Showing posts with label treasury bonds. Show all posts
Showing posts with label treasury bonds. Show all posts

Thursday, April 2, 2020

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

(Simultaneously published at Downtown Magazine)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Friday, March 6, 2020

Stocks Struck, Bonds Bought, Gold Soaring As COVID-19 Coronavirus Continues to Prompt Worldwide Response; Fed Powerless

While no records were broken on Thursday, US stocks gave back most of the gains made on Wednesday, as volatility remained elevated. The most-widely quoted measure of volatility, the VIX, spiked to 46.25, a level not seen since the onset of the Great Financial Crisis (GFC) in October 2008. A normal range for the VIX is between 12 and 18. The measure is currently indicating extreme stress in equity markets.

Another gauge of how severe this latest foray into and out of correction territory is the treasury yield curve and individual duration yields. The benchmark of the treasury complex is the 10-year note, which continues to be bought, sending the yield spiraling downward to unprecedented levels.

On Thursday, yields across the treasury complex were hammered lower. The 10-year-note fell from 1.02% on Wednesday to as low as 0.87% on Thursday, finally settling at another new record low of 0.92%. As long as equities remain under pressure - a timeline which could extend not just days or weeks, but months - bonds will be the safe haven and yields will fall.

The 30-year bond, which began the year at 2.33% and was at 2.09% as recently as February 12, crashed another nine basis points on the day, to a record low 1.56%. Shorter duration bills and notes were also being bought, sending yields skidding. The 2-year note was yielding 1.44% a month ago, closed out Thursday at 0.59%. The 1-year continues to offer the lowest yield, 0.48%, while the shortest duration, the 1-month bill yields 0.92. The short end is inverted, signaling economic chokepoints dead ahead.

All of this market turmoil has been the cause of the widely-spread coronavirus, or COVID-19, its official name. With worldwide cases now over 100,000, deaths over 3,400, and the increase in daily infections outside of mainland China now surpassing those from inside China, there's little doubt that the pandemic has reached crisis proportions.

The current hotspots continue to be South Korea (6,593 cases), Iran (4,747) and Italy (3,858), though countries in Europe are beginning to spike higher, especially in Germany, France, Spain, and Switzerland.

The United States is currently reporting 233 cases, though the lack of preparedness and test kits assures that the number is higher by orders of magnitude. With an asymptomatic (not showing obvious symptoms of infection) period of up to 27 days in which the carrier can spread the virus, the number of cases in the United States - as wel as everywhere else - is likely to spike higher within the next week or two. While this is speculation, it is based upon recognizable patterns of the virus, from evidence gathered in South Korea, Italy and on the cruise ship, Diamond Princess, which was ported in Japan for a month and served as a kind of petri dish for study of the disease.

With quarantine the most effective measure to mitigate the spread of coronavirus, the fear in markets is that entire communities will become isolated, workplaces shuttered, large events cancelled. Those scenarios and more have already been evidenced in China, South Korea, Italy and elsewhere. There's no escaping the realities of this global outbreak.

Along the lines of seeking out safe havens, gold has been a superstar, at a seven year high, $1,686.30 per ounce. Silver has lagged, but continues to appreciate, the current price $17.46 per ounce.

Crude oil continues to languish as global demand has collapsed. Even after OPEC announced a cut of half a million barrels a day, the price of WTI crude oil slipped further, currently at $44.06 per barrel.

In what has to be the most inconsequential data release in recent memory, the Labor Department released the February non-farm payroll report, which showed employers added 273,000 jobs nationwide, dropping the unemployment rate to 3.5%, though all of this data is viewed through a lens that was looking prior to the extreme global outbreak of COVID-19.

Markets will remain unsettled as long as the virus remains in its virulent form. With no good remedies or a vaccine readily available, fear will dominate financial markets and it is more likely to get worse before it gets any better. The United States has not yet seen the effects of widespread outbreak, which is all but certain to occur.

Even with Thursday's large losses, stocks are still ahead for the week from two to three percent, depending on the index in question. Bank stocks have suffered tremendous losses, as have airlines, but the damage to stocks has been pretty much an all-in matter. 90% of stocks on the S&P 500 are trading below their 10-day moving averages.

As of Friday morning, the Dow is still ahead by 2.80% on the week, but the market is poised for another down day and the near-term bottom of 24,681.01 (intraday) is certain to be tested in short order.

The Federal Reserve, which cut the federal funds rate by 50 basis points in an emergency cut on Tuesday, meets on March 17-18, with the market calling for a 50 to 75 basis point cut, which would bring the rate down below one percent. Even though the Fed will likely cut the rate at the meeting - and again at its April meeting - it is unlikely to offer much in the way of relief. The Fed cannot print a vaccine, nor halt the spread of an invisible, virulent virus which is rampaging around the world.

At the Close, Thursday, March 5, 2020:
Dow Jones Industrial Average: 26,121.28, -969.58 (-3.58%)
NASDAQ: 8,738.59, -279.49 (-3.10%)
S&P 500: 3,023.94, -106.18 (-3.39%)
NYSE: 12,593.03, -416.93 (-3.20%)

Thursday, January 16, 2020

SNAFU Market Thrives On Chaos As China Deal Signed, Trump Impeached (again)

Since it's probably naive to believe that US equity markets are anything other than "fair and open," Wednesday's solid gains - record highs all around - have more to do with internal tinkering than any outside effects. Algorithms that apparently think sending articles of impeachment against President Donal J. Trump from the House of Representatives over to the Senate (after a month-long delay) is not as important an event as the signing of Phase 1 of the US-Chaina trade accord, both of which occurred almost simultaneously.

One can wonder exactly what traders are thinking these early days of 2020, but the algos may be on the right track given that the impeachment drama has been and ought to have been discounted as bad theatre, whereas the trade deal might turn out to be a big deal for global commerce.

No matter the details, stocks continue to soar, practically every day notching new record highs, without as much as a superfluous pullback every few weeks or so. The driver of this irrationals madness has recently been the Fed's easy money via daily repo injections, with the Federal Reserve providing ready cash in exchange for treasury bills, notes, and bonds they sold to primary dealers just days prior.

It's an open secret that the Fed's balance sheet is growing by monstrous proportions again, having begun in September and continued to burgeon through the holidays and into the new year. The Fed has plans to cease such onerous operations sometime in April, though there's ample consideration that such a move might prompt a dipsy-doo on the order of the ones that accompanied rate tightening in October and again in December of 2018.

For now, the bloom is on the rose and for all intents manages to stay blushing through impeachments, royal defections, plane crashes, Middle East noise, and all other hyperbolic geopolitical events. If nothing is done to stop the SNAFU (Situation Normal, All F--ked Up) 2020 could end up being a lot like 2019, replete with outsized gains for everybody, despite chaos all around.

At the Close, Wednesday. January 15, 2020:
Dow Jones Industrial Average: 29,030.22, +90.55 (+0.31%)
NASDAQ: 9,258.70, +7.37 (+0.08%)
S&P 500: 3,289.29, +6.14 (+0.19%)
NYSE Composite: 14,053.23, +16.10 (+0.11)

Thursday, October 24, 2019

Stocks Sluggish As Bonds Offer Nearly Risk-Free Money Making

Markets churned through another day of earnings hits and misses.

Nothing really to see here as the investing community awaits the penultimate FOMC meeting of 2019, slated for October 29 and 30. Another 25 basis point reduction in the federal funds rate is expected at that time.

While cuts such as is expected in October used to be good for a good pop in stocks, lately, Wall Street has been less-than-enthusiastic when interest rates are slashed. This is clear from the current yield on the 10-year note, which refuses to budge, hovering in the 1.70-1.80 range.

That's not supposed to happen. Bond traders, however, are not being herded into low-yielding offerings at the behest of the Fed. There are certainly other ways to spread risk, into corporates or even shorter-maturity treasuries, and the bond vigilantes are taking them. There's a certain logic to taking 1.74% on a one-month bill rather than locking up money for 10 years for a yield that is only marginally higher. Having cash on hand to seize upon opportunity is smart investing.

With the yield curve so flat, there's little reason to probe the longer end, though, for safety's sake, the 30-year bond is now yielding a healthy 2.25%, nearly the best since rates were clobbered in August.

Earnings may be taking center stage for now, but the heart of the market is clearly in fixed income. Too much speculation, over-valuation, and memories of 2008 in stocks has sent money scurrying to safer places.

At the Close, Wednesday, October 23, 2019:
Dow Jones Industrial Average: 26,833.95, +45.85 (+0.17%)
NASDAQ: 8,119.79, +15.50 (+0.19%)
S&P 500: 3,004.52, +8.53 (+0.28%)
NYSE Composite: 13,114.39, +42.53 (+0.33%)

Sunday, October 6, 2019

WEEKEND WRAP: Stocks Bounce Badly, Bonds Rally In Charged Political, Economic Environment

Stocks ripped higher on Friday after September non-farm payrolls missed estimates, stoking expectations of another 25 basis point rate cut by the FOMC in their upcoming, October 29-30, meeting.

All US indices posted gains over one percent, offsetting about half of the losses made during Tuesday and Wednesday sessions. Despite the huge Friday gains, three of the four major indices finished in the red for a third straight weekly decline as fears of an upcoming recession, continued parlor games in Washington fueling fears of an impeachment of President Trump, and ongoing fits and starts in trade negotiations with China outweighed monetary politics and policy direction.

The NASDAQ was the lone survivor, with a gain of just over 1/2 percent.

Jittery as it has been, US equity markets continue to show signs of weakness but not of breaking down in a capitulating move. With third quarter earnings about a week away, there's optimism that corporate America still has not lost its profitable manner, meanwhile, the flight to US treasuries and corporate bonds continued apace throughout the week, with the yield on the 10-year note dropping 17 basis points - from 1.69 to 1.52% - for the week, and losing 38 basis points since the recent bond selloff sent to 10-year yield to a high of 1.90 on September 13.

Friday's closing bond price for the benchmark 10-year is nearing the lows made in late August and early September of 1.47%.

There seems to be little standing in the way of the 10-year note heading below its historic low yield made on July 5, 2016, of 1.37%, as comparable notes in developed nations - Germany, Japan, Switzerland - are all offering negative yields.

How long the treasury complex can withstand the onslaught of buying worldwide is a minor concern since the Fed has already signaled to markets that they were willing and able to offer negative yields, like the rest of the world's developed nations.

The specter of negative yielding bonds looms closer in the US, but is probably at least two years away, if it develops at all. A recession, such as has been predicted for 2020 (and also was predicted for 2019), could push the 10-year below one percent, but it's a long way down to zero for the world's most popular bond and the world's largest economy.

Unless Democrats succeed in unseating President Trump through impeachment or other means, the onus of recession remains, though it could very well be short-lived, since the US has plenty of untapped capital and productivity.

For the present time, it would be prudent to keep a close eye on the impeachment fiasco underway in congress. There's a strong likelihood that push-back by the Trump administration could send the entire bag of nonsense and dubious Democrat claims into the courts, pushing the narrative through the Democrat primaries in Spring 2020 all the way to November's presidential and congressional elections.

That actually could be the plan for Democrats, since they have made some very spurious allegations about the president, but, the mainstream media loves a circus and promotes the impeachment mantra in an unalterable, monotonous, fallacious chorus.

The American public has grown tired of the repeated attempts to besmirch the duly elected chief executive and the result could be an historic landslide victory for Republicans in the fall of 2020. The alternative, should the Democrats and their obedient lackeys in the media succeed is more than likely to cause a rift in the populace - generally between urban liberals and rural conservatives - that could foment tremendous civil unrest and lawlessness. That is the disruption Wall Street - and most of the civilized world - fears most.

Bumpy will be the ride for the economy, politics, and society over then next 12 to 16 months unless the Democrats are exposed and soundly defeated.

At the Close, Friday, October 4, 2019:
Dow Jones Industrial Average: 26,573.72, +372.68 (+1.42%)
NASDAQ: 7,982.47, +110.21 (+1.40%)
S&P 500 2,952.01, +41.38 (+1.42%)
NYSE Composite: 12,831.54, +145.78 (+1.15%)

For the Week:
Dow: -246.53 (-0.92%)
NASDAQ: +42.85 (+0.54%)
S&P 500: -9.78 (-0.33%)
NYSE Composite: -140.43 (-1.08%)

Thursday, August 15, 2019

Stocks Crumble As Treasury Yield Curve Inverts; 30-year Tumbles Below 2%

It is certainly getting interesting in terms of global economics.

National currencies are in a race to the bottom, and Japan and the EU are winning.

With more than $14 trillion worth of bonds holding negative yields (you get back less than you invested), the world is looking like a place headed for disaster. European and Japanese bonds have the most negative yielding bonds. Their economies are not just heading for a recession, they're diving into depression territory.

There is no growth and that's not to blame on Trump's tariffs. In fact, the tariffs have little to nothing to do with the state of global trade. All economies are slowing. There's entirely too much uncertainty, piled atop too much malinvestment, coupled with an aging demographic, for which to promote any kind of meaningful growth.

By this time next year, expect to see at least six of the major developed nations in recession. The most likely candidates would be Japan, Germany, France, Italy, Spain, and Greece. Notably absent from the list are the US, Australia, Great Britain, and Canada. Since China claims to be still growing, they will admit only to slowing down, to about 3% growth, which might as well be a recession. India, which is not a developed nation (nor is China), is already a basket case.

These recessions will not end easily, and the US, Britain, and Canada will likely recede as well, but not quite as soon as the other nations, mostly European, because Brexit is going to change the dynamic to some degree. The EU is going to lose Britain as a trading partner come October 31. That is a near certainty and long overdue.

The US, Australia, and Canada will sign agreements with Britain to continue trade on a reasonable, fair basis. Europe will be shut out of any such agreement, due to their unwillingness to allow Britain an orderly exit for some three years running. The genii in the EU parliament have made their beds and will have to sleep in them. The populations of the EU countries should rightly riot since EU governance, in conjunction with their national leaders have sold them down the proverbial river via lax immigration standards and horrible economic policies.

In the end - though it may take some time - the EU will dissolve, disintegrate. It may take war, or it may take anger from the Greeks, Spanish, Irish or Italians to tip the EU contract overboard, but it will happen.

For the present, however, the world is focused on stocks and bonds, and stocks are not faring well. Wednesday's disaster was the worst trading day of 2019, rivaling some of the hours of last December.

With a global recession looming, investors may be rushing the exits at various stages over the coming months. Adding to the malaise is the upcoming US elections, whereby strident Democrats seek to unseat Mr. Trump. None have shown the qualities to lead or offer any reasonable path to a stable future. Trump should rightly win in a landslide.

With that, the 30-year bond became the latest victim of upside-down economics and the flight to safety, dipping below 2.00% in yield for the first time EVER. The entire treasury curve is now not only yielding less than two percent, it is inverted, and all of it is yielding lower returns than the effective overnight federal funds rate (2.11%).

We are witnessing the death of fiat money in real time. In the meantime, look for a short-lived relief rally which could extend through the rest of August. Real selling should commence after Labor Day.

At the Close, Wednesday, August 14, 2019:
Dow Jones Industrial Average: 25,479.42, -800.49 (-3.05%)
NASDAQ: 7,773.94, -242.42 (-3.02%)
S&P 500: 2,840.60, -85.72 (-2.93%)
NYSE Composite: 12,368.05, -356.32 (-2.80%)

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:

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%)

Sunday, December 30, 2018

WEEKEND WRAP: With Continued Volatility In Stocks, Is It Time To Consider Alternative Investment Asset Classes?

To say the least, this was one wild week.

Monday opened with word that Treasury Secretary Steven Mnuchin had phoned six major banks and the Plunge Protection Team to assure that the banks had adequate liquidity to survive a significant downturn. There were two problem with Mnuchin making these calls and then making them public. First, nobody was thinking about bank liquidity. Second, alerting the PPT suggests that there are significant economic issues facing the market.

Mnuchin initiated a panic, good for -653 points on the Dow, on a day in which markets closed at 1:00 pm. That was Christmas Eve.

The day after Christmas, Wednesday, the Dow set a record for points gained in one session. It was a spectacular day for anybody in the bullish camp. All the other indices were up more than four percent, another first.

On Thursday, stocks were slumping badly again, but then, the rally from nowhere produced a positive finish, boosting the Dow more than 600 points from 2:15 pm into the close, for a net gain on the day of 260 points.

On Friday, the opposite occurred. The Dow Industrials were up 240 points at three o'clock, but closed down 76.

Volatility. It's what's for Christmas, it appears.

When it was all over the week turned out to be a winner, the first in four weeks of December. Since the start of October, there have been nine weekly losses on the Dow, with just five weekly gains. The net result of this wicked roller-coaster of a market is a Dow Jones Industrial Average that's down nearly 2500 points in December and 3766 points from October 3.

While the week's heavy lifting (most likely done by our friends at the PPT) kept the Dow out of bear market territory, it - and the other major indices - are still deep in the correction zone, and all indices are down for the year. Since there's only one trading day left in 2018, this year is a good bet to end up a loser, despite the best efforts of the pumpers, panderers, shills, and jokers in the financial field to separate you from your money with promises of outstanding gains.

Every stock pumper in the world mouths the word "diversification" as a key element leading to positive investment results. The problem with their kind of diversification is that it normally references one, maybe two asset classes: stocks, and then, maybe, bonds.

Such short-sighted thinking obscures all the other asset classes, broadly, real estate, commodities, currencies, art, collectibles, precious metals and gemstones, vehicles, business equipment, private equity, cash, cash equivalents, and human capital.

There are plenty of opportunities in small business development, where ownership can be hands-on or hands-free, with the potential to grow a local business within a community. President Donald Trump (and many other private businessmen) is one good example of how much money can be made in real estate investment and privately-owned businesses.

People who held on to their Spiderman, X-Men, and Fantastic Four comic books are smiling broadly. So too, those who kept baseball and football cards for more than 50 years. The value of a Mickey Mantle rookie card today is astronomical compared to its original cost (less than a penny).

With the recent volatility in stocks, people may be considering diversifying out of stocks and into other asset classes. In the coming year and beyond, presentation of alternative money-making and investment opportunities will be a focus of Money Daily.

Here's to looking forward at a year of diversifying out of strictly stocks in a portfolio.

In advance: Happy New Year!

Dow Jones Industrial Average December Scorecard:

Date Close Gain/Loss Cum. G/L
12/3/18 25,826.43 +287.97 +287.97
12/4/18 25,027.07 -799.36 -511.39
12/6/18 24,947.67 -79.40 -590.79
12/7/18 24,388.95 -558.72 -1149.51
12/10/18 24,423.26 +34.31 -1115.20
12/11/18 24,370.24 -53.02 -1168.22
12/12/18 24,527.27 +157.03 -1011.19
12/13/18 24,597.38 +70.11 -941.08
12/14/18 24,100.51 -496.87 -1437.95
12/17/18 23,592.98 -507.53 -1945.58
12/18/18 23,675.64 +82.66 -1862.92
12/19/18 23,323.66 -351.98 -2214.90
12/20/18 22,859.60 -464.06 -2678.96
12/21/18 22,445.37 -414.23 -3093.19
12/24/18 21,792.20 -653.17 -3746.36
12/26/18 22,878.45 +1086.25 -2660.11
12/27/18 23,138.82 +260.37 -2399.74
12/28/18 23,062.40 -76.42 -2476.16

At the Close, Friday, December 28, 2018:
Dow Jones Industrial Average: 23,062.40, -76.42 (-0.33%)
NASDAQ: 6,584.52, +5.03 (+0.08%)
S&P 500: 2,485.74, -3.09 (-0.12%)
NYSE Composite: 11,290.95, +5.64 (+0.05%)

For the Week:
Dow: +617.03 (+2.75%)
NASDAQ: +251.53 (+3.97%)
S&P 500: +69.12 (+2.86%)
NYSE Composite: +254.11 (+2.30%)

Tuesday, October 9, 2018

Dow Closes With Losses; Is This 2007 All Over Again?

The Dow spent the day criss-crossing the unchanged line - 20 times to be exact - before finally capitulating late in the day, closing lower for the third time in four days, the losing sessions outweighing the sole winner by a margin of some 398 points.

Among the various reasons for the recent declines are the usual suspects: trade and tariffs, emerging market weakness, soaring bond yields, and widespread political unrest, not only in the United States, but elsewhere in the world, particularly Europe, where nationalism is on the rise in opposition to hard-line European Union bureaucracy and technocrats.

Italy is the most recent focal point, where the latest government consists of parties warring within themselves, with each other, and with the political apparatus that overarches all things European from Brussels. The Italian government, like most modern nations, is saddled with largely unplayable debt, seeking solutions that preclude involvement from either the ECB or the IMF, a task for only the brave or the foolhardy.

As much as can be said for the political turmoil within the Eurozone, it remains cobbled together by an overtaxed citizenry, ripe for revolt from the constraints upon income and general freedom. As was the case with Greece a few years back, the EU intends imposition of austerity upon the Italians and is facing stiff resistance from the general population and government officials alike.

Political sentiment aside, the canary in the US equity coal mine is the downfall of the treasury market, which has seen rising yields almost on a daily basis since the last FOMC meeting concluded September 26, the well-placed fear that the Fed has reached too far in implementing its own brand of monetary austerity by flooding markets with their own overpriced securities. The resultant condition is the most basic of economics: oversupply causes prices to fall, yields to rise.

Adding to investor skittishness are upcoming third quarter corporate reports, which promise to be a bagful of not-well-hidden disappointment, given the strength of the dollar versus other currencies and corporate struggles to balance their domestic books with those outside the US. Any corporation with large exposure to China or other emerging markets is likely to have felt some currency pressure during a third quarter which saw rapid acceleration in the dollar complex. Most corporations are simply not nimble enough to adjust to quick changes in currency valuations, leading to losses on the international side of the ledger book.

Valuations could also matter once again. Since the economy in the US is seen as quite robust and strong at the present, investors may want to question their portfolio allocations. Good things do not last forever, and while the current rally under President Trump has been impressive, it has come at the end of a long, albeit often sluggish, recovery period.






All of this brings up the point of today's headline, the eerie similarity to the market of 2007, which presaged not only a massive recession, but a stock market collapse of mammoth proportions, a real estate bust, and vocal recriminations directed at the banking cartel, which, as we all know, came to naught.

In 2007, the Dow peaked on July 11, closing at 14,000.41, but was promptly beaten down to 12,845.78 at the close on August 16. It bounced all the way back to 14,164.53, on October 16, but was spent. By November 26, the day after Thanksgiving, the industrials closed at 12,743.44 and continued to flounder from there until the final catastrophic month of October 2008.

The chart reads similarly, though more compressed in 2018. The Dow made a fresh all-time high on September 20 (26,656.98) and closed higher the following day. On October 3, a new record close was put in, at 26,828.39, but the index has come off that number by nearly 400 points as of Tuesday's close.

It is surely too soon to call for a trend change, but, if 2018 is anything like 2007, the most recent highs could be all she wrote, the proof not available for maybe another month or two, but the Dow bears watching if it cannot continue the long bull run.

Dow Jones Industrial Average October Scorecard:

Date Close Gain/Loss Cum. G/L
10/1/18 26,651.21 +192.90 +192.90
10/2/18 26,773.94 +122.73 +315.63
10/3/18 26,828.39 +54.45 +370.08
10/4/18 26,627.48 -200.91 +169.17
10/5/18 26,447.05 -180.43 -11.26
10/8/18 26,486.78 +39.73 +28.47
10/9/18 26,430.57 -56.21 -27.74

At the Close, Tuesday, October 9, 2018:
Dow Jones Industrial Average: 26,430.57, -56.21 (-0.21%)
NASDAQ: 7,738.02, +2.07 (+0.03%)
S&P 500: 2,880.34, -4.09 (-0.14%)
NYSE Composite: 12,960.57, -39.56 (-0.30%)

Wednesday, September 26, 2018

Fed Raises Rates, Stocks Tank, Regular People Get Squeezed

Sometimes, there's just too much of a good thing.

Like booze, or sex, or food, or federal funds interest rate increases.

Yes, one of those is different from the others, but, if you're a big brain at the Federal Reserve, maybe not. People who live for an love money might have the same kind of reactions ordinary people have to normal stimuli from money-induced pleasure.

Keeping interest rates at near zero for such a long time, from 2008 to 2015, had to be hard on people at the Fed. There was a lot of stress during that time, and the FOMC governors and presidents of the regional banking hubs had to make up for their lack of money pleasure (ZIRP) by printing oodles of dollars out of thin air (QE). It was an artificial high, a necessary evil to some, and everybody knew it would have to come to an end.

Nothing brings a smile to the face of a banker, central or otherwise, than interest rate increases. It means more money in their silk-lined pockets.

Ordinary humans may not be able to comprehend the exhilaration of a 0.25% increase in the federal funds rate, but central bankers do. They revel in it. Imagine, with one simple policy announcement, making an extra $2.5 billion per year. That's real excitement. And that's just the interest on a trillion dollars. The Fed is handling one heck of a lot more than just a didly trillion. By golly, that's just pocket change.

Rest assured, there are a lot of bemused smiles at the Fed this afternoon. Probably some good old back-slapping, toasting with fine wine, and smoking of expensive cigars, such is the wont of the central banking elite. They've made themselves a mighty handy profit today, and you're paying for it, on your credit cards, mortgages, personal loans, car loans and leases and just about every other negotiable debt instrument you can think of. Business is paying the piper as well. In spades.

So, does the market reaction to the Fed's scheme surprise anybody? Nope. Higher interest rates are always bad for consumers, especially those carrying debt, which is just about everybody these days.

The major indices were cruising along with decent gains until the Fed's announcement at 2:00 pm EDT. After a pause and a slight rise, stocks began to slip. From it's intra-day peak at 2:15 pm, the Dow shed 231 points, the NASDAQ lost 78 points. The move was significant. The Dow has posted losses three days in a row. Correlation, in this case, seems to imply causation.

Wall Street investors aren't immune to the interest rate malaise. They know where their bread is buttered and some surely shifted some dough out of stocks and into bonds, or cash, or art, or expensive cars.

The Fed's insistence on raising rates every quarter has gotten to be a pretty definable pattern by now, but some people are beginning to question when it's all going to end and also, how it's going to end.

Will the stock market and all those juicy profits go down in flames? Hard to say, but a 3.10% yield on a ten-year treasury note ($31,000 a year risk free on a $1,000,000 investment) isn't hard to take, and, in the world of rich people with millions of dollars, yen, or euros to throw around, many will take it.

The rich just got a little bit richer. The poor didn't get any poorer, but the people in the middle (debtors) did.

Dow Jones Industrial Average September Scorecard:

Date Close Gain/Loss Cum. G/L
9/4/18 25,952.48 -12.34 -12.34
9/5/18 25,974.99 +22.51 +10.17
9/6/18 25,995.87 +20.88 +31.05
9/7/18 25,916.54 -79.33 -48.28
9/10/18 25,857.07 -59.47 -107.75
9/11/18 25,971.06 +113.99 +6.24
9/12/18 25,998.92 +27.86 +34.10
9/13/18 26,145.99 +147.07 +181.17
9/14/18 26,154.67 +8.68 +189.85
9/17/18 26,062.12 -92.55 +97.30
9/18/18 26,246.96 +184.84 +282.14
9/19/18 26,405.76 +158.80 +440.94
9/20/18 26,656.98 +251.22 +692.16
9/21/18 26,743.50 +86.52 +778.68
9/24/18 26,562.05 -181.45 +597.23
9/25/18 26,492.21 -69.84 +527.39
9/26/18 26,385.28 -106.93 +420.46

At the Close, Wednesday, September 26, 2018:
Dow Jones Industrial Average: 26,385.28, -106.93 (-0.40%)
NASDAQ: 7,990.37, -17.10 (-0.21%)
S&P 500: 2,905.97, -9.59 (-0.33%)
NYSE Composite: 13,102.68, -57.92 (-0.44%)

Wednesday, June 27, 2018

Dow Approaching Correction Territory; NASDAQ Smashed Lower Again

After calling yesterday's trading the "worst dead cat bounce ever", equity markets in the US clambered back into the high green on Wednesday morning. Running on nothing but day-trading and short-selling fumes, the markets turned dramatically just before noon and were in the red over the final two hours, led lower by the now-dead NASDAQ.

To say that the NASDAQ has nosedived recently would be putting it lightly, as the index has had only one winning session in the past five, and has shed some 336 points over that span, or, about 4.5% percent.

There has also been some pain over on the S&P 500, which really stalled out after making a double top around 2780 (2,782.00, June 11; 2779.66, June 15), is down a little more than three percent over the past two weeks.

While the Dow Industrials were down the least, percentage-wise, the point loss was the greatest among the various indices and the Dow also is leading the charge downhill, already well into the red for the year (-2.5%).

With today's closing price, the Dow is down 9.4% from the January 26 high (26,616.71), on the brink of making a second excursion into correction territory. Meanwhile, the S&P and NASDAQ are still clinging to gains YTD, but are off the January highs as well. The NASDAQ is down just a fraction from January, but the S&P is down six percent over the same span.

Today's Dow downdraft was the 10th session with a negative close in the past 12, as the Dow turned a 903-point gain in June into a 298-point loss, a rapid, 1200-point descent. Whatever can be said about the demise of the Dow over the past three weeks it certainly is not good and does not portend well for the remaining two trading days of the month. Avoiding another correction is probably at the top of the list for the bulls still standing, because this foray will likely be more lasting and also lead to further losses.

Bonds were being bought with both hands on the day, with the yield on the 10-year note down five basis points to 2.83%, the lowest yield since April 17. The 30-year bond lost six bips, closing below 3.00%, at 2.97. This is 13 basis points below the close of 3.10% on the date of the latest FOMC rate hike, June 13. That's quite significant, since the Fed is intent on pushing rates higher, but the market is steadfastly resisting.

This recent spree of bond buying is signaling some dire consequences ahead. If the economy is strong enough to raise rates - as the Fed believes - then why is the market heading in the opposite direction? It's obvious that somebody is wrong-footed, and in this case, the money's on the Fed, which is usually well behind the trend, but currently is seeking to create the trend, something that is pretty much impossible, regardless of how much weight and force the central bank wants to exert on markets.

A explosive, toxic condition is at hand. The Fed and financial media are pushing a narrative of "all's well," but the market is saying, "I don't think so." Something is about to give, and soon. Expect stocks to continue their summer swoon, along with the requisite bouts of euphoria (short covering), though the fear factor will eventually take strong hold of conditions.

As has been stated ad nauseum on these pages for months, "this is a bear market. Trade accordingly."

Dow Jones Industrial Average June Scorecard:

Date Close Gain/Loss Cum. G/L
6/1/18 24,635.21 +219.37 +219.37
6/4/18 24,813.69 +178.48 +397.85
6/5/18 24,799.98 -13.71 +384.14
6/6/18 25,146.39 +346.41 +730.55
6/7/18 25,241.41 +95.02 +825.57
6/8/18 25,316.53 +75.12 +900.69
6/11/18 25,322.31 +5.78 +906.47
6/12/18 25,320.73 -1.58 +904.89
6/13/18 25,201.20 -119.53 +785.36
6/14/18 25,175.31 -25.89 +759.47
6/15/18 25,090.48 -84.83 +674.64
6/18/18 24,987.47 -103.01 +571.63
6/19/18 24,700.21 -287.26 +284.37
6/20/18 24,657.80 -42.41 +241.96
6/21/18 24,461.70 -196.10 +45.86
6/22/18 24,580.89 +119.19 +165.05
6/25/18 24,252.80 -328.09 -163.04
6/26/18 24,283.11 +30.31 -132.73
6/27/18 24,117.59 -165.52 -298.25

At the Close, Wednesday, June 27, 2018:
Dow Jones Industrial Average: 24,117.59, -165.52 (-0.68%)
NASDAQ: 7,445.08, -116.54 (-1.54%)
S&P 500: 2,699.63, -23.43 (-0.86%)
NYSE Composite: 12,412.06, -98.49 (-0.79%)

Monday, June 18, 2018

Dow Losing Streak at Five Days; NASDAQ Resistant to Reality

After losing 84 points on Friday, the Dow extended its losing streak to five days, shedding 103 points to open the trading week. The total loss since June 11 is nothing to get excited about, a mere 335 points, less than 1 1/2 percent, but the lows set in intra-day trading both Friday and Monday were successively deeper.

Friday's low of 24,902.01, was exceeded Monday at 24,825.77, which was set just minutes into the session. The pattern of lower lows and lower closes over the past five sessions is a worrying sign to macro market watchers.

While the Dow slides, the NASDAQ continues to hold its own or make new gains, though the opening on Monday was ugly, with the NAZ down 70 points just after the bell. Today's tiny gain failed to excite anybody but the most committed bulls, who may be charging into a classic trap, with declining volume and indications from the Dow that aren't exactly encouraging.

This week got off to a poor start and there is little in the way of data to support any kind of news-driven uptick. It may turn out to be one of the duller weeks of the summer, which officially begins on Wednesday, June 20.

What's driving investors into speculative positions in the NASDAQ is the lack of positive returns from either Dow stocks or treasury bonds. The former appears too risky, with dividend yields ranging from 1.75% to 2.75% on the individual components, while the bond market continues to defy the Fed, as the 10-year note refuses to bang through the three percent mark.

Bonds barely budged today, but the yield curve tightened as the two year bill yield added one basis point to 2.56, and the 10-year slipped to 2.92, leaving the 2s-10s spread at a decade low 36 basis points.

That's a notable number, as the last time the spread was so slim was in 2007, just prior to one of the worst financial crashes in market history. As is sometimes quoted, "history may not always repeat, but it does often rhyme." Treasuries seem to be rhyming well with conditions prior to the GFC. Unrestrained credit, high leverage, overvaluation prominent in financial assets. In 2007, it was mostly hard assets, i.e., houses, that were rocketing in value. Today's only difference is that it's now stocks which are out of bounds for all but the most speculative players and plungers.

Dow Jones Industrial Average June Scorecard:

Date Close Gain/Loss Cum. G/L
6/1/18 24,635.21 +219.37 +219.37
6/4/18 24,813.69 +178.48 +397.85
6/5/18 24,799.98 -13.71 +384.14
6/6/18 25,146.39 +346.41 +730.55
6/7/18 25,241.41 +95.02 +825.57
6/8/18 25,316.53 +75.12 +900.69
6/11/18 25,322.31 +5.78 +906.47
6/12/18 25,320.73 -1.58 +904.89
6/13/18 25,201.20 -119.53 +785.36
6/14/18 25,175.31 -25.89 +759.47
6/15/18 25,090.48 -84.83 +674.64
6/18/18 24,987.47 -103.01 +571.63

At the Close, Monday, June 18, 2018:
Dow Jones Industrial Average: 24,987.47, -103.01 (-0.41%)
NASDAQ: 7,747.02, +0.65 (+0.01%)
S&P 500: 2,773.87, -5.79 (-0.21%)
NYSE Composite: 12,706.73, -27.91 (-0.22%)

Monday, June 11, 2018

Dow Soars Past Rivals; Upcoming: Trump Talks, Fed Rate Decision (Weekend Wrap & Monday Briefing)

Ripping past rival indices, the Dow Jones Industrial Average scored its biggest point increase since January, adding 681 points while boosting its June increase to 900 points, also the best monthly gain since January.

Whether the bullish sentiment will prevail through the remaining 15 trading days of June may be addressed in the week ahead, one which will witness President Trump's negotiating skills at work when he meets with North Korea's Kim Jong-un in Singapore, an epic event that looks to end nearly seven decades of armed confrontation on the Korean peninsula.

Since taking the oath of office in January, 2016, Trump has made North Korea a significant priority, alternating between insulting tweets (calling Jong-un "Little Rocket Boy," for instance), displays of military force, and back-room preliminary negotiations through surrogates from China, Japan, South Korea and US diplomats.

Official negotiations begin Tuesday, 9:00 am Singapore time, which translates nicely to 9:00 pm Eastern Daylight Time, assuring that late-night political junkies will have their plates full for the better part of the week.

Also on the agenda for the upcoming week is the Tuesday-Wednesday FOMC policy rate meeting, in which the Federal Reserve will likely hike the federal funds rate another 25 basis points, an action which is likely to have great impact on stocks as well as bonds. After hiking rates earlier this year, Fed officials have gone to great lengths to keep their rate increase policy in front of investors and the general public, with various officials parroting the themes that the economy is strong and that now is the right time to increase lending rates.

As opposed to normal Fed operations being somewhat behind the curve, the current roster seeks to appear out in front of the economic realities, though critics maintain that all the Fed is doing is preparing for a looming recession, arming themselves with enough interest rate ammunition to staunch an eventual downturn.

If the Fed does as expected it will hike rates from 0.00 to 0.25 to 1.75% to 2%. This will be the second rate hike this year and the seventh move since the start of the tightening cycle which began in December 2015.

While the small increases have been well-spaced, it's assumed that the Fed will continue to increase rates every three months, meaning that they will hike again in September and once more in December.

The trouble with such an optimistic outlook is that an increase in their base rate to 2.25-2.50 by year-end would put increased pressure on the stock market, as treasury yields would likely rise to levels above and beyond those of many dividend-paying stocks, without the associated risk.

Another anticipated action this coming week is the response from G7 members following their weekend meeting in which President Trump insulted the leaders of other nations in person and via Twitter. Trump's claim that G7 countries like France, Canada, Germany, and Italy have long been taking advantage of the US via unfair trade practices. The US president has been slapping tariffs on friends and foes alike and the backlash in tit-for-tat tariffs has already been forwarded by Canada, with the EU nations likely to impose their own retaliatory trade taxes on US goods.

While the trade wars have been building, the financial media has routinely blamed the tension for declines in the stock market. However, as trade talk went ballistic in the past week, stocks continued their ascent without interruption, proving once again that snap analysis of stock market moves are nothing other than pure fakery by an inept, disingenuous media elite. Trading decisions are largely not the result of current events, but rather, are outward-looking, with longer-term event horizons than a few days or weeks.

The effects of trade interruptions, tariffs and retaliation are unlikely to be felt in any meaningful way for many months, making the premature effusions of guilt by presidential association by the financial and mainstream press a rather large canard.

So, the first full week of trading in June went spectacularly for stocks, with the NASDAQ breaking to new all-time highs on Wednesday, before profit-taking took it back down on Thursday. Friday's 10-point gain on the NAZ left it roughly 50 points off the new closing high.

As for the benchmark Dow Industrials, they are cumulatively 1300 points behind the January record high of 26,616.71. There is a great deal of ground to be made up in any effort to convince investors that the bull market will continue, while those of the bearish camp point to the range-bound cycle of the past three months following the cascading February fall.

June may turn out to be a watershed month for stock pickers, as tech stocks have regained much of their luster while financials have languished. Due to the somewhat incestuous nature of Wall Street trading, all boats may rise or fall in coming days as the second quarter draws to a close and fed managers square their books in anticipation of second quarter reports.

While the prior week may have been a banner for bulls, the week ahead promises to be full of surprises, intrigue and potential pitfalls for investors.

Dow Jones Industrial Average June Scorecard:

Date Close Gain/Loss Cum. G/L
6/1/18 24,635.21 +219.37 +219.37
6/4/18 24,813.69 +178.48 +397.85
6/5/18 24,799.98 -13.71 +384.14
6/6/18 25,146.39 +346.41 +730.55
6/7/18 25,241.41 +95.02 +825.57
6/8/18 25,316.53 +75.12 +900.69

At the Close, Friday, June 8, 2018:
Dow Jones Industrial Average: 25,316.53, +75.12 (+0.30%)
NASDAQ: 7,645.51, +10.44 (+0.14%)
S&P 500: 2,779.03, +8.66 (+0.31%)
NYSE Composite: 12,832.07, +43.56 (+0.34%)

For the Week:
Dow: +681.22 (+2.77%)
NASDAQ: +91.18 (+1.21%)
S&P 500: +44.41 (1.62%)
NYSE Composite: +211.24 (+1.67%)

Friday, June 8, 2018

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

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

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

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

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

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

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

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

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

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

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

Dow Jones Industrial Average June Scorecard:

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

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

Sunday, May 20, 2018

Weekend Wrap: Stocks Stuck In Limbo As Rise In Yields and Oil is Relentless

Anybody looking for volatility on Friday's options expiry was sorely disappointed with the rangebound markets and little change as a dull week came to an even duller finish.

What did move dramatically for the week was bond yields and oil, both of which spiked at the expense of the equity markets, all quite predictable.

As the case for a bear market in stocks continues to grow every day the January 26 high on the Dow of 26,616.71 gets further and further away, so the denial of the Wall Street crowd and pension fund maniacs which know nothing other than stocks, stocks, and more stocks, all the time, everywhere.

As the Money Daily Dow Scorecard below clearly shows, the 30 blue chip stocks were down for the week, though the losses were contained. None of the indices fell by more than one percent, the nearest to that the NASDAQ, with a loss of 0.66%.

Since the early February selloff, stocks have gone exactly nowhere, a point of emphasis for the bears who contend that despite the narrative of "full employment," a growing economy (2-3% is barely keeping pace with inflation; real growth is somewhere in the range of -3 to -5 percent), tax breaks and a strong dollar, undermining the false bravado of the bulls is oil soaring over $71/barrel for WTI crude and notching above $89/barrel this week for Brent crude, plus the 10-year note spiking to 3.11%.

Rising bond yields - which compete with stocks in the relative risk paradigm - and rising fuel prices make a very challenging environment for stock holders, especially those trying to beat the indices, which shouldn't be a tough job, though it has become so as everything is falling and the component parts are falling faster.

Stock pickers may find their task all the more challenging by crowded trades in favored sectors. Tech and consumer non-durables have been hammered recently, but the energy sector has fared much better, up something on the order of 8% on the year. Basic materials have been a disappointment for the most part, and dividend-carrying stocks are, again, barely keeping up with inflation.

It's a no-win market just about everywhere for those who only can go long, so the bears once again have the upper hand.

Dow Jones Industrial Average May Scorecard:

Date Close Gain/Loss Cum. G/L
5/1/18 24,099.05 -64.10 -64.10
5/2/18 23,924.98 -174.07 -238.17
5/3/18 23,930.15 +5.17 -233.00
5/4/18 24,262.51 +332.36 +99.36
5/7/18 24,357.32 +94.81 +194.17
5/8/18 24,360.21 +2.89 +197.06
5/9/18 24,542.54 +182.33 +379.39
5/10/18 24,739.53 +196.99 +576.38
5/11/18 24,831.17 +91.64 +668.02
5/14/18 24,899.41 +68.24 +736.26
5/15/18 24,706.41 -193.00 +543.26
5/16/18 24,768.93 +62.52 +605.78
5/17/18 24,713.98 -54.95 +550.73
5/18/18 24,715.09 +1.11 +551.84

At the Close, Friday, May 18, 2018:
Dow Jones Industrial Average: 24,715.09, +1.11 (0.00%)
NASDAQ: 7,354.34, -28.13 (-0.38%)
S&P 500: 2,712.97, -7.16 (-0.26%)
NYSE Composite: 12,717.42, -30.41 (-0.24%)

For the Week:
Dow: -116.08 (-0.47%)
NASDAQ: -48.54 (-0.66%)
S&P 500: -14.75 (-0.54%)
NYSE Composite: -44.40 (-0.35%)

Sunday, April 29, 2018

Weekend Wrap: If This Isn't A Bear Market, Then What Is It?

Is this a bear market?

Nobody wants to admit it, but the patterns are clear on the charts.

In the most recent week, all of the four major averages displayed the same kind of market action throughout, all ending in the red, from the Dow's 0.62% loss to the S&P's narrow, 0.01% decline.

All four are currently trading between their 50 and 200-day moving averages.

It's been three months since the averages made new highs, which just happened to be all-time highs, occurring more than nine years into the second-longest expansion in market history.

Even though the indices are not at correction levels (-10%), they are close, and the argument that a bear market is defined as a 20% drop is begging the question to a large degree. In the case that investors want to wait until stocks are another 10% lower, it will mean that the smartest investors got out early and those remaining will be eventual bag-holders, losing anywhere from 35-60% of their investments as the bear matriculates to lower and lower levels.

Since Dow Theory has confirmed bear market conditions, only the most hopeful or ignorant traders will cling to the belief that those all-time highs made three months ago will be surpassed somewhere down the road. The closing high on the Dow is 26,616.71, made on January 26. A rally of more than 2300 points would be needed to get back to that level.

Does anybody in their right mind see that happening?

Presidents of the various Federal Reserve System regional banks may try to make a case that the economy is strong and still growing, despite evidence to the contrary and their overwhelming desire to raise rates in the face of obviously weakening data.

Friday's first estimate of third quarter GDP might have been the straw that broke the back of the Fed's narrative, coming in below consensus guesses at a depressing 2.3%. When one backs out inflation and considers that almost all of the contributions to GDP - consumer, business, and government - are based on borrowed money, i.e., debt, the real GDP figure might be somewhere closer to -2.3%, consumer and business debt beginning to grow beyond sustainable levels, while government debt is already well past that point at $21 trillion.

There is little doubt that this is indeed a bear market and the flattening of the treasury interest rate curve is more evidence that a recession is just around the corner. Raising rates at this juncture - which the Fed plans on doing again in June - will only exacerbate an already stretched situation and actually contribute to causing the very recession the Fed wishes, publicly, to avoid. In truth, behind closed doors, the Fed presidents and governors of the FOMC know full well that a slowdown is coming, not just for stocks, but for the general economy. That's why they are in such a rush to raise rates: because they need the additional ammunition of being able to reduce rates when the recession comes.

Investors have had sufficient time to reallocate funds to safe havens. Sadly, the bulk of investments are held by pension and other funds, and the bag-holders are going to eventually be the millions of working people whose investments and livelihoods are inextricably tied to the market with little opportunity to allocate funds correctly nor the ability to leave the market completely.

Life has its ups and downs, and its fair share of joy and pain. The joy of the past nine years is about to be eclipsed by the pain of 2019-2022, a bear market and deep recession that will reveal - to some - the true state of the US and global economy, one that has been built on debt, low interest rates, non-stop issuance of fiat currency, stock buybacks, manipulation, and shady practices by the world's central banks.

Forewarned is forearmed.

Dow Jones Industrial Average April Scorecard:

Date Close Gain/Loss Cum. G/L
4/2/18 23,644.19 -458.92 -458.92
4/3/18 24,033.36 +389.17 -69.75
4/4/18 24,264.30 +230.94 +161.19
4/5/18 24,505.22 +240.92 +402.11
4/6/18 23,932.76 -572.46 -170.35
4/9/18 23,979.10 +46.34 -134.01
4/10/18 24,407.86 +428.76 +294.66
4/11/18 24,189.45 -218.55 +76.11
4/12/18 24,483.05 +293.60 +369.71
4/13/18 24,360.14 -122.91 +247.80
4/16/18 24,573.04 +212.90 +460.70
4/17/18 24,786.63 +213.59 +674.29
4/18/18 24,748.07 -38.56 +635.73
4/19/18 24,664.89 -83.18 +552.55
4/20/18 24,462.94 -201.95 +350.60
4/23/18 24,448.69 -14.25 +336.35
4/24/18 24,024.13 -424.56 -88.21
4/25/18 24,083.83 +59.70 -28.51
4/26/18 24,322.34 +238.51 +210.00
4/27/18 24,311.19 -11.15 +198.85

At the Close, Friday, April 27, 2018:
Dow Jones Industrial Average: 24,311.19, -11.15 (-0.05%)
NASDAQ: 7,119.80, +1.12 (+0.02%)
S&P 500: 2,669.91, +2.97 (+0.11%)
NYSE Composite: 12,594.02, +11.12 (+0.09%)

For the Week:
Dow: -151.75 (-0.62)
NASDAQ: -26.33 (-0.37%)
S&P 500: -0.23 (-0.01%)
NYSE Composite: -13.13 (-0.10%)

Sunday, February 4, 2018

Markets Turn Ugly As Bond Yields Soar in Ground Hog Day Massacre

Even as January's non-farm payroll report painted a rosy employment picture, adding 200,000 jobs for the month, the 10-year note crested over the 2.80% level on Friday, sending stocks into as vicious tailspin in a mid-winter crash.

The nearly 666-point decline on the Dow was the sixth largest one-day point drop in market history, though in percentage terms was the mildest of the top ten, all of which have occurred in the 21st century.

The fact that all of the major point losses happened since 2000 is made obvious by the enormity of the index, still standing at more then 25,000, an epochal figure in market terms. Notably, the Dow Jones Industrial Average first passed the 10,000 mark in 1999, amid the notorious dotcom boom, prior to the dotcom bust, which took a full three-and-a-half years to fully play out.

Friday's drop was the largest since a 634.76-point loss on August 8, 2011 which sent the blue chips down 5.55%, to 10,809.85. Noting the relative percentage puniness of the Ground Hog Day Massacre, it may be wise to expect larger point and percentage losses in the near to mid-range future (three months to one year).

While it may be simplistic to point to the gaudy valuations placed on equities in the current market dynamic, it is nonetheless a significant factor in the current shaky environment and as good a reason to sell out of stocks as any, though the other major catalyst - rising bond yields - provides a more granular perspective.

The long end of the Treasury yield curve was extended on Friday as the 30-year bond smashed through the psychological 3.00% barrier, signaling to long-term investors that the aging bull market in stocks (and bonds) may be coming to a quick conclusion.

Bull and bear markets do not begin nor end in vacuums, which is why this most recent pullback should be regarded as a change of tone in market functioning. Nothing gos on forever, and empirical data suggests that while stocks have enjoyed salad days for years, the general economy and the welfare of millions of Americans has been less than a full meal.

It's easy to look at macro data and conclude that all is well and central banks have the markets and global economies under control, but sometimes one needs to look around and actually see the mountains of debt, stock buybacks, and central bank meddling which have fueled the gigantic recovery and historic stock gains.

Money is undoubtably becoming tighter and the labor market - according to government figures - is straining at full employment, but wages gains have not nearly kept pace with either inflation or taxes for at least the past 15 years. A breaking point is coming, wherein multi-national corporate behemoths are going to have to sacrifice the massive salaries bestowed upon top executives in exchange for pay increases for Mr. and Mrs. America.

With the Federal Reserve ready to hike the federal funds rate another 25 basis points at their upcoming March FOMC rate policy meeting, the world's central bank seeks to create a buffer against an almost certain recession, one which they, by their own reckless actions, will have caused.

If stock declines continue through February, expect the Fed to pause on their quest to raise rates and unload debt at the same time. The outward absurdity of their position is dangerous to the welfare of not only business entities, but individuals and governments as well.

What may have been the most telling circumstance from Friday's demolition of all asset classes, gold and silver also took precipitous drops, action which harkens back to the tumultuous days of the fall of 2008, when precious metals were slammed along with stocks. Notably, it was the metals which recovered first, but under the current conditions of mad money mindlessness, the shiny stuff may be suppressed even further, simply because central banks don't appreciate competition for their various fake currencies by real money.

The era of easy money is ending.

Real assets will endure.

At the Close, Friday, February 2, 2018:
Dow: 25,520.96, -665.75 (-2.54%)
NASDAQ: 7,240.95, -144.92 (-1.96%)
S&P 500: 2,762.13, -59.85 (-2.12%)
NYSE Composite: 13,085.35, -296.62 (-2.22%)

For the Week:
Dow: -1095.75 (-4.12)
NASDAQ: -264.83 (-3.53%)
S&P 500: -110.74 (-3.85%)
NYSE Composite: -551.67 (-4.05%)

Friday, January 19, 2018

Does Wall Street Take a Government Shutdown Seriously?

Late Thursday afternoon, US stock indices took a decided turn to the downside as legislators in Washington DC failed to agree upon a plan to meep the US government operating past Friday night.

A favorite parlor game for the noise-makers in the nation's capitol, threatening to shut down the government because there's no budget or continuing resolution may have become passe´ to the general population, but Wall Street may take the issue a bit more seriously.

A partial shutdown of the federal government - because it doesn't really shut down critical operations or necessary functions - isn't taken seriously, though it could become a real issue, if it were, in fact, an absolute reality.

Considering the amounts of money the federal government handles on a regular basis, a complete shut-down would be devastating to the nation's economy. Imagine welfare, social security, and disability recipients not receiving their regular checks or direct deposits.

Imagine the nation's largest workforce going without paychecks for an extended period. Imagine the US Postal Service shut down, the entire military on leave, contractors idled, and an assortment of other regular activities closed, ceased, ended. The US treasury would cease operations, causing all US treasury bonds to become worthless.

Least of all, the bickering by members of congress would least be missed, since they are the supposedly responsible people.

An actual shutdown is a scary thought. Trying to scare the populace with a fake shutdown, caused solely by inter-party disagreements and politics, may be nothing now, but it could be seen as a conditioning effort for a true federal failure.

In such a case, the president would likely declare martial law, a necessary action to ensure civility, especially in cities. That's unlikely to happen at this juncture, but, the more the politicians play politics instead of enacting laws that do good for the American people, the closer the nations comes to a severe and lasting crisis.

Passing a two, three, or four-week resolution merely kicks the can down the road a little, making the government appear no better than that of a third-world banana republic.

If that's what's happening, all investors should take appropriate actions to safeguard not only their liquid assets invested in stocks and bonds, but also move to protect their friends and families.

The United States is headed for disaster if the congress and the news media continues on the destructive path of irresolution, political posturing, fear-mongering, and division.

Let's hope it doesn't begin to unravel further over the weekend.

At the Close, Thursday, January 18, 2018:
Dow: 26,017.81, -97.84 (-0.37%)
NASDAQ: 7,296.05, -2.23 (-0.03%)
S&P 500: 2,798.03, -4.53 (-0.16%)
NYSE Composite: 13,315.91, -36.48 (-0.27%)

Wednesday, January 10, 2018

Central Bank Resolve To Be Tested If China, Japan Break Ranks

In yesterday's post, reference was made to the backstopping of stock markets by the global cartel of central banks and how the aforementioned banks would not allow even the slightest decline on the main US indices.

True to form, Tuesday's trading was a textbook example of the central banking gambit, with the Dow Jones Industrial Average and S&P 500 making new all-time records, the NASDAQ and NYSE Composite tagging along.

About to be tested is central bank resolve and unity. Overnight, Japan has apparently decided to cut back on the purchase of long-dated treasury securities, and China has - according to unnamed sources (the preference of manipulators, provocateurs, and liars) - likewise decided to cut purchases of US treasuries by as much as five percent.

Being that Japan and China are he largest holders of US treasuries and at the same time partners in the global central bank ponzi scheme to keep fiat currency floating and stock brokers gloating, these developments - if found out to be the truth - could be inflammatory and possibly devastating to the value of stocks.

With the US markets set to open, futures are forecasting a negative open, though that alone will not ensure anything other than alerting the main buyers of equities - central banks - to be at the bid early and often.

At the Close, Tuesday, January 9, 2018:
Dow: 25,385.80, +102.80 (+0.41%)
NASDAQ: 7,163.58, +6.19 (+0.09%)
S&P 500: 2,751.29, +3.58 (+0.13%)
NYSE Composite: 13,120.84, +6.49 (+0.05%)

Friday, December 8, 2017

Stocks End Week Higher; Bitcoin Still Bubbly; Gold, Silver Pounded Lower

Stocks got back to rising without worry on Friday following the 238,000 new jobs reported in November, according to the BLS' non-farm payroll data.

The Dow, S&P, and Composite set new all-time high closing marks, the NASDAQ falling short of a record by 74 points, due primarily to the drubbing of the FAANGs late last week and early this week. Highly speculative tech stocks are considered to be benefited least of all companies by the tax bill currently coursing its way through congress, thus, some investors were shunning the sector for that reason. Others were likely taking profits after what is looking like a banner year for the tech leaders.

Bonds ended the week with a quiet session, the curve steepening ever so slightly, with the short-duration issues yielding the same or .01% more, while the 10-year-note yield was bumped a pip higher, to 2.38%.

The curve is still quite flat, with the spread between 2s and 30s only 98 basis points (0.98%). In other words, investors are flocking to short terms, which spells long-term trouble. In more normal times, a 30-year treasury bond would be yielding five from seven percent, but, even with the economy growing - albeit sluggishly - long-dated commitments are out of fashion. Lending the government money for a long period of time will only produce a return of 2.75%, hardly anything upon which one would hang a retirement fund. The federal government, if one believes in free market economics, is not a worthy bet from more than a few years.

Difficult to believe, but would you put your money at risk for an additional 20 years for an extra 0.37% return (the difference between the ten-year and the 30 year)? Probably not, and expert bond traders apparently agree.

No report would be complete without mentioning Bitcoin, which galloped above $17,000 on Thursday, but dropped back to just under $16,000 Friday, capping a week which it began just below $12,000 per coin.

On the flip side (pun intended), gold and silver were beaten down all week, sending silver to a loss year-to-date. Looks like a buying opportunity in the physical mining and bullion sector which has been the poster children for underperformance the past four years.

At the Close, Friday, December 8, 2017:
Dow: 24,329.16, +117.68 (+0.49%)
NASDAQ: 6,840.08, +27.24 (+0.40%)
S&P 500: 2,651.50, +14.52 (+0.55%)
NYSE Composite: 12,643.06, +74.08 (+0.59%)

Gold: 1,245.90, -3.90 (-0.31%)
Silver: 15.73, +0.01 (+0.06%)

For the week:
Dow: +97.57 (+0.40%)
NASDAQ: -7.51 (-0.11%)
S&P 500: +9.28 (+0.35%)
NYSE Composite: +28.50 (+0.23%)