WEEKEND WRAP: Stocks End Long Weekly Win Streaks; Negative Interest Rates Will Destroy Advanced Economies

Oh, Snap! Weekly winning steaks were ended with the first down week in the last eight on the NASDAQ. The S&P 500 and NYSE Composite saw their winning streaks ended at six weeks, while the Dow saw the underside of the unchanged line after four straight positives.

That US stock indices were all lower by less than one-half of one percent points up the resiliency and absurdity of the markets. Eminently malleable, stocks have been guided higher seemingly by Adam Smith's invisible hand, the one that keeps pension plans from imploding, sovereign governments from defaulting, and fiat currencies from the ruinous effects of unacceptability.

Putting into focus the NASDAQ, its seven-week upside move was the second-longest of the year. It began 2019 with an eight-week short-crushing rally on the heels of the final two weeks of 2018, which saw the index rise from the December ashes of a 6,190 low. While that 10-week advance boosted the index by some 1400 points, the most recent weekly gains accounted for only 800 additional points, although it recorded a new high in the week prior to the most recent and has backed down only slightly.

Anyone wise enough to have put all their money into the NASDAQ at the start of this year would be up a whopping 25% with just over a month remaining to add onto those lush profits. For ordinary folks locked into a buy and hold fund strategy, the gains since the highs of August-September 2018 to the present add up to only five percent. That's a more realistic figure for the real world and one which fits like a glove with the slowing pace of GDP and the generally dull data drops over these past 14 months.

While the stock markets may have the appearance of being big, bold, large and in charge, the truth is a somewhat more sobering landscape. Recovering so quickly from 20% losses has kept the investing public soothed and subdued, the politics of passive investing intact, and the wheels of industry churning, albeit at a lower crunch rate.

While stocks took this brief pre-holiday pause, interest rates were moving in the same direction, only with quickened pace. Negative interest rates rode across the plain of developed nations (Europe, Japan), suggesting that US treasuries were underpriced. Indeed, the long end of the curve was where most of the drama occurred, with the 30-year bond trimmed 21 basis points - from 2.41% to 2.22% - since November 8 (10 trading days). The 10-year note shed 17 basis points, slumping from 1.84% to 1.77% over the same period.

That's a trend sure to continue, as it represents a massive carry trade for investors outside the US. With yields in their native nations prefaced with minus signs, your bold-thinking French, German, Swiss, or Japanese investor is afforded a nearly risk-free two percent or more on money that otherwise would be eroded over time if held in sovereign securities. It's a neat trick that only the biggest and richest can perform. The rest of the population is unwittingly blinded by the stagnation and destruction ongoing behind the scenes.

Only a savvy few see negative interest rates for what they really are: a devious central bank device designed to wind down the fiat currency regime. In thirty to fifty years, the euro, yen, pound and even the dollar will be remnants of the industrial and information ages, replaced by something, we hope. while that may sound like a distant projection into the future, anybody in their 20s, 30s, or 40s might be best to be scared to death, because currency death-watches and funerals are morbid events played out over long periods of time.

Those of advanced age may better survive the utterly deflationary effects of negative interest rates and the impending currency decapitation in lower prices on everyday goods, but saving for retirement might best be measured in canned goods and precious metals instead of scraps of paper with important people on them or digitized numerical amounts on smart phone screens.

For many, the future is going to be destroyed before it arrives.

That's right. The world as it is now known will be a vastly different place in 2050 and it's unlikely to be prettier unless one has made the proper preparations into hard assets that will maintain value over harder times. Keeping up with the Joneses will be replaced by outrunning the Zombies. Fuel, food, water, shelter, and arable land - which, by the way, can be had on the cheap in some areas - are life-sustaining. Debt will be repudiated and rejected by a class of people similar to those of the depression era, whose lives were ruined by the influence of a currency they did not control, one which held neither value nor promise for a generation after 1929.

In case one is unconvinced of the effects of negative interest rates, just consider the math. Most pension plans in developed nations are already underfunded and have targets of six or seven percent annual gains written into their accountancy. If the best one can expect is two percent or less, a long-term shortfall is not only inevitable, it is assured.

All of this occurs over a long period of time, not all at once, but the effects on economies will nevertheless be devastating. Pension plans will not fail nor will sovereign debt default outright, but like rows of dominoes falling in super-slow motion, major currencies and first-world economies will gradually, inexorably decline and self-destruct.

Ah, but you say, these are negative thoughts marring the cheery landscape of the holidays.

Nay, if you get coal in your stockings this Christmas, consider yourself lucky. At least you will stay warm over the coming long winter.

At the Close, Friday, November 22, 2019:
Dow Jones Industrial Average: 27,875.62, +109.32 (+0.39%)
NASDAQ: 8,519.88, +13.67 (+0.16%)
S&P 500: 3,110.29, +6.75 (+0.22%0
NYSE Composite: 13,440.95, +34.55 (+0.26%)

For the week:
Dow: -129.27 (-0.46%)
NASDAQ: -20.94 (-0.25%)
S&P 500: -10.17 (-0.335)
NYSE Composite: -52.01 (-0.39%)

Stocks Lose Ground As US-China Trade Deal Stalls

Though not quite as quiet as last week, trading on US exchanges has been slow as the year winds down and the holiday season approaches.

What differentiates this week from last is the tenor of the trade, noticeably negative, with all of the major indices lower heading into Friday. The losses have not been significant, but Thursday marked three straight sessions in the red.

Losses have been very limited, however, with the Dow leading the downside, off by 0.81% through Thursday. Even a modest gain on Friday would push the averages back into record territory. The S&P 500 needs a gain of just 20 points to break out to new all-time highs.

There is still abundant interest in US-China trade relations, though the market has grown a bit weary of the on-again, off-again nature of the negotiations and is likely pricing in a positive outcome. This stalemate of sorts could last another year, with the Chinese playing the waiting game.

President Trump is up for re-election in November, 2020, and Chinese leaders are watching political developments in the US with jaded eyes. having Trump out of the way would suit their purposes. Getting back to the monstrous trade deficit imposed upon the US over the years seems to be the ultimate aim for China. Nobody wants to give up on a good thing, and trade relations with the US have been nothing short of spectacular for China over the past 30 years. Trump vowed to put an end to those practices in his election campaign and he's stuck to his guns, dealing the Chinese a hand they thought they'd never have to play.

A negative view of the ongoing feud would be an escalation of tariffs, leading to an overall slowdown and possible military actions. No wonder the market is pricing in a positive conclusion, because the alternative is more disruptive than anybody would ever hope.

At the Close, Thursday, November 21, 2019:
Dow Jones Industrial Average: 27,766.29, -54.80 (-0.20%)
NASDAQ: 8,506.21, -20.52 (-0.24%)
S&P 500: 3,103.54, -4.92 (-0.16%)
NYSE Composite: 13,406.42, -12.89 (-0.10%)

Disturbance in the Force? Stocks Suffer Losses

Dow Components Apple (AAPL) and Home Depot (HD) sent the Dow Industrials lower, dragging the tech sector, NASDAQ and S&P 500 down with it.

With third quarter results not as good as expectations, there's pressure on US stocks, especially now that China has balked again at phase one of the proposed on-again, off-again trade deal between the globe's two largest economies.

Also weighing on equites are repeated stories of recession fears from Europe, especially in the major economies: Germany, France, and Italy. Brexit is still not resolved and there's renewed optimism among remainers that the result of the 2016 referendum might still be overturned. As Europe is one of the major US trading powers, what happens over the pond affects many companies in the US.

Bond yields dipped again, especially at the long end of the treasury curve, with the 10-year note falling to a yield of 1.74%. With the Fed now officially on hold, bond vigilantes may have their day in the sun, pushing yields down to near record levels if the holiday season doesn't produce a bounty of stock buys.

Markets are at an unusual crossroads with many swirling stories that have the potential to send equities flying in either direction. What looks like a sideways trading regimen may hold sway the remainder of the year, though more and more economists and predictors are saying that a recession in the United States is not a foregone conclusion for 2020.

Third quarter results from a plethora of companies are now in the books and though most beat expectations, such were lowered and cannot be counted on to produce a buying frenzy. A repeat of last year's monumental losses in December could reoccur, though the Fed and nefarious forces behind the scenes have the power to deflect losses and turn indices around on various dimes.

Control is in the hands of the algorithms and central bankers. Don't expect much downside as long as hope for a trade deal remains present.

At the Close, Wednesday, November 20, 2019:
Dow Jones Industrial Average: 27,821.09, -112.93 (-0.40%)
NASDAQ: 8,526.73, -43.93 (-0.51%)
S&P 500: 3,108.46, -11.72 (-0.38%)
NYSE Composite: 13,419.30, -47.05 (-0.35%)

Stocks Close Lower

Once again, on the road, another drive-by post...

At the Close, Tuesday, November 19, 2019:
Dow Jones Industrial Average: 27,934.02, -102.20 (-0.36%)
NASDAQ: 8,570.66, +20.72 (+0.24%)
S&P 500: 3,120.18, -1.85 (-0.06%)
NYSE Composite: 13,466.35, -17.46 (-0.13%)

Follow Through for Stocks Beyond New Highs; European Pensions In Deep Trouble

After Friday's epic melt-up brought last week to a positive conclusion, traders on Monday though the diea of higher asset prices a good one, so pushed stocks to even higher all-time highs, a trend that could easily accelerate as the holiday season of irrational goodness begins.

At the bottom of rising equity valuations is the need to keep economies afloat for as long as humanly possible. By enhancing the price of stocks, asset values create the perception of wealth, though the main beneficiaries of higher asset values happen to be the top 10% of the income spread, mostly focused in the top one percent, who own the majority of equities. For the bottom 90% of the population, the effect of increased stock prices is negligible at best.

A corollary to stock market gains being the only game in town (or, There Is No Alternative, TINA) is the pain felt by savers, both individual and institutional. Pension funds have been under stress to keep assets growing. As employees retire and become not contributors, but receivers as pensioners, funds need to increase their asset base, a task made more difficult by lower and negative interest rates.

Funds have charters that require they purchase certain types of investments, making their job even more difficult, as they are forced into negative-yielding government bonds, especially in Europe, but also in the US, where the pain has yet to be felt in any real way outside of places like Detroit, which cut pension benefits massively in order to rebalance the city's finances.

Europe is already in the throes of a crisis, the latest victims being Dutch pensioners in the Netherlands, where cuts are planned or already in the works. Europe's fascination with negative interest rates have wreaked havoc in the pension universe.

A one percentage point fall in long-term interest rates will increase liabilities of a typical pension scheme by around 20 per cent, but the value of their assets would only go up by about 10 per cent, estimates Ros Altmann, a former UK pensions minister.

The current condition is nothing compared to what is coming if the ECB and member nations of the EU don't reverse course on interest rates. They are clearly having more negative consequences than anticipated when the Dutch first entertained negative yields in 2009, to be followed quickly by Japan and a slew of other European nations.

Pension problems haven't happened overnight. Money Daily was warning about them as early as 2006, and conditions have deteriorated exceedingly since then.

Don't expect the politicians and bankers to change their tune, however. As Money Daily has repeatedly noted, negative interest rates are currency killers, and they are quickly becoming much more of a destructive force than initially imagined.

As investing and economies become more and more intertwined, complex and convoluted, don't look for concrete solutions from politicians, bankers, or financial advisors. They created these problems and should not be relied upon to provide solutions. They will offer blankets for the cold, soup for the hungry, and limited shelter for the homeless. In other words, they will only be able to limit the suffering, not eliminate it.

To accentuate the level of madness permeating through the financial class consider this:

“In 20 years we may find ourselves with a real global crisis where we haven’t saved enough money for retirement,” says Calstrs’ Mr Ailman. “Returns can fluctuate, but longevity has been extended dramatically . . . We just have to explain to millennials that their parents might have to move back in with them.”

Somebody needs to point out to Mr. Ailman that many millennials are already living in their parents' basements!

At the Close, Monday, November 18, 2019:
Dow Jones Industrial Average: 28,036.22, +31.33 (+0.11%)
NASDAQ: 8,549.94, +9.11 (+0.11%)
S&P 500: 3,122.03, +1.57 (+0.05%)
NYSE Composite: 13,483.81, -9.15 (-0.07%)