The name is Bond. Treasury Bond.
Anyone with a recollection of the classic 1963 initial intonation of the James Bond introduction from the film, "Dr. No," is likely to also have some memories of five percent interest at savings banks, CDs offering yields of seven, or stocks that were marked by quarter or half-point gains and losses.
Whether one relates to Sean Connery, Roger Moore, or even the contemporary Daniel Craig, the message remains the same. When the secret agent with the license to kill shows up, it's a sure thing that the bad guy is going to have a rough go of it.
The treasury bond market is relatable in similar fashion. Normally, when bonds announce their arrival at the scene of the financial panic of the day via lower yields, it is normally a signal for hard times ahead. These days, with the Fed put in place through various schemes, asset purchase programs, and nefarious back-room dealings, bond yields and the structure of the curve don't seem to matter very much. Stocks keep churning higher. Life - or whatever we're calling the continuing COVID crisis today - goes on.
On Tuesday, the evidence of stress was plain to see. Bond prices racked higher, sending the yield on the 10-year note to a record low, 0.52%. The 30-year crumbled to 1.19%, leaving the complex with a top to bottom spread of 110 basis points (1.10%). There's also inversion at the 1-year and 2-year level, the former yielding 0.14, the latter, 0.11. Even worse, the 3-year dipped to 0.10.
None of that bodes well for the US economy, but Wall Street barely batted an eyelash. Stocks gained across the board, though the day's rally could best be described as "nervous."
There's nothing good about the US or global economy, no matter how hard the Fed and the Wall Street, CNBC, Fox Business, and Bloomberg stock jockeys whip their mounts. There just isn't. Month-over-month data will show the occasional impressive uptick, but whatever the measure, it's from some dismal low point created by coronavirus and government edict.
So, when bonds make their ominous introductions, don't expect much to happen to stocks. Rather, look to precious metals for a suitable response. While bond yields were headed toward Hades in a handbag, gold and silver were launched to impressive levels. Gold vaulted past $2000 and silver gained almost two dollars on the day, ripping from $24.50 to beyond $26 the ounce. This is the natural reaction in the precious metals when storage costs become cheaper than real (negative) yields and price appreciation appears to be a no-brainer as opposed to declining interest rates.
The moves haven't slowed overnight either. Traders in the near and far East know currency and empire collapse when they see it and have made the requisite adjustment in the price of real money. Those expecting a slowing of precious metals' daring ascent are going to be disappointed. The recent spike - especially in silver, normally the more volatile of the pair - is the natural reaction to the global mess created by central banks and aided by coronavirus. The destruction of fiat currencies is a slow process, but the precious metals aren't wasting any time signaling the coming cataclysm.
While the recent gains may not be entirely sustainable, long term prospects for gold and silver are nothing short of magnificent. When every currency is backed by good faith and credit - and there is little left of those - a runaway response by precious metals is to be expected. Over the next two to five years, gold could easily triple or more; silver could be priced well over $100 per ounce as the gold:silver ratio executes a reversion to the mean.
There was more good news on the bond front.
Argentina finalized deal with creditors over $65 billion in long-term debt that has been hanging over the South American nation like the sword of Damocles since May, when a scheduled interest payment went missing.
The deal worked out has some interesting non-moving parts, most notably the swapping out of old bonds for new ones at a price of 55 cents on the dollar, with principal payments delayed until 2024, ostensibly to give Argentina time to get its fiscal house in order (or to find another way to screw over even more creditors).
No matter the case, the Argentina Treatment is likely to set a new standard - a "new normal" - for debt negotiations.
This is what credit card companies and home equity specialists will be hearing in coming months and years.
"I'm unable to meet my debt obligations, so I would like the Argentina Treatment. If you can see to it that 45% of my debt is forgiven, I'll gladly pay you back at two percent or so, beginning in three years. Or, would you rather have your financial institution pound sand?"
Not exactly a debt jubilee, but what some may call a suitable solution to decades of high-interest credit card debt and squeezed homeowners with no piggy bank left.
At the Close, Tuesday, August 4, 2020:
Dow: 26,828.47, +164.07 (+0.62%)
NASDAQ: 10,941.17, +38.37 (+0.35%)
S&P 500: 3,306.51, +11.90 (+0.36%)
NYSE: 12,612.09, +75.28 (+0.60%)
Showing posts with label treasury curve. Show all posts
Showing posts with label treasury curve. Show all posts
Wednesday, August 5, 2020
Sunday, June 28, 2020
WEEKEND WRAP: Stocks Slide; Island Reversal Seen; Gold, Silver Soar; Treasuries Flatline; Argentina On The Ropes
For a second time in the past three weeks, stocks suffered another round of losses which accelerated as the week progressed. Of the major indices, taking the biggest hit were the Dow Industrials, followed by the NYSE Composite, S&P 500, and NASDAQ, in percentage terms.
The Dow's 3.31% fall was made possible by a Friday selloff which saw the blue chips decline by 730 points, the largest selloff since June 11, when stocks suffered a major blow preceded by an ominous island reversal of June 5, 8, 9, and 10. (see video below for more)
Friday's action may be presaging an oncoming decline of a magnitude rivaling the initial slide in March. The second quarter comes to a close on Tuesday and everybody on wall Street knows that it's difficult to "price in" a GDP decline which may be on the order of 35-50% when the first figure is announced on July 30.
Prior to that momentous milestone, corporate earnings reports will begin to flow to the street following next week's July 4 Independence Day holiday. The coming week will be shortened by a day, as Friday is a national holiday, giving most Americans a three-day weekend. Stock markets, banks, the postal service and most city and county offices will be closed. Hopefully, most of them will reopen on July 6.
For the week just concluded, treasury yields were clobbered, the 10-year note falling from 0.71 to 0.64%, the lowest since May 14 and approaching the record low of 0.58% from April 21st. As the 30-year bond yield fell from 1.47 to 1.37 over the course of the week, the curve flattened significantly, 125 basis points covering the entire complex. If this is what the Fed considers success in "curve control," they can have it, with the short end - one-month to two-years - covered by just five basis points (0.12 to 0.17%).
These low rates at the front end aren't by accident. They are policy and they are indicative of a recession if not outright depression. Adamant that they will not go to negative rates as has been the case in the Eurozone and Japan for years, the Fed's real rates have been in the red pretty much since the previous crisis in '08-'09, i.e., they were lower than the inflation rate. The one year note only crested above one percent in 2017. A year ago, it was yielding 1.92%, a stark comparison to Friday's close at 0.17%.
The Fed promised cheap credit and they are delivering.
Oil prices were slapped down after WTI crude tested $40/barrel, peaking at $40.73 on Monday, only to close out at $38.49 on Friday. Expect oil to continue trading sideways to lower if stock prices begin to falter, or, vice versa. Oil declines could help trigger or exacerbate a rundown on equities.
Precious metals were by far the big winners for the week. Both gold and silver advanced smartly despite a desperate attempt to crater their prices Friday on the NYMEX failed miserably. The morning rout sent gold reeling $20 to the downside, bottoming just below $1745 per ounce. So enamored with "V"-shaped recoveries, Wall Street got an unexpected one when gold prices recovered all of the losses within an hour and proceeded to close near the high for the day at $1771.50. Laughably, Friday's recorded London PM fix was set at $1747.60, setting up a $24 weekend arbitrage gap. Maybe, considering the problems the paper COMEX markets have had in recent months, it's not so funny for gold shorts, which are burning.
Silver savers should be delighted with the price action this week. Not only was a raid similar to the gold price suppression thwarted on both Thursday and Friday, but spot edged three cents higher than the closeout future price, at $17.83 the ounce, the highest Friday price since February 21, just prior to the epic COVID collapse.
Current physical prices continue to demand high premiums. This week saw prices for silver art bars absolutely explode higher, some one ounce bars selling above $40. Average and median prices for one ounce gold coins and bars were captured at prices $33 to $45 higher than a week ago.
Here's a glimpse at current selected prices on eBay (shipping included):
Item: Low / High / Average / Median
1 oz silver coin: 25.95 / 40.95 / 30.92 / 29.47
1 oz silver bar: 27.00 / 45.44 / 34.62 / 32.93
1 oz gold coin: 1,827.85 / 2,109.95 / 1,919.39 / 1,901.60
1 oz gold bar: 1,861.66 / 1,920.65 / 1,879.77 / 1,873.92
Argentina's Debt Crisis Far From Resolution
Argentina's government continues to play cat and mouse with international creditors, extending the deadline for negotiations concerning $65 billion worth of bonds to July 24.
Having already defaulted on a $500 million interest payment on May 22, the government is doubling down, indicating that it will miss another similar payment in June, which has a 30-day grace period. The chances of a settlement agreeable to the government and its creditors continue to deteriorate as interest payments are missed and the value of the bonds plummets, some selling off to as low as 37 cents on the dollar.
Talks stalled over the past two weeks as investors including BlackRock, Fidelity, AllianceBernstein, and Ashmore Group PLC, rejected a government proposal tied to agricultural exports while seeking recovery of between 49 and 57 cents on the dollar.
At the same time, the province of Buenos Aires, Argentina’s largest province, is negotiating with bondholders on the restructuring of $7.148 billion in debt and extended its deadline for a negotiated settlement to July 31.
Per previous proposals, payments would not begin being made on the currently-defaulted bonds until 2025. This article, published by the Council on Foreign Relations, offers the most comprehensive details, including charts that break down Argentina's $323 billion of debt, all of which is at dangerous risk levels.
At a time when the country's GDP is predicted to decline by 10 percent, the severity of the financial crisis cannot be understated, though mainstream television media in America has nearly completely neglected to report on the issue. Argentina has suffered through decades of boom and bust over the past 45 years, 20 of which showed GDP in decline.
It's not a question of when Argentina defaults on its debts, it's a question of how severe the defaults will be, how they will affect government pensions, and the ability of the government to maintain its status as a going concern. With a population estimated at 45 million, Argentina's problems are quickly becoming everybody's, as tens and perhaps hundreds of billions are in the process of being eviscerated.
With the government of President Alberto Fernandez content to play kick the can by extending the negotiation deadline for a fifth time, the dithering is taking its toll on investors. While a formal default has only been declared on portions of Argentina's debt, triggering the awarding of a credit default swap (CDS) recently, these things have a nasty way of snowballing into global crises, as was the case with Mexico in 1982, the Asian Crisis in 1997, and when Russia devalued the ruble in 1998.
Having to deal with some of the most severe lockdowns in the world due to the COVID-19 panic, Argentina is ill-prepared to deal with a financial hardship of this magnitude. The situation could spiral out of control at any time, when one side or the other finally throws in the towel and walks away. Consider Argentina's plight a fluid situation with more headlines and fireworks likely over coming months.
At the Close, Friday, June 26, 2020:
Dow: 25,015.55, -730.05 (-2.84%)
NASDAQ: 9,757.22, -259.78 (-2.59%)
S&P 500: 3,009.05, -74.71 (-2.42%)
NYSE: 11,604.43, -260.68 (-2.20%)
For the Week:
Dow: -855.91 (-3.31%)
NASDAQ: -188.90 (-1.90%)
S&P 500: -88.69 (-2.86%)
NYSE: -375.19 (-3.14%)
Peak Prosperity's Adam Taggert and friends discuss threats to the stock market, highlighted by their charting of the recent Island Reversal:
The Dow's 3.31% fall was made possible by a Friday selloff which saw the blue chips decline by 730 points, the largest selloff since June 11, when stocks suffered a major blow preceded by an ominous island reversal of June 5, 8, 9, and 10. (see video below for more)
Friday's action may be presaging an oncoming decline of a magnitude rivaling the initial slide in March. The second quarter comes to a close on Tuesday and everybody on wall Street knows that it's difficult to "price in" a GDP decline which may be on the order of 35-50% when the first figure is announced on July 30.
Prior to that momentous milestone, corporate earnings reports will begin to flow to the street following next week's July 4 Independence Day holiday. The coming week will be shortened by a day, as Friday is a national holiday, giving most Americans a three-day weekend. Stock markets, banks, the postal service and most city and county offices will be closed. Hopefully, most of them will reopen on July 6.
For the week just concluded, treasury yields were clobbered, the 10-year note falling from 0.71 to 0.64%, the lowest since May 14 and approaching the record low of 0.58% from April 21st. As the 30-year bond yield fell from 1.47 to 1.37 over the course of the week, the curve flattened significantly, 125 basis points covering the entire complex. If this is what the Fed considers success in "curve control," they can have it, with the short end - one-month to two-years - covered by just five basis points (0.12 to 0.17%).
These low rates at the front end aren't by accident. They are policy and they are indicative of a recession if not outright depression. Adamant that they will not go to negative rates as has been the case in the Eurozone and Japan for years, the Fed's real rates have been in the red pretty much since the previous crisis in '08-'09, i.e., they were lower than the inflation rate. The one year note only crested above one percent in 2017. A year ago, it was yielding 1.92%, a stark comparison to Friday's close at 0.17%.
The Fed promised cheap credit and they are delivering.
Oil prices were slapped down after WTI crude tested $40/barrel, peaking at $40.73 on Monday, only to close out at $38.49 on Friday. Expect oil to continue trading sideways to lower if stock prices begin to falter, or, vice versa. Oil declines could help trigger or exacerbate a rundown on equities.
Precious metals were by far the big winners for the week. Both gold and silver advanced smartly despite a desperate attempt to crater their prices Friday on the NYMEX failed miserably. The morning rout sent gold reeling $20 to the downside, bottoming just below $1745 per ounce. So enamored with "V"-shaped recoveries, Wall Street got an unexpected one when gold prices recovered all of the losses within an hour and proceeded to close near the high for the day at $1771.50. Laughably, Friday's recorded London PM fix was set at $1747.60, setting up a $24 weekend arbitrage gap. Maybe, considering the problems the paper COMEX markets have had in recent months, it's not so funny for gold shorts, which are burning.
Silver savers should be delighted with the price action this week. Not only was a raid similar to the gold price suppression thwarted on both Thursday and Friday, but spot edged three cents higher than the closeout future price, at $17.83 the ounce, the highest Friday price since February 21, just prior to the epic COVID collapse.
Current physical prices continue to demand high premiums. This week saw prices for silver art bars absolutely explode higher, some one ounce bars selling above $40. Average and median prices for one ounce gold coins and bars were captured at prices $33 to $45 higher than a week ago.
Here's a glimpse at current selected prices on eBay (shipping included):
Item: Low / High / Average / Median
1 oz silver coin: 25.95 / 40.95 / 30.92 / 29.47
1 oz silver bar: 27.00 / 45.44 / 34.62 / 32.93
1 oz gold coin: 1,827.85 / 2,109.95 / 1,919.39 / 1,901.60
1 oz gold bar: 1,861.66 / 1,920.65 / 1,879.77 / 1,873.92
Argentina's Debt Crisis Far From Resolution
Argentina's government continues to play cat and mouse with international creditors, extending the deadline for negotiations concerning $65 billion worth of bonds to July 24.
Having already defaulted on a $500 million interest payment on May 22, the government is doubling down, indicating that it will miss another similar payment in June, which has a 30-day grace period. The chances of a settlement agreeable to the government and its creditors continue to deteriorate as interest payments are missed and the value of the bonds plummets, some selling off to as low as 37 cents on the dollar.
Talks stalled over the past two weeks as investors including BlackRock, Fidelity, AllianceBernstein, and Ashmore Group PLC, rejected a government proposal tied to agricultural exports while seeking recovery of between 49 and 57 cents on the dollar.
At the same time, the province of Buenos Aires, Argentina’s largest province, is negotiating with bondholders on the restructuring of $7.148 billion in debt and extended its deadline for a negotiated settlement to July 31.
Per previous proposals, payments would not begin being made on the currently-defaulted bonds until 2025. This article, published by the Council on Foreign Relations, offers the most comprehensive details, including charts that break down Argentina's $323 billion of debt, all of which is at dangerous risk levels.
At a time when the country's GDP is predicted to decline by 10 percent, the severity of the financial crisis cannot be understated, though mainstream television media in America has nearly completely neglected to report on the issue. Argentina has suffered through decades of boom and bust over the past 45 years, 20 of which showed GDP in decline.
It's not a question of when Argentina defaults on its debts, it's a question of how severe the defaults will be, how they will affect government pensions, and the ability of the government to maintain its status as a going concern. With a population estimated at 45 million, Argentina's problems are quickly becoming everybody's, as tens and perhaps hundreds of billions are in the process of being eviscerated.
With the government of President Alberto Fernandez content to play kick the can by extending the negotiation deadline for a fifth time, the dithering is taking its toll on investors. While a formal default has only been declared on portions of Argentina's debt, triggering the awarding of a credit default swap (CDS) recently, these things have a nasty way of snowballing into global crises, as was the case with Mexico in 1982, the Asian Crisis in 1997, and when Russia devalued the ruble in 1998.
Having to deal with some of the most severe lockdowns in the world due to the COVID-19 panic, Argentina is ill-prepared to deal with a financial hardship of this magnitude. The situation could spiral out of control at any time, when one side or the other finally throws in the towel and walks away. Consider Argentina's plight a fluid situation with more headlines and fireworks likely over coming months.
At the Close, Friday, June 26, 2020:
Dow: 25,015.55, -730.05 (-2.84%)
NASDAQ: 9,757.22, -259.78 (-2.59%)
S&P 500: 3,009.05, -74.71 (-2.42%)
NYSE: 11,604.43, -260.68 (-2.20%)
For the Week:
Dow: -855.91 (-3.31%)
NASDAQ: -188.90 (-1.90%)
S&P 500: -88.69 (-2.86%)
NYSE: -375.19 (-3.14%)
Peak Prosperity's Adam Taggert and friends discuss threats to the stock market, highlighted by their charting of the recent Island Reversal:
Sunday, May 10, 2020
WEEKEND WRAP: Fed Fiat Funny Money Has Managed to Short-Circuit the Crisis, for Now
Against a backdrop of Great Depression-like numbers - 33 million Americans out of work and an "official" unemployment rate of 14.7% - equity investors enjoyed a remarkably positive week, with all major indices rising by at least 2.50%, with the NASDAQ leading the way with a six percent gain.
The NASDAQ's advance was not only remarkable, but it is also ludicrous. The tech-heavy index has advanced beyond both its 50 and 200-day moving averages and is within 720 points of its all-time high. Investors in the speculative sector of the market have either divorced themselves from reality or are seeing something the rest of the world is missing. Money has to go somewhere, even money from the Federal Reserve, released to companies across the investing spectrum, but most of it appears to be heading toward Silicon Valley.
No doubt, chasing momentum has amplified the absurd move to the NASDAQ, which is likely a dangerous precedent. Many of the companies moving higher sport P/E ratios well above the norm, even the norm in a major bull market, a position that was shattered eight weeks ago.
Some of the standouts in the nebulous NASDAQ unicorn universe include Alphabet, parent of Google (GOOG), bottomed out at 1056.62 on March 23, and closed Friday at 1388.37.
Netflix (NFLX) fell out at 298.84 on March 16, but has since rebounded to Friday's close of 435.55.
Amazon (AMZN) reached an all-time high of 2474.00 on April 16, after dropping to 1676.61 on March 12, an amazing gain of 47.6% in just over a month. Amazon may be a superb, dynamic company, but it's arguably extremely overvalued, with a P/E of 113.
Facebook (FB) finished at 146.01 on March 16 and closed at 212.35 on Friday.
Some investors have been getting fat while the larger economy has, for the most part, imploded.
As almost all states (47 of 50 as of Saturday, May 9) have at least partially reopened their businesses and relaxed stay-at-home and other restrictions on the populace, anecdotal reports show that business is still a long distance from anything approaching normal, i.e., prior to the COVID-19 pandemic.
Wall Street is pushing a narrative that the country and the economy is all well and good, the recovery - in terms of stock prices - well underway, even as cases of coronavirus are still prevalent and rising in some cases and deaths continue at a run rate of over 1,000 a day. How well that works out for investors won't likely be known for some time. For now, investors, and the companies getting the most attention, are sitting pretty.
Crude oil continued to be under pressure from both a supply glut and slack demand, hovering in the mid-20s throughout the week. The June contract on WTI crude rose from $19.78 last Friday (May 1) to $24.74 a barrel this Friday (May 8). The contract expires within two weeks and there hasn't really been much improvement on the supply side of the equation, though demand has improved as the United States and most other countries around the world have begun getting back to business.
The treasury curve steepened over the course of the week. The entire complex is covered by 129 basis points as of Friday, up from 117 the prior week. All of the yield gains were at the long end. As money rushed out of bonds and back into stocks on Friday, the 10-year note added six basis points, to 0.69. The 30-year bond yield gained from 1.31 to 1.39.
Precious metals continued to be among the most-desired asset class since the onset of the pandemic. Both gold and silver are selling at massive premiums (up to $200 for gold, 40-80% for silver) and dealers are still experiencing supply issues with many popular items out of stock, though available to order. Delivery times have come back a bit, with gold and silver in quantity available within two weeks of placing orders.
Here are representative recent prices (5/9-5/10) on eBay for standard gold and silver coins and bars (prices include shipping):
Item: Low / High / Average / Median
1 oz silver coin: 24.45 / 38.00 / 30.58 / 30.48
1 oz silver bar: 23.00 / 30.95 / 26.77 / 26.20
1 oz gold coin: 1,750.00 / 1,946.65 / 1,854.84 / 1,841.99
1 oz gold bar: 1,799.99 / 1,871.52 / 1,843.90 / 1,851.47
In cryptocurrency-land, the Bitcoin Halving approaches. Fr those unfamiliar with the concept, the "halving" is the predetermined moment when Bitcoin’s block subsidy gets cut in half. The halving of Bitcoin’s block subsidy occurs every 210,000 blocks (approximately every four years) and is a key feature of Bitcoin. It is because of the Halving that there is a capped supply of 21 million bitcoin that will ever exist. The halving is scheduled to take place Monday at approximately 6:49 pm ET.
Bitcoin surpassed the $10,000 mark in US dollars, but fell back to the $8850 range in anticipation of the event.
And, just to throw another spanner into the works, the government of Argentina failed to reach agreement with creditors by its self-imposed Friday deadline, essentially defaulting on $65 billion worth of bonds, though talks between the two sides are continuing. Argentina will formally default on May 22, as it missed a $503 million payment last month and the grace period is expiring.
Talks were extended through Monday in hopes that Argentina could avoid its ninth sovereign default.
At this juncture, everything is at risk. According to recent economic data, the global economy is flat on its back. Most developed countries are either in a recession or about to enter one. The response to the coronavirus has ramped up unemployment and knocked down GDP estimates.
Thanks to massive infusions of capital from the Fed and other central banks to both business and individuals, the crisis has been managed to a degree, but the future remains a guessing game. Whether or not QE to infinity will save the day - and the underlying currencies - is a real gamble.
At the close, Friday, May 8, 2020:
Dow: 24,331.32, +455.43 (+1.91%)
NASDAQ: 9,121.32, +141.66 (+1.58%)
S&P 500: 2,929.80, +48.61 (+1.69%)
NYSE: 11,354.34, +232.68 (+2.09%)
For the Week:
Dow: +607.63 (+2.56%)
NASDAQ: +516.37 (+6.00%)
S&P 500: +99.09 (+3.50%)
NYSE: +295.77 (+2.67%)
The NASDAQ's advance was not only remarkable, but it is also ludicrous. The tech-heavy index has advanced beyond both its 50 and 200-day moving averages and is within 720 points of its all-time high. Investors in the speculative sector of the market have either divorced themselves from reality or are seeing something the rest of the world is missing. Money has to go somewhere, even money from the Federal Reserve, released to companies across the investing spectrum, but most of it appears to be heading toward Silicon Valley.
No doubt, chasing momentum has amplified the absurd move to the NASDAQ, which is likely a dangerous precedent. Many of the companies moving higher sport P/E ratios well above the norm, even the norm in a major bull market, a position that was shattered eight weeks ago.
Some of the standouts in the nebulous NASDAQ unicorn universe include Alphabet, parent of Google (GOOG), bottomed out at 1056.62 on March 23, and closed Friday at 1388.37.
Netflix (NFLX) fell out at 298.84 on March 16, but has since rebounded to Friday's close of 435.55.
Amazon (AMZN) reached an all-time high of 2474.00 on April 16, after dropping to 1676.61 on March 12, an amazing gain of 47.6% in just over a month. Amazon may be a superb, dynamic company, but it's arguably extremely overvalued, with a P/E of 113.
Facebook (FB) finished at 146.01 on March 16 and closed at 212.35 on Friday.
Some investors have been getting fat while the larger economy has, for the most part, imploded.
As almost all states (47 of 50 as of Saturday, May 9) have at least partially reopened their businesses and relaxed stay-at-home and other restrictions on the populace, anecdotal reports show that business is still a long distance from anything approaching normal, i.e., prior to the COVID-19 pandemic.
Wall Street is pushing a narrative that the country and the economy is all well and good, the recovery - in terms of stock prices - well underway, even as cases of coronavirus are still prevalent and rising in some cases and deaths continue at a run rate of over 1,000 a day. How well that works out for investors won't likely be known for some time. For now, investors, and the companies getting the most attention, are sitting pretty.
Crude oil continued to be under pressure from both a supply glut and slack demand, hovering in the mid-20s throughout the week. The June contract on WTI crude rose from $19.78 last Friday (May 1) to $24.74 a barrel this Friday (May 8). The contract expires within two weeks and there hasn't really been much improvement on the supply side of the equation, though demand has improved as the United States and most other countries around the world have begun getting back to business.
The treasury curve steepened over the course of the week. The entire complex is covered by 129 basis points as of Friday, up from 117 the prior week. All of the yield gains were at the long end. As money rushed out of bonds and back into stocks on Friday, the 10-year note added six basis points, to 0.69. The 30-year bond yield gained from 1.31 to 1.39.
Precious metals continued to be among the most-desired asset class since the onset of the pandemic. Both gold and silver are selling at massive premiums (up to $200 for gold, 40-80% for silver) and dealers are still experiencing supply issues with many popular items out of stock, though available to order. Delivery times have come back a bit, with gold and silver in quantity available within two weeks of placing orders.
Here are representative recent prices (5/9-5/10) on eBay for standard gold and silver coins and bars (prices include shipping):
Item: Low / High / Average / Median
1 oz silver coin: 24.45 / 38.00 / 30.58 / 30.48
1 oz silver bar: 23.00 / 30.95 / 26.77 / 26.20
1 oz gold coin: 1,750.00 / 1,946.65 / 1,854.84 / 1,841.99
1 oz gold bar: 1,799.99 / 1,871.52 / 1,843.90 / 1,851.47
In cryptocurrency-land, the Bitcoin Halving approaches. Fr those unfamiliar with the concept, the "halving" is the predetermined moment when Bitcoin’s block subsidy gets cut in half. The halving of Bitcoin’s block subsidy occurs every 210,000 blocks (approximately every four years) and is a key feature of Bitcoin. It is because of the Halving that there is a capped supply of 21 million bitcoin that will ever exist. The halving is scheduled to take place Monday at approximately 6:49 pm ET.
Bitcoin surpassed the $10,000 mark in US dollars, but fell back to the $8850 range in anticipation of the event.
And, just to throw another spanner into the works, the government of Argentina failed to reach agreement with creditors by its self-imposed Friday deadline, essentially defaulting on $65 billion worth of bonds, though talks between the two sides are continuing. Argentina will formally default on May 22, as it missed a $503 million payment last month and the grace period is expiring.
Talks were extended through Monday in hopes that Argentina could avoid its ninth sovereign default.
At this juncture, everything is at risk. According to recent economic data, the global economy is flat on its back. Most developed countries are either in a recession or about to enter one. The response to the coronavirus has ramped up unemployment and knocked down GDP estimates.
Thanks to massive infusions of capital from the Fed and other central banks to both business and individuals, the crisis has been managed to a degree, but the future remains a guessing game. Whether or not QE to infinity will save the day - and the underlying currencies - is a real gamble.
At the close, Friday, May 8, 2020:
Dow: 24,331.32, +455.43 (+1.91%)
NASDAQ: 9,121.32, +141.66 (+1.58%)
S&P 500: 2,929.80, +48.61 (+1.69%)
NYSE: 11,354.34, +232.68 (+2.09%)
For the Week:
Dow: +607.63 (+2.56%)
NASDAQ: +516.37 (+6.00%)
S&P 500: +99.09 (+3.50%)
NYSE: +295.77 (+2.67%)
Sunday, April 5, 2020
WEEKEND WRAP: COVID-19 Crisis Will Peak Within Three Weeks, but the Economic Crisis Will Continue for Years
(Simultaneously published at Downtown Magazine)
OK, this was a long week, and stocks got clobbered again, but it could have been, and should have been, worse. The main indices were down between two percent (S&P 500) and three percent (NYSE Composite). For most citizens of the world who are under forced quarantine, the week was a painful experience. The vast majority of people would just like to be back at work, earning a living to support their families. The partially-manufactured COVID-19 crisis is keeping most of the developed nations' economies and people in lockdowns, on purpose, to impose government will over everyday people.
It's a shame how many will be cowed by government and led to believe the many lies that have been perpetrated during this period.
The beginning effects of the Fed backstopping companies has already been noticed. Some dime-store variety stocks were being bid up as the rest of the market was heading lower through the week. Companies (no names, for now, until more than a few weeks data is collected) evidenced buying at stop loss triggers. Not many were allowed to fall to anywhere near the recent lows.
Stocks should get another taste of selling in the coming week, as most of the news will be about overloaded hospitals, stressed out medial workers, press conferences by the president and his "team." It will be interesting to note how hard the Fed works to stave off a return to 18,212 on the Dow and similar drops on the other indices. They will likely keep losses to a minimum. It would not surprise at all would stocks stage another rally.
The treasury yield curve is about as flat as it can be, signaling nothing good. 115 basis points, or, just more than one percent, covers the entire complex from one-month bills (0.09% yield) to 30-year bonds (1.24%). The 10-year note is flatlining at 0.62%. The Fed, via its SPVs (Special Purpose Vehicles) is desperately buying commercial paper, in addition to treasury bonds, agency mortgage-backed securities, ETF paper, and municipal bonds. They're busy buying up the world's debt with the only currency that matters, the US dollar, conjured up daily out of thin air. The Federal Reserve's balance sheet has ballooned to nearly $6 trillion in their attempt to blow the global credit bubble a lot larger.
Oil caught a huge bid after President Trump supposedly brokered a deal between the Saudis and the Russians, making a record gain on Thursday and another huge leap forward in price on Friday. While there is rampant skepticism over whether there is any kind of deal afoot (the Saudis denied it), the recent price jump - WTI crude went from $21.76 per barrel on Wednesday to a high of $26.35 Thursday, and closed out Friday at $28.34; Brent went from $26.90 to $34.11 over the same span - is unlikely to be long-lasting. Until the Saudis and Russians have eliminated 50-60% of the shale drillers in the US, there aren't going to be any concessions. Additionally, the rampant supply glut and limited demand should keep the price around $20-24 per barrel.
Gold and silver continue to decouple from the fraudulent futures prices. Gold settled out just below $1600 the ounce, silver about $14.00. For real prices on physical silver and gold, one must go to eBay of all places, where there is a wide-open market for coins, bars and assorted bullion. An ounce of gold is ranging between $1800-$2000, while silver cannot be had for under $22 per ounce. These are the real prices, and are heading up quickly because demand is through the roof, many miners are idled, reducing supply, hoarding is rampant, and delivery times from established dealers (30-45 days in some cases) cannot match the one-to-three day deliveries by independent eBay sellers, and those prices have built into them a 10% commission to eBay and do not include shipping, which only adds to the real prices.
There's a definite possibility that the COMEX and LBMA will soon be disregarded completely and a free, open, un-manipulated market will emerge at the world's biggest online bazaar and elsewhere on the internet as fiat currencies are inflated away and real money begins to take root at the consumer level.
Random Notes and Recommendations
JP Morgan put out a study which concluded that the world will be on the downside of the case infection rate curve in two months. Rubbish. Check out this site for the US:
http://covid19.healthdata.org/projections
The United States will be peaking and on the downslope of the curve within 2-3 WEEKS, not 2 months, and European nations are already on the downslope.
All the noise over ventilators, on which two-thirds of the people die anyhow, is just wasted time and money. The small business "loans" are garbage, full of loopholes and boondoggles for small business.
As usual, Wall Street got their trillions in the blink of an eye. American citizens will have to wait until the government gets around to figuring out how to pay them their $1200. Average time, from right now, 3-6 weeks.
Gee, thanks for helping us all out.
Open up MLB. It would be nice to see the some home runs, swings and misses, stolen bases, sign-stealing, and all that good stuff by May 15 at the latest. Even a shortened season would be acceptable. Americans, average Americans are the ones who deserve all the credit. They took social distancing and stay-at-home seriously, which was very helpful in slowing the spread of COVID. We should all get $10K, and Wall Street nothing, because those companies contributed nothing, and most of the companies getting bailout money do nothing. The people should revolt once this is over.
The government, local, state, and federal are the destroyers of liberty. All of them are worthless parasites and when this is all over they'll all pat themselves on the backs for doing such a bang-up job, when, in reality, it was mostly a big hoax.
Here is an exceptional interactive chart which shows the curve (the one we're actively flattening by social distancing and other mediations) in the United States and in every state individually, with figures for numbers of beds, ICU beds, and ventilators needed and available.
It clearly shows the curve peaking between April 15 and 21. The response curve will peak first, followed quickly by the number of COVID-19 cases curve. After that, it's all downhill for the dangerous pathogen that has disrupted lives and economies worldwide.
Brent Johnson's Dollar Milkshake Theory
Brent Johnson is CEO of Santiago Capital. He has been creating and managing comprehensive wealth management strategies for the personal portfolios of high-net-worth individuals and families since the late 1990s.
If you watch no other video on money, gold, or finance, this is the one you definitely should see.
Also, Mike Maloney's GoldSilver.com is an excellent resource. Recently, Mike has been doing pretty much daily videos with consolidated information from a wide variety of sources, funneled through his intuitive, calculating mind. Here is a recent entry with some revealing charts by the incredible analyst John Hussman, another number-crunching maniac who's been studying and disseminating information on the economy in a series of market commentaries at his Hussman Funds website.
Here is Mike Maloney's April 3rd video:
Make sure to get Mike's free e-book, Guide to Investing in Gold & Silver, the #1 All-Time Bestseller On Precious Metals Investing, available at his site.
At the Close, Friday, April 2, 2020:
Dow Jones Industrial Average: 21,052.53, -360.87 (-1.69%)
NASDAQ: 7,373.08, -114.23 (-1.53%)
S&P 500: 2,488.65, -38.25 (-1.51%)
NYSE: 9,880.63, -181.77 (-1.81%)
For the Week:
Dow: -584.25 (-2.70%)
NASDAQ: -114.23 (-2.53%)
S&P 500: -52.82 (-2.08)
NYSE: -306.58 (-3.01%)
OK, this was a long week, and stocks got clobbered again, but it could have been, and should have been, worse. The main indices were down between two percent (S&P 500) and three percent (NYSE Composite). For most citizens of the world who are under forced quarantine, the week was a painful experience. The vast majority of people would just like to be back at work, earning a living to support their families. The partially-manufactured COVID-19 crisis is keeping most of the developed nations' economies and people in lockdowns, on purpose, to impose government will over everyday people.
It's a shame how many will be cowed by government and led to believe the many lies that have been perpetrated during this period.
The beginning effects of the Fed backstopping companies has already been noticed. Some dime-store variety stocks were being bid up as the rest of the market was heading lower through the week. Companies (no names, for now, until more than a few weeks data is collected) evidenced buying at stop loss triggers. Not many were allowed to fall to anywhere near the recent lows.
Stocks should get another taste of selling in the coming week, as most of the news will be about overloaded hospitals, stressed out medial workers, press conferences by the president and his "team." It will be interesting to note how hard the Fed works to stave off a return to 18,212 on the Dow and similar drops on the other indices. They will likely keep losses to a minimum. It would not surprise at all would stocks stage another rally.
The treasury yield curve is about as flat as it can be, signaling nothing good. 115 basis points, or, just more than one percent, covers the entire complex from one-month bills (0.09% yield) to 30-year bonds (1.24%). The 10-year note is flatlining at 0.62%. The Fed, via its SPVs (Special Purpose Vehicles) is desperately buying commercial paper, in addition to treasury bonds, agency mortgage-backed securities, ETF paper, and municipal bonds. They're busy buying up the world's debt with the only currency that matters, the US dollar, conjured up daily out of thin air. The Federal Reserve's balance sheet has ballooned to nearly $6 trillion in their attempt to blow the global credit bubble a lot larger.
Oil caught a huge bid after President Trump supposedly brokered a deal between the Saudis and the Russians, making a record gain on Thursday and another huge leap forward in price on Friday. While there is rampant skepticism over whether there is any kind of deal afoot (the Saudis denied it), the recent price jump - WTI crude went from $21.76 per barrel on Wednesday to a high of $26.35 Thursday, and closed out Friday at $28.34; Brent went from $26.90 to $34.11 over the same span - is unlikely to be long-lasting. Until the Saudis and Russians have eliminated 50-60% of the shale drillers in the US, there aren't going to be any concessions. Additionally, the rampant supply glut and limited demand should keep the price around $20-24 per barrel.
Gold and silver continue to decouple from the fraudulent futures prices. Gold settled out just below $1600 the ounce, silver about $14.00. For real prices on physical silver and gold, one must go to eBay of all places, where there is a wide-open market for coins, bars and assorted bullion. An ounce of gold is ranging between $1800-$2000, while silver cannot be had for under $22 per ounce. These are the real prices, and are heading up quickly because demand is through the roof, many miners are idled, reducing supply, hoarding is rampant, and delivery times from established dealers (30-45 days in some cases) cannot match the one-to-three day deliveries by independent eBay sellers, and those prices have built into them a 10% commission to eBay and do not include shipping, which only adds to the real prices.
There's a definite possibility that the COMEX and LBMA will soon be disregarded completely and a free, open, un-manipulated market will emerge at the world's biggest online bazaar and elsewhere on the internet as fiat currencies are inflated away and real money begins to take root at the consumer level.
Random Notes and Recommendations
JP Morgan put out a study which concluded that the world will be on the downside of the case infection rate curve in two months. Rubbish. Check out this site for the US:
http://covid19.healthdata.org/projections
The United States will be peaking and on the downslope of the curve within 2-3 WEEKS, not 2 months, and European nations are already on the downslope.
All the noise over ventilators, on which two-thirds of the people die anyhow, is just wasted time and money. The small business "loans" are garbage, full of loopholes and boondoggles for small business.
As usual, Wall Street got their trillions in the blink of an eye. American citizens will have to wait until the government gets around to figuring out how to pay them their $1200. Average time, from right now, 3-6 weeks.
Gee, thanks for helping us all out.
Open up MLB. It would be nice to see the some home runs, swings and misses, stolen bases, sign-stealing, and all that good stuff by May 15 at the latest. Even a shortened season would be acceptable. Americans, average Americans are the ones who deserve all the credit. They took social distancing and stay-at-home seriously, which was very helpful in slowing the spread of COVID. We should all get $10K, and Wall Street nothing, because those companies contributed nothing, and most of the companies getting bailout money do nothing. The people should revolt once this is over.
The government, local, state, and federal are the destroyers of liberty. All of them are worthless parasites and when this is all over they'll all pat themselves on the backs for doing such a bang-up job, when, in reality, it was mostly a big hoax.
Here is an exceptional interactive chart which shows the curve (the one we're actively flattening by social distancing and other mediations) in the United States and in every state individually, with figures for numbers of beds, ICU beds, and ventilators needed and available.
It clearly shows the curve peaking between April 15 and 21. The response curve will peak first, followed quickly by the number of COVID-19 cases curve. After that, it's all downhill for the dangerous pathogen that has disrupted lives and economies worldwide.
Brent Johnson's Dollar Milkshake Theory
Brent Johnson is CEO of Santiago Capital. He has been creating and managing comprehensive wealth management strategies for the personal portfolios of high-net-worth individuals and families since the late 1990s.
If you watch no other video on money, gold, or finance, this is the one you definitely should see.
Also, Mike Maloney's GoldSilver.com is an excellent resource. Recently, Mike has been doing pretty much daily videos with consolidated information from a wide variety of sources, funneled through his intuitive, calculating mind. Here is a recent entry with some revealing charts by the incredible analyst John Hussman, another number-crunching maniac who's been studying and disseminating information on the economy in a series of market commentaries at his Hussman Funds website.
Here is Mike Maloney's April 3rd video:
Make sure to get Mike's free e-book, Guide to Investing in Gold & Silver, the #1 All-Time Bestseller On Precious Metals Investing, available at his site.
At the Close, Friday, April 2, 2020:
Dow Jones Industrial Average: 21,052.53, -360.87 (-1.69%)
NASDAQ: 7,373.08, -114.23 (-1.53%)
S&P 500: 2,488.65, -38.25 (-1.51%)
NYSE: 9,880.63, -181.77 (-1.81%)
For the Week:
Dow: -584.25 (-2.70%)
NASDAQ: -114.23 (-2.53%)
S&P 500: -52.82 (-2.08)
NYSE: -306.58 (-3.01%)
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%)
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%)
Wednesday, March 25, 2020
As Senate Seeks $2 Trillion Coronavirus Relief Package, Stocks Roar to Record Gains; Gold, Silver Rebound
When Senate majority leader Mitch McConnell announced on Tuesday that negotiations over a $2 trillion national bailout were "on the five-yard line," minority leader Chuck Schumer one-upped him, quipping that negotiations were on the two-yard line as he met and wrangled over details with Treasury Secretary Steven Mnuchin.
Presumptuously a bi-partisan effort, the back-and-forth between the administration and Senate leaders managed to lift spirts in lower Manhattan, sending stocks to record one-day gains as hope for financial relief appeared to be within reach.
The 2,113.01-point, 11.37 percent gain on the Dow Industrials was not only the greatest one-day point rise in market history, it was also the fourth-best percentage rise, following a 12.34 percent advance on October 30, 1929, when the market was just entering the Great Depression. At the time, the Industrial Average stood at 258.47, with its gain of 28.40 points.
Whether that comparison is fair or apocryphal remains to be seen, though it's a well-known fact that the greatest stock market gains occur during bear markets. Of the top seven one-day percentage gains, four were during the Great Depression, the other two occurring in the Great Financial Crisis, on October 13 and 28 of 2008. It would indeed be wise for market participants to pay heed to Tuesday's inclusion in this suspicious list.
The NASDAQ's 557.19-point rip was the second-most ever, following a 672.43-point advance on March 13, 2020, less than two-weeks ago. The 8.12 percent increase tied for seventh all-time with a similar percentage gain on April 18, 2001. At that time, the NASDAQ was well into the throes of the dot-com bust. The tech-laden index was then trading just above 2000, when a month prior it had reached all-time highs, breaking above 5000.
The story was the same for the S&P 500, which recorded the eighth-best percentage gain. The seven higher percentage gains were all made either during the Great Depression (five of them), while two happened in October, 2008. The S&P's 209.93-point rise stands second only to the 230.38-point advance on March 13 of this year.
While the Senate dithered over details, bulls were greatly relieved as they took it to the bears throughout the session. Led by Chevron (CVX) with a 22.74% increase, some of the top performers on the Dow Jones Industrial Average included American Express (AXP, +21.88%), beleaguered Boeing (BA, +20.89%), McDonald's (MCD, +18.13%), Goldman Sachs (GS, +13.80%), and 3M (MMM, +12.60%).
The outpouring of money and joy didn't stop at the corner of Wall Street and Broadway. The money flows extended into gold and silver, the two precious metals having recently been pounded below sensible levels. With one of its best one-day performances ever, gold advanced by some $84.80, finishing up at $1636.00 the ounce after a close at $1551.20 on Monday.
Silver rose from a close of 13.27 on Monday to end trading in New York at 14.36, a gain of 8.21 percent.
Oil was stable to higher, with WTI crude advancing from $23.36 per barrel to $24.01 on the day.
Generally, bonds sold off, led by treasuries with durations between one and 10 years. Yield on the 10-year note advanced eight basis points, from 0.76% to 0.84%. The largest gain of yield was found on the five-year note, which rose from 0.38% to 0.52%. The curve is still relatively flat, with yields in a narrow band of 138 basis points. The one, two, and three month bills all stand at 0.01%, with the 30-year bond checking in at 1.39%
While the Senate never did get to a cloture vote on Tuesday, the deal was eventually struck just before 1:00 am ET on Wednesday, when White House legislative affairs director Eric Ueland exited Senate Majority Leader Mitch McConnell’s office saying, according to CNN. “We have a deal.”
The full Senate is poised to vote on the package midday Wednesday. The House is expected to approve the bill by unanimous consent, sending it to the White House for President Trump's signature. The president is reportedly eager to sign the bill, sending money to individuals, families and businesses affected by events surrounding the coronavirus outbreak.
It is expected to advance direct payments of $1200 per citizen ($2400 for married couples) earning less than $75,000 a year. It is the largest stimulus bill ever made into law. With markets prepared to open shortly, futures are less-than-enthusiastic, as all of the major indices indicate a lower opening though Asian markets were up sharply overnight and European indices are mixed.
At the Close, Tuesday, March 24, 2020:
Dow Jones Industrial Average: 20,704.91, +2,113.01 (+11.37%)
NASDAQ: 7,417.86, +557.19 (+8.12%)
S&P 500: 2,447.33, +209.93 (+9.38%)
NYSE: 9,658.32, +880.94 (+10.04%)
Presumptuously a bi-partisan effort, the back-and-forth between the administration and Senate leaders managed to lift spirts in lower Manhattan, sending stocks to record one-day gains as hope for financial relief appeared to be within reach.
The 2,113.01-point, 11.37 percent gain on the Dow Industrials was not only the greatest one-day point rise in market history, it was also the fourth-best percentage rise, following a 12.34 percent advance on October 30, 1929, when the market was just entering the Great Depression. At the time, the Industrial Average stood at 258.47, with its gain of 28.40 points.
Whether that comparison is fair or apocryphal remains to be seen, though it's a well-known fact that the greatest stock market gains occur during bear markets. Of the top seven one-day percentage gains, four were during the Great Depression, the other two occurring in the Great Financial Crisis, on October 13 and 28 of 2008. It would indeed be wise for market participants to pay heed to Tuesday's inclusion in this suspicious list.
The NASDAQ's 557.19-point rip was the second-most ever, following a 672.43-point advance on March 13, 2020, less than two-weeks ago. The 8.12 percent increase tied for seventh all-time with a similar percentage gain on April 18, 2001. At that time, the NASDAQ was well into the throes of the dot-com bust. The tech-laden index was then trading just above 2000, when a month prior it had reached all-time highs, breaking above 5000.
The story was the same for the S&P 500, which recorded the eighth-best percentage gain. The seven higher percentage gains were all made either during the Great Depression (five of them), while two happened in October, 2008. The S&P's 209.93-point rise stands second only to the 230.38-point advance on March 13 of this year.
While the Senate dithered over details, bulls were greatly relieved as they took it to the bears throughout the session. Led by Chevron (CVX) with a 22.74% increase, some of the top performers on the Dow Jones Industrial Average included American Express (AXP, +21.88%), beleaguered Boeing (BA, +20.89%), McDonald's (MCD, +18.13%), Goldman Sachs (GS, +13.80%), and 3M (MMM, +12.60%).
The outpouring of money and joy didn't stop at the corner of Wall Street and Broadway. The money flows extended into gold and silver, the two precious metals having recently been pounded below sensible levels. With one of its best one-day performances ever, gold advanced by some $84.80, finishing up at $1636.00 the ounce after a close at $1551.20 on Monday.
Silver rose from a close of 13.27 on Monday to end trading in New York at 14.36, a gain of 8.21 percent.
Oil was stable to higher, with WTI crude advancing from $23.36 per barrel to $24.01 on the day.
Generally, bonds sold off, led by treasuries with durations between one and 10 years. Yield on the 10-year note advanced eight basis points, from 0.76% to 0.84%. The largest gain of yield was found on the five-year note, which rose from 0.38% to 0.52%. The curve is still relatively flat, with yields in a narrow band of 138 basis points. The one, two, and three month bills all stand at 0.01%, with the 30-year bond checking in at 1.39%
While the Senate never did get to a cloture vote on Tuesday, the deal was eventually struck just before 1:00 am ET on Wednesday, when White House legislative affairs director Eric Ueland exited Senate Majority Leader Mitch McConnell’s office saying, according to CNN. “We have a deal.”
The full Senate is poised to vote on the package midday Wednesday. The House is expected to approve the bill by unanimous consent, sending it to the White House for President Trump's signature. The president is reportedly eager to sign the bill, sending money to individuals, families and businesses affected by events surrounding the coronavirus outbreak.
It is expected to advance direct payments of $1200 per citizen ($2400 for married couples) earning less than $75,000 a year. It is the largest stimulus bill ever made into law. With markets prepared to open shortly, futures are less-than-enthusiastic, as all of the major indices indicate a lower opening though Asian markets were up sharply overnight and European indices are mixed.
At the Close, Tuesday, March 24, 2020:
Dow Jones Industrial Average: 20,704.91, +2,113.01 (+11.37%)
NASDAQ: 7,417.86, +557.19 (+8.12%)
S&P 500: 2,447.33, +209.93 (+9.38%)
NYSE: 9,658.32, +880.94 (+10.04%)
Sunday, March 22, 2020
WEEKEND WRAP: Wall Street Suffers Worst Week Since 2008; Economy in Shambles and Worsening; COVID-19 Wrecking Central Banks, Sovereign Governments
My, oh, my, what a week this was!
The numbers are sufficiently horrifying to speak for themselves, and they're speaking loudly.
Stocks suffered their worst week since 2008. Yes. The week just past was worse than anything since the Great Financial Crisis, and beyond that, the dramatic drop that kicked off the Great Depression in 1929, is comparable.
The three top indices had their worst weekly performances since October of 2008. The Dow dropped 17% for the week, the S&P 500 tumbled 15% and the NASDAQ lost more than 12%. Friday's losses were widespread, the biggest losers were utilities (-8.2%) and consumer staples (-6.5%).
Since the beginning of the COVID-19 crisis, the main indices are down anywhere between 30% (NASDAQ) and 35% (Dow).
Here are the stark, raving-mad numbers from the peaks to Friday's close, with dates:
Dow Industrials: peak: 29,551.42 (2/12), close 3/20: 19,173.98, net: -35.12%
NASDAQ: peak: 9,817.18 (2/19), close 3/20: 6,879.52, net: -29.92%
S&P 500: peak: 3,386.15 (2/19), close 3/20: 2,304.92, net: -31.03%
NYSE Composite: peak: 14,136.98 (2/12), close 3/20: 9,133.16, net: -35.40%
Bear in mind, these numbers are all higher than they were prior to the collapse of 2008. For reference, here are figures from August 2008, followed by the bottoms, all recorded March 9, 2009.
Dow Industrials: 8/11/09: 11,782.35; 3/9/09: 6,926.49
NASDAQ: 8/14/09: 2,453.67; 3/9/09: 1,268.64
S&P 500: 8/11/08: 1,305.32; 3/9/09: 676.53
NYSE Composite 8/6/09: 8,501.44; 3/9/09: 4,226.31
What are the implications from these figures? Pretty simple, really. Since nothing was really fixed from 2008-09 (i.e., none of the major commercial banks - Lehman and Bear Stearns notwithstanding, as they were investment banks - failed), nobody went to jail, the GFC was mostly the deflation of a housing bubble, and all of the gains in stocks were the product of buybacks and/or massive infusions of cash by the Federal Reserve, it stands to reason that stocks will fall below their lowest levels of the GFC, or sub-prime crisis.
As almost all bear markets prove, there are steep losses in the initial phase, followed by a longer, slower, gradual decline, ending in complete capitulation wherein nobody wants to be holding equity shares at any price. Stocks go bidless. There are no buyers, and that is the condition to come.
The years 2009 through early 2020 can readily be construed as what's often referred to as the "everything bubble," in which all financial assets were inflated. In the simplest terms imaginable, gains in stocks during the past 11 years were a chimera, a figment of Wall Street's great imagination and greed.
An arguable point is that all of the major corporations who feasted on stock buybacks and easy money from the Fed are bankrupt. A corollary to that is the the commercial banks - Citi, Bank of America, JP Morgan Chase, Wells Fargo, Goldman Sachs, and Morgan Stanley - being either major shareholders of the Federal Reserve and/or many major corporations are also bankrupt, insolvent, as is the Fed, which, for all intents and purposes, just creates whatever money is needed out of thin air, with no backing other than the faith of the people and institutions using their fiat currency, and that faith is fading fast.
WTI crude oil concluded its worst week since the 1991 Gulf War, settling -11%, at $22.43/bbl as part of its 29% meltdown this week.
Precious metals continued to be under pressure, even though buyers of physical gold and silver are paying high premiums and silver buyers are waiting as long as a month for deliveries from major coin and bullion dealers. Many online outlets are out of stock on almost all silver items. Scottsdale Mint is advising buyers that silver purchases are 15-20 days behind. Spot silver was as low as $11.94 per ounce, ending the week at $12.59. Prices for coins and bars are ranging between $17.50 and $25.00.
Gold traded as low as $1471.40 on the paper markets. It finished up Friday at $14.98.80
Bonds were all over the map and ended with lower yields overall. Yield on the 30-year was as low as 1.34% and as high as 1.78%. It ended the week yielding 1.55%, crashing 23 basis points on Friday. The 10-year note yield ranged from 0.73% to 1.18%, closing at 0.92%. The curve steepened through the week to 151 basis points from the 1-month bill (0.04%) to the 30-year bond, though yields are lower than ever in history. Money has lost nearly all of its time-value, especially at the shorter end. The two-year is yielding a mere 0.37%.
The point is that the Federal Reserve, with ample assistance from other central banks around the world, particularly, the ECB, BOE, BOJ, and SNB (Swiss National Bank), blew an enormous stock bubble around the world, and, since it is deflating rapidly, are trying to blow an even bigger bubble. It will not work. Never has, never will. It might for a time, but in the end there will be massive defaults from individuals all the way to sovereign states and central banks themselves. There is a limit to how much fiat currency (not money, which would be currency backed by gold or silver or some other tangible, not-easily replenished asset) and how much complexity the world can handle. We are at those limits and hastily exceeding them.
What's worse is that the governments and central banks of planet Earth are doing this to themselves, or, rather, to their sovereign citizens, who will bear the brunt of rash decisions based on faulty economics and radical monetary and fiscal policies. The Fed will print trillions of dollars. The government will run debts to the tune of 20-25% of the gross national product, if there is any left after the shutdowns, slowdowns, quarantines, and eventual rationing.
Profligate spending and corruption at the highest levels of business, finance, and government has led to an inevitable dead end, ruining lives, destroying businesses, and deflating, then inflating bogus currencies.
This is the end of the fiat currency era, but it doesn't have to be the end of the world. Money Daily has been warning its readers for more than a decade that this kind of economic carnage would eventually come, urging people to invest in hard assets, real estate, precious metals, machinery, food supplies, arable land and produce, and more.
There will be winners and losers in all of this, and it is the intention of Money Daily to provide information and instruction on how to win.
Some random links:
Gregory Mannarino says, in a very emotional and exasperating video, that it's OVER, just as Money Daily has been suggesting for weeks.
Here's a beach-loving Seeking Alpha commentator who thinks we've seen the worst.
Marketwatch notes that the Dow is on track for its worst month since the Great Depression.
Sending checks to every eligible American is being debated in congress. Treasury Secretary quipped early in the week that President Trump and he would like to get money into the hands of Americans within two weeks. The current proposals being argued in congress are looking at early April as a timeline to get money to needy citizens. That's a lot longer than two weeks, but, when the banks and hedge funds need billions and trillions of dollars from the Fed, they get it the next day, if not sooner. It's about as unfair as banks getting money at near zero interest and charging 17-29% interest on credit cards.
The house of cards (no pun intended) is tumbling down.
At the Close, Friday, March 20, 2020:
Dow Jones Industrial Average: 19,173.98, -913.21 (-4.55%)
NASDAQ: 6,879.52, -271.06 (-3.79%)
S&P 500: 2,304.92, -104.47 (-4.34%)
NYSE: 9,133.16, -328.15 (-3.47%)
For the Week:
Dow: -4011.64 (-17.30%)
NASDAQ: -995.36 (-12.64%)
S&P 500: -406.10 (-14.98%)
NYSE: -1718.82 (-15.84%)
The numbers are sufficiently horrifying to speak for themselves, and they're speaking loudly.
Stocks suffered their worst week since 2008. Yes. The week just past was worse than anything since the Great Financial Crisis, and beyond that, the dramatic drop that kicked off the Great Depression in 1929, is comparable.
The three top indices had their worst weekly performances since October of 2008. The Dow dropped 17% for the week, the S&P 500 tumbled 15% and the NASDAQ lost more than 12%. Friday's losses were widespread, the biggest losers were utilities (-8.2%) and consumer staples (-6.5%).
Since the beginning of the COVID-19 crisis, the main indices are down anywhere between 30% (NASDAQ) and 35% (Dow).
Here are the stark, raving-mad numbers from the peaks to Friday's close, with dates:
Dow Industrials: peak: 29,551.42 (2/12), close 3/20: 19,173.98, net: -35.12%
NASDAQ: peak: 9,817.18 (2/19), close 3/20: 6,879.52, net: -29.92%
S&P 500: peak: 3,386.15 (2/19), close 3/20: 2,304.92, net: -31.03%
NYSE Composite: peak: 14,136.98 (2/12), close 3/20: 9,133.16, net: -35.40%
Bear in mind, these numbers are all higher than they were prior to the collapse of 2008. For reference, here are figures from August 2008, followed by the bottoms, all recorded March 9, 2009.
Dow Industrials: 8/11/09: 11,782.35; 3/9/09: 6,926.49
NASDAQ: 8/14/09: 2,453.67; 3/9/09: 1,268.64
S&P 500: 8/11/08: 1,305.32; 3/9/09: 676.53
NYSE Composite 8/6/09: 8,501.44; 3/9/09: 4,226.31
What are the implications from these figures? Pretty simple, really. Since nothing was really fixed from 2008-09 (i.e., none of the major commercial banks - Lehman and Bear Stearns notwithstanding, as they were investment banks - failed), nobody went to jail, the GFC was mostly the deflation of a housing bubble, and all of the gains in stocks were the product of buybacks and/or massive infusions of cash by the Federal Reserve, it stands to reason that stocks will fall below their lowest levels of the GFC, or sub-prime crisis.
As almost all bear markets prove, there are steep losses in the initial phase, followed by a longer, slower, gradual decline, ending in complete capitulation wherein nobody wants to be holding equity shares at any price. Stocks go bidless. There are no buyers, and that is the condition to come.
The years 2009 through early 2020 can readily be construed as what's often referred to as the "everything bubble," in which all financial assets were inflated. In the simplest terms imaginable, gains in stocks during the past 11 years were a chimera, a figment of Wall Street's great imagination and greed.
An arguable point is that all of the major corporations who feasted on stock buybacks and easy money from the Fed are bankrupt. A corollary to that is the the commercial banks - Citi, Bank of America, JP Morgan Chase, Wells Fargo, Goldman Sachs, and Morgan Stanley - being either major shareholders of the Federal Reserve and/or many major corporations are also bankrupt, insolvent, as is the Fed, which, for all intents and purposes, just creates whatever money is needed out of thin air, with no backing other than the faith of the people and institutions using their fiat currency, and that faith is fading fast.
WTI crude oil concluded its worst week since the 1991 Gulf War, settling -11%, at $22.43/bbl as part of its 29% meltdown this week.
Precious metals continued to be under pressure, even though buyers of physical gold and silver are paying high premiums and silver buyers are waiting as long as a month for deliveries from major coin and bullion dealers. Many online outlets are out of stock on almost all silver items. Scottsdale Mint is advising buyers that silver purchases are 15-20 days behind. Spot silver was as low as $11.94 per ounce, ending the week at $12.59. Prices for coins and bars are ranging between $17.50 and $25.00.
Gold traded as low as $1471.40 on the paper markets. It finished up Friday at $14.98.80
Bonds were all over the map and ended with lower yields overall. Yield on the 30-year was as low as 1.34% and as high as 1.78%. It ended the week yielding 1.55%, crashing 23 basis points on Friday. The 10-year note yield ranged from 0.73% to 1.18%, closing at 0.92%. The curve steepened through the week to 151 basis points from the 1-month bill (0.04%) to the 30-year bond, though yields are lower than ever in history. Money has lost nearly all of its time-value, especially at the shorter end. The two-year is yielding a mere 0.37%.
The point is that the Federal Reserve, with ample assistance from other central banks around the world, particularly, the ECB, BOE, BOJ, and SNB (Swiss National Bank), blew an enormous stock bubble around the world, and, since it is deflating rapidly, are trying to blow an even bigger bubble. It will not work. Never has, never will. It might for a time, but in the end there will be massive defaults from individuals all the way to sovereign states and central banks themselves. There is a limit to how much fiat currency (not money, which would be currency backed by gold or silver or some other tangible, not-easily replenished asset) and how much complexity the world can handle. We are at those limits and hastily exceeding them.
What's worse is that the governments and central banks of planet Earth are doing this to themselves, or, rather, to their sovereign citizens, who will bear the brunt of rash decisions based on faulty economics and radical monetary and fiscal policies. The Fed will print trillions of dollars. The government will run debts to the tune of 20-25% of the gross national product, if there is any left after the shutdowns, slowdowns, quarantines, and eventual rationing.
Profligate spending and corruption at the highest levels of business, finance, and government has led to an inevitable dead end, ruining lives, destroying businesses, and deflating, then inflating bogus currencies.
This is the end of the fiat currency era, but it doesn't have to be the end of the world. Money Daily has been warning its readers for more than a decade that this kind of economic carnage would eventually come, urging people to invest in hard assets, real estate, precious metals, machinery, food supplies, arable land and produce, and more.
There will be winners and losers in all of this, and it is the intention of Money Daily to provide information and instruction on how to win.
Some random links:
Gregory Mannarino says, in a very emotional and exasperating video, that it's OVER, just as Money Daily has been suggesting for weeks.
Here's a beach-loving Seeking Alpha commentator who thinks we've seen the worst.
Marketwatch notes that the Dow is on track for its worst month since the Great Depression.
Sending checks to every eligible American is being debated in congress. Treasury Secretary quipped early in the week that President Trump and he would like to get money into the hands of Americans within two weeks. The current proposals being argued in congress are looking at early April as a timeline to get money to needy citizens. That's a lot longer than two weeks, but, when the banks and hedge funds need billions and trillions of dollars from the Fed, they get it the next day, if not sooner. It's about as unfair as banks getting money at near zero interest and charging 17-29% interest on credit cards.
The house of cards (no pun intended) is tumbling down.
At the Close, Friday, March 20, 2020:
Dow Jones Industrial Average: 19,173.98, -913.21 (-4.55%)
NASDAQ: 6,879.52, -271.06 (-3.79%)
S&P 500: 2,304.92, -104.47 (-4.34%)
NYSE: 9,133.16, -328.15 (-3.47%)
For the Week:
Dow: -4011.64 (-17.30%)
NASDAQ: -995.36 (-12.64%)
S&P 500: -406.10 (-14.98%)
NYSE: -1718.82 (-15.84%)
Wednesday, March 18, 2020
Stocks Gain Tuesday, Busy Fed Monetizes Stocks Amid Spreading COVID-19 Virus: Boeing Wants $60 Billion
On the heels of Monday's knee-knocking losses, Tuesday's trade to the upside was somewhat predictable, in that a dead cat bounce usually follows massive losses, so the major indices continued along their path of one step forward, two (or three, four, or five) steps back.
There has not been back-to-back gains on the majors since a four-day stretch from February 4-7, as stocks rose relentlessly to new highs, the general top coming on February 12, in itself a surprising date, since the coronavirus was already in the process of devastating China and its economy, already having disrupted the global supply chain. How could investors have been so short-sighted? Greed has a certain blinding element to it, as does the opposite market reaction, fear, which has taken firm hold in the US markets and around the world.
Tuesday's events surrounding the viral outbreak were more of the standard fare of shutdowns, closures, government-imposed rules, as Europe closed its borders, every nation inside the EU locking down, as did the city of San Francisco, soon to be followed, most likely, by a similar "shelter in place" order in New York City, hinted at by Mayor Bill DeBlasio, shutting down all commerce for the foreseeable future.
The global case count has no exceeded that of mainland China and continues to outpace it. China's figures are still suspect, as they claim to have all but conquered the virus, the number of new cases since February 18 having grown by only 7,000, leveling off in the 81,000 range, a minuscule percentage of China's 1.4 billion population. However, China did lock down more than half of the country, especially in the province of Hubei, he original epicenter. There's probably never going to be any way to verify China's figures, since they announced Tuesday that reporters from The New York Times, The Wall Street Journal and The Washington Post would have their media credentials revoked, essentially barring them from reporting on anything.
With the March FOMC meeting underway, the Fed was very busy, boosting QE, extending credit for commercial paper to businesses large and small, and, after the market closed, re-instituting a loan facility to primary dealers from the 2008-09 crisis.
Officially called the Primary Dealer Credit Facility, or PMDF, the program will supply primary dealers of equities and other financial instruments loans of up to 90 days for at least the next six months, essentially monetizing stocks by allowing the 24 primary dealers to use stocks as collateral for short-term funding.
Also making headlines were Secretary Steven Mnuchin and President Trump, who were touting a plan to send $1000 checks to most Americans, specifically singling out millionaires, who, according to their statements, would not receive any handouts.
Boeing (BA), besieged by their own errors, is asking for a $60 billion bailout from the federal government. Boeing stock has fallen from a high of 440.62 to 124.14 currently, but the aerospace and airplane manufacturer should not be afforded such generosity, given that the company has been derelict in its corporate money management. Over the past 12 years, Boeing has repurchased at least $40 billion of its own shares, so, if it is in need of capital, it should just sell those stocks in the open market.
Boeing's stock buyback scheme worked to enrich shareholders and top executives as the share price soared as available stock was taken out of circulation and dividends were increased. Instead of reinvesting their profits, Boeing executives showered themselves with lavish bonuses and stock options. Now that a rainy day has arrived, they come begging for money from US taxpayers.
The same is true of major airlines, who spent almost all of their free cash flow on stock buybacks since the Great Financial Crisis of 2008-09. It's a travesty beyond compare.
While stocks held their own private party, other parts of the economic landscape obviously didn't share in the celebratory mood. Crude oil was sent to fresh lows, WTI crude cratering to $26.95 on Tuesday, and falling even more, to $26.04, in early Wednesday trading.
Gold and silver have been ravaged for days, though gold rallied sharply on Tuesday while silver fell to new lows, sending the gold-silver ratio to unimaginable heights. The last spot silver price in New York was $12.56 per ounce. Gold settled Tuesday at $1527.90, leaving the ratio at 121.65, an unbelievable figure, far and away the highest level in the 5,000 years of gold and silver being used as money.
As investment grade (IG) spreads have blown out to crisis levels, the treasury curve steepened dramatically on Tuesday, as the short end was bought and longer-dated maturities were sold. The total spread from 1-month bills out to 30-year bonds increased from 109 basis points on Monday to 151 Tuesday, the 30-year yield spiking 29 basis points to 1.64%, the 10-year note yielding 1.02%, also 29 basis points higher. At the short end, the 1-month bill yields 0.12%, falling from 0.25% on the day.
Thus, with millions of Americans at home for the next two weeks, with no sports, little work, and high anxiety, high finance drama continues to play out daily in the markets, which, for better or worse, remain unfettered and open for business.
The world is witnessing a financial calamity in real time.
At the Close, Tuesday, March 17, 2020:
Dow Jones Industrial Average: 21,237.38, +1,048.86 (+5.20%)
NASDAQ: 7,334.78, +430.19 (+6.23%)
S&P 500: 2,529.19, +143.06 (+6.00%)
NYSE: 10,063.36, +495.83 (+5.18%)
There has not been back-to-back gains on the majors since a four-day stretch from February 4-7, as stocks rose relentlessly to new highs, the general top coming on February 12, in itself a surprising date, since the coronavirus was already in the process of devastating China and its economy, already having disrupted the global supply chain. How could investors have been so short-sighted? Greed has a certain blinding element to it, as does the opposite market reaction, fear, which has taken firm hold in the US markets and around the world.
Tuesday's events surrounding the viral outbreak were more of the standard fare of shutdowns, closures, government-imposed rules, as Europe closed its borders, every nation inside the EU locking down, as did the city of San Francisco, soon to be followed, most likely, by a similar "shelter in place" order in New York City, hinted at by Mayor Bill DeBlasio, shutting down all commerce for the foreseeable future.
The global case count has no exceeded that of mainland China and continues to outpace it. China's figures are still suspect, as they claim to have all but conquered the virus, the number of new cases since February 18 having grown by only 7,000, leveling off in the 81,000 range, a minuscule percentage of China's 1.4 billion population. However, China did lock down more than half of the country, especially in the province of Hubei, he original epicenter. There's probably never going to be any way to verify China's figures, since they announced Tuesday that reporters from The New York Times, The Wall Street Journal and The Washington Post would have their media credentials revoked, essentially barring them from reporting on anything.
With the March FOMC meeting underway, the Fed was very busy, boosting QE, extending credit for commercial paper to businesses large and small, and, after the market closed, re-instituting a loan facility to primary dealers from the 2008-09 crisis.
Officially called the Primary Dealer Credit Facility, or PMDF, the program will supply primary dealers of equities and other financial instruments loans of up to 90 days for at least the next six months, essentially monetizing stocks by allowing the 24 primary dealers to use stocks as collateral for short-term funding.
Also making headlines were Secretary Steven Mnuchin and President Trump, who were touting a plan to send $1000 checks to most Americans, specifically singling out millionaires, who, according to their statements, would not receive any handouts.
Boeing (BA), besieged by their own errors, is asking for a $60 billion bailout from the federal government. Boeing stock has fallen from a high of 440.62 to 124.14 currently, but the aerospace and airplane manufacturer should not be afforded such generosity, given that the company has been derelict in its corporate money management. Over the past 12 years, Boeing has repurchased at least $40 billion of its own shares, so, if it is in need of capital, it should just sell those stocks in the open market.
Boeing's stock buyback scheme worked to enrich shareholders and top executives as the share price soared as available stock was taken out of circulation and dividends were increased. Instead of reinvesting their profits, Boeing executives showered themselves with lavish bonuses and stock options. Now that a rainy day has arrived, they come begging for money from US taxpayers.
The same is true of major airlines, who spent almost all of their free cash flow on stock buybacks since the Great Financial Crisis of 2008-09. It's a travesty beyond compare.
While stocks held their own private party, other parts of the economic landscape obviously didn't share in the celebratory mood. Crude oil was sent to fresh lows, WTI crude cratering to $26.95 on Tuesday, and falling even more, to $26.04, in early Wednesday trading.
Gold and silver have been ravaged for days, though gold rallied sharply on Tuesday while silver fell to new lows, sending the gold-silver ratio to unimaginable heights. The last spot silver price in New York was $12.56 per ounce. Gold settled Tuesday at $1527.90, leaving the ratio at 121.65, an unbelievable figure, far and away the highest level in the 5,000 years of gold and silver being used as money.
As investment grade (IG) spreads have blown out to crisis levels, the treasury curve steepened dramatically on Tuesday, as the short end was bought and longer-dated maturities were sold. The total spread from 1-month bills out to 30-year bonds increased from 109 basis points on Monday to 151 Tuesday, the 30-year yield spiking 29 basis points to 1.64%, the 10-year note yielding 1.02%, also 29 basis points higher. At the short end, the 1-month bill yields 0.12%, falling from 0.25% on the day.
Thus, with millions of Americans at home for the next two weeks, with no sports, little work, and high anxiety, high finance drama continues to play out daily in the markets, which, for better or worse, remain unfettered and open for business.
The world is witnessing a financial calamity in real time.
At the Close, Tuesday, March 17, 2020:
Dow Jones Industrial Average: 21,237.38, +1,048.86 (+5.20%)
NASDAQ: 7,334.78, +430.19 (+6.23%)
S&P 500: 2,529.19, +143.06 (+6.00%)
NYSE: 10,063.36, +495.83 (+5.18%)
Wednesday, March 4, 2020
Fed Rate Cut Falls Flat, But Wait, Markets Set to Rebound; Super Tuesday Results Put COVID-19 On Back Burner
Super Tuesday lived up to its name, with a surprise rate cut from the Federal Reserve and a big night for Joe Biden, though Bernie Sanders scored enough delegates to keep the race close.
Mid-morning, the Fed cut the overnight federal funds rate by 50 basis points, from 1.50-1.75%, to 1.00-1.25%, actually settling for 1.10% as the official overnight rate, according to the Fed's implementation note.
What most people missed is that the rate cut does not take effect until March 4, or Wednesday, which may be why the market crumbled Tuesday, with a dull thud finish. Futures are pointing to a huge bump at the opening bell. Dow futures are up nearly 700 points as of this writing. The emergency rate cut was only the ninth time the Fed has acted outside the FOMC meeting framework, and the cut was probably unnecessary, though it is certain to give the market a bump, albeit a small one. The Fed's playbook has been seriously damaged since the 2008 crash. This move gives credence to those who argue that the Fed is a patsy to the stock market.
Stocks had been gyrating up and down until the Fed made its move. After a brief uptick, stocks sank, perhaps with the idea that if the Fed was cutting rates, then the brewing crisis over coronavirus may be worse than recognized. It also could be that banks and institutions are so tight, there just wasn't enough liquidity in the system to fend off waves of selling. The Fed's behind-the-scenes liquidity injections have done more to prop up the market than any rate cut possibly could, with their daily and weekly open market operations oversubscribed in recent days.
The bond market certainly wasn't buying into saving the stock market via rate cuts. The 10-year note dipped below the one percent threshold briefly on Tuesday, finally settling in at the close at another record low yield of 1.02%, a decline of eight basis points from Monday's reading. The short end of the curve was obliterated, with the shortest duration, 1-month bills, losing 30 basis points, down to a yield of 1.11% at the close.
Losing 13 basis points, the 2-year carries the lowest yield across the curve, which remains slightly inverted (1-and-2-month bills yielding higher than the 10-year). The 2-year note slipped from 0.84 to 0.71. The entire curve remains relatively flat at 93 basis points top to bottom, with the 30-year sliding just two basis points on Tuesday, to 1.64%.
Precious metals regained some of their shine after the rate cut announcement. Gold rocketed higher by nearly $50, closing the session in New York at $1644.40 per ounce. Silver advanced as well, though it is still quite depressed at a mere $17.19 per ounce.
The true "tell" throughout the day was crude oil. Both before and after the rate cut, WTI crude could scarcely muster a bid, finishing at $47.18 per barrel. Weakness in oil, the actual fuel of the world economy, speaks volumes and can be employed as a bleeding edge proxy for the general health or sickness of the word's financial condition.
Numbers to watch on Wednesday are pretty straightforward. Following a retreat of some 4725.74 points, the Dow ascended on Tuesday to the first Fibonacci retrace level (38%) at 26,476.79. The index actually floated beyond that point, gaining over 27,000 just after the open, but it settled in and remained below the initial Fibonacci level most of the day. If the Dow gains beyond that first retrace, the next stop would be the 62% level, at 27,610.97. Keep in mind that the intraday low was Friday's 24,681.01. If that level is breached to the downside, there's literally no support until around 22,445, the bottom of the December 2018 breakdown.
As for the Democrat race for the presidential nomination, Joe Biden was hailed on network TV as a rebounding hero, winning races in North Carolina, Texas, Tennessee, Virginia, Massachusetts and elsewhere, thanks to two moderates - Pete Buttigeig and Amy Klobuchar - bowing out and endorsing slow Joe on the eve of Super Tuesday. While Biden picked up most of the votes that would have gone to Mayor Pete and Senator Klobuchar, Bernie Sanders was held down by the insistence of Elizabeth Warren to stay in the race when she actually has no hope of winning anything but more negative nicknames. Mike Bloomberg picked off some delegates, giving his campaign enough life to carry forward, but the DNC is hellbent on eliminating Sanders, over fears that he might actually win the nomination.
The possibility of a consistent socialist carrying the Democrat banner into the fall is not the look the party perceives for itself, despite it being the closest to reality in what it represents. From here on out, all the media will be signing the praises of Joe Biden - a deeply flawed individual - and downplaying the power of Sanders' campaign, which has widespread support in the most liberal camps and generates the most excitement of any candidate, bar Trump.
What's interesting about a Sanders versus Trump race is that Sanders, a lifetime liberal and Senator for nearly three decades, will be portrayed as the outsider and Trump as the establishment. Perception is everything in elections, and it's likely that Trump would turn that notion on its head.
Finally, Tuesday was a day in which the coronavirus, or COVID-19 was pushed to the back of the headlines. The death toll in the US reached nine, but those three additional deaths were all from the nursing home in Washington state that had accounted for the six prior fatalities. Look, a tornado that ripped through Nashville, Tennessee early Tuesday morning (around 1:30 am) killed at least 25 people in minutes and left a path of devastation unlike many people have ever witnessed. That's a tragedy. Nine deaths of people all over the age of 63 from a virus that spreads quickly and has a high mortality rate for seniors is a fact of life.
At the Close Tuesday, March 3, 2020:
Dow Jones Industrial Average: 25,917.41, -785.91 (-2.94%)
NASDAQ: 8,684.09, -268.08 (-2.99%)
S&P 500: 3,003.37, -86.86 (-2.81%)
NYSE: 12,542.74, -285.25 (-2.22%)
Mid-morning, the Fed cut the overnight federal funds rate by 50 basis points, from 1.50-1.75%, to 1.00-1.25%, actually settling for 1.10% as the official overnight rate, according to the Fed's implementation note.
What most people missed is that the rate cut does not take effect until March 4, or Wednesday, which may be why the market crumbled Tuesday, with a dull thud finish. Futures are pointing to a huge bump at the opening bell. Dow futures are up nearly 700 points as of this writing. The emergency rate cut was only the ninth time the Fed has acted outside the FOMC meeting framework, and the cut was probably unnecessary, though it is certain to give the market a bump, albeit a small one. The Fed's playbook has been seriously damaged since the 2008 crash. This move gives credence to those who argue that the Fed is a patsy to the stock market.
Stocks had been gyrating up and down until the Fed made its move. After a brief uptick, stocks sank, perhaps with the idea that if the Fed was cutting rates, then the brewing crisis over coronavirus may be worse than recognized. It also could be that banks and institutions are so tight, there just wasn't enough liquidity in the system to fend off waves of selling. The Fed's behind-the-scenes liquidity injections have done more to prop up the market than any rate cut possibly could, with their daily and weekly open market operations oversubscribed in recent days.
The bond market certainly wasn't buying into saving the stock market via rate cuts. The 10-year note dipped below the one percent threshold briefly on Tuesday, finally settling in at the close at another record low yield of 1.02%, a decline of eight basis points from Monday's reading. The short end of the curve was obliterated, with the shortest duration, 1-month bills, losing 30 basis points, down to a yield of 1.11% at the close.
Losing 13 basis points, the 2-year carries the lowest yield across the curve, which remains slightly inverted (1-and-2-month bills yielding higher than the 10-year). The 2-year note slipped from 0.84 to 0.71. The entire curve remains relatively flat at 93 basis points top to bottom, with the 30-year sliding just two basis points on Tuesday, to 1.64%.
Precious metals regained some of their shine after the rate cut announcement. Gold rocketed higher by nearly $50, closing the session in New York at $1644.40 per ounce. Silver advanced as well, though it is still quite depressed at a mere $17.19 per ounce.
The true "tell" throughout the day was crude oil. Both before and after the rate cut, WTI crude could scarcely muster a bid, finishing at $47.18 per barrel. Weakness in oil, the actual fuel of the world economy, speaks volumes and can be employed as a bleeding edge proxy for the general health or sickness of the word's financial condition.
Numbers to watch on Wednesday are pretty straightforward. Following a retreat of some 4725.74 points, the Dow ascended on Tuesday to the first Fibonacci retrace level (38%) at 26,476.79. The index actually floated beyond that point, gaining over 27,000 just after the open, but it settled in and remained below the initial Fibonacci level most of the day. If the Dow gains beyond that first retrace, the next stop would be the 62% level, at 27,610.97. Keep in mind that the intraday low was Friday's 24,681.01. If that level is breached to the downside, there's literally no support until around 22,445, the bottom of the December 2018 breakdown.
As for the Democrat race for the presidential nomination, Joe Biden was hailed on network TV as a rebounding hero, winning races in North Carolina, Texas, Tennessee, Virginia, Massachusetts and elsewhere, thanks to two moderates - Pete Buttigeig and Amy Klobuchar - bowing out and endorsing slow Joe on the eve of Super Tuesday. While Biden picked up most of the votes that would have gone to Mayor Pete and Senator Klobuchar, Bernie Sanders was held down by the insistence of Elizabeth Warren to stay in the race when she actually has no hope of winning anything but more negative nicknames. Mike Bloomberg picked off some delegates, giving his campaign enough life to carry forward, but the DNC is hellbent on eliminating Sanders, over fears that he might actually win the nomination.
The possibility of a consistent socialist carrying the Democrat banner into the fall is not the look the party perceives for itself, despite it being the closest to reality in what it represents. From here on out, all the media will be signing the praises of Joe Biden - a deeply flawed individual - and downplaying the power of Sanders' campaign, which has widespread support in the most liberal camps and generates the most excitement of any candidate, bar Trump.
What's interesting about a Sanders versus Trump race is that Sanders, a lifetime liberal and Senator for nearly three decades, will be portrayed as the outsider and Trump as the establishment. Perception is everything in elections, and it's likely that Trump would turn that notion on its head.
Finally, Tuesday was a day in which the coronavirus, or COVID-19 was pushed to the back of the headlines. The death toll in the US reached nine, but those three additional deaths were all from the nursing home in Washington state that had accounted for the six prior fatalities. Look, a tornado that ripped through Nashville, Tennessee early Tuesday morning (around 1:30 am) killed at least 25 people in minutes and left a path of devastation unlike many people have ever witnessed. That's a tragedy. Nine deaths of people all over the age of 63 from a virus that spreads quickly and has a high mortality rate for seniors is a fact of life.
At the Close Tuesday, March 3, 2020:
Dow Jones Industrial Average: 25,917.41, -785.91 (-2.94%)
NASDAQ: 8,684.09, -268.08 (-2.99%)
S&P 500: 3,003.37, -86.86 (-2.81%)
NYSE: 12,542.74, -285.25 (-2.22%)
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.
Monday, February 24, 2020
WEEKEND WRAP: Coronavirus (COVID-19) Providing Effective Cover For Profit Taking In Stocks; Bonds Rallying; Gold, Silver Flying
Making new all-time highs during the week were the NASDAQ and S&P, while the NYSE and Dow lagged, despite having reached a similar pinnacle earlier this year.
Market news is abuzz with coronavirus as the culprit for this week of losses, as stocks turned south mid-week. While the virus has yet to kill or infect significant numbers outside mainland China - less than 20 deaths worldwide, sans the red nation - it's the damage to supply chains and earnings that most bothers the money mavens of lower Manhattan.
Seriously, the people working the computers, phones, tickers, and squawk boxes could care less about 75,000 sick Chinese people or even the 2500 dead from the virus. They're much more concerned that critical parts in a just-in-time (JIT) production process won't be arriving from across the Pacific. The wheels of enterprise and consumerism need to be kept turning, and essential parts not being delivered puts a severe kink in those plans.
While much of China is under quarantine, some segments have gotten back to work, though the timeline continues to shift. Originally, communities under quarantine were supposed to get back to work in early February. As the virus spread and the severity of the situation sank in, those dates continued to be moved back later and later. Presently, many companies in China won't be getting back to full production before the second week of March.
Stocks haven't really suffered amid all the fear, uncertainty, and doubt (FUD), but they are likely to in the immediate future. As of Monday morning of February 24, a global blood-letting is underway. Asian stocks were down in a range of one to two percent, but Europe is taking it harder, with indices in Germany, France, England, and elsewhere down more than three percent, making for one of the biggest one-day drops this century.
The US markets, set to open within the hour, are showing futures off by staggering amounts, indicating a serious decline at the opening bell. Indications are that the Dow could be down nearly 1000 points, while the NASDAQ may shed more than 300. Both would qualify as among the largest declines in history.
If markets panic, which appears to be what they're setting up for, a mixed message is going to be sent. While the money managers are concerned primarily with business disruption, the general population will read the message quite differently, assuming from the massive drops on Wall Street that the virus is a killer and is coming to a neighborhood or household near you, and soon.
This is the height of cognitive dissonance and what anyone with half a wit would like to avoid. Widespread public panic over a virus that has claimed ZERO deaths in the United States and far less infections than the ordinary flu is not a condition conducive to a functioning society. Further fears could be stoked by officials at the WHO and CDC, who readily dropped the ball on the virus from the start and are now becoming the leading cheerleaders for what is likely to be largely unwarranted despair.
What the virus represents is more a threat to sanity than one's physical health. Even taking the total number of cases including those in China, the chances of contracting COVID-19 are not even as good as getting into a traffic accident. People in America are more likely to suffer injury from slipping in a bathtub, falling off a ladder, or cutting themselves with a kitchen knife than catching Wuhan Flu.
So, when stocks crash on Monday, bear in mind that they were wildly overvalued and COVID-19 and its associated panic is providing a friendly cover for profit-taking. A rout is what this market is badly in need of, and, if stocks head into bear territory (a place they're not even close to approaching at this time), it's not likely to last much longer than the time it takes for coronavirus to spread worldwide, inflict disease and death, and finally peter out by June.
First quarter results for China are going to be horrendous, with GDP growth probably plummeting by 35-50 percent. In Europe, a quarter that avoids a negative number would be a surprise, while the US is likely to print something on the order of a onesie, in the range of 0.6 to 1.5 percent gain.
It's far too early to predict how the second quarter shapes up, but there's plenty of evidence that the first quarter is going to come in positive. Feeding that data into the political landscape, it suggests that even if the US does fall into a recession, it's not going to be confirmed until near the end of October, just in time to have an effect on US elections, as GDP would have to decline for two consecutive quarters.
There's a risk that the second quarter will be in the red, but prospects for the third are better if the virus carries along the same pathway as other similar infectious strains such as SARS and MERS. Warm weather and humidity are virus-killers.
It's getting interesting, though the fears of widespread infections are currently oversold.
Bonds have been and continue to take the situation with all due seriousness. The 30-year bond ripped lower on Friday to an all-time low yield of 1.90% and the 10-year is chasing it down, closing out the week at 1.45%, perilously close to its all-time low. The 10-year note yielded 1.37 on 07/05/16, and again on 07/08/16. That level could be tested this week and a sustained drop into the 1.15 to 1.25% range would not be unwarranted during a panic condition.
The curve, however, remains nearly flat for the 2s-10s, which are holding up a 12-basis point difference (2s at 1.34%), but the shortest duration paper, 1, 2, 3, and 6-month bills are all sporting yields higher than 10-year, so concern is evident that the US economy is vulnerable to a major shock.
Gold and silver made significant gains over the course of the week, as the flight to true safety accelerated. Gold ended at a seven-year high, at 1643.00 the ounce. Silver closed out on Friday at 18.45 per ounce. A good start to a real rally, but far away from a breakout point. Both are up sharply early Monday morning.
Crude oil had a relatively good week, though the price for WTI crude in Monday morning's futures are looking rather grim, down more than three percent and approaching the Maginot line of $50 per barrel. It's unlikely to hold that level. Speculators are currently eyeing the $45-48 range and the next support level.
All of this points to a near-term washout in stocks. While there's currently not any markers being set down for a sustained rout, it is possible, though considered unlikely, as is the case for what some call "the great reset" where markets crumble like in 2008 and the entire global financial edifice is blown asunder.
No serious person is calling for anything more than a short-term correction, though markets have a unique way of making everybody look like fools.
Stay informed, stay calm, prepare.
At the Close, Friday, February 21, 2020:
Dow Jones Industrial Average: 28,992.41, -227.59 (-0.78%)
NASDAQ: 9,576.59, -174.37 (-1.79%)
S&P 500: 3,337.75, -35.48 (-1.05%)
NYSE: 13,975.78, -85.72 (-0.61%)
For the Week:
Dow: -405.67 (-1.38%)
NASDAQ: -174.38 (-1.79%)
S&P 500: -42.41 (-1.25%)
NYSE: -121.56 (-0.86%)
Market news is abuzz with coronavirus as the culprit for this week of losses, as stocks turned south mid-week. While the virus has yet to kill or infect significant numbers outside mainland China - less than 20 deaths worldwide, sans the red nation - it's the damage to supply chains and earnings that most bothers the money mavens of lower Manhattan.
Seriously, the people working the computers, phones, tickers, and squawk boxes could care less about 75,000 sick Chinese people or even the 2500 dead from the virus. They're much more concerned that critical parts in a just-in-time (JIT) production process won't be arriving from across the Pacific. The wheels of enterprise and consumerism need to be kept turning, and essential parts not being delivered puts a severe kink in those plans.
While much of China is under quarantine, some segments have gotten back to work, though the timeline continues to shift. Originally, communities under quarantine were supposed to get back to work in early February. As the virus spread and the severity of the situation sank in, those dates continued to be moved back later and later. Presently, many companies in China won't be getting back to full production before the second week of March.
Stocks haven't really suffered amid all the fear, uncertainty, and doubt (FUD), but they are likely to in the immediate future. As of Monday morning of February 24, a global blood-letting is underway. Asian stocks were down in a range of one to two percent, but Europe is taking it harder, with indices in Germany, France, England, and elsewhere down more than three percent, making for one of the biggest one-day drops this century.
The US markets, set to open within the hour, are showing futures off by staggering amounts, indicating a serious decline at the opening bell. Indications are that the Dow could be down nearly 1000 points, while the NASDAQ may shed more than 300. Both would qualify as among the largest declines in history.
If markets panic, which appears to be what they're setting up for, a mixed message is going to be sent. While the money managers are concerned primarily with business disruption, the general population will read the message quite differently, assuming from the massive drops on Wall Street that the virus is a killer and is coming to a neighborhood or household near you, and soon.
This is the height of cognitive dissonance and what anyone with half a wit would like to avoid. Widespread public panic over a virus that has claimed ZERO deaths in the United States and far less infections than the ordinary flu is not a condition conducive to a functioning society. Further fears could be stoked by officials at the WHO and CDC, who readily dropped the ball on the virus from the start and are now becoming the leading cheerleaders for what is likely to be largely unwarranted despair.
What the virus represents is more a threat to sanity than one's physical health. Even taking the total number of cases including those in China, the chances of contracting COVID-19 are not even as good as getting into a traffic accident. People in America are more likely to suffer injury from slipping in a bathtub, falling off a ladder, or cutting themselves with a kitchen knife than catching Wuhan Flu.
So, when stocks crash on Monday, bear in mind that they were wildly overvalued and COVID-19 and its associated panic is providing a friendly cover for profit-taking. A rout is what this market is badly in need of, and, if stocks head into bear territory (a place they're not even close to approaching at this time), it's not likely to last much longer than the time it takes for coronavirus to spread worldwide, inflict disease and death, and finally peter out by June.
First quarter results for China are going to be horrendous, with GDP growth probably plummeting by 35-50 percent. In Europe, a quarter that avoids a negative number would be a surprise, while the US is likely to print something on the order of a onesie, in the range of 0.6 to 1.5 percent gain.
It's far too early to predict how the second quarter shapes up, but there's plenty of evidence that the first quarter is going to come in positive. Feeding that data into the political landscape, it suggests that even if the US does fall into a recession, it's not going to be confirmed until near the end of October, just in time to have an effect on US elections, as GDP would have to decline for two consecutive quarters.
There's a risk that the second quarter will be in the red, but prospects for the third are better if the virus carries along the same pathway as other similar infectious strains such as SARS and MERS. Warm weather and humidity are virus-killers.
It's getting interesting, though the fears of widespread infections are currently oversold.
Bonds have been and continue to take the situation with all due seriousness. The 30-year bond ripped lower on Friday to an all-time low yield of 1.90% and the 10-year is chasing it down, closing out the week at 1.45%, perilously close to its all-time low. The 10-year note yielded 1.37 on 07/05/16, and again on 07/08/16. That level could be tested this week and a sustained drop into the 1.15 to 1.25% range would not be unwarranted during a panic condition.
The curve, however, remains nearly flat for the 2s-10s, which are holding up a 12-basis point difference (2s at 1.34%), but the shortest duration paper, 1, 2, 3, and 6-month bills are all sporting yields higher than 10-year, so concern is evident that the US economy is vulnerable to a major shock.
Gold and silver made significant gains over the course of the week, as the flight to true safety accelerated. Gold ended at a seven-year high, at 1643.00 the ounce. Silver closed out on Friday at 18.45 per ounce. A good start to a real rally, but far away from a breakout point. Both are up sharply early Monday morning.
Crude oil had a relatively good week, though the price for WTI crude in Monday morning's futures are looking rather grim, down more than three percent and approaching the Maginot line of $50 per barrel. It's unlikely to hold that level. Speculators are currently eyeing the $45-48 range and the next support level.
All of this points to a near-term washout in stocks. While there's currently not any markers being set down for a sustained rout, it is possible, though considered unlikely, as is the case for what some call "the great reset" where markets crumble like in 2008 and the entire global financial edifice is blown asunder.
No serious person is calling for anything more than a short-term correction, though markets have a unique way of making everybody look like fools.
Stay informed, stay calm, prepare.
At the Close, Friday, February 21, 2020:
Dow Jones Industrial Average: 28,992.41, -227.59 (-0.78%)
NASDAQ: 9,576.59, -174.37 (-1.79%)
S&P 500: 3,337.75, -35.48 (-1.05%)
NYSE: 13,975.78, -85.72 (-0.61%)
For the Week:
Dow: -405.67 (-1.38%)
NASDAQ: -174.38 (-1.79%)
S&P 500: -42.41 (-1.25%)
NYSE: -121.56 (-0.86%)
Sunday, November 10, 2019
WEEKEND WRAP: Stocks Set Records; Bonds, Precious Metals Battered
The three major averages - Dow, NASDAQ, S&P 500 - all reached record territory this week, and, despite some give-back on Wednesday, closed out the week with all-time high closing prices. The lone laggard was the NYSE Composite, which hasn't yet managed to get back to January 2018 levels, but it is close, within 250 points.
Catalysts for the massive run-up through October and into November were supposed breakthroughs in the ongoing US-China trade deadlock and the Fed's 25 basis point cut in the federal funds rate last Wednesday (October 30). Positive news, or even the hint of such, was enough to ignite stocks in the US while Europe tetters on the verge of recession.
Gains made during the past five or six weeks look to be locked in for year-end, but there's barely a sniff of selling among the investment crowd. New records could be set in the indices through Thanksgiving, Black Friday and beyond, especially if indications of renewed vigor in manufacturing develops. It's been dragging lately, but the sector is wide and varied. Some states are doing well as opposed to ones like New York, which has lost 10,000 manufacturing jobs this year, and some sub-sectors are outperforming. Metal tooling is seeing a revival thanks to tariffs on steel, while semiconductors are slumping.
While stocks continued on their merry way to equity nirvana, fixed investment took a beating, especially in the case of the benchmark 10-year note, which appears headed back above two percent, closing out this week with a yield of 1.94%, the highest since July 31 (2.02%). The long end of the curve is certainly steepening, and in a hurry. The 30-year bond checked out on Friday with a yield of 2.43, just a basis point below the closing on August 1 (2.44%).
The short end of the treasury yield curve is still flat, with the difference between 1-month bills and the 5-year note a mere 18 basis points (1.56-1.74%). The curve has maintained an un-inverted posture for nearly three months now, since the 2s-10s crossed for three days in August of this year. That brief period of inversion did engender some recession fears at the time, but they have been allayed by the curve settling into a more orderly regimen.
Recession still being a possibility, always, chances of it occurring anytime soon were quelled when third quarter GDP came in hotter than expected, at 1.9%. Not a good number, the fact that it was above most estimates (1.6%) was enough to hold off the bears. If the measurement holds for the next two estimates of third quarter GDP, the absolute earliest recession bells could ring would be after the first quarter of 2020, if both the fourth quarter of 2019 and first of 2020 were negative, and those are some pretty big ifs.
Thus, it's unlikely that the US will encounter a recession - or at least have one reported - until after the second quarter of 2020, but the economy is looking like it will continue to grow, albeit modestly, until at least the elections in November, good news for President Trump and Republicans in general, and not-so-good for Democrats who wail about everything, even when nothing is amiss in any major way.
Also hammered were precious metals, with silver falling below the Maginot line of $17/ounce late in the week to close out at $16.77. Gold fell from right around $1500/ounce to end the week at its lowest level since the start of October, at $1458.80.
If interest rates continue to climb, it could exacerbate the bearish tone already developing in the metals. To holders, it may not be such a big deal, but more of an opportunity to buy more on the supposed cheap. Precious metals have been out of favor since their massive run-up from 1999 to 2011, and there seems to be no end in sight for the overall bear regime that has taken hold.
One has to consider the rationale for gold or silver as one of protection, so, from a buyer's standpoint there's absolutely nothing wrong with holding or storing some of the shiny stuff. It still maintains value, though it has been fluctuating greatly over the past 20 years, but what hasn't. Gold and silver still provide peace of mind and a store of value that is better, over the longest of terms, than any other investment, save possibly real estate, the difference being that no taxes have to be paid on the shiny metals.
Outlooking for the next seven weeks through Christmas is decidedly positive for stocks, which is all anybody really seems to care about these days. Pension funds are all in, as many have to be, in hopes that there will not be massive underfunding for the retiring baby boomers.
In the most simplistic of ways, stocks may be overvalued, but the rising yields on bonds may tempt some of the less-daring speculators to dive into a safety play. Worse things have happened, but, for now, there seems to be a nice balancing act between the Fed, the government, business, and heavily-indebted consumers, the latter group buoying and buying into the great money scheme of the longest bull market in history.
Some day, it will all come to a screeching halt. By most measures, it's not stopping any time soon.
At the Close, Friday, November 8, 2019:
Dow Jones Industrial Average: 27,681.24, +6.44 (+0.02%)
NASDAQ: 8,475.31, +40.80 (+0.48%)
S&P 500: 3,093.08, +7.90 (+0.26%)
NYSE Composite: 13,407.80, +12.26 (+0.09%)
For the Week:
Dow: +333.88 (+1.22%)
NASDAQ: +88.92 (+1.06%)
S&P 500: +26.17 (+0.85%)
NYSE Composite: +107.54 (+0.81%)
Catalysts for the massive run-up through October and into November were supposed breakthroughs in the ongoing US-China trade deadlock and the Fed's 25 basis point cut in the federal funds rate last Wednesday (October 30). Positive news, or even the hint of such, was enough to ignite stocks in the US while Europe tetters on the verge of recession.
Gains made during the past five or six weeks look to be locked in for year-end, but there's barely a sniff of selling among the investment crowd. New records could be set in the indices through Thanksgiving, Black Friday and beyond, especially if indications of renewed vigor in manufacturing develops. It's been dragging lately, but the sector is wide and varied. Some states are doing well as opposed to ones like New York, which has lost 10,000 manufacturing jobs this year, and some sub-sectors are outperforming. Metal tooling is seeing a revival thanks to tariffs on steel, while semiconductors are slumping.
While stocks continued on their merry way to equity nirvana, fixed investment took a beating, especially in the case of the benchmark 10-year note, which appears headed back above two percent, closing out this week with a yield of 1.94%, the highest since July 31 (2.02%). The long end of the curve is certainly steepening, and in a hurry. The 30-year bond checked out on Friday with a yield of 2.43, just a basis point below the closing on August 1 (2.44%).
The short end of the treasury yield curve is still flat, with the difference between 1-month bills and the 5-year note a mere 18 basis points (1.56-1.74%). The curve has maintained an un-inverted posture for nearly three months now, since the 2s-10s crossed for three days in August of this year. That brief period of inversion did engender some recession fears at the time, but they have been allayed by the curve settling into a more orderly regimen.
Recession still being a possibility, always, chances of it occurring anytime soon were quelled when third quarter GDP came in hotter than expected, at 1.9%. Not a good number, the fact that it was above most estimates (1.6%) was enough to hold off the bears. If the measurement holds for the next two estimates of third quarter GDP, the absolute earliest recession bells could ring would be after the first quarter of 2020, if both the fourth quarter of 2019 and first of 2020 were negative, and those are some pretty big ifs.
Thus, it's unlikely that the US will encounter a recession - or at least have one reported - until after the second quarter of 2020, but the economy is looking like it will continue to grow, albeit modestly, until at least the elections in November, good news for President Trump and Republicans in general, and not-so-good for Democrats who wail about everything, even when nothing is amiss in any major way.
Also hammered were precious metals, with silver falling below the Maginot line of $17/ounce late in the week to close out at $16.77. Gold fell from right around $1500/ounce to end the week at its lowest level since the start of October, at $1458.80.
If interest rates continue to climb, it could exacerbate the bearish tone already developing in the metals. To holders, it may not be such a big deal, but more of an opportunity to buy more on the supposed cheap. Precious metals have been out of favor since their massive run-up from 1999 to 2011, and there seems to be no end in sight for the overall bear regime that has taken hold.
One has to consider the rationale for gold or silver as one of protection, so, from a buyer's standpoint there's absolutely nothing wrong with holding or storing some of the shiny stuff. It still maintains value, though it has been fluctuating greatly over the past 20 years, but what hasn't. Gold and silver still provide peace of mind and a store of value that is better, over the longest of terms, than any other investment, save possibly real estate, the difference being that no taxes have to be paid on the shiny metals.
Outlooking for the next seven weeks through Christmas is decidedly positive for stocks, which is all anybody really seems to care about these days. Pension funds are all in, as many have to be, in hopes that there will not be massive underfunding for the retiring baby boomers.
In the most simplistic of ways, stocks may be overvalued, but the rising yields on bonds may tempt some of the less-daring speculators to dive into a safety play. Worse things have happened, but, for now, there seems to be a nice balancing act between the Fed, the government, business, and heavily-indebted consumers, the latter group buoying and buying into the great money scheme of the longest bull market in history.
Some day, it will all come to a screeching halt. By most measures, it's not stopping any time soon.
At the Close, Friday, November 8, 2019:
Dow Jones Industrial Average: 27,681.24, +6.44 (+0.02%)
NASDAQ: 8,475.31, +40.80 (+0.48%)
S&P 500: 3,093.08, +7.90 (+0.26%)
NYSE Composite: 13,407.80, +12.26 (+0.09%)
For the Week:
Dow: +333.88 (+1.22%)
NASDAQ: +88.92 (+1.06%)
S&P 500: +26.17 (+0.85%)
NYSE Composite: +107.54 (+0.81%)
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%)
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%)
Sunday, January 13, 2019
Weekend Wrap: The Fed Never Had Control, And What They Now Have Is As Fake As Fake News
What a week it was for equity holders and speculators!
Friday's very minor declines snapped five-day winning streaks for the major indices, with the exception of the NYSE Composite, which continued gaining for a sixth straight session.
Solid for the past three weeks, the current rally has managed to relieve the stress from steep losses incurred in December though the majors still have plenty of distance to travel. For instance, the Dow Jones Industrial Average lost 4034.23 from December 4 through Christmas Eve (Dec. 24), and has since gained 2203.75, nearly half of that amount regained the day after Christmas (Dec. 26), setting a one-day record by picking up 1086.25 points.
The other indices have exhibited similar patterns, with sudden acceleration in the final trading days of December and continuing smaller, albeit significant, positive closes on nine of the twelve sessions from December 26 through January 11.
Catalysts for the post-holiday rally continue to be diverse, the most significant strong data point coming from the BLS, which showed the economy adding 312,000 jobs for December in the most recent non-farm payroll report, released last Friday. So far beyond expectations was that number that it appeared to have kept sentiment positive for a full week after its release.
The week's most important data release was Friday's CPI number, which - thanks largely to the price of gasoline - declined 0.1% in December, and slowed to 1.9% in year-over-year measure. Core was +0.2% (mom) and +2.2% (yoy).
Slowing inflation, or perhaps, outright deflation, is anathema to the Federal Reserve, despite their all-too-frequent suggestions that they exist to keep inflation under check. The entire monetary scheme of the Fed and the global economy would disintegrate without inflation, thus the Fed will be diligent in regards to interest rates going forward. After hiking the federal funds rate at a pace of 25 basis points per quarter for the past two years, the Fed has received warnings aplenty, first from the cascading declines in the stock market, and second, from a squashing of inflation.
That CPI data, for all intents and purposes, killed any idea of a March rate hike, just as the market drop caused Treasury Secretary Mnuchin to frantically call in the Plunge Protection Team just before Christmas. The results from that plea for help have been grossly evident the past three weeks.
While the Fed believes it can control the economy, the truth is that it absolutely cannot. Bond prices and yields point that out in spades. The benchmark 10-year note yield dropped as low as 2.54% (1/3) in the face of all the recent rate hikes. As of Friday, the 2s-10s spread fell to 16 basis points. Already inverted are the 1-year and 2-year notes as related to the 5s. The 1-year closed on Friday with a yield of 2.58%; the 2-year at 2.55%; the 5-year at 2.52%, the 7-year at 2.60, and the 10-year at 2.60%.
The 2s-10s spread is the most cited and closely watched, but the 1s-7s are just two basis points from inversion, the cause, undeniably, the Fed's incessant pimping of the overnight rate.
If bond traders are acting in such a manner that they prefer short-dated maturities over the longer run, the signal is danger just ahead. Talk of an impending recession has tapered off in recent days, but the bond market's insistent buying patterns suggest that the Fed did indeed go too far, too fast with the rate hikes, spurring disinvestment and eventually, a recession.
What the Fed cannot control are human decisions. Noting the sentiment in bonds, the latest stock market gains have been contrived from the start and are certain to reverse course. As has been stated here countless times, bull markets do not last forever and Dow Theory has already signaled primary trend change twice in 2018 (in March-April and October).
The major indices have not escaped correction territory and all are trading below both their 50-and-200-day moving averages. Further those averages are upside-down, with the 200-day below the 50-day. The death crosses having already occurred, stocks will resume their reversion to the mean in the very near future.
Dow Jones Industrial Average January Scorecard:
At the Close, Friday, January 11, 2019:
Dow Jones Industrial Average: 23,995.95, -5.97 (-0.02%)
NASDAQ: 6,971.48, -14.59 (-0.21%)
S&P 500: 2,596.26, -0.38 (-0.01%)
NYSE Composite: 11,848.01, +8.70 (+0.07%)
For the Week:
Dow: +562.79 (+2.40%)
NASDAQ: +232.62 (+3.45%)
S&P 500: +64.32 (+2.54%)
NYSE Composite: +314.67 (+2.73%)
Friday's very minor declines snapped five-day winning streaks for the major indices, with the exception of the NYSE Composite, which continued gaining for a sixth straight session.
Solid for the past three weeks, the current rally has managed to relieve the stress from steep losses incurred in December though the majors still have plenty of distance to travel. For instance, the Dow Jones Industrial Average lost 4034.23 from December 4 through Christmas Eve (Dec. 24), and has since gained 2203.75, nearly half of that amount regained the day after Christmas (Dec. 26), setting a one-day record by picking up 1086.25 points.
The other indices have exhibited similar patterns, with sudden acceleration in the final trading days of December and continuing smaller, albeit significant, positive closes on nine of the twelve sessions from December 26 through January 11.
Catalysts for the post-holiday rally continue to be diverse, the most significant strong data point coming from the BLS, which showed the economy adding 312,000 jobs for December in the most recent non-farm payroll report, released last Friday. So far beyond expectations was that number that it appeared to have kept sentiment positive for a full week after its release.
The week's most important data release was Friday's CPI number, which - thanks largely to the price of gasoline - declined 0.1% in December, and slowed to 1.9% in year-over-year measure. Core was +0.2% (mom) and +2.2% (yoy).
Slowing inflation, or perhaps, outright deflation, is anathema to the Federal Reserve, despite their all-too-frequent suggestions that they exist to keep inflation under check. The entire monetary scheme of the Fed and the global economy would disintegrate without inflation, thus the Fed will be diligent in regards to interest rates going forward. After hiking the federal funds rate at a pace of 25 basis points per quarter for the past two years, the Fed has received warnings aplenty, first from the cascading declines in the stock market, and second, from a squashing of inflation.
That CPI data, for all intents and purposes, killed any idea of a March rate hike, just as the market drop caused Treasury Secretary Mnuchin to frantically call in the Plunge Protection Team just before Christmas. The results from that plea for help have been grossly evident the past three weeks.
While the Fed believes it can control the economy, the truth is that it absolutely cannot. Bond prices and yields point that out in spades. The benchmark 10-year note yield dropped as low as 2.54% (1/3) in the face of all the recent rate hikes. As of Friday, the 2s-10s spread fell to 16 basis points. Already inverted are the 1-year and 2-year notes as related to the 5s. The 1-year closed on Friday with a yield of 2.58%; the 2-year at 2.55%; the 5-year at 2.52%, the 7-year at 2.60, and the 10-year at 2.60%.
The 2s-10s spread is the most cited and closely watched, but the 1s-7s are just two basis points from inversion, the cause, undeniably, the Fed's incessant pimping of the overnight rate.
If bond traders are acting in such a manner that they prefer short-dated maturities over the longer run, the signal is danger just ahead. Talk of an impending recession has tapered off in recent days, but the bond market's insistent buying patterns suggest that the Fed did indeed go too far, too fast with the rate hikes, spurring disinvestment and eventually, a recession.
What the Fed cannot control are human decisions. Noting the sentiment in bonds, the latest stock market gains have been contrived from the start and are certain to reverse course. As has been stated here countless times, bull markets do not last forever and Dow Theory has already signaled primary trend change twice in 2018 (in March-April and October).
The major indices have not escaped correction territory and all are trading below both their 50-and-200-day moving averages. Further those averages are upside-down, with the 200-day below the 50-day. The death crosses having already occurred, stocks will resume their reversion to the mean in the very near future.
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 |
| 1/7/19 | 23,531.35 | +98.19 | +203.89 |
| 1/8/19 | 23,787.45 | +256.10 | +459.99 |
| 1/9/19 | 23,879.12 | +91.67 | +551.66 |
| 1/10/19 | 24,001.92 | +122.80 | +674.46 |
| 1/11/19 | 23,995.95 | -5.97 | +669.49 |
At the Close, Friday, January 11, 2019:
Dow Jones Industrial Average: 23,995.95, -5.97 (-0.02%)
NASDAQ: 6,971.48, -14.59 (-0.21%)
S&P 500: 2,596.26, -0.38 (-0.01%)
NYSE Composite: 11,848.01, +8.70 (+0.07%)
For the Week:
Dow: +562.79 (+2.40%)
NASDAQ: +232.62 (+3.45%)
S&P 500: +64.32 (+2.54%)
NYSE Composite: +314.67 (+2.73%)
Tuesday, August 14, 2018
Stocks Extend Losses on Stormy Monday
As severe thunderstorms raged across parts of the Northeast causing flooding, Wall Street had a storm of its own brewing as stocks stumbled, the Dow losing ground for the fourth consecutive day.
What has caused most of the recent turmoil in stocks emanates from half a world away from the US financial center, as Turkey's lira has crashed, panicking banks with investments in the nation of 80 million, disrupting markets globally.
The Dow Industrials' four-day losing streak has ripped 440 points off the index, turning an August gain of 221 points into a 219-point loss for the month.
While the move has not been large by percentage terms, Turkey's problems are far from being resolved. In addition to the currency failure, Turkey's stock market (^XU100) has also fallen sharply (down more than 25% since late January) and US tariffs imposed by President Trump are exacerbating the unruly conditions.
Treasury yields have bounced around, with the 10-year note hitting three percent on August 1, but has backed down 12 basis points, quoted at 2.88% Monday. The 30-year bond peaked at 3.13% on the first of August and has since fallen to 3.05%, leaving the spread between 10s and 30s at 17 basis points, a widening of four bips since August 1.
With the two-year note yield dropping from 2.67 to 2.61 in the month, the yield curve seems to be better behaved than in the early months of 2018. The spread on 2s-30s has remained somewhat steady. The latest quote showed a 44 basis point spread.
The remainder of the week may prove costly to bullish speculation. July was a banner month for stocks, the best since January, but the euphoria has faded.
Dow Jones Industrial Average August Scorecard:
At the Close, Monday, August 13, 2018:
Dow Jones Industrial Average: 25,187.70, -125.44 (-0.50%)
NASDAQ: 7,819.71, -19.40 (-0.25%)
S&P 500: 2,821.93, -11.35 (-0.40%)
NYSE Composite: 12,763.66, -79.83 (-0.62%)
What has caused most of the recent turmoil in stocks emanates from half a world away from the US financial center, as Turkey's lira has crashed, panicking banks with investments in the nation of 80 million, disrupting markets globally.
The Dow Industrials' four-day losing streak has ripped 440 points off the index, turning an August gain of 221 points into a 219-point loss for the month.
While the move has not been large by percentage terms, Turkey's problems are far from being resolved. In addition to the currency failure, Turkey's stock market (^XU100) has also fallen sharply (down more than 25% since late January) and US tariffs imposed by President Trump are exacerbating the unruly conditions.
Treasury yields have bounced around, with the 10-year note hitting three percent on August 1, but has backed down 12 basis points, quoted at 2.88% Monday. The 30-year bond peaked at 3.13% on the first of August and has since fallen to 3.05%, leaving the spread between 10s and 30s at 17 basis points, a widening of four bips since August 1.
With the two-year note yield dropping from 2.67 to 2.61 in the month, the yield curve seems to be better behaved than in the early months of 2018. The spread on 2s-30s has remained somewhat steady. The latest quote showed a 44 basis point spread.
The remainder of the week may prove costly to bullish speculation. July was a banner month for stocks, the best since January, but the euphoria has faded.
Dow Jones Industrial Average August Scorecard:
| Date | Close | Gain/Loss | Cum. G/L |
| 8/1/18 | 25,333.82 | -81.37 | -81.37 |
| 8/2/18 | 25,326.16 | -7.66 | -89.03 |
| 8/3/18 | 25,462.58 | +136.42 | +55.05 |
| 8/6/18 | 25,502.18 | +39.60 | +94.65 |
| 8/7/18 | 25,628.91 | +126.73 | +221.38 |
| 8/8/18 | 25,583.75 | -45.16 | +176.22 |
| 8/9/18 | 25,509.23 | -74.52 | +101.70 |
| 8/10/18 | 25,313.14 | -196.09 | -94.39 |
| 8/13/18 | 25,187.70 | -125.44 | -219.83 |
At the Close, Monday, August 13, 2018:
Dow Jones Industrial Average: 25,187.70, -125.44 (-0.50%)
NASDAQ: 7,819.71, -19.40 (-0.25%)
S&P 500: 2,821.93, -11.35 (-0.40%)
NYSE Composite: 12,763.66, -79.83 (-0.62%)
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