WEEKEND WRAP: Worst Week Of Year For Stocks

Stocks were pretty well hammered this week, as shown in the figures below.

What did them in was not that the FOMC eased for the first time since 2008, but that it was only 25 basis points. Everybody, including President Trump, was looking for a 50 basis point cut, and they didn't get it, so market participants, already concerned at the ongoing tariff war with China, sold the news (after buying the rumor).

The drop was hardly anything to get excited over as all markets were down less than four percent. The coming week may outdo this last one however, as China has upped the ante Monday by devaluing the yuan (further proof that the Chinese are currency manipulators, along with everything else we don't like about them) and halting US agricultural imports.

These developments are very bad for a jittery market and this one has a case of the DTs. Watch for either a cascading, waterfall type event or some intervention by our friends at the NY Fed, those hale and hearty fellows that saved the Dow with a 200-point boost in the final half hour of trading on Friday. They're likely to be quite busy buying stocks again this week.

Keep a close eye on the divergence between big caps and small-to-mid caps. The smaller stocks are in danger of entering correction or even bear markets for some. They're not supported by the funds nor the fed, so they may be the first dominoes to fall in a crisis, which is entirely possible at this juncture.

Since the federal government has already put in place a moratorium on the debt ceiling, don't expect a September swoon, as we've seen so often when the government can't agree on a budget. With the agreement signed last week, the Trump administration and the congress has committed to spending well beyond whatever is allocated or budgeted. A trillion dollar deficit has now become the norm, though tariff income may begin to whittle away at that (there is some silver lining to the tariffs).

Generally, markets are looking quite unstable and another 3-4% decline could be in the cards. There are few catalysts for upside development. Gold and silver are not going anywhere, despite the howls coming from the Goldbugs and Silver Surfers. The rally has topped out. There may be a little movement to the upside, but it won't be allowed to develop into anything outstanding. When gold goes past $1500 and silver sells for more than $18 an ounce, that may be the time to change one's outlook.

WTI crude is going to end up in the $40s per barrel price by October, if not sooner. There's a massive glut and the economy is by no means overheating. Besides, nobody in the oil business wants to correctly identify the impact of solar, wind, increased efficiency in auto engines, or conservation by US drivers (who are getting older by the day and thus drive less and less).

The world is not going to come to an end this week, but we may be treated to a preview of what it will look like. 2023 is the outlier.

BTW: The 10-year treasury note is likely to sink below 1.50% THIS YEAR. Good for bond sellers and debtors. There is no inflation than cannot be sidestepped with alternatives or smart shopping.

At the Close, Friday, August 2, 2019:
Dow Jones Industrial Average: 26,485.01, -98.41 (-0.37%)
NASDAQ: 8,004.07, -107.05 (-1.32%)
S&P 500: 2,932.05, -21.51 (-0.73%)
NYSE COMPOSITE: 12,839.51, -81.31 (-0.63%)

For the Week:
Dow: -707.44 (-2.60%)
Dow Transports: -402.24 (-3.73%)
NASDAQ: -326.14 (-3.92%)
S&P 500: -93.81 (-3.10%)
NYSE COMPOSITE: -396.00 (-2.99%)

Stocks Slammed As Trump Targets Tariffs At China; Gold Bid; Payrolls, Unemployment Steady

Stocks swooned for the second straight session after President Trump announced that he would be adding a 10% tariff on $300 billion of Chinese imports beginning September 1.

The president noted that China had backed down on previous commitments to purchase farm produce from US farmers and to stem the flow of fentanyl into the United States.

Markets reacted with the usual disfavor, erasing earlier gains and slumping deep into negative territory. Apparently, nothing can help the market disengage from negativity. Wednesday's 1/4-point easing of the federal funds rate caused a mini-crash and Thursday's small tariff hike sent dealers to the sell buttons.

On the same news, gold caught a tailwind, rising from a low of $1400 to nearly $1448 in just over seven hours. Silver also gained, but not nearly in the manner of gold. Silver was around $16.30 an ounce as US trading closed and has been trending lower early Friday morning.

WTI crude oil took a nosedive on Thursday, recording its worst one-day performance in four years, with futures dipping below $54 per barrel in late Thursday trading.

As US markets prepare for the final session of the week, Asian and European indices headed lower, with most of the major bourses down more than two percent. After European PMIs all showed contraction - and with the outlook for a "no deal" Brexit a real possibility by the end of October - traders on the continent are voting with their feet, leaving behind a wake of battered stock prices. Europe is most definitely headed for a recession soon, though a US recession is still not an apparent reality.

While the rest of the world struggles to maintain their economies, under the leadership of Donald Trump, the US appears to have a real advantage, the dollar strengthening while the bond market rallies. The US 10-year treasury blasted through the two percent line on Thursday, currently holding with a yield around 1.89%.

In breaking news, July non-farm payrolls came mostly in line with expectations at 164,000 new jobs added during the month. The unemployment rate held steady at 3.7% and year-over-year wages increased at a 3.2% rate.

Us stock futures are trending off their lows as the opening bell approaches.

At the close, Thursday, August 1, 2019:
Dow Jones Industrial Average: 26,583.42, -280.85 (-1.05%)
NASDAQ: 8,111.12, -64.30 (-0.79%)
S&P 500: 2,953.56, -26.82 (-0.90%)
NYSE COMPOSITE: 12,920.82, -145.78 (-1.12%)

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.