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

To say the least, this was one wild week.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In advance: Happy New Year!

Dow Jones Industrial Average December Scorecard:

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

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

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

The Market Giveth, The Market Taketh Away, And Giveth Again

Stocks went on a wild ride Thursday, a phenomenon confounding to novice investors but completely understood by market observers who have been in the game for a few decades or more.

There's little doubt that the Dow's plunge of 600 points and last-hour rally were the work of the Plunge Protection Team, or PPT, or as they are formally known, the President's Working Group on Financial Markets.

Here are a few links for reference:

Mnuchin Calls Plunge Protection Team; Stocks Soar One Day Later

President's Working Group on Financial Markets

Happy Holidays!

You've been played.

Dow Jones Industrial Average December Scorecard:

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

At the Close, Thursday, December 27, 2018:
Dow Jones Industrial Average: 23,138.82, +260.37 (+1.14%)
NASDAQ: 6,579.49, +25.14 (+0.38%)
S&P 500: 2,488.83, +21.13 (+0.86%)
NYSE Composite: 11,285.31, +81.22 (+0.72%)

Santa Claus Delivers A Relief Rally For The Ages; Largest Point Gain On Dow In Market History

The extended holiday season - thanks to an additional week for shopping between Thanksgiving and Christmas - was exceptionally kind to retailers, who reported the best holiday season in six years, so Wall Street finally got the news that the economy was apparently not on the verge of imminent collapse, sending stocks soaring throughout the session.

How much of the gains were attributable to short-covering buyers and strict momentum chasers is unknowable, though it was likely a large percentage. Risk appetites have been under assault for months, so this one-day wonder might not be as impressive as bullish traders would have one believe. It was more a technical advance after waves of selling created a severely short-term oversold condition.

To put it in perspective, the nearly five percent gain on the Dow, in point value, was equal to only about one-fifth of the most recent decline. The Dow had lost more than 5000 points since October, so Wednesday's buying spree pales in comparison and sets up the market for further speculation as far as directional trades are concerned.

If this nascent rally is to continue - which is also likely - there has to be some catalyst to carry it forward, though it might simply run until it is exhausted. Since the gains put only a minor dent in the recent losses, momentum should carry it forward, possibly another 1500-1800 points on the Dow.

While that might seem like a huge number, it wouldn't even wipe out the losses already sustained in December (as on Monday, that was -3746.36), so investors may get something of a stock sugar rush to close out the year and maybe some fun in the first days of the new year.

This pump was long overdue, and there's also the possibility that the call Treasury Secretary Mnuchin made to the Plunge Protection Team on Sunday had some impact.

Santa has come and gone, leaving plenty of presents behind.

Ho, ho, ho.

Dow Jones Industrial Average December Scorecard:

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

At the Close, Wednesday, December 26, 2018:
Dow Jones Industrial Average: 22,878.45, +1,086.25 (+4.98%)
NASDAQ: 6,554.35, +361.44 (+5.84%)
S&P 500: 2,467.70, +116.60 (+4.96%)
NYSE Composite: 11,204.09, +434.26 (+4.03%)

Reversion To The Mean... Can It Happen? Mnuchin Panics Markets With Calls To Banks, PPT

Stocks and math really should be on everybody's radar, if not today, then certainly every other day the markets are open. It's a major cause of angst and stupidity that people don't apply mathematic principles to investments. Math runs everything, it's immutable, and unmoved by emotion, which is what often moves stocks and other investments into absurd areas.

Speaking of absurd, how out of line were the valuations of stocks just a few months ago?

The answer is, historically speaking, VERY. Stocks were valued as if nothing negative would ever happen ever again in the world. US unemployment would forever be under four percent. GDP would always be above three percent. Politicians would never, ever lie again. Democrats and Republicans would make peace and compromise in support of the American people, and ordinary citizens in France would just accept the uber-liberal policies that are taxing them out of existence and stop their silly protesting.

Yeah, sure. Throw in some unicorns that barf up rainbows and poop gold and you'd be close to the kind of valuations the stock market was assigning to banks (bailed out in 2008), tech companies (many which have never experienced a severe recession) and plenty of other stocks. The distorted valuations of the past ten years exist because of easy money policies and corrupt corporate executives who used stock buybacks to reduce the number of shares outstanding, thus boosting the value of their stocks via higher earnings per share.

Let's put the past behind us, where it belongs. The Fed is trying, despite serious criticism from the president (he's wrong about the Fed being the real problem... the Fed can be a solution, and should be, since they created the problem originally) to right the global financial ship. The Fed and other central banks extended too much credit prior to the sub-prime debacle, and did it again in its aftermath, bailing out the banks who loaned money to people who could not make the payments.

Now, the Fed is drawing back on the easy money. Nobody likes it, but it must be done. Interest rates of two to three percent are an anomaly, unlike any time in history. The 10-year treasury note should ideally be in a range of 4-6 percent, which would make borrowers think twice about borrowing, and lenders would scrutinize their potential loans with much more dedication and diligence than to standards with which they've become comfortable.

Bad debts, many of them left over from the GFC, need to clear.

Policies are changing, and, with that, valuations will adjust, so here comes the math part of today's monologue.

Using the CAPE ratio for the S&P, stocks closed out today - another disaster, by the way - at 26.02. The mean CAPE ratio for the S&P is 15.69. If reversion to the mean occurs, at some point in the near future (3-12 months), the S&P will decline from it's current value of 2,357.54, to 1,552.20, because it is 65.84% above the mean. That would wipe out the gains of the past six years, sending the S&P back to where it peaked in 2007.

That actually would be a good outcome, since the 2007 levels were later found out to be a bubble, and they went south from there. So, it's very likely that the S&P will overshoot the mean, sending the index down to maybe 1400 or even 1300. Some people with good memories will recall that the S&P bottomed out BELOW 800 at the depths of the Great Financial Crisis of 2008-09, so 1300 or 1400 would be a pretty good outcome.

The same can be applied to the Dow, NASDAQ, NYSE Composite, Dow Transports, the Russell, or whatever US index one chooses. Take the current level, multiply by 65, divide by 100, and you'll have a good estimate of the mean valuation, and maybe even the actual bottom, but, chances are good that the bottom will be quite a bit lower than the mean, that is, if fundamentals matter once again, and we are done with the Fed backstopping every decline via asset purchases, the PPT, QE, ZIRP, NIRP, bailouts, fancy derivatives and generally speaking, voodoo economics (a favorite term of George HW Bush, BTW, in reference to Reaganomics or trickle-down theory).

Just because Money Daily likes to focus on the Dow, the mean is probably somewhere around 14,164.93. You may notice that is a further decline of more than 7000 points, but that should not be out of the equation since the Dow has already lost more than 5000 points just since October 3 (26,828.39, the all-time high) and it's down more than 3700 points just this month.

As has been the theme here for some time now, this is only the beginning of a long decline in stocks.

Treasury Secretary Steven Mnuchin made calls to six major banks and the Plunge Protection Team, and announced that he did so to the press and the general public. Talk about transparency! These kinds of inside baseball moves were, in former times, kept very, very quiet. Mnuchin's up-front attitude about this was meant to panic markets, not calm them. In that regard, he did the bidding of the Fed and his Wall Street friends. Remember, Mnuchin is a Goldman Sachs alum. Surely, his buddies at GS and JP Morgan Chase, Bank of America, Morgan Stanley, Citi, and Wells Fargo aren't losing money nor sleep over these most recent declines in the stock market. Their clients may be losing massive amounts, but, hey, they're just the little people, muppets, right?

Unless you've got a million or more for these guys to manage, you're not worth their precious time.

Merry Christmas. Ho, Ho, Ho.

Dow Jones Industrial Average December Scorecard:

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

At the Close, Monday, December 24, 2018:
Dow Jones Industrial Average: 21,792.20, -653.17 (-2.91%)
NASDAQ: 6,192.92, -140.08 (-2.21%)
S&P 500: 2,351.10, -65.52 (-2.71%)
NYSE Composite: 10,769.83, -267.01 (-2.42%)

WEEKEND WRAP: Stocks Wrecked, Bull Market Finished; Bears' Claws Are Out

If the week prior to last was characterized as one in which "the wheels fell off" (Money Daily, 12/16/18), the most recent week was nothing short of a full-blown train wreck.

Everything was on sale, but especially stocks, as the Fed raised rates, the US federal government ground to a halt over a $5 billion border wall, and investors were spooked by collapsing long-term interest rates and the specter of a recession in coming months.

More than anything else, however, stocks were on sale mostly because they were being perceived as overpriced, and by most accounts they were and still are. According to Robert Shiller's CAPE index, the week ended with the Shiller PE ratio for the S&P 500 at 26.75, down from the peak of 30 two weeks ago, but still well above the mean (16.59) and the median (15.69) levels.

Shiller PE ratio is based on average inflation-adjusted earnings from the previous 10 years, known as the Cyclically Adjusted PE Ratio (CAPE Ratio), Shiller PE Ratio, or PE 10

This is how bubbles are pricked, and, as Doug Noland candidly attests, "There is never a good time to pierce a Bubble." More from Noland:

"Expiration for the aged “Fed put” was long past due. For too long it has been integral to precarious Bubble Dynamics. It has promoted speculation and speculative leverage. It is indispensable to a derivatives complex that too often distorts, exacerbates and redirects risk. The “Fed put” has been integral to momentous market misperceptions, distortions and structural maladjustment. It has been fundamental to the precarious “moneyness of risk assets,” the momentous misconception key to Trillions flowing freely into ETFs and other passive “investment” products and strategies. It was central to a prolonged financial Bubble that over time imparted major structural impairment upon the U.S. Bubble Economy."

Noland's entire Credit Bubble Bulletin commentary can be seen here.

If Noland's perception is accurate (and there's little reason to doubt it), this week's cascading declines are merely the end of the first act in what is likely a three-act drama to be played out over the next 12-18 months. Surely, the tremors from February and March were early warnings that the persistent bull market was coming to a conclusion.

October's declines were blamed by some analysts - incorrectly - on the lack of stock buybacks during the "quiet period," and were nothing about which to be worried. Obviously, that analysis was short-sigthed and based upon the bubble hypocrisy that has guided markets since the Great Financial Crisis of 2008-09.

December's nosedive was pretty predictable. Stocks hadn't shown any inclination toward the upside for months and there wasn't a good catalyst for investors, nothing even remotely resemblant of a buying opportunity. Of course, some too the "buy the dip" bait a few times this year and have been destroyed. That concept is a dead doornail for the time being. Selling into any strength is likely to be the prevailing rear-guard action.

Once 2018 comes to an end - in just five more trading days - there will be some regrouping, repositioning, but until there's resolution of some basic issues (the Wall, Brexit, China, tariffs), there isn't going to be any kind of rally. Gains will be hard-fought, and sellers will be eager on short-term wins. The second phase of the selloff will last well past January, into the summer and possibly the fall before the endgame commences, with sellers capitulating en masse. By this time next year it may be nearing a bottom some 40-60 percent below the all-time highs. Investor confidence will have been at first shaken, then eroded, and finally, shattered. Wall Street will have a crisis of its own making, and the economy will be embarking into recession.

Markets have come full circle. Central banks have decided that the experiments of QE, ZIRP, and NIRP which propelled stocks to dizzying heights, are over, their purpose achieved, and now comes the hard work of withdrawing some level of liquidity from markets in an attempt to normalize markets.

The problems lie in execution. It's not going to be easy to take corporations off the baby bottle of leveraged stock buybacks which blew up expectations and prices but caused serious long-term harm to capital structures. This current crisis may turn out to be worse than the sub-price fiasco or the dotcom malaise simply because it involves so many companies that have gutted their balance sheets and will have no other recourse than to slash production, wages, jobs, capital expenditures or all of the above.

This week was a full stop.

There aren't going to be any more bailouts, white knights, back-room deals or "Fed Put." The coming regime is going to be one of hard and cold capitalism, where the strong get stronger and the weak are slaughtered. Wall Street brokerages are sure to be among the most celebrated casualties when everybody realizes these heroes of the past ten years aren't all that bright and that there aren't that many good stock pickers in down markets. The financial industry, already under siege, is about to be breached and downsized to more human and humane proportions.

There's only so much one can say about stock routs. The numbers are there for perusal and they are horrifying enough all by themselves. Hashing over the events of the week, as stocks slid, then rallied and slid more, and finally crashed on a Friday afternoon would be little more than overkill.

It was a very, very bad week, the worst since 2008, and some say, since the Great Depression. It may not have been the worst we will witness however, as this is only the beginning of the bear market.

Dow Jones Industrial Average December Scorecard:

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

At the Close, Friday, December 21, 2018:
Dow Jones Industrial Average: 22,445.37, -414.23 (-1.81%)
NASDAQ: 6,332.99, -195.42 (-2.99%)
S&P 500: 2,416.62, -50.80 (-2.06%)
NYSE Composite: 11,036.84, -185.96 (-1.66%)

For the Week:
Dow: -1655.14 (-6.87%)
NASDAQ: -577.67 (-8.36%)
S&P 500: -183.33 (-7.05%)
NYSE Composite: -718.54 (-6.11%)

Everything was not gloom and doom, however. Here's Darlene Love, in one of her many appearances on the Late Show with David Letterman, performing "Chirstmas (Baby Please Come Home)." This is one of her best.