When stocks power ahead, especially after a severe downturn (such as last week's), there is normally a good amount of short squeezing going on, as individuals who borrow stock in an attempt to unload it at a lower price, thus raking in the difference (short sellers), are forced to cover (buy at a higher price than they anticipated).
The amount of money that short sellers can lose in conditions like this are unlimited, so there's a strong urge to limit losses. It's all very sophisticated, this short selling and short-squeezing, generally the province of high frequency traders at dealer hubs. Neither practice is recommended for the average 401K investor.
When short-squeezes occur, they are usually one-day events, after which the markets return to some semblance of normalcy, though "normal" is a highly suggestive description under current market conditions. Individual stocks and whole indices are being whipsawed daily by the cross-currents of currency devaluation, trade war rumors, economic data, and yes, even the occasional quarterly corporate report.
Thus, traders and analysts are well-advised to do some smoothing out of all the noise in the markets, focusing on moving averages and daily ranges, rather than final prices. In that regard, the major US indices are between their 50 and 200-day moving averages, which implies plenty of volatility, setting up both buying and selling opportunities over the near term for those with high risk tolerance (hint: probably not you).
Day-traders, otherwise known as major broker-dealers, will have a field day in such an environment, though history is rife with examples of traders being spectacularly wrong and losing billions in the process. That's likely to happen in the current environment, if only because people never, ever, ever learn from the mistakes of others.
Expect more volatility, with a tiny edge to upside trading, though different sectors and different stocks will move in different directions.
Choose wisely.
At the Close, Monday, August 19, 2019:
Dow Jones Industrial Average: 26,135.79, +249.78 (+0.96%)
NASDAQ: 8,002.81, +106.82 (+1.35%)
S&P 500: 2,923.65, +34.97 (+1.21%)
NYSEComposite: 12,687.91, +107.50 (+0.85%)
Tuesday, August 20, 2019
Monday, August 19, 2019
WEEKEND WRAP: Stocks Lower Third Straight Week; Treasury Curve Inverts
Stocks took another turn for the worse, the third straight week in which the major averages shed points. That would constitute a trend, especially considering what happened on the Treasury yield curve, where the two-year note inverted against the 10-year-note, yielding - for a short time - one basis point more than its longer-term counterpart.
Additionally, bonds with negative yields globally moved beyond the $16 trillion mark, with Germany, among other EU countries, having its entire bond complex falling below zero yield.
Those two events in bond-land are going to prove to be crippling to global growth and the effects are already becoming apparent.
Negative interest rates destroy the time value of money. Debt is discarded. Without debt, there is no money, except for that which has no interest or counterparty. That would be gold, silver, hard assets. Gold and silver have been rallying while national central-bank fiat currencies fluctuate against each other in the desperate race to the bottom.
The idea that the country which can devalue its currency fastest and lowest will be the winner in the trade arena is offset by the fact that weak currencies - while great for exporters - are not necessarily good for that nation's consumers, because imports would necessarily become more dear.
The desire to send interest rates into negative territory - a concept launched by the Japanese and quickly taken up by Europe after the GFC - is a marker for the death of currencies, i.e., fiat money.
Negative rates are inherently deflationary, which is exactly what central banks wish to avoid, because it voids their franchise. Fiat money - which is in use globally - will die, not by hyperinflation, but by hyper-deflation.
That has been the working thesis at Money Daily since 2008, and it appears to finally be setting off into a new phase.
Facts must be faced. After the crash in 2008, banks became insolvent and were bailed out by trillions of dollars, yen and euros from central banks, which, by their very nature of money creation out of thin air, are also insolvent. Most governments are either deeply in debt or insolvent, with massive debts to their central banks offset by national resources (see Greece). Most people's finances are in a state of insolvent, with debt far outweighing assets. That leaves corporations, large and small, as the only solvent entities in the world, though many of those corporations are also insolvent, with more debt than equity, and much of their equity accounted for by stock buybacks. When the market takes a meaningful dive, many of these corporations will be prime bankruptcy targets, though the government would almost surely step in - as it did with the banks and General Motors during the crisis - with freshly-minted money to stave off creditors.
All roads lead back to the fiat money system and fractional reserve banking.
We have broken countries undertaking broken trade in broken markets. Mal-investments and wealth inequality are proliferating. Big government, running enormous deficits, carries on the fraud of counterfeiting by central banks. The currencies commonly used in exchange are worth nothing more than the ink and paper upon which are printed the pretty pictures and numbers. They are all debt instruments and negative interest rates extinguish debt. The world is headed for a radical reconfiguration of the monetary system.
At the Close, Friday, August 16, 2019:
Dow Jones Industrial Average: 25,886.01, +306.61 (+1.20%)
NASDAQ: 7,895.99, +129.37 (+1.67%)
S&P 500: 2,888.68, +41.08 (+1.44%)
NYSE Composite: 12,580.41, +170.91 (+1.38%)
For the Week:
Dow: -401.43 (-1.53%)
NASDAQ: -63.15 (-0.79%)
S&P 500: -29.97 (-1.03%)
NYSE Composite: -168.01 (-1.32%)
Dow Transports: -239.89 (-2.35%)
Additionally, bonds with negative yields globally moved beyond the $16 trillion mark, with Germany, among other EU countries, having its entire bond complex falling below zero yield.
Those two events in bond-land are going to prove to be crippling to global growth and the effects are already becoming apparent.
Negative interest rates destroy the time value of money. Debt is discarded. Without debt, there is no money, except for that which has no interest or counterparty. That would be gold, silver, hard assets. Gold and silver have been rallying while national central-bank fiat currencies fluctuate against each other in the desperate race to the bottom.
The idea that the country which can devalue its currency fastest and lowest will be the winner in the trade arena is offset by the fact that weak currencies - while great for exporters - are not necessarily good for that nation's consumers, because imports would necessarily become more dear.
The desire to send interest rates into negative territory - a concept launched by the Japanese and quickly taken up by Europe after the GFC - is a marker for the death of currencies, i.e., fiat money.
Negative rates are inherently deflationary, which is exactly what central banks wish to avoid, because it voids their franchise. Fiat money - which is in use globally - will die, not by hyperinflation, but by hyper-deflation.
That has been the working thesis at Money Daily since 2008, and it appears to finally be setting off into a new phase.
Facts must be faced. After the crash in 2008, banks became insolvent and were bailed out by trillions of dollars, yen and euros from central banks, which, by their very nature of money creation out of thin air, are also insolvent. Most governments are either deeply in debt or insolvent, with massive debts to their central banks offset by national resources (see Greece). Most people's finances are in a state of insolvent, with debt far outweighing assets. That leaves corporations, large and small, as the only solvent entities in the world, though many of those corporations are also insolvent, with more debt than equity, and much of their equity accounted for by stock buybacks. When the market takes a meaningful dive, many of these corporations will be prime bankruptcy targets, though the government would almost surely step in - as it did with the banks and General Motors during the crisis - with freshly-minted money to stave off creditors.
All roads lead back to the fiat money system and fractional reserve banking.
We have broken countries undertaking broken trade in broken markets. Mal-investments and wealth inequality are proliferating. Big government, running enormous deficits, carries on the fraud of counterfeiting by central banks. The currencies commonly used in exchange are worth nothing more than the ink and paper upon which are printed the pretty pictures and numbers. They are all debt instruments and negative interest rates extinguish debt. The world is headed for a radical reconfiguration of the monetary system.
At the Close, Friday, August 16, 2019:
Dow Jones Industrial Average: 25,886.01, +306.61 (+1.20%)
NASDAQ: 7,895.99, +129.37 (+1.67%)
S&P 500: 2,888.68, +41.08 (+1.44%)
NYSE Composite: 12,580.41, +170.91 (+1.38%)
For the Week:
Dow: -401.43 (-1.53%)
NASDAQ: -63.15 (-0.79%)
S&P 500: -29.97 (-1.03%)
NYSE Composite: -168.01 (-1.32%)
Dow Transports: -239.89 (-2.35%)
Friday, August 16, 2019
Ignore the Noise as Markets Grind Bond Yields Toward Zero
Thursday's trading saw more of the usual up-and-down twerking that usually accompanies large moves in either direction. After Wednesday's rout - the fourth-largest point decline on the Dow Industrials - some bounce was expected, and it did occur early, though markets slipped into the red midday before being rescued by apparently-optimistic investors (central banks, PPT) into the close.
Interesting is the idea that Wednesday's selloff was not met with more panic in the media and by the general public. Stocks have been volatile since October of last year, so the possibility that people are zoned out from the near-constant drubbing and recovery is real.
People should actually care that their college retirement funds are at so much risk in stocks, but that doesn't seem to be the case among the 401K crowd. Getting used to uncertainty is a kind of Stockholm syndrome that is inimitable to the Wall Street casino. The general public may get agitated more over mass shootings, tweets by the president, or a bad call in an NFL game, but when it comes to the money betting on their futures, they are sheepish.
Maybe that's a good thing when talking about market noise, but an 800-point drop on the Dow is something that shouldn't be ignored or overlooked. There are damn good reasons stocks get hammered, and even passive investors should express at least a modicum of concern.
Be that as it may, Thursday was more of the noisy variety, though most other markets - bonds, commodities, futures, FX - were being bounced around pretty vigorously, especially treasury bonds, where the 10-year-note continues to fall, reaching for all-time lows.
The 10-year is hovering in the 1.47 - 1.65 range. The all-time low yield on the benchmark 10-year was 1.375, on July 5, 2016. Anybody wearing a thinking cap clearly sees where this recent decline is headed. With now $16 trillion in bonds yielding negative returns globally, US treasuries stick out like sore thumbs. In the race to the bottom, the 10-year will fall below the record low yield. It's simply a matter of time. Eventually, US bonds will likely carry negative yields as the global financial system, rescued by central banks in 2008-09, completely falls apart over the next three to five years.
Money is dying. Fiat money will die quite painfully.
At the Close, Thursday, August 15, 2019:
Dow Jones Industrial Average: 25,579.39, +99.97 (+0.39%)
NASDAQ: 7,766.62, -7.32 (-0.09%)
S&P 500: 2,847.60, +7.00 (+0.25%)
NYSE Composite: 12,409.54, +41.49 (+0.34%)
Interesting is the idea that Wednesday's selloff was not met with more panic in the media and by the general public. Stocks have been volatile since October of last year, so the possibility that people are zoned out from the near-constant drubbing and recovery is real.
People should actually care that their college retirement funds are at so much risk in stocks, but that doesn't seem to be the case among the 401K crowd. Getting used to uncertainty is a kind of Stockholm syndrome that is inimitable to the Wall Street casino. The general public may get agitated more over mass shootings, tweets by the president, or a bad call in an NFL game, but when it comes to the money betting on their futures, they are sheepish.
Maybe that's a good thing when talking about market noise, but an 800-point drop on the Dow is something that shouldn't be ignored or overlooked. There are damn good reasons stocks get hammered, and even passive investors should express at least a modicum of concern.
Be that as it may, Thursday was more of the noisy variety, though most other markets - bonds, commodities, futures, FX - were being bounced around pretty vigorously, especially treasury bonds, where the 10-year-note continues to fall, reaching for all-time lows.
The 10-year is hovering in the 1.47 - 1.65 range. The all-time low yield on the benchmark 10-year was 1.375, on July 5, 2016. Anybody wearing a thinking cap clearly sees where this recent decline is headed. With now $16 trillion in bonds yielding negative returns globally, US treasuries stick out like sore thumbs. In the race to the bottom, the 10-year will fall below the record low yield. It's simply a matter of time. Eventually, US bonds will likely carry negative yields as the global financial system, rescued by central banks in 2008-09, completely falls apart over the next three to five years.
Money is dying. Fiat money will die quite painfully.
At the Close, Thursday, August 15, 2019:
Dow Jones Industrial Average: 25,579.39, +99.97 (+0.39%)
NASDAQ: 7,766.62, -7.32 (-0.09%)
S&P 500: 2,847.60, +7.00 (+0.25%)
NYSE Composite: 12,409.54, +41.49 (+0.34%)
Thursday, August 15, 2019
Stocks Crumble As Treasury Yield Curve Inverts; 30-year Tumbles Below 2%
It is certainly getting interesting in terms of global economics.
National currencies are in a race to the bottom, and Japan and the EU are winning.
With more than $14 trillion worth of bonds holding negative yields (you get back less than you invested), the world is looking like a place headed for disaster. European and Japanese bonds have the most negative yielding bonds. Their economies are not just heading for a recession, they're diving into depression territory.
There is no growth and that's not to blame on Trump's tariffs. In fact, the tariffs have little to nothing to do with the state of global trade. All economies are slowing. There's entirely too much uncertainty, piled atop too much malinvestment, coupled with an aging demographic, for which to promote any kind of meaningful growth.
By this time next year, expect to see at least six of the major developed nations in recession. The most likely candidates would be Japan, Germany, France, Italy, Spain, and Greece. Notably absent from the list are the US, Australia, Great Britain, and Canada. Since China claims to be still growing, they will admit only to slowing down, to about 3% growth, which might as well be a recession. India, which is not a developed nation (nor is China), is already a basket case.
These recessions will not end easily, and the US, Britain, and Canada will likely recede as well, but not quite as soon as the other nations, mostly European, because Brexit is going to change the dynamic to some degree. The EU is going to lose Britain as a trading partner come October 31. That is a near certainty and long overdue.
The US, Australia, and Canada will sign agreements with Britain to continue trade on a reasonable, fair basis. Europe will be shut out of any such agreement, due to their unwillingness to allow Britain an orderly exit for some three years running. The genii in the EU parliament have made their beds and will have to sleep in them. The populations of the EU countries should rightly riot since EU governance, in conjunction with their national leaders have sold them down the proverbial river via lax immigration standards and horrible economic policies.
In the end - though it may take some time - the EU will dissolve, disintegrate. It may take war, or it may take anger from the Greeks, Spanish, Irish or Italians to tip the EU contract overboard, but it will happen.
For the present, however, the world is focused on stocks and bonds, and stocks are not faring well. Wednesday's disaster was the worst trading day of 2019, rivaling some of the hours of last December.
With a global recession looming, investors may be rushing the exits at various stages over the coming months. Adding to the malaise is the upcoming US elections, whereby strident Democrats seek to unseat Mr. Trump. None have shown the qualities to lead or offer any reasonable path to a stable future. Trump should rightly win in a landslide.
With that, the 30-year bond became the latest victim of upside-down economics and the flight to safety, dipping below 2.00% in yield for the first time EVER. The entire treasury curve is now not only yielding less than two percent, it is inverted, and all of it is yielding lower returns than the effective overnight federal funds rate (2.11%).
We are witnessing the death of fiat money in real time. In the meantime, look for a short-lived relief rally which could extend through the rest of August. Real selling should commence after Labor Day.
At the Close, Wednesday, August 14, 2019:
Dow Jones Industrial Average: 25,479.42, -800.49 (-3.05%)
NASDAQ: 7,773.94, -242.42 (-3.02%)
S&P 500: 2,840.60, -85.72 (-2.93%)
NYSE Composite: 12,368.05, -356.32 (-2.80%)
National currencies are in a race to the bottom, and Japan and the EU are winning.
With more than $14 trillion worth of bonds holding negative yields (you get back less than you invested), the world is looking like a place headed for disaster. European and Japanese bonds have the most negative yielding bonds. Their economies are not just heading for a recession, they're diving into depression territory.
There is no growth and that's not to blame on Trump's tariffs. In fact, the tariffs have little to nothing to do with the state of global trade. All economies are slowing. There's entirely too much uncertainty, piled atop too much malinvestment, coupled with an aging demographic, for which to promote any kind of meaningful growth.
By this time next year, expect to see at least six of the major developed nations in recession. The most likely candidates would be Japan, Germany, France, Italy, Spain, and Greece. Notably absent from the list are the US, Australia, Great Britain, and Canada. Since China claims to be still growing, they will admit only to slowing down, to about 3% growth, which might as well be a recession. India, which is not a developed nation (nor is China), is already a basket case.
These recessions will not end easily, and the US, Britain, and Canada will likely recede as well, but not quite as soon as the other nations, mostly European, because Brexit is going to change the dynamic to some degree. The EU is going to lose Britain as a trading partner come October 31. That is a near certainty and long overdue.
The US, Australia, and Canada will sign agreements with Britain to continue trade on a reasonable, fair basis. Europe will be shut out of any such agreement, due to their unwillingness to allow Britain an orderly exit for some three years running. The genii in the EU parliament have made their beds and will have to sleep in them. The populations of the EU countries should rightly riot since EU governance, in conjunction with their national leaders have sold them down the proverbial river via lax immigration standards and horrible economic policies.
In the end - though it may take some time - the EU will dissolve, disintegrate. It may take war, or it may take anger from the Greeks, Spanish, Irish or Italians to tip the EU contract overboard, but it will happen.
For the present, however, the world is focused on stocks and bonds, and stocks are not faring well. Wednesday's disaster was the worst trading day of 2019, rivaling some of the hours of last December.
With a global recession looming, investors may be rushing the exits at various stages over the coming months. Adding to the malaise is the upcoming US elections, whereby strident Democrats seek to unseat Mr. Trump. None have shown the qualities to lead or offer any reasonable path to a stable future. Trump should rightly win in a landslide.
With that, the 30-year bond became the latest victim of upside-down economics and the flight to safety, dipping below 2.00% in yield for the first time EVER. The entire treasury curve is now not only yielding less than two percent, it is inverted, and all of it is yielding lower returns than the effective overnight federal funds rate (2.11%).
We are witnessing the death of fiat money in real time. In the meantime, look for a short-lived relief rally which could extend through the rest of August. Real selling should commence after Labor Day.
At the Close, Wednesday, August 14, 2019:
Dow Jones Industrial Average: 25,479.42, -800.49 (-3.05%)
NASDAQ: 7,773.94, -242.42 (-3.02%)
S&P 500: 2,840.60, -85.72 (-2.93%)
NYSE Composite: 12,368.05, -356.32 (-2.80%)
Wednesday, August 14, 2019
Stocks Rally On Trump Tariff Turnback; PMs Slammed, Bonds Not Buying It As Curve Inverts
Tuesday's miraculous stock market rally was fueled by the silliest of news.
The US Trade Representative (USTR), led by Robert E. Lighthizer, announced the delay of some of the proposed tariffs to be imposed upon China come September 1, rolling back the date on some consumer-sensitive items to December 15.
The government also mentioned that trade reps from both countries would speak by phone in the near future.
Thus, stocks were off to the races, having been given a big, fat one to knock out of the park.
Obviously, such news only makes for one-day wonders on Wall Street and an opportunity to smack down real money - gold and silver - in the process. Precious metals had extended their rallies and were soaring overnight. Traders in the futures complex felt best to sell, all at once, apparently.
Meanwhile, short-dated treasuries were being whipsawed, with the yield on the 2-year note rising from 1.58% to 1.66%, while the 10-year note gained a smaller amount, the yield rising from 1.65% to 1.68%.
Overnight, as Tuesday turned to Wednesday in the US, the two-year yield briefly surpassed that of the 10-year by one basis point. This marks the first time the 2s-10s have inverted since 2005. Because such an inversion almost always indicates imminent recession, this spurred headlines across the financial media, with Yahoo Finance screaming in all caps, YIELD CURVE INVERTS.
One shouldn't get too excited about this startling, yet widely-anticipated event. Each of the last seven recessions (dating back to 1969) were preceded by the 10-year falling below the 2-year, but in the most recent instance - December 27, 2005 - the recession didn't actually get underway until the third quarter of 2007, as precursor of the Great Financial Crisis (GFC). The last time there was an inverted 2s-10s yield curve was May 2007.
Naturally, haters of President Donald J. Trump are enthusiastically cheering for a recession prior to the 2020 elections, and they may get their wish. Stocks have been running on fumes for about 18 months, a bear market indicated by Dow Theory as far back as April 9, 2018.
The onset of recession, after the first instance of the 2s-10s inversion, normally occurs eight to 24 months hence.
With the hopes of Democrats taking back the White House riding on anything from Russian election interference to trade wars with China to recession, the leftists are pushing on various strings, hoping for something - anything - to trip up the celebrity president.
They have a 15-month lead time on recession, so their chances are about 50/50. If the recession occurs after the election, which Donald J. Trump will almost surely win, they may conclude that having a recession in ones' second term is an impeachable offense.
This story is developing, so watch something else.
[sarcasm noted]
The US Trade Representative (USTR), led by Robert E. Lighthizer, announced the delay of some of the proposed tariffs to be imposed upon China come September 1, rolling back the date on some consumer-sensitive items to December 15.
The government also mentioned that trade reps from both countries would speak by phone in the near future.
Thus, stocks were off to the races, having been given a big, fat one to knock out of the park.
Obviously, such news only makes for one-day wonders on Wall Street and an opportunity to smack down real money - gold and silver - in the process. Precious metals had extended their rallies and were soaring overnight. Traders in the futures complex felt best to sell, all at once, apparently.
Meanwhile, short-dated treasuries were being whipsawed, with the yield on the 2-year note rising from 1.58% to 1.66%, while the 10-year note gained a smaller amount, the yield rising from 1.65% to 1.68%.
Overnight, as Tuesday turned to Wednesday in the US, the two-year yield briefly surpassed that of the 10-year by one basis point. This marks the first time the 2s-10s have inverted since 2005. Because such an inversion almost always indicates imminent recession, this spurred headlines across the financial media, with Yahoo Finance screaming in all caps, YIELD CURVE INVERTS.
One shouldn't get too excited about this startling, yet widely-anticipated event. Each of the last seven recessions (dating back to 1969) were preceded by the 10-year falling below the 2-year, but in the most recent instance - December 27, 2005 - the recession didn't actually get underway until the third quarter of 2007, as precursor of the Great Financial Crisis (GFC). The last time there was an inverted 2s-10s yield curve was May 2007.
Naturally, haters of President Donald J. Trump are enthusiastically cheering for a recession prior to the 2020 elections, and they may get their wish. Stocks have been running on fumes for about 18 months, a bear market indicated by Dow Theory as far back as April 9, 2018.
The onset of recession, after the first instance of the 2s-10s inversion, normally occurs eight to 24 months hence.
With the hopes of Democrats taking back the White House riding on anything from Russian election interference to trade wars with China to recession, the leftists are pushing on various strings, hoping for something - anything - to trip up the celebrity president.
They have a 15-month lead time on recession, so their chances are about 50/50. If the recession occurs after the election, which Donald J. Trump will almost surely win, they may conclude that having a recession in ones' second term is an impeachable offense.
This story is developing, so watch something else.
[sarcasm noted]
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