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%)

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%)

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%)

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]

Far From Ordinary Times For National Economies

Empires rise and fall. Nations traverse through periods of feast and famine, disputes with other nations, sometimes wars, and economic booms and busts. History is rife with stories detailing the life and times of nations and their leaders.

The vast majority of nations today face conditions that are far from normal.

There are at least three major migrations taking place, Africans to Europe, Chinese to Africa, and South Americans to North America. These are disruptive events, not only for the individuals involved but for the entire populations of the nations affected. Changes are gradual, mostly, but the mundane can be cracked by atrocities, absurdities and maladjustments committed by migrants in the clash of cultures.

Such conditions are prevalent in Europe and the United States, with migration reaching epidemic proportions. Indeed, President Trump himself calls the illegal immigration at the southern US border an "invasion." He is not wrong. The United States was built on the back of immigrants - legal ones - whose individual efforts and respect for their fellows built the greatest nation on Earth.

Illegal immigration is challenging the normative behavior of well-established citizens. According to certain left-leaning politicians and a corrupted media, illegal immigrants should receive free health care, free schooling, and largely, freedom from gainful employment. Ordinary, established US citizens do not receive such largesse, nor should they. Nor should the illegal entrants, who have violated our borders, broken our laws and flaunted the lifestyles and even the national flags of whence they came.

Such activity is largely disruptive to the fine working condition of a nation and the United States has been building to this state of affairs for more than 40 years. Estimates of people living in the US illegally range from 11 million to as many as 60 million people. The higher end of that range is probably closest to the truth, which is why immigrants - mostly the illegal ones - disrespect US laws, commit crimes, and take advantage of an overly generous social framework and increasingly undisciplined judicial process.

The condition in many European countries is far worse, where theft, rape, and other human crimes are committed with impunity. Often, if an immigrant is accused of crime, there exists no punishment. The system feeds upon itself and eventually fails to protect the national culture.

That is not all. Every nation on earth is controlled economically by an unelected elite, otherwise know as a central bank. In Europe, where the financial condition is dire, all nations on the continent are controlled by one central bank, the ECB. Nations have usurped their right to issue currency, having been overwhelmed by the collectivist desires of the European Union. The ECB issues fiat currency, in the form of a counterfeit euro, bolstered most recently by negative interest rates because the system is a fraud and it imploded over 10 years ago, during the Great Financial Crisis. The global central banks added untold amounts of liquidity, but it will never be enough because the crisis is one not of liquidity, but of solvency. All central banks create currency out of thin air, charge interest for its use, and, via the magic of fractional reserve lending, multiply the amount of currency in circulation by ghastly amounts.

The system is broken and will remain broken until it is completely rejected by the various populaces which employ it. That moment in time is unknowable, but it is inevitable.

There is more.

Great Britain, wise enough to keep their currency - the pound - national in nature, is attempting to exit the EU, but has been met with resistance three years since a national referendum preferred exiting, or, in common parlance, Brexit.

This is a further disruption to the status quo, and the elites will have none of it.

President Donald J. Trump, of the United States, foments more radical departures, not the least of which being his penchant for fair trade via tariffs. For three decades, the globalists have promulgated their "free trade" jingoism, which is commonly broken, cheated upon, corrupted, deceitful, unequal, and decrepit. Global trade should well collapse, and if President Trump's tariffs are the agent of change, all the better.

Thus, these days are far from normal. Superficially, people go about their business as if nothing is brewing beneath the casual calm. There will be a shock, probably multiple shocks, similar to, and many of them larger than the events of 2007-2009.

How long the politicians, bankers, and the media can keep a lid on the calamity that is bubbling up below, is anyone's guess, but their time is running short. Currencies will collapse, nations will fall, there will be wars.

It would pay to keep a sharp eye on one's assets, hard and soft. Anything that is not well-protected can be stolen away in a flash. Consider the number of security breaches at financial institutions as warnings. The money is unsafe. Hard assets are safer, but must be protected, defended.

All of this is frighteningly real and happening at breakneck speed. The usual media sources will not tell you the truth. You must find it on your own.

Ten years is a long time for the central banks and their friends to keep the spinning plates of a corrupt, defunct global financial construct from experiencing inertia and crashing to the floor, shattering into millions of tiny, unrecoverable pieces.

The spinning will end. Everything will change.

At the Close, Monday, August 12, 2019:
Dow Jones Industrial Average: 25,897.71, -389.73 (-1.48%)
NASDAQ: 7,863.41, -95.73 (-1.20%)
S&P 500: 2,883.09, -35.56 (-1.22%)
NYSE Composite: 12,586.24, -162.18 (-1.27%)