120.00 (+0.96%)
At the conclusion of the G20 meeting in Buenos Aires, President Trump and his Chinese counterpart, Xi Jinping, announced a 90-day moratorium on tariffs set to take effect on January 1, 2019. Some of the tariffs already in place were set to increase while new tariffs on a variety of goods were to take effect on the new year, but the leaders of the world's two largest economies decided on a cooling-off period and further talks before proceeding.
That good news sent futures soaring in pre-market trading, the euphoria spilling over into the regular session. Barely noticed - and un-noted by the financial press - was a minor inversion in interest rates, with the yield on the 5-year note (2.83%) falling below that of the 3-year treasury note (2.84%).
Though it's not the inversion that most economists are looking for in terms of portending a recession, the minor inversion is a warning shot. The 2-year and 10-year notes are the fear standard, with an inverted curve of those rates consistently preceding every recession since 1955. Currently the 2-year note stands at a yield of 2.83%, while the 10-year holds at 2.98%, notably below 3.00%, after Fed Chairman Jerome Powell softened his stance on rate hikes last week.
Thus, there's a split narrative that threatens to put a lid on gains in the near term. Trade wars have been postponed, for now, but 90 days isn't long enough to establish new guidelines between China and the USA. With the Fed set to raise and check, interest rates are going to give them some maneuverability, though not much, with the federal funds rate settling in somewhere between 2.25 and 2.50%.
Bond vigilantes brought the 10-year note down below the Maginot Line of 3.0% on the first trading day of December. That's more than enough speculation as to where interest rates are headed. In a word, nowhere. The ancillary note is on growth - both domestic and global - which has had a bit of a bump thanks to US strength, but pockets of malaise are popping up everywhere. There seems to be no smooth path heading into 2019, so, after a boost from the Fed and another from the international trading community, this early December rally may not have enough gusto to carry it past the FOMC meeting and through the holidays.
Much emphasis will be put on consumer spending, though with an early Thanksgiving, holiday spending might just peter out a week before Christmas.
It's not all doom and gloom. It's more like murky, with a light at the end of some tunnel.
Dow Jones Industrial Average December Scorecard:
| Date | Close | Gain/Loss | Cum. G/L |
| 12/3/18 | 25,826.43 | +287.97 | +287.97 |
At the Close, Monday, December 3, 2018:
Dow Jones Industrial Average: 25,826.43, +287.97 (+1.13%)
NASDAQ: 7,441.51, +110.98 (+1.51%)
S&P 500: 2,790.37, +30.20 (+1.09%)
NYSE Composite: 12,577.54, +120.00 (+0.96%)
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