Since the Great Financial Crisis (GFC) of 2007-09, the performance of the major indices have been nothing short of miraculous.
At the nadir of the crisis, the bottom, on March 9, 2009, the Dow Jones Industrial Average stood at 6,547.05. It closed Wednesday at 28,745.09, an tidy increase of 439%. Nearly 11 years later, that's an average annual return of 39.9%, or, for the rounders amongst us, 40 percent per year, on average.
Imagine, a $100,000 investment right at the bottom of the market would be worth $439,000, and that's just on 30 stocks that comprise the Industrials, without adding in dividends, which could have been reinvested and made even more money. It's absolutely ludicrous that such an easy investment strategy - buying and holding an index fund, for instance - could generate such awe-inspiring returns. That gain of $339,000, or, $30,818, non-compounded, is more than most Americans make in a year. Incredible.
What this shows is that anyone who had a retirement fund and didn't touch it during the crash of 2008, is probably pretty smug and comfortable right about now. Such people would be mostly Baby Boomers, people born between 1946 and 1965, who were, in 2008, as old as 62 or as young as 43 and are now between the ages of 54 and 73.
Many from this age group have already retired. Some are headed that way, and, if the market holds up, many will take early retirement at age 62, if not sooner (59 1/2 for those with IRAs or 401k plans). This is an enormous portion of the population, about 23% of all the people (legally) living in America.
Now, not every Baby Boomer had 100,000 in their investment account in 2008. Some had more, some had less, some had none, but, without a doubt, there are some very fat and sassy old folks out there, hoarding their gains, figuring out how long their money will last if they start withdrawing a little here, a little there, mostly more or less on a plan to live until they are 85 or 90, because that's the general life expectancy these days.
All of these people will also collect Social Security, adding anywhere from $400 (slackers) to $2,788 a month to their income. There's a lot of money out there, much of it still being invested.
While this all sounds like economic Nirvana, there is one no-so-small caveat. In a word, it's inflation. In more words, it's the cost of living. Everything is more expensive today than when the Baby Boomers began investing, so it's eroding their profits, though they're still pretty well off, because, as young people will learn and older folks already know, costs of living (outside of severe medical expenses) are lower when you're older. You eat less, go out less, need less of everyday items because you already own them. You drive less, and, probably, you save more.
Even discounting the effects of inflation (a new car in 1970 could be purchased for less than $2000; today's it's generally more then $20,000, often much more), these Baby Boomer retirees are going to be pretty well off, even if Social Security runs out of money and is forced to reduce benefits.
As much as people today bemoan the great inequality of incomes and wealth, this one group, Baby Boomers, were born into and continue to live in a pretty sweet spot, when the economy was good, if not great, and life in the United States of America was one of general peace and tranquility. America is still a very solid country in the grand scheme of things, and maybe the complainers and nay-sayers could do themselves and everybody else a favor by working just a little bit harder, saving just a little bit more, complaining just a little bit less.
Nobody can predict the future, but who knew, 11 years ago, that American stocks would provide so well?
Millennial food for thought.
At the Close, Wednesday, January 8, 2020:
Dow Jones Industrial Average: 28,745.09, +161.41 (+0.56%)
NASDAQ: 9,129.24, +60.66 (+0.67%)
S&P 500: 3,253.05, +15.87 (+0.49%)
NYSE Composite: 13,934.44, +36.00 (+0.26%)
Thursday, January 9, 2020
Wednesday, January 8, 2020
Here Comes A January Rally And New All-Time Highs
Stocks took a bit of a punch in the face on Tuesday, but nothing a good night's sleep wouldn't relieve.
Overnight, Iran fired missiles at a couple of American bases in Iraq, hit mostly sand and neither killed nor wounded any American soldiers, according to published reports. If that's the extent of Iranian retaliation for the killing of their top general, it would suggest that Iran's leaders are not stupid and don't want to go to war against the world's most well-equipped military force.
Nobody can blame Iran for not wanting a direct fight with the US military. It would more than likely be a losing battle from the start and end with devastation to much of Iran's infrastructure. Their leaders may have taken the high road by intentionally missing American barracks, showing a calm hand while demonstrating that they can, if need be, meet force with force.
Iran is better equipped to keep doing what they've been doing: supporting splinter groups and terrorist cells without direct involvement in any conflict. In that scenario, they at least afford themselves the opportunity to keep selling their oil to countries who won't respect the US trade sanctions and maybe find their way to a negotiating table to end years of struggle in the region.
Wall Street would likely be amenable to such an arrangement. Some sense of rationality would be a welcome relief to not just the oil market but to the global economies, which have more than their share of worries presently.
If it is indeed the case that hostilities in the Middle East may have reached a turning point, that's all well and good. Any continued sign that the US and Iran are at a safe distance from each other militarily can only be good for the stock market. Such an antecedent would prompt a sharp rally in stocks, which have been somewhat on hold since Christmas and are looking for reasons to break out to new highs.
It being a fresh year, there's plenty of money sloshing around, enough to propel stocks further into the stratosphere.
Unless something terrible happens in the Middle East or elsewhere, expect markets to glide higher and potentially explode though the remaining weeks of January. As everybody in the investment world knows, as January goes, so goes the rest of the year. That's been an accurate guide for about 85% of the time. Another banner year like 2019 may not be in the cards, but it's a near certainty that stocks are poised for another leg higher and continued strong performance.
At the Close, Tuesday, January 7, 2020:
Dow Jones Industrial Average: 28,583.68, -119.70 (-0.42%)
NASDAQ: 9,068.58, -2.88 (-0.03%)
S&P 500: 3,237.18, -9.10 (-0.28%)
NYSE Composite: 13,898.45, -43.35 (-0.31%)
Overnight, Iran fired missiles at a couple of American bases in Iraq, hit mostly sand and neither killed nor wounded any American soldiers, according to published reports. If that's the extent of Iranian retaliation for the killing of their top general, it would suggest that Iran's leaders are not stupid and don't want to go to war against the world's most well-equipped military force.
Nobody can blame Iran for not wanting a direct fight with the US military. It would more than likely be a losing battle from the start and end with devastation to much of Iran's infrastructure. Their leaders may have taken the high road by intentionally missing American barracks, showing a calm hand while demonstrating that they can, if need be, meet force with force.
Iran is better equipped to keep doing what they've been doing: supporting splinter groups and terrorist cells without direct involvement in any conflict. In that scenario, they at least afford themselves the opportunity to keep selling their oil to countries who won't respect the US trade sanctions and maybe find their way to a negotiating table to end years of struggle in the region.
Wall Street would likely be amenable to such an arrangement. Some sense of rationality would be a welcome relief to not just the oil market but to the global economies, which have more than their share of worries presently.
If it is indeed the case that hostilities in the Middle East may have reached a turning point, that's all well and good. Any continued sign that the US and Iran are at a safe distance from each other militarily can only be good for the stock market. Such an antecedent would prompt a sharp rally in stocks, which have been somewhat on hold since Christmas and are looking for reasons to break out to new highs.
It being a fresh year, there's plenty of money sloshing around, enough to propel stocks further into the stratosphere.
Unless something terrible happens in the Middle East or elsewhere, expect markets to glide higher and potentially explode though the remaining weeks of January. As everybody in the investment world knows, as January goes, so goes the rest of the year. That's been an accurate guide for about 85% of the time. Another banner year like 2019 may not be in the cards, but it's a near certainty that stocks are poised for another leg higher and continued strong performance.
At the Close, Tuesday, January 7, 2020:
Dow Jones Industrial Average: 28,583.68, -119.70 (-0.42%)
NASDAQ: 9,068.58, -2.88 (-0.03%)
S&P 500: 3,237.18, -9.10 (-0.28%)
NYSE Composite: 13,898.45, -43.35 (-0.31%)
Tuesday, January 7, 2020
War Is Good For the Market, So Is Peace, Or Baseball, Or Beer, Or...
Fearing that a possible escalation of hostilities in the Middle East could spill over to affect the US economy, stocks opened sharply lower on Monday. Gold, silver and crude oil futures were bid higher.
As the day wore on, stocks regained their footings, the precious metal and oil rallies evaporated and eventually all the US indices closed well into positive territory.
None of that was by accident.
Consider the stock market a proxy narrative for the American impulse emotions. Fear, greed, tranquility, volatility, are all rolled into one great tableau of the American experience, especially when there's trouble on the horizon. Monday's action consisted of mandatory panicked selling as the day began, the hand of calm mid-morning, and eventually the all-clear sign that nothing bad will happen, in a "we got this" kind of virtue-signal, sending stocks higher, where they're supposed to be going in our vast and glorious economy.
It all happens without public comment nor input because large shareholders control enormous amounts of stock and with that, the ability to move markets in whichever non-random ways they desire. A tweak to an algo here, a few well-timed block trades there, and entire averages can move in not-so-mysterious ways.
Especially since the disasters of the 2000 dot-com bust and the 2007-09 sub-prime implosion, there's been a vested interest in this country to keep the charts moving in a left to right, upward=headed, diagonal line.
That's not an accident, either.
Because there is so much wealth and so much of the future concentrated almost exclusively in stocks, the markets cannot be allowed to wither. We've witnessed this same happenstance over and over and over again, on a daily basis in times of crisis, and with a more elongated time expanse when it comes to policy issues like the direction of interest rates, presidential politics, tax cuts, or long-range unemployment trends.
If the US kills an Iranian general and some other people who happen to be in the wrong place at the right time, stocks may take a temporary hit. The Dow may drop 100 or 200 points, but it will be back on its game by the afternoon, or maybe within the next day or two.
If the US sends 200,000 troops to Iraq or Iran to squelch - once and for all - an evil regime, stocks may initially descend, but in the long term, they will outperform the underlying economy. See charts from 2003-2005 for example, of how the Gulf War boosted stocks out of a deep hole.
While it doesn't have to be this way, that's just the way it is, and the sooner one comes to the rationalization that the markets are handled, mangled, and managed, the sooner one can come to grips with the deficiencies in one's own portfolio.
Whether this is good or not is a debatable point, but what is not a subject ripe for speculation is the fact that holders of large amounts of underlying securities can make markets move in whatever direction they please. And for now, that direction - make no mistake about this - is up.
At the Close, Monday, January 6, 2020:
Dow Jones Industrial Average: 28,703.38, +68.50 (+0.24%)
NASDAQ: 9,071.46, +50.70 (+0.56%)
S&P 500: 3,246.28, +11.43 (+0.35%)
NYSE Composite: 13,941.80, +24.75 (+0.18%)
As the day wore on, stocks regained their footings, the precious metal and oil rallies evaporated and eventually all the US indices closed well into positive territory.
None of that was by accident.
Consider the stock market a proxy narrative for the American impulse emotions. Fear, greed, tranquility, volatility, are all rolled into one great tableau of the American experience, especially when there's trouble on the horizon. Monday's action consisted of mandatory panicked selling as the day began, the hand of calm mid-morning, and eventually the all-clear sign that nothing bad will happen, in a "we got this" kind of virtue-signal, sending stocks higher, where they're supposed to be going in our vast and glorious economy.
It all happens without public comment nor input because large shareholders control enormous amounts of stock and with that, the ability to move markets in whichever non-random ways they desire. A tweak to an algo here, a few well-timed block trades there, and entire averages can move in not-so-mysterious ways.
Especially since the disasters of the 2000 dot-com bust and the 2007-09 sub-prime implosion, there's been a vested interest in this country to keep the charts moving in a left to right, upward=headed, diagonal line.
That's not an accident, either.
Because there is so much wealth and so much of the future concentrated almost exclusively in stocks, the markets cannot be allowed to wither. We've witnessed this same happenstance over and over and over again, on a daily basis in times of crisis, and with a more elongated time expanse when it comes to policy issues like the direction of interest rates, presidential politics, tax cuts, or long-range unemployment trends.
If the US kills an Iranian general and some other people who happen to be in the wrong place at the right time, stocks may take a temporary hit. The Dow may drop 100 or 200 points, but it will be back on its game by the afternoon, or maybe within the next day or two.
If the US sends 200,000 troops to Iraq or Iran to squelch - once and for all - an evil regime, stocks may initially descend, but in the long term, they will outperform the underlying economy. See charts from 2003-2005 for example, of how the Gulf War boosted stocks out of a deep hole.
While it doesn't have to be this way, that's just the way it is, and the sooner one comes to the rationalization that the markets are handled, mangled, and managed, the sooner one can come to grips with the deficiencies in one's own portfolio.
Whether this is good or not is a debatable point, but what is not a subject ripe for speculation is the fact that holders of large amounts of underlying securities can make markets move in whatever direction they please. And for now, that direction - make no mistake about this - is up.
At the Close, Monday, January 6, 2020:
Dow Jones Industrial Average: 28,703.38, +68.50 (+0.24%)
NASDAQ: 9,071.46, +50.70 (+0.56%)
S&P 500: 3,246.28, +11.43 (+0.35%)
NYSE Composite: 13,941.80, +24.75 (+0.18%)
Monday, January 6, 2020
WEEKEND WRAP: If You Like Your Bull Market, You Can Keep Your Bull Market
Taking a page from the Obama playbook, we open the first full trading week of the New Year with a promise, which may or may not be kept.
For the week that straddled the New Year holiday, all but the NASDAQ finished in the red, despite the best efforts from a furious rally on the first day of trading in 2020. In hindsight, Thursday's rally might have just been cover for what lay ahead on Friday and what could turn out to be a quite tumultuous month of trading in January. On that same note, the final two trading days of 2019 - Monday and Tuesday of last week - weren't so hot either.
Since it's far too early to tell where this all is going, especially considering the double-edged political sword that is impeachment and Iran, let's leave it at that and move forward, noting exactly where stocks, bonds, oil, and precious metals finished up 2019. Because nobody in their right mind buys and sells anything on a year-end basis, it will be instructive to keep benchmarks in mind, so they've been provided at the conclusion of this post.
At the Close, Friday, January 3, 2020:
Dow Jones Industrial Average: 28,634.88, -233.92 (-0.81%)
NASDAQ: 9,020.77, -71.42 (-0.79%)
S&P 500: 3,234.85, -23.00 (-0.71%)
NYSE Composite: 13,917.05, -85.45 (-0.61%)
For the Week:
Dow: -10.38 (-0.04%)
NASDAQ: +14.15 (+0.16%)
S&P 500: -5.17 (-0.16%)
NYSE Composite: -27.10 (-0.19%)
Benchmarks:
Dow: ended 2018 at 23,327.46; ended 2019 at 28,538.44; 22.34% gain
NASDAQ: ended 2018 at 6,635.28; ended 2019 at 8,972.60; 35.25% gain
S&P 500: ended 2018 at 2,506.85; ended 2019 at 3,230.78; 28.88% gain
NYSE Composite: ended 2018 at 11,374.39; ended 2019 at 13,913.03; 22.32% gain
10-year US Treasury note: Dec. 31, 2018: 2.69%; Dec. 31, 2019: 1.92%
30-year US Treasury note: Dec. 31, 2018: 3.02%; Dec. 31, 2019: 2.39%
Gold posted a gain of 18.43%, rising from 1279.00 to 1514.75 over the course of 2019.
Silver went from 15.47 to 18.05 through the year for a profit of 16.68%.
WTI Crude Oil rose from 47.09 on January 3, 2019, to 61.68 on December 30, up 30.99%.
For the week that straddled the New Year holiday, all but the NASDAQ finished in the red, despite the best efforts from a furious rally on the first day of trading in 2020. In hindsight, Thursday's rally might have just been cover for what lay ahead on Friday and what could turn out to be a quite tumultuous month of trading in January. On that same note, the final two trading days of 2019 - Monday and Tuesday of last week - weren't so hot either.
Since it's far too early to tell where this all is going, especially considering the double-edged political sword that is impeachment and Iran, let's leave it at that and move forward, noting exactly where stocks, bonds, oil, and precious metals finished up 2019. Because nobody in their right mind buys and sells anything on a year-end basis, it will be instructive to keep benchmarks in mind, so they've been provided at the conclusion of this post.
At the Close, Friday, January 3, 2020:
Dow Jones Industrial Average: 28,634.88, -233.92 (-0.81%)
NASDAQ: 9,020.77, -71.42 (-0.79%)
S&P 500: 3,234.85, -23.00 (-0.71%)
NYSE Composite: 13,917.05, -85.45 (-0.61%)
For the Week:
Dow: -10.38 (-0.04%)
NASDAQ: +14.15 (+0.16%)
S&P 500: -5.17 (-0.16%)
NYSE Composite: -27.10 (-0.19%)
Benchmarks:
Dow: ended 2018 at 23,327.46; ended 2019 at 28,538.44; 22.34% gain
NASDAQ: ended 2018 at 6,635.28; ended 2019 at 8,972.60; 35.25% gain
S&P 500: ended 2018 at 2,506.85; ended 2019 at 3,230.78; 28.88% gain
NYSE Composite: ended 2018 at 11,374.39; ended 2019 at 13,913.03; 22.32% gain
10-year US Treasury note: Dec. 31, 2018: 2.69%; Dec. 31, 2019: 1.92%
30-year US Treasury note: Dec. 31, 2018: 3.02%; Dec. 31, 2019: 2.39%
Gold posted a gain of 18.43%, rising from 1279.00 to 1514.75 over the course of 2019.
Silver went from 15.47 to 18.05 through the year for a profit of 16.68%.
WTI Crude Oil rose from 47.09 on January 3, 2019, to 61.68 on December 30, up 30.99%.
Friday, January 3, 2020
Federal Reserve's QE Today is The Big Short Revisited in a Bigger Manner
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| Steve Carell and Ryan Gosling in scene from "The Big Short" |
That's the truth of the matter, usually every day, so long as the Federal Reserve continues to pump fresh capital into the already bloated financial system. The trouble with the Fed's desire to keep Wall Street flush with cash is that enriching a small number of already-wealthy people hasn't had the desired effect of "trickling down" to the general population.
It didn't work when the Fed rescued the financial system in 2007-09, hasn't since, and won't in the future. Known generally as QE (Quantitative Easing) it's a failed policy that produces nothing other than overpriced financial assets, monstrous bubbles, and eventually, mass damage to the very system it's purported to be protecting. Since September of last year (2019) the Fed has already pumped nearly a trillion dollars into the Wall Street casino and it's balance sheet has exploded by another $500 billion.
To say that the Fed's promotion of QE is as bad as the systemic fraud that ran rampant within the sub-prime mortgage bundling that triggered the GFC in 2007-09 might be taking the comparison a step too far, but it surely is worth nominal consideration.
The players are mostly the same: Wall Street tycoons representing trading firms of the biggest banks bent on maximizing profits, relaxed, corrupted, and often incompetent regulators, an unsuspecting public that eventually gets fleeced.
In comparison to the sub-prime hustle, the rollers and managers of the mortgage bundling are now - as before - manned by the trading desks of the big Wall Street firms. The Fed is the enabler, a la the ratings agencies during sub-prime, and mouth-breathing borrowers with low credit scores seeking to purchase a home are replaced today by anybody participating in a pension fund, college fund, 401k or other managed investment vehicle. That's why sub-prime was called the housing bubble and the ongoing, current arrangement is called the "everything bubble." Everything is up for grabs and everything is at stake.
This all has been tied together neatly since the GFC, as, after $750 billion in TARP was exhausted, three bouts of QE commenced, secret loans from the Fed to foreign banks were proffered, and nobody of any importance went to jail over the excesses of the sub-prime boom and subsequent bust. Nobody. They're mostly all still there, having cashed mammoth bonus checks provided by the TARP bailout, plotting the next windfall.
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| Lewis' book is revealing and riveting, available everywhere, for a song. |
In the film, Ryan Gosling plays Jared Vennett, the fictional character based on the real-life Deutsche Bank trader, Greg Lippman. Christian Bale plays the real-life Michael Burry, the Scion Asset Management leader who risked his firm and cashed in when MBS and CDOs went bust, but the lion of the story comes n the character of Mark Baum (Steve Eisman in real life) played passionately by Steve Carell as the angry, perplexed head of Frontline Partners, the independent Morgan Stanley trading unit that bet against CDOs and made millions in the sub-prime collapse.
Carell, as Mark Baum, sets up the character and the film's premise in his first scene, railing against big banks charging outrageous fees for overdrafts. His defiant, conflicted, crusading manner defined, Carell storms through the film wide-eyed and aghast at what's about to happen to the global financial structure, outspoken and often outrageous. Nearing the end, he - and the character of Ben Rickert (based on real life, former JP Morgan trader, Ben Hockett, and portrayed in a sublimated, almost solemn manner by Brad Pitt) - realizes that he is betting on the collapse of the bedrock of global finance, the US housing industry, and trillions of dollars will be lost, millions of people will lose homes. The fate of the world weighs heavy upon him.
The Big Short film is well worth watching again, as is a thorough reading of the original Michael Lewis book by the same name. In case you haven't seen the movie or read the book, this qualifies as a MUST, if you have money at risk in any kind of investment because it all is happening again, in a different venue, on an even larger, more obscene scale. Sub-prime took years to grow, metastasize and engulf the financial system. The ongoing "everything bubble," with pension and other long-term passive investments as the target, will literally take decades, and it's already well underway.
It's all happening again in a bigger and more destructive way and it's happening right NOW.
The book and film are available at screaming low prices on Ebay, Amazon and various streaming services (for the film). A purchase is likely to be some of the best investment money ever spent and an understanding of the process will reveal the fraud and deceit being parlayed right beneath the public's noses. Both the book and the film are revealing, frightening, and true.
EDIT: Money Daily may not always be on top of the news, but today's major blast posting may turn out to be prescient. Just moments ago, Wall Street On Parade, the noteworthy blog published by Wall Street insiders, Russ and Pam Martens, released a related post: The Doomsday Machine Returns: Citibank Has Sold Protection On $858 Billion of Credit Default Swaps. In the article, the writers contend that the dark doom of 2008 may be hanging over the canyons of Wall Street once again, as not just Citibank, but JP Morgan Chase as well, have taken big positions in Credit Default Swaps "that are being used to reignite the synthetic Collateralized Loan Obligation (synthetic CDO) market - which vastly added to the leverage that blew up Wall Street in 2008."
Stay tuned.
A few choice clips from the film:
At the Close, Thursday, January 2, 2020:
Dow Jones Industrial Average: 28,868.80, +330.36 (+1.16%)
NASDAQ: 9,092.19, +119.58 (+1.33%)
S&P 500: 3,257.85, +27.07 (+0.84%)
NYSE Composite: 14,002.49, +89.46 (+0.64%)
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