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 yield curve. Show all posts
Showing posts with label yield curve. Show all posts
Wednesday, August 5, 2020
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%)
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%)
Tuesday, March 10, 2020
Stocks Lose Record Amounts, Treasury Bond Yields Smashed As COVID-19 Begins Taking Its Toll
All of the major US indices posted record losses as coronavirus (COVID-19) continues to rage through 115 countries, with 114,595 confirmed cases and a death toll now over 4,000 (4,028).
Adding to market grief, Saudi Arabia, in an effort to harm other oil producers sent crude futures plunging as it unilaterally slashed prices and raised production output. WTI crude fell below $30 a barrel, recovering slightly to above $34.00 a barrel prior to Tuesday's opening bell. Still, the price cut was mammoth, on the order of a 24.6% decline. WTI closed at $41.28 Friday, finishing at $31.13 on Monday.
The Dow, S&P, NASDAQ, and NYSE all recorded record point losses, blowing away earlier marks. The Dow's 2,013.76 loss nearly doubled the previous record from February 27 of this year (−1,190.95). On The NASDAQ, the 624.94-point loss topped the list, easily surpassing the February 9 drop of −414.30.
Losing 225,81, the S&P vaulted over its previous mark of −137.63, also on February 27 of this year, less than two weeks ago.
The treasury bond complex was not spared, with yields falling across the entire curve by enormous amounts. The 30-year bond finished at 0.99% yield, the first time ever it has been below one percent. The day's decline was an unprecedented 26 basis points. At the other end, one-month bills dropped 22 basis points, from 0.79 to 0.57%.
Offering the lowest yield is the six-month bill, at 0.27%. The 10-year note was absolutely shattered, down 20 basis points, from 0.74 to 0.54%. In terms of curve, the complex is exceedingly flat, with just 72 basis points between the top and bottom yields.
Gold and silver both were higher initially, but were beaten down over the course of the day.
In the United States, the number of new, confirmed cases are rising rapidly as tests from the CDC begin arriving in massive quantities to state and local hospitals and labs. There are now 755 cases of coronavirus in the US, and 26 deaths.
After China, the US ranks 8th overall. Italy has reported 9,172 cases with 463 deaths. Italy's death figures are the highest outside mainland China, as are the number of cases. The Italian government closed its borders completely on Monday after efforts to contain the virus to the northern provinces failed.
The other countries topping the list of most infected are, in order, South Korea, Iran, France, Spain, and Germany, after which comes the United States. All of the aforementioned countries are reporting more than 1,000 cases. Confirmed cases outside China has exceeded those inside China for nearly the past week and are doubling every three to four days.
In addition to the human tragedy, large events are being canceled worldwide. Ireland has canceled all St. Patrick's Day parades, and around the world sporting events, concerts and other large-crowd gatherings are being put on hold or canceled, including the huge South-by-Southwest (SXSW) conference in Austin, Texas. The NCAA basketball tournament, commonly known as March Madness, which begins in a week, NBA basketball, and Major League Baseball, which opens its regular season on March 26, are all mulling the idea of playing games with no fans in the stands.
Businesses are gearing down due to the crisis, with many major firms instructing employees to work from home. School cancelations are on the rise globally, and will be widespread in the US in coming days and weeks.
The after-effects of the virus on the business community and the economy are just beginning to be felt according to many in finance, including hedge fund manager Kyle Bass, who believes the crisi will peak in about a month.
Even though the World Health Organization (WHO) is reluctant to call the worldwide spread of the pathogen a pandemic, it is surely one. The WHO does not want to use the world pandemic as it would trigger the default of "pandemic bonds," designed to provide $500 million to the organization should a pandemic be declared.
With less than an hour before the opening bell in the US, stocks seem to have caught a bid. Japan's NIKKEI was lower for most of the day but finished marginally higher on Tuesday. Other Pacific Rim bourses finished with gains of one to one-and-a-half percent, while European indices are currently sporting gains of around 2.5%.
US stock futures point to a higher open, as traders prepare for another stressful session. The so-called "dead cat bounce" applies, as the markets don't seem to have actually bottomed out. When all is said and done, many countries are going to report GDP losses for the first and likely, second quarters, plunging the world into what may be a prolonged recession.
At the Close, Monday, March 9, 2020:
Dow Jones Industrial Average: 23,851.02, -2,013.76 (-7.79%)
NASDAQ: 7,950.68, -624.94 (-7.29%)
S&P 500: 2,746.56, -225.81 (-7.60%)
NYSE: 11,298.43, -1,053.60 (-8.53%)
Adding to market grief, Saudi Arabia, in an effort to harm other oil producers sent crude futures plunging as it unilaterally slashed prices and raised production output. WTI crude fell below $30 a barrel, recovering slightly to above $34.00 a barrel prior to Tuesday's opening bell. Still, the price cut was mammoth, on the order of a 24.6% decline. WTI closed at $41.28 Friday, finishing at $31.13 on Monday.
The Dow, S&P, NASDAQ, and NYSE all recorded record point losses, blowing away earlier marks. The Dow's 2,013.76 loss nearly doubled the previous record from February 27 of this year (−1,190.95). On The NASDAQ, the 624.94-point loss topped the list, easily surpassing the February 9 drop of −414.30.
Losing 225,81, the S&P vaulted over its previous mark of −137.63, also on February 27 of this year, less than two weeks ago.
The treasury bond complex was not spared, with yields falling across the entire curve by enormous amounts. The 30-year bond finished at 0.99% yield, the first time ever it has been below one percent. The day's decline was an unprecedented 26 basis points. At the other end, one-month bills dropped 22 basis points, from 0.79 to 0.57%.
Offering the lowest yield is the six-month bill, at 0.27%. The 10-year note was absolutely shattered, down 20 basis points, from 0.74 to 0.54%. In terms of curve, the complex is exceedingly flat, with just 72 basis points between the top and bottom yields.
Gold and silver both were higher initially, but were beaten down over the course of the day.
In the United States, the number of new, confirmed cases are rising rapidly as tests from the CDC begin arriving in massive quantities to state and local hospitals and labs. There are now 755 cases of coronavirus in the US, and 26 deaths.
After China, the US ranks 8th overall. Italy has reported 9,172 cases with 463 deaths. Italy's death figures are the highest outside mainland China, as are the number of cases. The Italian government closed its borders completely on Monday after efforts to contain the virus to the northern provinces failed.
The other countries topping the list of most infected are, in order, South Korea, Iran, France, Spain, and Germany, after which comes the United States. All of the aforementioned countries are reporting more than 1,000 cases. Confirmed cases outside China has exceeded those inside China for nearly the past week and are doubling every three to four days.
In addition to the human tragedy, large events are being canceled worldwide. Ireland has canceled all St. Patrick's Day parades, and around the world sporting events, concerts and other large-crowd gatherings are being put on hold or canceled, including the huge South-by-Southwest (SXSW) conference in Austin, Texas. The NCAA basketball tournament, commonly known as March Madness, which begins in a week, NBA basketball, and Major League Baseball, which opens its regular season on March 26, are all mulling the idea of playing games with no fans in the stands.
Businesses are gearing down due to the crisis, with many major firms instructing employees to work from home. School cancelations are on the rise globally, and will be widespread in the US in coming days and weeks.
The after-effects of the virus on the business community and the economy are just beginning to be felt according to many in finance, including hedge fund manager Kyle Bass, who believes the crisi will peak in about a month.
Even though the World Health Organization (WHO) is reluctant to call the worldwide spread of the pathogen a pandemic, it is surely one. The WHO does not want to use the world pandemic as it would trigger the default of "pandemic bonds," designed to provide $500 million to the organization should a pandemic be declared.
With less than an hour before the opening bell in the US, stocks seem to have caught a bid. Japan's NIKKEI was lower for most of the day but finished marginally higher on Tuesday. Other Pacific Rim bourses finished with gains of one to one-and-a-half percent, while European indices are currently sporting gains of around 2.5%.
US stock futures point to a higher open, as traders prepare for another stressful session. The so-called "dead cat bounce" applies, as the markets don't seem to have actually bottomed out. When all is said and done, many countries are going to report GDP losses for the first and likely, second quarters, plunging the world into what may be a prolonged recession.
At the Close, Monday, March 9, 2020:
Dow Jones Industrial Average: 23,851.02, -2,013.76 (-7.79%)
NASDAQ: 7,950.68, -624.94 (-7.29%)
S&P 500: 2,746.56, -225.81 (-7.60%)
NYSE: 11,298.43, -1,053.60 (-8.53%)
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%)
Thursday, October 24, 2019
Stocks Sluggish As Bonds Offer Nearly Risk-Free Money Making
Markets churned through another day of earnings hits and misses.
Nothing really to see here as the investing community awaits the penultimate FOMC meeting of 2019, slated for October 29 and 30. Another 25 basis point reduction in the federal funds rate is expected at that time.
While cuts such as is expected in October used to be good for a good pop in stocks, lately, Wall Street has been less-than-enthusiastic when interest rates are slashed. This is clear from the current yield on the 10-year note, which refuses to budge, hovering in the 1.70-1.80 range.
That's not supposed to happen. Bond traders, however, are not being herded into low-yielding offerings at the behest of the Fed. There are certainly other ways to spread risk, into corporates or even shorter-maturity treasuries, and the bond vigilantes are taking them. There's a certain logic to taking 1.74% on a one-month bill rather than locking up money for 10 years for a yield that is only marginally higher. Having cash on hand to seize upon opportunity is smart investing.
With the yield curve so flat, there's little reason to probe the longer end, though, for safety's sake, the 30-year bond is now yielding a healthy 2.25%, nearly the best since rates were clobbered in August.
Earnings may be taking center stage for now, but the heart of the market is clearly in fixed income. Too much speculation, over-valuation, and memories of 2008 in stocks has sent money scurrying to safer places.
At the Close, Wednesday, October 23, 2019:
Dow Jones Industrial Average: 26,833.95, +45.85 (+0.17%)
NASDAQ: 8,119.79, +15.50 (+0.19%)
S&P 500: 3,004.52, +8.53 (+0.28%)
NYSE Composite: 13,114.39, +42.53 (+0.33%)
Nothing really to see here as the investing community awaits the penultimate FOMC meeting of 2019, slated for October 29 and 30. Another 25 basis point reduction in the federal funds rate is expected at that time.
While cuts such as is expected in October used to be good for a good pop in stocks, lately, Wall Street has been less-than-enthusiastic when interest rates are slashed. This is clear from the current yield on the 10-year note, which refuses to budge, hovering in the 1.70-1.80 range.
That's not supposed to happen. Bond traders, however, are not being herded into low-yielding offerings at the behest of the Fed. There are certainly other ways to spread risk, into corporates or even shorter-maturity treasuries, and the bond vigilantes are taking them. There's a certain logic to taking 1.74% on a one-month bill rather than locking up money for 10 years for a yield that is only marginally higher. Having cash on hand to seize upon opportunity is smart investing.
With the yield curve so flat, there's little reason to probe the longer end, though, for safety's sake, the 30-year bond is now yielding a healthy 2.25%, nearly the best since rates were clobbered in August.
Earnings may be taking center stage for now, but the heart of the market is clearly in fixed income. Too much speculation, over-valuation, and memories of 2008 in stocks has sent money scurrying to safer places.
At the Close, Wednesday, October 23, 2019:
Dow Jones Industrial Average: 26,833.95, +45.85 (+0.17%)
NASDAQ: 8,119.79, +15.50 (+0.19%)
S&P 500: 3,004.52, +8.53 (+0.28%)
NYSE Composite: 13,114.39, +42.53 (+0.33%)
Tuesday, December 4, 2018
Stocks Spurt On Tariff Truce; 3-5 Yield Curve Inverts
There was good news on the trade front, but bad news concerning a possible recession.
At the conclusion of the G20 meeting in Buenos Aires, President Trump and his Chinese counterpart, Xi Jinping, announced a 90-day moratorium on tariffs set to take effect on January 1, 2019. Some of the tariffs already in place were set to increase while new tariffs on a variety of goods were to take effect on the new year, but the leaders of the world's two largest economies decided on a cooling-off period and further talks before proceeding.
That good news sent futures soaring in pre-market trading, the euphoria spilling over into the regular session. Barely noticed - and un-noted by the financial press - was a minor inversion in interest rates, with the yield on the 5-year note (2.83%) falling below that of the 3-year treasury note (2.84%).
Though it's not the inversion that most economists are looking for in terms of portending a recession, the minor inversion is a warning shot. The 2-year and 10-year notes are the fear standard, with an inverted curve of those rates consistently preceding every recession since 1955. Currently the 2-year note stands at a yield of 2.83%, while the 10-year holds at 2.98%, notably below 3.00%, after Fed Chairman Jerome Powell softened his stance on rate hikes last week.
Thus, there's a split narrative that threatens to put a lid on gains in the near term. Trade wars have been postponed, for now, but 90 days isn't long enough to establish new guidelines between China and the USA. With the Fed set to raise and check, interest rates are going to give them some maneuverability, though not much, with the federal funds rate settling in somewhere between 2.25 and 2.50%.
Bond vigilantes brought the 10-year note down below the Maginot Line of 3.0% on the first trading day of December. That's more than enough speculation as to where interest rates are headed. In a word, nowhere. The ancillary note is on growth - both domestic and global - which has had a bit of a bump thanks to US strength, but pockets of malaise are popping up everywhere. There seems to be no smooth path heading into 2019, so, after a boost from the Fed and another from the international trading community, this early December rally may not have enough gusto to carry it past the FOMC meeting and through the holidays.
Much emphasis will be put on consumer spending, though with an early Thanksgiving, holiday spending might just peter out a week before Christmas.
It's not all doom and gloom. It's more like murky, with a light at the end of some tunnel.
Dow Jones Industrial Average December Scorecard:
At the Close, Monday, December 3, 2018:
Dow Jones Industrial Average: 25,826.43, +287.97 (+1.13%)
NASDAQ: 7,441.51, +110.98 (+1.51%)
S&P 500: 2,790.37, +30.20 (+1.09%)
NYSE Composite: 12,577.54, +120.00 (+0.96%)
At the conclusion of the G20 meeting in Buenos Aires, President Trump and his Chinese counterpart, Xi Jinping, announced a 90-day moratorium on tariffs set to take effect on January 1, 2019. Some of the tariffs already in place were set to increase while new tariffs on a variety of goods were to take effect on the new year, but the leaders of the world's two largest economies decided on a cooling-off period and further talks before proceeding.
That good news sent futures soaring in pre-market trading, the euphoria spilling over into the regular session. Barely noticed - and un-noted by the financial press - was a minor inversion in interest rates, with the yield on the 5-year note (2.83%) falling below that of the 3-year treasury note (2.84%).
Though it's not the inversion that most economists are looking for in terms of portending a recession, the minor inversion is a warning shot. The 2-year and 10-year notes are the fear standard, with an inverted curve of those rates consistently preceding every recession since 1955. Currently the 2-year note stands at a yield of 2.83%, while the 10-year holds at 2.98%, notably below 3.00%, after Fed Chairman Jerome Powell softened his stance on rate hikes last week.
Thus, there's a split narrative that threatens to put a lid on gains in the near term. Trade wars have been postponed, for now, but 90 days isn't long enough to establish new guidelines between China and the USA. With the Fed set to raise and check, interest rates are going to give them some maneuverability, though not much, with the federal funds rate settling in somewhere between 2.25 and 2.50%.
Bond vigilantes brought the 10-year note down below the Maginot Line of 3.0% on the first trading day of December. That's more than enough speculation as to where interest rates are headed. In a word, nowhere. The ancillary note is on growth - both domestic and global - which has had a bit of a bump thanks to US strength, but pockets of malaise are popping up everywhere. There seems to be no smooth path heading into 2019, so, after a boost from the Fed and another from the international trading community, this early December rally may not have enough gusto to carry it past the FOMC meeting and through the holidays.
Much emphasis will be put on consumer spending, though with an early Thanksgiving, holiday spending might just peter out a week before Christmas.
It's not all doom and gloom. It's more like murky, with a light at the end of some tunnel.
Dow Jones Industrial Average December Scorecard:
| Date | Close | Gain/Loss | Cum. G/L |
| 12/3/18 | 25,826.43 | +287.97 | +287.97 |
At the Close, Monday, December 3, 2018:
Dow Jones Industrial Average: 25,826.43, +287.97 (+1.13%)
NASDAQ: 7,441.51, +110.98 (+1.51%)
S&P 500: 2,790.37, +30.20 (+1.09%)
NYSE Composite: 12,577.54, +120.00 (+0.96%)
Tuesday, July 17, 2018
Fed Chairman Powell Mastering Greenspan-speak; Some Investors Pleased, Others Confused
Fed Chairman Jerome Powell was grilled today by members of the Senate Banking Committee, and was asked by senator Pat Toomey of Pennsylvania about the flattening (or tightening) of the yield curve.
Toomey expressed his question to the Chairman, thusly:
“Some people are concerned that a flattening curve or inverted curve correlates with economic recession. Here’s my question: does a dramatic change in the shape of the yield curve in any way influence the trajectory you guys [the Fed] are on with respect to normalizing interest rates and the balance sheet?”
Quoting Chairman Powell's answer from the story:
Literally, Powell did not answer the question, taking a page from the master of obscurity, mumbling, and ambiguity, former Fed Chairman, Alan Greenspan, who was notorious for answering questions and outlining positions in such an arcane and circuitous manner that it took the likes of William Safire to figure out just what he was saying, and even then, nobody was absolutely certain their analysis was correct.
Powell's rhetoric appeared to be pleasing to stock jockeys on Wall Street, who bid up prices a bit on the day, closing at its best level since June 14 (25,175.31). Perhaps Powell is embarking on a back-to-the-future nomenclature for the Federal Reserve, wherein the general public is to stand in awe of the special powers of the central bank and not question its motives.
That's how it was before and during Greenspan's reign as Chairman and maybe it might not be such a bad thing for the Fed to be less engaging and transparent today.
After all, nobody really understands what the Fed is talking about, including the Fed governors and presidents of the regional Fed banks, so why bother to try to explain it all to ordinary plebes, whose only wishes are to be left alone and offered a reasonable return on their investments?
Dow Jones Industrial Average July Scorecard:
At the Close, Tuesday, July 17, 2018:
Dow Jones Industrial Average: 25,119.89, +55.53 (+0.22%)
NASDAQ: 7,855.12, +49.40 (+0.63%)
S&P 500: 2,809.55, +11.12 (+0.40%)
NYSE Composite: 12,779.22, +30.44 (+0.24%)
Toomey expressed his question to the Chairman, thusly:
“Some people are concerned that a flattening curve or inverted curve correlates with economic recession. Here’s my question: does a dramatic change in the shape of the yield curve in any way influence the trajectory you guys [the Fed] are on with respect to normalizing interest rates and the balance sheet?”
Quoting Chairman Powell's answer from the story:
“I think what really matters [about the yield curve] is what the neutral rate of interest is,” Powell said.
“And I think people look at the shape of the curve because they think that there’s a message in longer-run rates — which reflect many things — but that longer-run rates also tell us something, along with other things, about what the longer-run neutral rate is. That’s really, I think, why the slope of the yield curve matters. So I look directly at that.”
Literally, Powell did not answer the question, taking a page from the master of obscurity, mumbling, and ambiguity, former Fed Chairman, Alan Greenspan, who was notorious for answering questions and outlining positions in such an arcane and circuitous manner that it took the likes of William Safire to figure out just what he was saying, and even then, nobody was absolutely certain their analysis was correct.
Powell's rhetoric appeared to be pleasing to stock jockeys on Wall Street, who bid up prices a bit on the day, closing at its best level since June 14 (25,175.31). Perhaps Powell is embarking on a back-to-the-future nomenclature for the Federal Reserve, wherein the general public is to stand in awe of the special powers of the central bank and not question its motives.
That's how it was before and during Greenspan's reign as Chairman and maybe it might not be such a bad thing for the Fed to be less engaging and transparent today.
After all, nobody really understands what the Fed is talking about, including the Fed governors and presidents of the regional Fed banks, so why bother to try to explain it all to ordinary plebes, whose only wishes are to be left alone and offered a reasonable return on their investments?
Dow Jones Industrial Average July Scorecard:
| Date | Close | Gain/Loss | Cum. G/L |
| 7/2/18 | 24,307.18 | +35.77 | +35.77 |
| 7/3/18 | 24,174.82 | -132.36 | -96.59 |
| 7/5/18 | 24,345.44 | +181.92 | +85.33 |
| 7/6/18 | 24,456.48 | +99.74 | +185.07 |
| 7/9/18 | 24,776.59 | +320.11 | +505.18 |
| 7/10/18 | 24,919.66 | +143.07 | +648.25 |
| 7/11/18 | 24,700.45 | -219.21 | +429.04 |
| 7/12/18 | 24,924.89 | +224.44 | +653.48 |
| 7/13/18 | 25,019.41 | +94.52 | +748.00 |
| 7/16/18 | 25,064.36 | +44.95 | +792.95 |
| 7/17/18 | 25,119.89 | +55.53 | +848.48 |
At the Close, Tuesday, July 17, 2018:
Dow Jones Industrial Average: 25,119.89, +55.53 (+0.22%)
NASDAQ: 7,855.12, +49.40 (+0.63%)
S&P 500: 2,809.55, +11.12 (+0.40%)
NYSE Composite: 12,779.22, +30.44 (+0.24%)
Thursday, July 12, 2018
Stock Selling Pressures Emerge As Bonds Present A Developing Skeptical Outlook
So much for summer doldrums.
Yes, that was the opening line of yesterday's post.
It's that kind of market, one that can turn on a dime, or a tweet, or, maybe even a look, a glance, a suggestion.
This is not for market neophytes, who will get skewered royally if they attempt to play and are not prepared to suffer small losses should positions prove unfavorable. Because small losses, left unaddressed, usually lead to larger losses, it's important to monitor all trades closely. Similarly, profits may be fleeting and momentary. It may be better to take short term gains under these conditions, than wait out months of bumps and grinds in expectation of sustained profits.
Current market conditions are strung out like an addict needing a fix. Any twitch can set it off, as evidenced on Wednesday, as short term euphoria faded into tight panic overnight.
Call it Trump-enomics, trade sabre-rattling, currency collapse, kind dollar, or whatever you like, what is underway is nothing less than a massive reordering of priorities. From individual well-being to international survival, nothing is off the table.
While stocks continue to zig-zag - the Dow fell once again into negative territory for the year - bonds seemingly know only one direction, toward the middle, as yield spreads on treasuries keep tightening.
Since the Fed has raised rates six times since December 2015, the yield on longer-dated maturities has not moved in tandem. In a growing, vibrant economy, yields on 10-year and 30-year bonds would be spiking higher in reaction to higher short-term rates, but presently, they are resistant. Thus, short-term rates are rising faster than longer-term, making it difficult for financial institutions to make money since they depend on the spread, i.e., borrowing short-term to lend long-term.
Simply put, it's tough to make much profit on a one percent (or less) margin.
This dynamic has and will continue to scare equity market participants, whose fear is that their investments will rise only very gradually, if at all. The longer-dated treasuries serve as a hedge against the inherent risk in stocks. Even though they may not keep pace with inflation, the risk of losing money is nearly nil.
There are, of course, many more forces at play, including devastated markets in Japan and Europe, which recently (and presently) toyed with negative interest rates, forcing all yields lower. Thus, the US yields look generous by comparison with limited risk exposure.
For a more detailed analysis of interest rates and the dangers of an inverted yield curve, Investopedia offers a reasonable explanation, here.
A simplified approach may be developing as a new norm: minimize risk, accept lower returns, preserve capital rather than seeking bold - and thus, risky - profits.
The bond market, which is much larger than the equity market, often serves as a lid on runaway speculation in stocks. Currently, the lid is being lowered, slowly, but steadily.
Dow Jones Industrial Average July Scorecard:
At the Close, Wednesday, July 11, 2018:
Dow Jones Industrial Average: 24,700.45, -219.21 (-0.88%)
NASDAQ: 7,716.61, -42.59 (-0.55%)
S&P 500: 2,774.02, -19.82 (-0.71%)
NYSE Composite: 12,681.59, -133.05 (-1.04%)
Yes, that was the opening line of yesterday's post.
It's that kind of market, one that can turn on a dime, or a tweet, or, maybe even a look, a glance, a suggestion.
This is not for market neophytes, who will get skewered royally if they attempt to play and are not prepared to suffer small losses should positions prove unfavorable. Because small losses, left unaddressed, usually lead to larger losses, it's important to monitor all trades closely. Similarly, profits may be fleeting and momentary. It may be better to take short term gains under these conditions, than wait out months of bumps and grinds in expectation of sustained profits.
Current market conditions are strung out like an addict needing a fix. Any twitch can set it off, as evidenced on Wednesday, as short term euphoria faded into tight panic overnight.
Call it Trump-enomics, trade sabre-rattling, currency collapse, kind dollar, or whatever you like, what is underway is nothing less than a massive reordering of priorities. From individual well-being to international survival, nothing is off the table.
While stocks continue to zig-zag - the Dow fell once again into negative territory for the year - bonds seemingly know only one direction, toward the middle, as yield spreads on treasuries keep tightening.
Since the Fed has raised rates six times since December 2015, the yield on longer-dated maturities has not moved in tandem. In a growing, vibrant economy, yields on 10-year and 30-year bonds would be spiking higher in reaction to higher short-term rates, but presently, they are resistant. Thus, short-term rates are rising faster than longer-term, making it difficult for financial institutions to make money since they depend on the spread, i.e., borrowing short-term to lend long-term.
Simply put, it's tough to make much profit on a one percent (or less) margin.
This dynamic has and will continue to scare equity market participants, whose fear is that their investments will rise only very gradually, if at all. The longer-dated treasuries serve as a hedge against the inherent risk in stocks. Even though they may not keep pace with inflation, the risk of losing money is nearly nil.
There are, of course, many more forces at play, including devastated markets in Japan and Europe, which recently (and presently) toyed with negative interest rates, forcing all yields lower. Thus, the US yields look generous by comparison with limited risk exposure.
For a more detailed analysis of interest rates and the dangers of an inverted yield curve, Investopedia offers a reasonable explanation, here.
A simplified approach may be developing as a new norm: minimize risk, accept lower returns, preserve capital rather than seeking bold - and thus, risky - profits.
The bond market, which is much larger than the equity market, often serves as a lid on runaway speculation in stocks. Currently, the lid is being lowered, slowly, but steadily.
Dow Jones Industrial Average July Scorecard:
| Date | Close | Gain/Loss | Cum. G/L |
| 7/2/18 | 24,307.18 | +35.77 | +35.77 |
| 7/3/18 | 24,174.82 | -132.36 | -96.59 |
| 7/5/18 | 24,345.44 | +181.92 | +85.33 |
| 7/6/18 | 24,456.48 | +99.74 | +185.07 |
| 7/9/18 | 24,776.59 | +320.11 | +505.18 |
| 7/10/18 | 24,919.66 | +143.07 | +648.25 |
| 7/11/18 | 24,700.45 | -219.21 | +429.04 |
At the Close, Wednesday, July 11, 2018:
Dow Jones Industrial Average: 24,700.45, -219.21 (-0.88%)
NASDAQ: 7,716.61, -42.59 (-0.55%)
S&P 500: 2,774.02, -19.82 (-0.71%)
NYSE Composite: 12,681.59, -133.05 (-1.04%)
Sunday, July 1, 2018
Weekend Wrap: End Of Quarter Fade Troubling at Half-Year Mark
Stocks were flying higher early on Friday, the final trading session of the second quarter, but, late in the day, waves of selling sent all of the major indices well off their highs by the close.
While the selling did not sent the averages into negative ground, sentiment the past two weeks has not been satisfying to investors, neither those with longer term aspirations nor for the speculative excesses in the short and day-trading regime.
The S&P and NASDAQ closed out the quarter with better success than the Dow, though the 30 industrial stocks comprising the Dow Jones Industrial Average continue to lead the market in the US and to a large extent are a barometer for business globally.
Thus, the Dow ended the month of June with a 144-point loss, and the quarter with a squeamish advance of 158.97 (April, +50.81; May +252.59), less than one percent.
At the year's midpoint, the Dow is down just over one percent. The S&P 500 is up better than two percent, while the NASDAQ is sporting a 9% gain, well into bubble territory.
2018 is turning out to be less and less impressive with each passing day. The search for yield is an everyday affair under current conditions, leaving little room for error. Investors are finding out rather suddenly that small mistakes are becoming more frequent, leading to steeper general losses. The trading environment is not for the faint of heart; cash is becoming more attractive, especially with the dollar resilient against many major foreign currencies.
Bloomberg’s Michael Regan noted Friday that global market caps have lost about $10 trillion since peaking in late January.
Bonds continue to fluctuate in narrow ranges, though consistently flattening the yield curve, with both short and long durations taking turns at lower yields. The 30-year bond ended the quarter at 2.98%, the 10-year note held at 2.85%, the five, 2.73%, and the 2-year, 2.52%.
Oil spiked in the final days of the month, just in time for the largest holiday travel week of summer.
The vix remains elevated with precious metals largely in the dumps. The most significant development for the upcoming, holiday-shortened week is Friday's non-farm payroll report for June. The expected number is +198,000 net new jobs for the month. It may be academic if the report comes close to consensus. A miss would surely be met with a negative reaction
With six months in the books, the second half kicks off on a very nervous note.
Dow Jones Industrial Average June Scorecard:
At the Close, Friday, June 29, 2018:
Dow Jones Industrial Average: 24,271.41, +55.36 (+0.23%)
NASDAQ: 7,510.30, +6.62 (+0.09%)
S&P 500: 2,718.37, +2.06 (+0.08%)
NYSE Composite: 12,504.25, +28.27 (+0.23%)
For the Week:
Dow: -309.48 (-1.26%)
NASDAQ: -182.51 (-2.37%)
S&P 500: -36.51 (-1.33%)
NYSE Composite: -135.32 (-1.07%)
While the selling did not sent the averages into negative ground, sentiment the past two weeks has not been satisfying to investors, neither those with longer term aspirations nor for the speculative excesses in the short and day-trading regime.
The S&P and NASDAQ closed out the quarter with better success than the Dow, though the 30 industrial stocks comprising the Dow Jones Industrial Average continue to lead the market in the US and to a large extent are a barometer for business globally.
Thus, the Dow ended the month of June with a 144-point loss, and the quarter with a squeamish advance of 158.97 (April, +50.81; May +252.59), less than one percent.
At the year's midpoint, the Dow is down just over one percent. The S&P 500 is up better than two percent, while the NASDAQ is sporting a 9% gain, well into bubble territory.
2018 is turning out to be less and less impressive with each passing day. The search for yield is an everyday affair under current conditions, leaving little room for error. Investors are finding out rather suddenly that small mistakes are becoming more frequent, leading to steeper general losses. The trading environment is not for the faint of heart; cash is becoming more attractive, especially with the dollar resilient against many major foreign currencies.
Bloomberg’s Michael Regan noted Friday that global market caps have lost about $10 trillion since peaking in late January.
Bonds continue to fluctuate in narrow ranges, though consistently flattening the yield curve, with both short and long durations taking turns at lower yields. The 30-year bond ended the quarter at 2.98%, the 10-year note held at 2.85%, the five, 2.73%, and the 2-year, 2.52%.
Oil spiked in the final days of the month, just in time for the largest holiday travel week of summer.
The vix remains elevated with precious metals largely in the dumps. The most significant development for the upcoming, holiday-shortened week is Friday's non-farm payroll report for June. The expected number is +198,000 net new jobs for the month. It may be academic if the report comes close to consensus. A miss would surely be met with a negative reaction
With six months in the books, the second half kicks off on a very nervous note.
Dow Jones Industrial Average June Scorecard:
| Date | Close | Gain/Loss | Cum. G/L |
| 6/1/18 | 24,635.21 | +219.37 | +219.37 |
| 6/4/18 | 24,813.69 | +178.48 | +397.85 |
| 6/5/18 | 24,799.98 | -13.71 | +384.14 |
| 6/6/18 | 25,146.39 | +346.41 | +730.55 |
| 6/7/18 | 25,241.41 | +95.02 | +825.57 |
| 6/8/18 | 25,316.53 | +75.12 | +900.69 |
| 6/11/18 | 25,322.31 | +5.78 | +906.47 |
| 6/12/18 | 25,320.73 | -1.58 | +904.89 |
| 6/13/18 | 25,201.20 | -119.53 | +785.36 |
| 6/14/18 | 25,175.31 | -25.89 | +759.47 |
| 6/15/18 | 25,090.48 | -84.83 | +674.64 |
| 6/18/18 | 24,987.47 | -103.01 | +571.63 |
| 6/19/18 | 24,700.21 | -287.26 | +284.37 |
| 6/20/18 | 24,657.80 | -42.41 | +241.96 |
| 6/21/18 | 24,461.70 | -196.10 | +45.86 |
| 6/22/18 | 24,580.89 | +119.19 | +165.05 |
| 6/25/18 | 24,252.80 | -328.09 | -163.04 |
| 6/26/18 | 24,283.11 | +30.31 | -132.73 |
| 6/27/18 | 24,117.59 | -165.52 | -298.25 |
| 6/28/18 | 24,216.05 | +98.46 | -199.79 |
| 6/29/18 | 24,271.41 | +55.36 | -144.43 |
At the Close, Friday, June 29, 2018:
Dow Jones Industrial Average: 24,271.41, +55.36 (+0.23%)
NASDAQ: 7,510.30, +6.62 (+0.09%)
S&P 500: 2,718.37, +2.06 (+0.08%)
NYSE Composite: 12,504.25, +28.27 (+0.23%)
For the Week:
Dow: -309.48 (-1.26%)
NASDAQ: -182.51 (-2.37%)
S&P 500: -36.51 (-1.33%)
NYSE Composite: -135.32 (-1.07%)
Thursday, June 28, 2018
Stocks Gain From Oversold Condition; 1Q GDP 2.0%
Nothing really to see here on the second-to-last trading day of the quarter, as stocks were due for a bit of a relief rally, which is exactly what this was, despite the bad news that first quarter GDP was revised lower, to 2.0% annualized.
The final estimate of GDP came as a bit of a shock to the know-it-alls on Wall Street, who collectively were looking for somewhere between 2.2% and 2.3% for the final figure. The fact that GDP underperformed (despite metrics that include everything other than drug dealing and prostitution) speaks volumes about the true state of the US economy, and, to a larger extent, that of the world.
Fading the Fed's favored position that the economy is solid, one would be better advised to consult one's stock broker or neighbor for a more accurate read on economic conditions. Savvy investors realize that GDP, as much as its inflated figures and inclusion of government expenditures belie a weakened state, isn't a very good measure of the health of an economy. The figures can be massaged and pushed around to fit any narrative, and usually are. What's happening in reality is that any growth is easily being eaten away by inflation, and any profits are funneled to the top 10% of the income gatherers, leaving the bottom 90% craving more and spending on credit while saving little to nothing.
A panoply of exaggerated expectations and flimsy figures is what the government number crunchers present, and it is so putrid that even their best efforts to make it appear palatable fall short. The United States has a hollowed out economy, devoid of a thriving middle class, replaced, over the past 20 years, with debt-ridden wannabes whose status is ultimately dependent on enormous wads of credit, from mortgages to school loans, to credit cards, to auto loans and leases, it is all a huge fallacy.
That stocks are able to even maintain some semblance of vigor is owed only to stock buybacks and the largesse of the central bank, which has fueled the massive facade with enough hot money and hot air to lift what is a limp and lifeless corpse off the deathbed... for now.
Numbers don't lie, and the best come from the bond pits, which was relatively calm, but still flatter in the middle, with the spread on 5s-10s falling to a mere 11 basis points. The 30-year bond remained steady at 2.97%, while the ten year ticked up one bip, making the 10s-30s spread just 13 basis points, which is not much interest for 20 years of waiting. Bonds continue to tell the real story, and it's not a happy one. Credit is tightening, slowly but certainly, and the Fed is creating a chokepoint for the economy which will lead only in one direction, to recession.
Dow Jones Industrial Average June Scorecard:
At the Close, Thursday, June 28, 2018:
Dow Jones Industrial Average: 24,216.05, +98.46 (+0.41%)
NASDAQ: 7,503.68, +58.60 (+0.79%)
S&P 500: 2,716.31, +16.68 (+0.62%)
NYSE Composite: 12,475.98, +63.91 (+0.51%)
The final estimate of GDP came as a bit of a shock to the know-it-alls on Wall Street, who collectively were looking for somewhere between 2.2% and 2.3% for the final figure. The fact that GDP underperformed (despite metrics that include everything other than drug dealing and prostitution) speaks volumes about the true state of the US economy, and, to a larger extent, that of the world.
Fading the Fed's favored position that the economy is solid, one would be better advised to consult one's stock broker or neighbor for a more accurate read on economic conditions. Savvy investors realize that GDP, as much as its inflated figures and inclusion of government expenditures belie a weakened state, isn't a very good measure of the health of an economy. The figures can be massaged and pushed around to fit any narrative, and usually are. What's happening in reality is that any growth is easily being eaten away by inflation, and any profits are funneled to the top 10% of the income gatherers, leaving the bottom 90% craving more and spending on credit while saving little to nothing.
A panoply of exaggerated expectations and flimsy figures is what the government number crunchers present, and it is so putrid that even their best efforts to make it appear palatable fall short. The United States has a hollowed out economy, devoid of a thriving middle class, replaced, over the past 20 years, with debt-ridden wannabes whose status is ultimately dependent on enormous wads of credit, from mortgages to school loans, to credit cards, to auto loans and leases, it is all a huge fallacy.
That stocks are able to even maintain some semblance of vigor is owed only to stock buybacks and the largesse of the central bank, which has fueled the massive facade with enough hot money and hot air to lift what is a limp and lifeless corpse off the deathbed... for now.
Numbers don't lie, and the best come from the bond pits, which was relatively calm, but still flatter in the middle, with the spread on 5s-10s falling to a mere 11 basis points. The 30-year bond remained steady at 2.97%, while the ten year ticked up one bip, making the 10s-30s spread just 13 basis points, which is not much interest for 20 years of waiting. Bonds continue to tell the real story, and it's not a happy one. Credit is tightening, slowly but certainly, and the Fed is creating a chokepoint for the economy which will lead only in one direction, to recession.
Dow Jones Industrial Average June Scorecard:
| Date | Close | Gain/Loss | Cum. G/L |
| 6/1/18 | 24,635.21 | +219.37 | +219.37 |
| 6/4/18 | 24,813.69 | +178.48 | +397.85 |
| 6/5/18 | 24,799.98 | -13.71 | +384.14 |
| 6/6/18 | 25,146.39 | +346.41 | +730.55 |
| 6/7/18 | 25,241.41 | +95.02 | +825.57 |
| 6/8/18 | 25,316.53 | +75.12 | +900.69 |
| 6/11/18 | 25,322.31 | +5.78 | +906.47 |
| 6/12/18 | 25,320.73 | -1.58 | +904.89 |
| 6/13/18 | 25,201.20 | -119.53 | +785.36 |
| 6/14/18 | 25,175.31 | -25.89 | +759.47 |
| 6/15/18 | 25,090.48 | -84.83 | +674.64 |
| 6/18/18 | 24,987.47 | -103.01 | +571.63 |
| 6/19/18 | 24,700.21 | -287.26 | +284.37 |
| 6/20/18 | 24,657.80 | -42.41 | +241.96 |
| 6/21/18 | 24,461.70 | -196.10 | +45.86 |
| 6/22/18 | 24,580.89 | +119.19 | +165.05 |
| 6/25/18 | 24,252.80 | -328.09 | -163.04 |
| 6/26/18 | 24,283.11 | +30.31 | -132.73 |
| 6/27/18 | 24,117.59 | -165.52 | -298.25 |
| 6/28/18 | 24,216.05 | +98.46 | -199.79 |
At the Close, Thursday, June 28, 2018:
Dow Jones Industrial Average: 24,216.05, +98.46 (+0.41%)
NASDAQ: 7,503.68, +58.60 (+0.79%)
S&P 500: 2,716.31, +16.68 (+0.62%)
NYSE Composite: 12,475.98, +63.91 (+0.51%)
Monday, June 18, 2018
Dow Losing Streak at Five Days; NASDAQ Resistant to Reality
After losing 84 points on Friday, the Dow extended its losing streak to five days, shedding 103 points to open the trading week. The total loss since June 11 is nothing to get excited about, a mere 335 points, less than 1 1/2 percent, but the lows set in intra-day trading both Friday and Monday were successively deeper.
Friday's low of 24,902.01, was exceeded Monday at 24,825.77, which was set just minutes into the session. The pattern of lower lows and lower closes over the past five sessions is a worrying sign to macro market watchers.
While the Dow slides, the NASDAQ continues to hold its own or make new gains, though the opening on Monday was ugly, with the NAZ down 70 points just after the bell. Today's tiny gain failed to excite anybody but the most committed bulls, who may be charging into a classic trap, with declining volume and indications from the Dow that aren't exactly encouraging.
This week got off to a poor start and there is little in the way of data to support any kind of news-driven uptick. It may turn out to be one of the duller weeks of the summer, which officially begins on Wednesday, June 20.
What's driving investors into speculative positions in the NASDAQ is the lack of positive returns from either Dow stocks or treasury bonds. The former appears too risky, with dividend yields ranging from 1.75% to 2.75% on the individual components, while the bond market continues to defy the Fed, as the 10-year note refuses to bang through the three percent mark.
Bonds barely budged today, but the yield curve tightened as the two year bill yield added one basis point to 2.56, and the 10-year slipped to 2.92, leaving the 2s-10s spread at a decade low 36 basis points.
That's a notable number, as the last time the spread was so slim was in 2007, just prior to one of the worst financial crashes in market history. As is sometimes quoted, "history may not always repeat, but it does often rhyme." Treasuries seem to be rhyming well with conditions prior to the GFC. Unrestrained credit, high leverage, overvaluation prominent in financial assets. In 2007, it was mostly hard assets, i.e., houses, that were rocketing in value. Today's only difference is that it's now stocks which are out of bounds for all but the most speculative players and plungers.
Dow Jones Industrial Average June Scorecard:
At the Close, Monday, June 18, 2018:
Dow Jones Industrial Average: 24,987.47, -103.01 (-0.41%)
NASDAQ: 7,747.02, +0.65 (+0.01%)
S&P 500: 2,773.87, -5.79 (-0.21%)
NYSE Composite: 12,706.73, -27.91 (-0.22%)
Friday's low of 24,902.01, was exceeded Monday at 24,825.77, which was set just minutes into the session. The pattern of lower lows and lower closes over the past five sessions is a worrying sign to macro market watchers.
While the Dow slides, the NASDAQ continues to hold its own or make new gains, though the opening on Monday was ugly, with the NAZ down 70 points just after the bell. Today's tiny gain failed to excite anybody but the most committed bulls, who may be charging into a classic trap, with declining volume and indications from the Dow that aren't exactly encouraging.
This week got off to a poor start and there is little in the way of data to support any kind of news-driven uptick. It may turn out to be one of the duller weeks of the summer, which officially begins on Wednesday, June 20.
What's driving investors into speculative positions in the NASDAQ is the lack of positive returns from either Dow stocks or treasury bonds. The former appears too risky, with dividend yields ranging from 1.75% to 2.75% on the individual components, while the bond market continues to defy the Fed, as the 10-year note refuses to bang through the three percent mark.
Bonds barely budged today, but the yield curve tightened as the two year bill yield added one basis point to 2.56, and the 10-year slipped to 2.92, leaving the 2s-10s spread at a decade low 36 basis points.
That's a notable number, as the last time the spread was so slim was in 2007, just prior to one of the worst financial crashes in market history. As is sometimes quoted, "history may not always repeat, but it does often rhyme." Treasuries seem to be rhyming well with conditions prior to the GFC. Unrestrained credit, high leverage, overvaluation prominent in financial assets. In 2007, it was mostly hard assets, i.e., houses, that were rocketing in value. Today's only difference is that it's now stocks which are out of bounds for all but the most speculative players and plungers.
Dow Jones Industrial Average June Scorecard:
| Date | Close | Gain/Loss | Cum. G/L |
| 6/1/18 | 24,635.21 | +219.37 | +219.37 |
| 6/4/18 | 24,813.69 | +178.48 | +397.85 |
| 6/5/18 | 24,799.98 | -13.71 | +384.14 |
| 6/6/18 | 25,146.39 | +346.41 | +730.55 |
| 6/7/18 | 25,241.41 | +95.02 | +825.57 |
| 6/8/18 | 25,316.53 | +75.12 | +900.69 |
| 6/11/18 | 25,322.31 | +5.78 | +906.47 |
| 6/12/18 | 25,320.73 | -1.58 | +904.89 |
| 6/13/18 | 25,201.20 | -119.53 | +785.36 |
| 6/14/18 | 25,175.31 | -25.89 | +759.47 |
| 6/15/18 | 25,090.48 | -84.83 | +674.64 |
| 6/18/18 | 24,987.47 | -103.01 | +571.63 |
At the Close, Monday, June 18, 2018:
Dow Jones Industrial Average: 24,987.47, -103.01 (-0.41%)
NASDAQ: 7,747.02, +0.65 (+0.01%)
S&P 500: 2,773.87, -5.79 (-0.21%)
NYSE Composite: 12,706.73, -27.91 (-0.22%)
Tuesday, June 12, 2018
Stocks Lose Luster In Late Trading
Getting the usual Monday morning boost, stocks experienced widespread gains throughout the day but faded badly into the close, with the Dow suffering the worst, dropping 80 points off its early afternoon high at 25,402.83.
The blue chips ended the day with a gain of just less than six points, the smallest percentage higher (0.02%) of the major indices.
Monday's subdued trading preceded the signing of an historic agreement to denuclearize North Korea, signed Tuesday morning, Singapore time, by President Trump and North Korean leader, Kim Jong-un. The late-day selloff might have been a precursor to more meaningful action to come Tuesday and Wednesday as the Federal Reserve plans a widely-anticipated increase to the federal funds rate, also known as the overnight or interbank rate, the price banks pay to loan funds to each other or to and from the Federal Reserve.
With the FOMC set to open the rate policy meeting on Tuesday and conclude Wednesday afternoon, treasury bonds displayed relative quiet, though yields rose moderately across the treasury spectrum.
Most worrying to bond traders and economists is the continuing flattening of the yield curve, as it approaches possible inversion, a condition that has presaged every recession since 1955.
The 2-10-year spread reached its lowest point in the current cycle, dropping to 43 basis points. The 5-30 spread stood at a mere 30 basis points (0.30%) at the close of trading Monday.
Further rate hikes by the Fed treated to choke off investment and send shorter maturities higher while longer ones stand firm. Both the 5-year note and 30-year bond have risen in yield by six basis points since June 1, though the stability is not expected to last long past this week's FOMC meeting.
As far as trading is concerned, there is likely to be a period of quietude Tuesday and Wednesday morning, leading up to the policy announcement at 2:00 pm EDT.
Dow Jones Industrial Average June Scorecard:
At the Close, Monday, June 11, 2018:
Dow Jones Industrial Average: 25,322.31, +5.78 (+0.02%)
NASDAQ: 7,659.93, +14.41 (+0.19%)
S&P 500: 2,782.00, +2.97 (+0.11%)
NYSE Composite: 12,856.96, +24.89 (+0.19%)
The blue chips ended the day with a gain of just less than six points, the smallest percentage higher (0.02%) of the major indices.
Monday's subdued trading preceded the signing of an historic agreement to denuclearize North Korea, signed Tuesday morning, Singapore time, by President Trump and North Korean leader, Kim Jong-un. The late-day selloff might have been a precursor to more meaningful action to come Tuesday and Wednesday as the Federal Reserve plans a widely-anticipated increase to the federal funds rate, also known as the overnight or interbank rate, the price banks pay to loan funds to each other or to and from the Federal Reserve.
With the FOMC set to open the rate policy meeting on Tuesday and conclude Wednesday afternoon, treasury bonds displayed relative quiet, though yields rose moderately across the treasury spectrum.
Most worrying to bond traders and economists is the continuing flattening of the yield curve, as it approaches possible inversion, a condition that has presaged every recession since 1955.
The 2-10-year spread reached its lowest point in the current cycle, dropping to 43 basis points. The 5-30 spread stood at a mere 30 basis points (0.30%) at the close of trading Monday.
Further rate hikes by the Fed treated to choke off investment and send shorter maturities higher while longer ones stand firm. Both the 5-year note and 30-year bond have risen in yield by six basis points since June 1, though the stability is not expected to last long past this week's FOMC meeting.
As far as trading is concerned, there is likely to be a period of quietude Tuesday and Wednesday morning, leading up to the policy announcement at 2:00 pm EDT.
Dow Jones Industrial Average June Scorecard:
| Date | Close | Gain/Loss | Cum. G/L |
| 6/1/18 | 24,635.21 | +219.37 | +219.37 |
| 6/4/18 | 24,813.69 | +178.48 | +397.85 |
| 6/5/18 | 24,799.98 | -13.71 | +384.14 |
| 6/6/18 | 25,146.39 | +346.41 | +730.55 |
| 6/7/18 | 25,241.41 | +95.02 | +825.57 |
| 6/8/18 | 25,316.53 | +75.12 | +900.69 |
| 6/11/18 | 25,322.31 | +5.78 | +906.47 |
At the Close, Monday, June 11, 2018:
Dow Jones Industrial Average: 25,322.31, +5.78 (+0.02%)
NASDAQ: 7,659.93, +14.41 (+0.19%)
S&P 500: 2,782.00, +2.97 (+0.11%)
NYSE Composite: 12,856.96, +24.89 (+0.19%)
Friday, May 11, 2018
Dow Gains 6th Straight Session; Oil Rises; Yield Curve Flattens
With a gain of nearly 200 points, the Dow Jones Industrial Average posted its sixth straight winning day, adding 875 points over that span.
Leading the charge higher were Apple (AAPL), which reached a new all-time high, at 190.04, and ExxonMobil (XOM), which gained 1.79 to close the session at 81.72. ExxonMobil's rise was attributed largely to the soaring price of oil. At 71.43 per barrel of WTI crude, oil is at its highest in four years, causing pain at the pump for commuters and drivers, but profits galore for energy companies.
While the immediate market euphoria may be tied somewhat to the rally in crude, it is likely to be short-lived if higher gasoline prices persist, as consumers will likely cut demand for other retail products, having to spend more to fill their tanks.
Another worrisome sign is the flattening treasury yield curve. The difference in yield spread between the five-year note and the 30-year bond fell to its lowest since 2007, a mere 29 basis points, with the five at 2.83 and the 30 at 3.12.
Flattening the curve, as at present, tightens banks' ability to lend at profit and is often a sign of a nearby recession. Should the curve invert - with fives' yield higher than 10's perhaps, it's an almost certain sign of recession, as all recessions over the past 50 years have been presaged by an inverted curve.
Dow Jones Industrial Average May Scorecard:
At the Close, Thursday, May 10, 2018:
Dow Jones Industrial Average: 24,739.53, +196.99 (+0.80%)
NASDAQ: 7,404.97, +65.07 (+0.89%)
S&P 500: 2,723.07, +25.28 (+0.94%)
NYSE Composite: 12,731.64, +99.15 (+0.78%)
Leading the charge higher were Apple (AAPL), which reached a new all-time high, at 190.04, and ExxonMobil (XOM), which gained 1.79 to close the session at 81.72. ExxonMobil's rise was attributed largely to the soaring price of oil. At 71.43 per barrel of WTI crude, oil is at its highest in four years, causing pain at the pump for commuters and drivers, but profits galore for energy companies.
While the immediate market euphoria may be tied somewhat to the rally in crude, it is likely to be short-lived if higher gasoline prices persist, as consumers will likely cut demand for other retail products, having to spend more to fill their tanks.
Another worrisome sign is the flattening treasury yield curve. The difference in yield spread between the five-year note and the 30-year bond fell to its lowest since 2007, a mere 29 basis points, with the five at 2.83 and the 30 at 3.12.
Flattening the curve, as at present, tightens banks' ability to lend at profit and is often a sign of a nearby recession. Should the curve invert - with fives' yield higher than 10's perhaps, it's an almost certain sign of recession, as all recessions over the past 50 years have been presaged by an inverted curve.
Dow Jones Industrial Average May Scorecard:
| Date | Close | Gain/Loss | Cum. G/L |
| 5/1/18 | 24,099.05 | -64.10 | -64.10 |
| 5/2/18 | 23,924.98 | -174.07 | -238.17 |
| 5/3/18 | 23,930.15 | +5.17 | -233.00 |
| 5/4/18 | 24,262.51 | +332.36 | +99.36 |
| 5/7/18 | 24,357.32 | +94.81 | +194.17 |
| 5/8/18 | 24,360.21 | +2.89 | +197.06 |
| 5/9/18 | 24,542.54 | +182.33 | +379.39 |
| 5/10/18 | 24,739.53 | +196.99 | +576.38 |
At the Close, Thursday, May 10, 2018:
Dow Jones Industrial Average: 24,739.53, +196.99 (+0.80%)
NASDAQ: 7,404.97, +65.07 (+0.89%)
S&P 500: 2,723.07, +25.28 (+0.94%)
NYSE Composite: 12,731.64, +99.15 (+0.78%)
Sunday, April 29, 2018
Weekend Wrap: If This Isn't A Bear Market, Then What Is It?
Is this a bear market?
Nobody wants to admit it, but the patterns are clear on the charts.
In the most recent week, all of the four major averages displayed the same kind of market action throughout, all ending in the red, from the Dow's 0.62% loss to the S&P's narrow, 0.01% decline.
All four are currently trading between their 50 and 200-day moving averages.
It's been three months since the averages made new highs, which just happened to be all-time highs, occurring more than nine years into the second-longest expansion in market history.
Even though the indices are not at correction levels (-10%), they are close, and the argument that a bear market is defined as a 20% drop is begging the question to a large degree. In the case that investors want to wait until stocks are another 10% lower, it will mean that the smartest investors got out early and those remaining will be eventual bag-holders, losing anywhere from 35-60% of their investments as the bear matriculates to lower and lower levels.
Since Dow Theory has confirmed bear market conditions, only the most hopeful or ignorant traders will cling to the belief that those all-time highs made three months ago will be surpassed somewhere down the road. The closing high on the Dow is 26,616.71, made on January 26. A rally of more than 2300 points would be needed to get back to that level.
Does anybody in their right mind see that happening?
Presidents of the various Federal Reserve System regional banks may try to make a case that the economy is strong and still growing, despite evidence to the contrary and their overwhelming desire to raise rates in the face of obviously weakening data.
Friday's first estimate of third quarter GDP might have been the straw that broke the back of the Fed's narrative, coming in below consensus guesses at a depressing 2.3%. When one backs out inflation and considers that almost all of the contributions to GDP - consumer, business, and government - are based on borrowed money, i.e., debt, the real GDP figure might be somewhere closer to -2.3%, consumer and business debt beginning to grow beyond sustainable levels, while government debt is already well past that point at $21 trillion.
There is little doubt that this is indeed a bear market and the flattening of the treasury interest rate curve is more evidence that a recession is just around the corner. Raising rates at this juncture - which the Fed plans on doing again in June - will only exacerbate an already stretched situation and actually contribute to causing the very recession the Fed wishes, publicly, to avoid. In truth, behind closed doors, the Fed presidents and governors of the FOMC know full well that a slowdown is coming, not just for stocks, but for the general economy. That's why they are in such a rush to raise rates: because they need the additional ammunition of being able to reduce rates when the recession comes.
Investors have had sufficient time to reallocate funds to safe havens. Sadly, the bulk of investments are held by pension and other funds, and the bag-holders are going to eventually be the millions of working people whose investments and livelihoods are inextricably tied to the market with little opportunity to allocate funds correctly nor the ability to leave the market completely.
Life has its ups and downs, and its fair share of joy and pain. The joy of the past nine years is about to be eclipsed by the pain of 2019-2022, a bear market and deep recession that will reveal - to some - the true state of the US and global economy, one that has been built on debt, low interest rates, non-stop issuance of fiat currency, stock buybacks, manipulation, and shady practices by the world's central banks.
Forewarned is forearmed.
Dow Jones Industrial Average April Scorecard:
At the Close, Friday, April 27, 2018:
Dow Jones Industrial Average: 24,311.19, -11.15 (-0.05%)
NASDAQ: 7,119.80, +1.12 (+0.02%)
S&P 500: 2,669.91, +2.97 (+0.11%)
NYSE Composite: 12,594.02, +11.12 (+0.09%)
For the Week:
Dow: -151.75 (-0.62)
NASDAQ: -26.33 (-0.37%)
S&P 500: -0.23 (-0.01%)
NYSE Composite: -13.13 (-0.10%)
Nobody wants to admit it, but the patterns are clear on the charts.
In the most recent week, all of the four major averages displayed the same kind of market action throughout, all ending in the red, from the Dow's 0.62% loss to the S&P's narrow, 0.01% decline.
All four are currently trading between their 50 and 200-day moving averages.
It's been three months since the averages made new highs, which just happened to be all-time highs, occurring more than nine years into the second-longest expansion in market history.
Even though the indices are not at correction levels (-10%), they are close, and the argument that a bear market is defined as a 20% drop is begging the question to a large degree. In the case that investors want to wait until stocks are another 10% lower, it will mean that the smartest investors got out early and those remaining will be eventual bag-holders, losing anywhere from 35-60% of their investments as the bear matriculates to lower and lower levels.
Since Dow Theory has confirmed bear market conditions, only the most hopeful or ignorant traders will cling to the belief that those all-time highs made three months ago will be surpassed somewhere down the road. The closing high on the Dow is 26,616.71, made on January 26. A rally of more than 2300 points would be needed to get back to that level.
Does anybody in their right mind see that happening?
Presidents of the various Federal Reserve System regional banks may try to make a case that the economy is strong and still growing, despite evidence to the contrary and their overwhelming desire to raise rates in the face of obviously weakening data.
Friday's first estimate of third quarter GDP might have been the straw that broke the back of the Fed's narrative, coming in below consensus guesses at a depressing 2.3%. When one backs out inflation and considers that almost all of the contributions to GDP - consumer, business, and government - are based on borrowed money, i.e., debt, the real GDP figure might be somewhere closer to -2.3%, consumer and business debt beginning to grow beyond sustainable levels, while government debt is already well past that point at $21 trillion.
There is little doubt that this is indeed a bear market and the flattening of the treasury interest rate curve is more evidence that a recession is just around the corner. Raising rates at this juncture - which the Fed plans on doing again in June - will only exacerbate an already stretched situation and actually contribute to causing the very recession the Fed wishes, publicly, to avoid. In truth, behind closed doors, the Fed presidents and governors of the FOMC know full well that a slowdown is coming, not just for stocks, but for the general economy. That's why they are in such a rush to raise rates: because they need the additional ammunition of being able to reduce rates when the recession comes.
Investors have had sufficient time to reallocate funds to safe havens. Sadly, the bulk of investments are held by pension and other funds, and the bag-holders are going to eventually be the millions of working people whose investments and livelihoods are inextricably tied to the market with little opportunity to allocate funds correctly nor the ability to leave the market completely.
Life has its ups and downs, and its fair share of joy and pain. The joy of the past nine years is about to be eclipsed by the pain of 2019-2022, a bear market and deep recession that will reveal - to some - the true state of the US and global economy, one that has been built on debt, low interest rates, non-stop issuance of fiat currency, stock buybacks, manipulation, and shady practices by the world's central banks.
Forewarned is forearmed.
Dow Jones Industrial Average April Scorecard:
| Date | Close | Gain/Loss | Cum. G/L |
| 4/2/18 | 23,644.19 | -458.92 | -458.92 |
| 4/3/18 | 24,033.36 | +389.17 | -69.75 |
| 4/4/18 | 24,264.30 | +230.94 | +161.19 |
| 4/5/18 | 24,505.22 | +240.92 | +402.11 |
| 4/6/18 | 23,932.76 | -572.46 | -170.35 |
| 4/9/18 | 23,979.10 | +46.34 | -134.01 |
| 4/10/18 | 24,407.86 | +428.76 | +294.66 |
| 4/11/18 | 24,189.45 | -218.55 | +76.11 |
| 4/12/18 | 24,483.05 | +293.60 | +369.71 |
| 4/13/18 | 24,360.14 | -122.91 | +247.80 |
| 4/16/18 | 24,573.04 | +212.90 | +460.70 |
| 4/17/18 | 24,786.63 | +213.59 | +674.29 |
| 4/18/18 | 24,748.07 | -38.56 | +635.73 |
| 4/19/18 | 24,664.89 | -83.18 | +552.55 |
| 4/20/18 | 24,462.94 | -201.95 | +350.60 |
| 4/23/18 | 24,448.69 | -14.25 | +336.35 |
| 4/24/18 | 24,024.13 | -424.56 | -88.21 |
| 4/25/18 | 24,083.83 | +59.70 | -28.51 |
| 4/26/18 | 24,322.34 | +238.51 | +210.00 |
| 4/27/18 | 24,311.19 | -11.15 | +198.85 |
At the Close, Friday, April 27, 2018:
Dow Jones Industrial Average: 24,311.19, -11.15 (-0.05%)
NASDAQ: 7,119.80, +1.12 (+0.02%)
S&P 500: 2,669.91, +2.97 (+0.11%)
NYSE Composite: 12,594.02, +11.12 (+0.09%)
For the Week:
Dow: -151.75 (-0.62)
NASDAQ: -26.33 (-0.37%)
S&P 500: -0.23 (-0.01%)
NYSE Composite: -13.13 (-0.10%)
Wednesday, December 6, 2017
Tech Rout Spreads to Other Sectors; Bonds Signaling Slowdown
We have seen this show before.
Jittery markets, just off fresh all-time highs, make dramatic swings to the downside.
For the past nine years running, such activity has typically been followed by aggressive "dip-buying" and soon thereafter, new all-time highs on all the major indices.
Is this time different?
It's tempting to say that it is, especially for analysts who have been consistently wrong about market corrections during the grand recovery, but, it's probably nothing, unless...
... one considers the US treasury bond complex and its fast-collapsing curve, which currently has the spread between between a 2-year bill (1.80%) and the 10-year-note (2.34%) at a mere 54 basis points. The 2/30 spread is a minuscule 92 basis points (1.80%-2.72%), but perhaps most troubling is the tiny, 21 basis points between the 5-year and 10-year note.
The five-year note is yielding 2.13%.
Why does this matter? There are a number of good reasons, primarily, because in banking, one typically buys short-duration and lends long duration, making money on the spread. But, if there is no spread, there's scant money to be made and only a relative few defaults on long loans (such as occurred during the sub-prime crisis) can cause calamity for the lenders.
Also, the danger of inversion is weighty, occurring when a shorter-duration bond yields higher than a longer-duration. Such inversion might occur between the fives and tens, where the spread is - as mentioned above - only 21 basis points (0.21%).
Inversion matters because it signals that investors have no appetite for anything of long duration (loss of confidence) and are attempting to get all the yield on the short end, as quickly as possible. Every time bond yields have inverted in the past 90 years of market history, a significant inversion has been followed by a recession.
So, while Wall Street is enjoying salad days in stocks, the bond market is worrying, as Main Street finds difficulty in borrowing for the future.
The tide in stocks may also be turning, as evidenced yesterday as the Dow took over the lead in the relentless decline experienced in the NASDAQ. At this point, all stocks are at risk, probably due to the threat of yet another government shutdown, looming close at December 8. The November non-farm payroll report Friday could be the catalyst to send stocks even lower and bond spreads tighter. Extreme caution is advised the remainder of the week, noting that holiday season stock routs are extremely rare events. They usually happen in January.
In conclusion, this time is not different. It's the same as it always has been. Periods of stock euphoria are usually followed by recession. Boom-bust. Nothing lasts forever. To think so is pure tom-foolery.
At the Close, Tuesday, December 5, 2017:
Dow: 24,180.64, -109.41 (-0.45%)
NASDAQ: 6,762.21, -13.15 (-0.19%)
S&P 500: 2,629.57, -9.87 (-0.37%)
NYSE Composite: 12,567.16, -67.73 (-0.54%)
Jittery markets, just off fresh all-time highs, make dramatic swings to the downside.
For the past nine years running, such activity has typically been followed by aggressive "dip-buying" and soon thereafter, new all-time highs on all the major indices.
Is this time different?
It's tempting to say that it is, especially for analysts who have been consistently wrong about market corrections during the grand recovery, but, it's probably nothing, unless...
... one considers the US treasury bond complex and its fast-collapsing curve, which currently has the spread between between a 2-year bill (1.80%) and the 10-year-note (2.34%) at a mere 54 basis points. The 2/30 spread is a minuscule 92 basis points (1.80%-2.72%), but perhaps most troubling is the tiny, 21 basis points between the 5-year and 10-year note.
The five-year note is yielding 2.13%.
Why does this matter? There are a number of good reasons, primarily, because in banking, one typically buys short-duration and lends long duration, making money on the spread. But, if there is no spread, there's scant money to be made and only a relative few defaults on long loans (such as occurred during the sub-prime crisis) can cause calamity for the lenders.
Also, the danger of inversion is weighty, occurring when a shorter-duration bond yields higher than a longer-duration. Such inversion might occur between the fives and tens, where the spread is - as mentioned above - only 21 basis points (0.21%).
Inversion matters because it signals that investors have no appetite for anything of long duration (loss of confidence) and are attempting to get all the yield on the short end, as quickly as possible. Every time bond yields have inverted in the past 90 years of market history, a significant inversion has been followed by a recession.
So, while Wall Street is enjoying salad days in stocks, the bond market is worrying, as Main Street finds difficulty in borrowing for the future.
The tide in stocks may also be turning, as evidenced yesterday as the Dow took over the lead in the relentless decline experienced in the NASDAQ. At this point, all stocks are at risk, probably due to the threat of yet another government shutdown, looming close at December 8. The November non-farm payroll report Friday could be the catalyst to send stocks even lower and bond spreads tighter. Extreme caution is advised the remainder of the week, noting that holiday season stock routs are extremely rare events. They usually happen in January.
In conclusion, this time is not different. It's the same as it always has been. Periods of stock euphoria are usually followed by recession. Boom-bust. Nothing lasts forever. To think so is pure tom-foolery.
At the Close, Tuesday, December 5, 2017:
Dow: 24,180.64, -109.41 (-0.45%)
NASDAQ: 6,762.21, -13.15 (-0.19%)
S&P 500: 2,629.57, -9.87 (-0.37%)
NYSE Composite: 12,567.16, -67.73 (-0.54%)
Wednesday, November 15, 2017
Stocks Drubbed on Cool CPI
Stocks opened on the downside for the seventh consecutive session, only this time they did not manage a complete comeback by the close. What triggered the selloff was a tight CPI number, as the widely-watched index of US consumer prices inched up only 0.1% in October, the smallest gain in three months.
At another time in the pantheon of stock market momentum and movement, the soft inflation figure might have spurred a buying spree, as investors could gain confidence that the Fed would not raise rates in December, as is widely anticipated, but that was not the case today. The mood has changed significantly and there's a persistent pessimistic undertone that there soon could be blood in the streets.
Bonds may be calling the next move via the curve (or non-curve as the case may soon be). The spread between 5s and 30s plunged to 73 Basis Points today, the flattest since November of 2007, a key point in time, as it was then that the Great Financial Crisis (GFC) was about to unfold.
The 10-year note remains mired in the 2.30-2.38 range. A break in yield below 2.28 could be a triggering event prior to the December FOMC meeting at which the Fed is poised to raise the federal funds rate for the third time this year.
Credit is being squeezed as are margins in various industries, especially consumer retail. Amazon's foray into the grocery business via its Whole Foods acquisition may be the defining deflationary event of the decade.
As far as the indices are concerned, all eyes are on the Dow Industrials, which, after breaking to an all-time high last Tuesday, have done nothing but drift lower, though the flight path has been gradual... until today.
At the close today, the blue chips have shed 331 points, or about 1.4% since the high reached on November 7.
At the Close, Wednesday, November 15, 2017:
Dow: 23,271.28, -138.19 (-0.59%)
NASDAQ: 6,706.21, -31.66 (-0.47%)
S&P 500: 2,564.62, -14.25 (-0.55%)
NYSE Composite: 12,220.34, -59.77 (-0.49%)
At another time in the pantheon of stock market momentum and movement, the soft inflation figure might have spurred a buying spree, as investors could gain confidence that the Fed would not raise rates in December, as is widely anticipated, but that was not the case today. The mood has changed significantly and there's a persistent pessimistic undertone that there soon could be blood in the streets.
Bonds may be calling the next move via the curve (or non-curve as the case may soon be). The spread between 5s and 30s plunged to 73 Basis Points today, the flattest since November of 2007, a key point in time, as it was then that the Great Financial Crisis (GFC) was about to unfold.
The 10-year note remains mired in the 2.30-2.38 range. A break in yield below 2.28 could be a triggering event prior to the December FOMC meeting at which the Fed is poised to raise the federal funds rate for the third time this year.
Credit is being squeezed as are margins in various industries, especially consumer retail. Amazon's foray into the grocery business via its Whole Foods acquisition may be the defining deflationary event of the decade.
As far as the indices are concerned, all eyes are on the Dow Industrials, which, after breaking to an all-time high last Tuesday, have done nothing but drift lower, though the flight path has been gradual... until today.
At the close today, the blue chips have shed 331 points, or about 1.4% since the high reached on November 7.
At the Close, Wednesday, November 15, 2017:
Dow: 23,271.28, -138.19 (-0.59%)
NASDAQ: 6,706.21, -31.66 (-0.47%)
S&P 500: 2,564.62, -14.25 (-0.55%)
NYSE Composite: 12,220.34, -59.77 (-0.49%)
Saturday, December 17, 2016
Market Week In Review: December 10-16, 2016; Stocks Moribund, Silver Slammed, Oil, Banks Up
Highlighted by Wednesday's (Dec. 14) FOMC rate policy announcement, the week as a whole saw its fair share of ups and downs, mostly confined to intra-day movement, but eventually ending mildly positive, at least for stocks.
The Dow recorded a pair of all-time closing highs on Monday and Tuesday, but failed to reach for the stars after the Fed announced a 0.25% hike in the federal funds rate, the first in exactly one year. The move from 0.25-0.50 to 0.50-0.75 triggered a sharp sell-off in Wednesday afternoon trading, though stocks recovered nicely on Thursday and ended flat on Friday.
If the week was uneventful for stocks, it was not the same for commodities, particularly silver and gold, or for the US dollar, which reached nearly-unprecedented highs over 102.20 on the Bloomberg dollar index. As the dollar gained, the precious metals were slammed, gold losing over $30 top to bottom, but eventually leveling off at $1134.60 at Friday's finish, a loss of just $26 from the rate announcement. Silver took a much harder hit, dropping in price on the COMEX from $17.10 an ounce on Wednesday to end the week about a buck lower, at $16.07, a six percent loss.
Following OPEC's announced production cuts for 2017, crude spiked over $55 per ounce, but retreated during the week, still ahead somewhat at 53.03 as the week's trading closed out. Despite the strong dollar - supposedly a brake on oil prices - oil managed to ramp up to the highest price in three years.
Financials and industrials led the way for US stocks, not surprisingly continuing the Dow rally spurred forward by notables Goldman Sachs, 3M, Boeing, and General Electric. The Dow Industrial Average being the only major index to finish in the green for the week, markets continue to show strength in only the largest of large caps while smaller stocks are only being nibbled upon and, in the main, sold. The fracturing of markets into large leaders and small losers cannot bode well for the continuation of any meaningful rally going forward.
Naturally, with the Fed hiking rates, if only modestly, Treasuries were sold, but mainly on the short-duration issues. The five-year note broke through the mythical 2.00% threshold this week (2.05%), while the 10-year popped briefly above 2.60%, clinging close to that level as markets went dark for the weekend (2.57%). A flattening yield curve was evident as the 30-year bond remained steady, at 3.16%, pushing down the spread between fives and thirties to a unitary 1.11%.
All of this came against a backdrop of national news media hyping futile and largely-baseless claims by the US intelligence community that Russia hacked the 2016 presidential election, somehow making Vladimir Putin responsible for the election of Donald J. Trump (who will be formally elected by the Electoral College on Monday) and the demise of Hillary Clinton, the choice of the much-discredited leftist status quo.
The folly of the intelligence claims was completely ignored by Wall Street, and rightly so. The last thing investors need is a fresh injection of political skullduggery, after slogging through nearly two years of endless campaign rhetoric from all sides.
With a week left before Christmas, retailers have yet to ring bells of any kind, neither of alarm or of joyous peals f profit. The Christmas shopping experience over the past decade has morphed from mad dashes on Black Friday to a controlled button-pushing event on computers nationwide, as the internet has revolutionized the retail buying experience and forever changed the shopping mall landscape and holiday experience.
With two weeks remaining in 2016, it's likely that markets will respond to calmer views going forward though a sharp Santa Claus rally, taking the Dow beyond 20,000, is a distinct possibility over the final ten trading days of the year.
At The Close: Friday, December 16
Dow: 19,848.60, -3.64 (-0.02%)
NASDAQ: 5,437.29, -19.56 (-0.36%)
S&P 500: 2,258.20, -3.83 (-0.17%)
NYSE Composite: 11,122.44, -9.46 (-0.08%)
For the Week:
Dow: +86.65 (0.44%)
NASDAQ: -7.34 (-0.13%)
S&P 500: -1.46 (-0.06%)
NYSE Composite: -66.57 (-0.59%)
The Dow recorded a pair of all-time closing highs on Monday and Tuesday, but failed to reach for the stars after the Fed announced a 0.25% hike in the federal funds rate, the first in exactly one year. The move from 0.25-0.50 to 0.50-0.75 triggered a sharp sell-off in Wednesday afternoon trading, though stocks recovered nicely on Thursday and ended flat on Friday.
If the week was uneventful for stocks, it was not the same for commodities, particularly silver and gold, or for the US dollar, which reached nearly-unprecedented highs over 102.20 on the Bloomberg dollar index. As the dollar gained, the precious metals were slammed, gold losing over $30 top to bottom, but eventually leveling off at $1134.60 at Friday's finish, a loss of just $26 from the rate announcement. Silver took a much harder hit, dropping in price on the COMEX from $17.10 an ounce on Wednesday to end the week about a buck lower, at $16.07, a six percent loss.
Following OPEC's announced production cuts for 2017, crude spiked over $55 per ounce, but retreated during the week, still ahead somewhat at 53.03 as the week's trading closed out. Despite the strong dollar - supposedly a brake on oil prices - oil managed to ramp up to the highest price in three years.
Financials and industrials led the way for US stocks, not surprisingly continuing the Dow rally spurred forward by notables Goldman Sachs, 3M, Boeing, and General Electric. The Dow Industrial Average being the only major index to finish in the green for the week, markets continue to show strength in only the largest of large caps while smaller stocks are only being nibbled upon and, in the main, sold. The fracturing of markets into large leaders and small losers cannot bode well for the continuation of any meaningful rally going forward.
Naturally, with the Fed hiking rates, if only modestly, Treasuries were sold, but mainly on the short-duration issues. The five-year note broke through the mythical 2.00% threshold this week (2.05%), while the 10-year popped briefly above 2.60%, clinging close to that level as markets went dark for the weekend (2.57%). A flattening yield curve was evident as the 30-year bond remained steady, at 3.16%, pushing down the spread between fives and thirties to a unitary 1.11%.
All of this came against a backdrop of national news media hyping futile and largely-baseless claims by the US intelligence community that Russia hacked the 2016 presidential election, somehow making Vladimir Putin responsible for the election of Donald J. Trump (who will be formally elected by the Electoral College on Monday) and the demise of Hillary Clinton, the choice of the much-discredited leftist status quo.
The folly of the intelligence claims was completely ignored by Wall Street, and rightly so. The last thing investors need is a fresh injection of political skullduggery, after slogging through nearly two years of endless campaign rhetoric from all sides.
With a week left before Christmas, retailers have yet to ring bells of any kind, neither of alarm or of joyous peals f profit. The Christmas shopping experience over the past decade has morphed from mad dashes on Black Friday to a controlled button-pushing event on computers nationwide, as the internet has revolutionized the retail buying experience and forever changed the shopping mall landscape and holiday experience.
With two weeks remaining in 2016, it's likely that markets will respond to calmer views going forward though a sharp Santa Claus rally, taking the Dow beyond 20,000, is a distinct possibility over the final ten trading days of the year.
At The Close: Friday, December 16
Dow: 19,848.60, -3.64 (-0.02%)
NASDAQ: 5,437.29, -19.56 (-0.36%)
S&P 500: 2,258.20, -3.83 (-0.17%)
NYSE Composite: 11,122.44, -9.46 (-0.08%)
For the Week:
Dow: +86.65 (0.44%)
NASDAQ: -7.34 (-0.13%)
S&P 500: -1.46 (-0.06%)
NYSE Composite: -66.57 (-0.59%)
Friday, June 10, 2016
As Expected, Dow Falls Back Into Sub-18,000 Range
Editor's Note: Apologies are in order for the tardiness of the extended post, but the publisher has been trying to cope with an unfair labor situation and other troublesome issues. Those are now past. This blog shall forge ahead.
The week ended on a down note, as stocks fell across the board on the US indices.
While the Dow was the only one of the three major averages to close out the week with a gain, it still did not manage a close above the now-legendary 18,000 mark. Likewise, the S&P closed below 2100 and the NASDAQ slid further into sub-5000 numbers.
More institutional voices added to the chorus of caution as the week wore on, including Bill Gross, George Soros and Stan Drunkenmiller. Global condition stubbornly refuse to improve, despite vain attempts at stimulation by central banks, governments and the financial media.
US bond yields fell across the spectrum, with the curve flattening. The 10-year is at levels not seen in months, while globally, sub-zero percent returns have expanded to over $10 trillion in the aggregate.
Clearly, what the markets need is a cleansing of excessive and misplaced debt, something the authorities have managed to avoid for the past seven years and counting. The latest bailout comes via the US House of Representatives, putting US taxpayers on the hook for a significant portion of Puerto Rico's unpayable obligations.
The House overwhelmingly passed a package that would establish a financial control board made up of more bureaucrats, those indirectly responsible for the various aspects of the global malaise. The measure is nothing more than further can-kicking, pushing the debt and problems further out rather than addressing the underlying problems.
None of what governments do, in terms of rescue packages or stimulus measures, has made or will make any difference whatsoever. They simply borrow more, adding to the national debt, which, closing in on $20 trillion in the US, will never be repaid.
The sooner the farce of ZIRP, NIRP, QE, debt spending, and global free trade are foreclosed upon, the sooner the global economies can begin functioning as centers of capitalism.
Hoping for change will not bring change. Usually, change requires more radical measures. Globally, politicians all appear to be built from the same model, caring only to keep their positions of power and persuasion. That has to change, though real change begins at the micro-level, not the macro.
For now, heading into Northern Hemispheric summer, the course has not changes, despite storm clouds on the horizon.
The coming week offers four central bank meetings and pronouncements, in Switzerland, the UK, Japan and the US, where the FOMC is expected to keep rates unchanged on Wednesday, June 15.
For the Week:
Dow: +58.28 (+0.33%)
S&P 500: -3.08 (-0.15%)
NASDAQ: -47.97 (-0.97%)
Seriously? Again? Friday's Figures:
S&P 500: 2,096.07, -19.41 (0.92%)
Dow: 17,865.34, -119.85 (0.67%)
NASDAQ: 4,894.55, -64.07 (1.29%)
Crude Oil 48.88 -3.32% Gold 1,276.30 +0.28% EUR/USD 1.1253 +0.01% 10-Yr Bond 1.64 -2.44% Corn 422.25 -1.00% Copper 2.03 -0.61% Silver 17.33 +0.36% Natural Gas 2.92 -1.65% Russell 2000 1,163.93 -1.46% VIX 17.03 +16.33% BATS 1000 20,677.17 0.00% GBP/USD 1.4255 -0.04% USD/JPY 106.9400 0.00%
The week ended on a down note, as stocks fell across the board on the US indices.
While the Dow was the only one of the three major averages to close out the week with a gain, it still did not manage a close above the now-legendary 18,000 mark. Likewise, the S&P closed below 2100 and the NASDAQ slid further into sub-5000 numbers.
More institutional voices added to the chorus of caution as the week wore on, including Bill Gross, George Soros and Stan Drunkenmiller. Global condition stubbornly refuse to improve, despite vain attempts at stimulation by central banks, governments and the financial media.
US bond yields fell across the spectrum, with the curve flattening. The 10-year is at levels not seen in months, while globally, sub-zero percent returns have expanded to over $10 trillion in the aggregate.
Clearly, what the markets need is a cleansing of excessive and misplaced debt, something the authorities have managed to avoid for the past seven years and counting. The latest bailout comes via the US House of Representatives, putting US taxpayers on the hook for a significant portion of Puerto Rico's unpayable obligations.
The House overwhelmingly passed a package that would establish a financial control board made up of more bureaucrats, those indirectly responsible for the various aspects of the global malaise. The measure is nothing more than further can-kicking, pushing the debt and problems further out rather than addressing the underlying problems.
None of what governments do, in terms of rescue packages or stimulus measures, has made or will make any difference whatsoever. They simply borrow more, adding to the national debt, which, closing in on $20 trillion in the US, will never be repaid.
The sooner the farce of ZIRP, NIRP, QE, debt spending, and global free trade are foreclosed upon, the sooner the global economies can begin functioning as centers of capitalism.
Hoping for change will not bring change. Usually, change requires more radical measures. Globally, politicians all appear to be built from the same model, caring only to keep their positions of power and persuasion. That has to change, though real change begins at the micro-level, not the macro.
For now, heading into Northern Hemispheric summer, the course has not changes, despite storm clouds on the horizon.
The coming week offers four central bank meetings and pronouncements, in Switzerland, the UK, Japan and the US, where the FOMC is expected to keep rates unchanged on Wednesday, June 15.
For the Week:
Dow: +58.28 (+0.33%)
S&P 500: -3.08 (-0.15%)
NASDAQ: -47.97 (-0.97%)
Seriously? Again? Friday's Figures:
S&P 500: 2,096.07, -19.41 (0.92%)
Dow: 17,865.34, -119.85 (0.67%)
NASDAQ: 4,894.55, -64.07 (1.29%)
Crude Oil 48.88 -3.32% Gold 1,276.30 +0.28% EUR/USD 1.1253 +0.01% 10-Yr Bond 1.64 -2.44% Corn 422.25 -1.00% Copper 2.03 -0.61% Silver 17.33 +0.36% Natural Gas 2.92 -1.65% Russell 2000 1,163.93 -1.46% VIX 17.03 +16.33% BATS 1000 20,677.17 0.00% GBP/USD 1.4255 -0.04% USD/JPY 106.9400 0.00%
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