Did You Fall For the Fakery? Fed Eases, Stocks Slide, Dollar Gains; Silver Overbought

Today, July 31, 2019, the FOMC of the Federal Reserve System cut the federal funds rate by 25 basis points, as expected.

What was unexpected was the response from the market, which stumbled badly on the news. It was a classic case of "buy the rumor, sell the news," herd mentality. The Fed did not have to cut rates, obviously, just as they were wrong to raise them every quarter by 25 basis points since December, 2015.

The Fed is still out in uncharted territory, unable to raise rates because the economy is just chugging along at less than three percent growth, which is fine, in reality. The trouble is that investors want more. They are chasing yield, but what they're really doing is pushing on a string, exacerbating an already overbought market at or near record highs.

Here's the truth of the matter:

The system broke in 2008 and it was not fixed, just patched up with lots of liquidity thanks to Uncle Sugars at the Fed, BoJ, PBOC, ECB, SNB.

Fiat is an arbitrary order. In other words, this is "money." It's not. Yen, euros, dollars are currency. The intrinsic value of all fiat is zero.

This fakery will continue until there's nothing left except mega-corporations, governments, central banks, and slaves (almost everybody).

Noting that we're phasing through a zombie economy, much like that of Japan, with an aging demographic, systemic debt problems, and myopic, corrupt governments worldwide, there is little the Fed or any central bank can do but to continue the fakery until the public is completely bereft of all assets. Then they will declare the global economy dead, start a new order, promise prosperity for everyone, and deliver a global depression.

There's no way around it. All developed nations are bankrupt. The central banks create money (actually, currency) out of thin air, sell it as debt to governments, at interest, collect their skim and enrich themselves. The central banks work for themselves, not the governments they shadily represent, nor the citizens who make use of the currency.

They have no way out. Government debts (the US is already $22 trillion behind) will never be repaid, so the central banks can only perpetuate the fraud until they can't.

As far as precious metals are concerned, they will continued to be whipped like a rented mule. The recent run-up was only a diversion, a ruse, designed to get more people to buy the stuff. Now, gold and silver will be sold off and the bankers will eventually accumulate at lower prices.

That is why I haven't changed my position or bought into the silver rally from $14.50 to $16.50 per ounce. The bulk of the move came about when the dollar was weakening. Now it is strengthening again, meaning you will buy less gold with the same amount of dollars. The math is simple.

All told, stocks are overbought. the metals are currently overbought, but not for long. Bonds have much more rally in them than may be evident superficially. The bond rally has been ongoing for 35 years and it's not going to stop here. The eventual end-point is negative rates, or NIRP (Negative Interest Rate Policy), as is the current regime in the rest of the world. More than $13 trillion in bonds are priced at negative yields, which tells much about the future prospects for developed nations (and semi-developed China and India).

I continue to be targeting silver for $12.35 by 2021 or sooner. If it goes above $20, that would be a shock and a sign that the global financial system is melting away faster than anyone thought, but it's not likely to happen.

The global economy is a train wreck in super-slow motion. It is unlikely to implode before 2021, so there is still time to prepare for TEOTWAWKI.

That is all for now. Good luck.

At The Close, Wednesday, July 31, 2019:
Dow Jones Industrial Average: 26,864.27, -333.75 (-1.23%)
NASDAQ: 8,175.42, -98.19 (-1.19%)
S&P 500: 2,980.38, -32.80 (-1.09%)
NYSE COMPOSITE: 13,066.60, -120.61 (-0.91%)

Blood on the Tracks: Transportation Average in Correction

It's been a rough month for transportation stocks and Monday's tumble sent the Dow Jones Transportation Average back into correction territory, a condition unnoticed by financial pundits who are supposed to be on top of such events.

Maybe it's because the transports - and the rest of the stock universe - has had a happy 2019 thus far, but the previous high referenced by the ^DJT dates back to September 14.

The S&P and NASDAQ set new all-time highs earlier this month, but the Industrials, like the Trannys, harken back to 2018. October 3 to be precise.

While the other indices took sizable hits on Monday, they are each down around five to six percent, but the transports have been taking it on the chin of late, their pronounced decline due, no doubt, to ongoing trade tensions with China. Since trade and transportation are so heavily intertwined, it doesn't take a mastermind to figure why the transports have been treated so harshly.

With the trade scenario likely to continue devolving, expect no relief in the transport sector. The next key points for the average is around 9900 (the October lows) and 8637 (late December). Should the transports continue their descent from here, expect the other indices to follow suit, which means the peals of panic will be loud and sustained.

This entire exercise in trade trolling will eventually work itself out and the Chinese are likely to end up on the losing side. As President Trump never fails to highlight, they've been winning for decades, and it's time to turn the tables, at least a little bit. It's not like the Chinese empire will return to the 18th century, though, because they've got trade tentacles everywhere. The US is seeking better terms, and they're almost certain to get them because China will be pragmatic. They will not risk losing power control over trade with just one country, even though that country is their biggest customer.

China will politely bow, the president will rightly claim a victory, stocks will be lower, but they will spring back, like they always do. President Trump's trade policies are disruptive, but, they will benefit US business interests in the long term. They're nothing to be panicked about and certainly aren't going to threaten the US economy in any grand fashion.

In the meantime, however, the transports and industrials are probably going to take a significant hit. Figure another 15-20% on the trannys and 10-15% downside for the indys.

Dow Jones Industrial Average: 25,324.99, -617.38 (-2.38%)
NASDAQ: 7,647.02, -269.92 (-3.41%)
S&P 500: 2,811.87, -69.53 (-2.41%)
NYSE Composite: 12,526.71, -261.43 -2.04%
Dow Jones Transportation Average: 10,305.85, -296.34 (-2.80%)

Dow Theory: Primary Bear Market with Reactionary Bull in Effect

Dow Theory has been around for more than 100 years and even in today's lightning-fast markets, Fed interventions, multiple tasing platforms and indices, it still serves investors well in determining primary and secondary trends over medium and longer-term horizons.

Even as the NASDAQ and S&P 500 made new highs on Tuesday, April 23 - and scampered back from them on Wednesday, the 24th - the Dow Jones Industrial Average remains technically in a bear market which began in October of 2018 and was confirmed by the Dow Jones Transports later in the month when the Trannys slipped below 10,000, bounced back from there but were clobbered all of December (as were the Industrials), putting in a low right around Christmas.

Since then, stocks have been on a tear, but the Transports and Industrials have stubbornly resisted making new all-time highs dating back to September of 2018 for the Trannys and the first week of October for the Industrials.

As the momentum of the new year and the "Trump economy," with an able assist from the Federal Reserve - which stopped its insistence on hiking the federal funds rate 25 basis points every quarter and also suspended its balance sheet roll-off - both indices are within hailing distance of all-time highs once again. They are tantalizingly close to extending what many consider to be the longest bull market in US history, despite Dow Theory standing in the way, saying, "no, the primary trend has changed."

The issue for investors and chart-watchers is whether the Bear that emerged late last year will persist in the face of solid economic data and healthy performances by individual stocks or fall victim to excessive speculation and high valuations. The Shiller CAPE ratio remains elevated, above levels seen in 1929 and 2008, though below the spasmodic bubble highs of 2000.

Neither proposition - new all-time highs or another retreat - offers particular pleasure. New highs would confirm that the bubble economics put in place following the 08-09 financial crisis are still in play, and there's ample evidence to support that view. A systemic breakdown - first a correction (10%), followed by a massive sell-off similar to what was witnessed in December of last year - would please nobody other than the most ardent short-sellers (and maybe the Democrat party, Trump haters and the mainstream media).

Of course, the Industrial and Transportation indices are exceedingly narrow, though they are far from being outdated. The 30 stocks on the Industrial Average and the 20 on the Transportation Index still manage to provide a compelling snapshot of the US big business economy. Understanding their primary and secondary trends goes a long way towards gauging the overall health of the US economy.

This is a time to pay them extra attention, as the next major move should provide timely insight to the years ahead. Friday's first estimate of first quarter GDP may spur a move in one direction or another as estimates have ranged as low as +0.9 to +2.8.

Anything over +2.2 is likely to be viewed positively in the current risk-happy environment. a reading under +1.6 would fan the flames of the bear campfire. The estimate is due out on Friday, April 26, at 8:30 am ET.

Silver Is Testing $14/ounce Again; How Low Can It Go?

Blue line=30 day MA; Green Line=200-day MA

Since my late January burnout, I've been sick, quit a part-time job, plotted a move from New York to Tennessee (more on that later, scheduled for October), and decided to resume writing "Money Daily," employing first person singular style with less of a focus on stocks.

It's something of a relief to be able to write as I speak, discarding the strictures, stultification and distance of the third person.

That means I can mean what I say, say what I mean, directly, closing the space between me, and you, the reader (2nd person).

Enough semantics and style, for now. Let's get right to the subject matter.

Silver has long been a favorite investment of mine, though over the past number of years - since the heady days of 2010-11, when the price rose close to $50/ounce - it has been rather disappointing. My holdings did, however, manage to provide some relief against rising interest rates on credit cards in 2017 and 2018, as I was able to liquidate to cash and pay off the loan sharks otherwise known as banks and credit issuers.

Since my basis was right around $17/ounce and buyers paid a hefty (15-30%) premium on my offerings, I was actually able to cash out at a profit and still maintain something of a stash for future purposes.

As an aside, that's what investments are about.  Generally, people don't hold assets for the sake of holding them, except, of course for precious metals, gems, art, and some real estate. Eventually, they want to convert to cash to spend on something else. In my case, cutting up a couple of credit cards which were obliging me with ungodly - and rising - interest rates was the purpose of some of my silver. The rest, I continue to hold as a store of value, even though that's still a questionable proposition.

As anyone who plays in the gold and silver markets already knows all too well, the metals have been squashed in recent years by central banks because the metals pose competition to fiat currencies. That's all right if one manages to ignore the Sprotts and Caseys of the world who insist with regularity that gold and silver are on the verge of a breakout. Nothing could be further from the truth.

Gold and silver have been in a slow, long, excruciating bear market since mid-2011. They have been and continue to be relentlessly beaten down in the speculative futures markets and they will continue to be for the foreseeable future.

The question, for gold bugs and silver surfers, is "where is the bottom?" The chart at the top suggests that we may be getting close, especially if silver takes another dive into the $14s.

Blue line=30 day MA; Green Line=200-day MA

The most recent bottom came in 2015, when silver struck out at $13.71 on December 14. In 2018, it approached that figure, but never quite made it, bottoming at $13.97 on the 14th of November. This year, the low was $15.025, on April 2.

With no bounce in the charts other than the usual 1-3% noise, silver is headed back in the
14s soon, likely within the next week. Stocks and first quarter earnings will be all the rage for the next three weeks, so there's no interest in shiny metals, presenting a tempting opportunity.

It might be prudent to avoid that temptation, because the commodity will have every opportunity to set a three-year low. Like any asset, the time to buy is when everybody else has given up. Silver may never again get to $48/ounce, but it's also likely that it will never again sell for $6 or $7, which was the norm in the 1990s, prior to the great awakening.

I do believe $12 or even $11 per ounce or lower is possible, and, if you're doing your investing right - buying small amounts on a set schedule - you may be able to dollar-cost average your way to a very low basis for your holdings. Of course, anybody who got in at $16 or $17 last year may still be buying right now, and nobody can blame them for lowering their basis.

What it will take to get silver to some more reasonable valuation - say $20-22 - is anybody's guess and a fool's game. Silver is a hedge and it's certainly better than paying 18% interest on credit cards or blowing your money on dinners out, vacations or other life-changing "experiences."

Having a vault full of 1, 10, and 100-ounce bars is likely to be a more life-changing, exceptional, and satisfying experience.

Per Aspera Ad Astra,

Fearless Rick

Coincidentally, this article on silver - by a (ahem) respected investment writer - popped up right as I was publishing mine. Of course, his conclusive approach is completely incorrect.

Burnout

Over the course of the Martin Luther King Jr. holiday weekend, I burned out.

I no longer had any interest in penning my "Weekend Wrap," as it has come to be known. The stock market was no longer of any interest to me. I didn't write my usual column, and, I didn't write my daily market commentary on Tuesday either.

It's not as if this was a sudden, knee-jerk reaction to anything. This has been brewing inside me for a long time. Obviously, I don't even care anymore to write in the third person, as has been the usual mode of this blog. It's just not important, just as money and markets aren't important, to me, at least.

Maybe money is important to you. Maybe the ups and downs of Wall Street matter to you, to your feelings of well being, to your existence. Money and markets are not existential prerogatives to me. Never have been. And now, they really don't matter at all.

I took an interest in stocks, bonds, money, and business when I was very young. At the age of six, I was intrigued by the small type in the newspaper displaying the gains and losses of big companies. To me, at such a tender age, the world of business and finance was a fantastic place populated by titans of industry, upstanding men of character and wisdom who employed their thinking and inventiveness to build fabulous engines of wealth. Such a fascination with money and business served me well along my path through adolescence and into adulthood. I conceived any number of business ideas, launched most, failed at many, until finally, by age 30, I found success in the newspaper business.

Perhaps the rude awakening to how business actually operated was where my burnout began and it just took a long time for me to realize it. I don't like the way business is conducted anymore. When I was in business - in the 80s, before the internet - an office, a phone, and a car were just about all one needed to get oneself on the path to riches. Almost all of the deals and ad sales I did were in person. A few were done by phone, but a follow-up personal visit was always required. I did business with people, in person. Try that today and you'll be laughed out of most places. It's an email, a text, a slick website and an electronic funds transfer. Done.

Wall Street, for all it's glamor and glory, is different now as well. A quarter point or half point gain - which used to be a big deal - is now 0.25 or 0.50, and it's nothing. Hedge funds, fake news, the Federal Reserve, and a host of unseen forces - algorithms, HFTs, ETFs, the PPT - have destroyed whatever was left of free markets and the "old Wall Street after the ravages of 9/11/2001. There's no Louis Rukeyser's "Wall Street Week" on Friday nights. Today it's CNBC, wall-to-wall, all the time, blaring the trumpets for the honorable necessity of owning stocks all day long, all night long.

It's boring, and most of the time, it's meaningless, or downright wrong. Stocks all move in tandem today. There's no science; only emotion, and mine is spent.

My personal short literary demise - which this is - may have more to do with anxiety over the fate of our nation than my dislike for the current rigors of finance. Everything is in chaos and there doesn't seem to be any end to it. Nor is there any sense to it, anymore. Tucker Carlson's tirade from a few weeks back encapsulates much of what I'm feeling, but, for me, there's more.

There has to be more than stocks. When I figure out what that is, I'll be back.