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Stocks Post Suspect Gains Ahead of April Retail; Gold, Silver Bid, Approaching Breakout Levels
Friday, May 15, 2020, 8:24 am ET
Following a weak open, which looked to see stocks extend their losing streak to a third straight session in the red, stocks pivoted, gradually rising off the lows (the Dow down more than 400 points early on) to eventually finish with fair, though hardly secure gains, the advance prompted right at the Dow Jones Industrials' 50-day moving average.
For the seventh time in the past eight weeks, the major averages put on gains in the face of staggering employment losses, as new unemployment claims came in hotter than anticipated, with 2.98 million fresh filings, bringing the two-month total over 36 million out of work.
Equity moves were likely not correlated well to the unemployment data, as the gains all appeared after the news had been known for hours. The more likely scenario was one which has been playing out since the Federal Reserve stepped up its bond-buying activity, but quantitatively and qualitatively. Flush with cash, primary dealers and cohorts ramped into stocks, erasing some of the losses from the prior two sessions.
The move, which is mostly market noise rather than anything substantial, is likely to have been in vain. With investors eyeing what are certain to be horrific April retail sales figures Friday morning, futures are pointing down two hours prior to the opening bell.
Sensing weakness in equities, precious metals caught a long-overdue bid, with gold bounding as high as $1732.70, and silver breaking out to a high in early Friday morning trading of $16.48 per troy ounce.
Premiums on both gold and silver remain high, with popular one-ounce silver bars and coins selling in a range of $23-30, while gold fetches well above $1840 routinely for one ounce coins, rounds, or bars. Despite whatever nonsense the mainstream financial media is throwing out as justification for stocks over real money, demand for precious metals is, and has been, at extremely high levels since early March with no abatement seen on the horizon. The outsized demand has created a supply shortage and has miners and smelting operations working at breakneck speed to maintain at least some modicum of reliability.
With input costs around $1250 for gold miners, exploration and excavation should continue at a strong pace as prices rise and demand continues strong. Undervalued for the past seven years at least, gold and silver mining companies may be looking at solid, if not spectacular, profits in coming quarters.
Bond traders were also able to capitalize on the recent weakness in stocks. The yield on the 10-year note has fallen from a May high yield of 0.73% on Monday to close at 0.63% on Thursday. The 30-year closed Monday at 1.43%, its highest level since March 25, but finished Thursday yielding 1.30% and under pressure.
Oil continues to be a favorite plaything of the speculative class, making a two-month high at $28.25 on hopes that some pickup in demand has occurred since states began getting back to business from May 1 forward. Despite an enormous glut on the supply side, specs and oil company execs are latching onto any rumor or fantasy to get the price off the recent decades-deep lows.
The world continues in a state of shock and despair over the coronavirus debacle and various government attempts to both stem its advance and keep their economies on life support. Indications are that some of it's working, but not very well, overall.
Stocks will need a three percent gain on Friday to avoid a negative print for the week. Only the rosiest prognosis would believe that even remotely possible, though the Fed's heft has overcome dire predictions more than once during the current crisis.
Stay liquid. Next posting will be Sunday's WEEKEND WRAP. Life on Wall Street may be not so sweet if all the currency thrown into markets doesn't produce anything more than a 50% spike off the lows, but that head-and-shoulders pattern on the Dow - now with a sloping right shoulder - is beginning to appear ominous.
At the Close, Thursday, May 14, 2020:
Intent on Self-destruction, the Fed and Washington Politicians Should Be Encouraged to Get On With It
Thursday, May 14, 2020, 7:57 am ET
Two straight days of losses should have some investors a little concerned that all the money the Federal Reserve is using to prop up markets may not be enough.
Especially frightful is the short term head and shoulders pattern the Dow has printed, raising the possibility for another serious downturn that could leave the Fed outflanked, flummoxed, and low on ammunition.
Considering that the recent move forward off the March lows was anything other than an aberration predicated on the vacuuming up of voluminous amounts of debt by the central bank is just wishful thinking. After all, the entire planet is being ravaged - societally and economically - by a pandemic, the likes of which have not been seen in over 100 years. Stocks should have been sold right into the trash pile. Instead, the past six weeks have primarily demonstrated the Fed's ability to meddle in the natural functions of what used to be a free market. While profits were deteriorating at a manic pace the Fed saw fit to massage market integrity with bubble-gum, candy, and ice cream, looking past the most obvious and painful resolution to overpriced, overvalued equities: a quick crash and revaluation at lower levels, bankruptcies for the least protected or most egregiously offensive, and a sober look at systemic solvency.
Acting more like an overprotective soccer mom than a steward of principled financial policy, the Fed managed the nearly impossible feat of taking an already-overvalued market to even greater levels of investment insanity, throwing ridiculous amounts of capital and liquidity into a hyperventilated landscape on the verge of collapse.
It's high time for the Fed and the president to back away from the punch bowl of fiat fantasy and allow the market to determine for itself where it wishes to go, though the likelihood of that happening are about the same as Dr. Fauci speaking out of only one side of his mouth.
The president wants negative rates and while the Fed protests against the lunacy of capital destruction, they will eventually comply because that's all they know how to do. When all you have is a hammer, everything looks like a screw, so it's a safe bet that when push comes to shove - sending the major indices back into bear market territory where they belong - the Fed will no doubt begin to engage in financial hari kari.
By introducing negative rates, they will have effectively given up all hope for salvation of the capitalist system, punishing investors and savers even more than a zero-interest rate policy has for the past two decades, now insisting that bond holders lose money and currency is flattened under the steamroller of failed radical policy.
It's one thing to want to rescue a company or an industry from default or liquidation, but the folly and sheer egotistical panache of trying to save an entire economic system is on the table and being gorged upon by the inmates at the Federal Reserve. The panicky regional presidents and FOMC governors are about to put on a show for the ages, demonstrating, for anyone interested, how a group of supposedly intelligent men and woman can openly conspire to their own demise. With every shovelful of capital they feed to the market, the deeper they dig their own grave, with ample assistance from Washington politicians intent on not being outdone. Congress will compete with the Fed for lunatics of the century by doing on the fiscal side about what the Fed is doing on the monetary side, abandoning any remnant of financial discipline by exploding the federal budget with deficits wider than the Grand Canyon.
The American public should allow it. In fact, we should cheer on their efforts emphatically from our stay-at-home prisons. Since the public isn't allowed to go to sporting events or concerts, garden shows or lectures, the least they can do is encourage the people who masterminded this economic mishmash to demolish the antiquated, decrepit, malfunctioning miasma of governance, economy, and policy as quickly as possible, because then, a new functioning system can begin to evolve, one that hopefully does not include elected morons and economic theorists of central planning.
As predictable as day turns to night, the old gives way to the new. If those atop the pyramids of power wish to willfully fling themselves from the their perches, they should be allowed and even encouraged to do so.
It will hasten the pain and speed the healing.
At the Close, Wednesday, May 13, 2020:
Stocks Triggered By Federal Reserve EFT Buys, Negative Interest Rate Fears; PTJ Buys Bitcoin
Wednesday, May 13, 2020, 8:40 am ET
Once more, the Dow Jones Industrial Average failed to break above a key level, giving up morning gains after President Trump reiterated his desire for the Fed to entertain negative interest rates. Bank stocks were especially hard hit as the belief is that rates below zero would further hamper their ability to control the spread and turn profits despite the ability to skim directly from deposit accounts via the minus sign on yields.
Alongside the president's tweeting, the Federal Reserve began purchasing corporate debt ETFs, beginning with investment grade bonds but eventually swinging down the ladder to high yield, among the most dodgy and riskiest of fixed income products. The intent was announced on March 23, as a response to the coronavirus epidemic, and put into practice during Tuesday's session, with investment firm, BlackRock, as the intermediary, using funds from the Fed and US Treasury.
Seen as the ultimate backstop for stocks and the debt market, the scheme is one of nine separate facilities the Fed is employing to help stabilize - or in most cases, pump higher - markets.
The various backstops being deployed by the Fed, in conjunction with the currency-killing qualities of negative interest rates should eventually result in a gigantic bubble in the Fed's balance sheet, holding investment vehicles that are headed straight to the fiat scrapyard, another sign that the world is heading toward a currency crisis and a new monetary regime.
The attempt to vault beyond the 50% retrace of the March collapse was the third in the past month. The Dow peaked on April 17 when it closed at 24,633.86. After Tuesday's selloff, the head-and-shoulders chart pattern is clearly defined, a strong signal that a major decline is likely.
In recent days, and just prior to its halving, Paul Tudor Jones has bought into Bitcoin, expressing his view that the cryptocurrency will act as a hedge against the inflation he sees coming from central bank money-printing, telling clients it reminds him of the role gold played in the 1970s.
In a quote that is certain to become his trademark, Jones, founder and CEO of Tudor Investment Corp., said:
"The best profit-maximizing strategy is to own the fastest horse."
Unabashedly, Jones believes Bitcoin will win the investment race over the coming years, along with gold, silver and other hard assets.
Jones' entry into the crypto-market stands in stark contrast to famed investor Warren Buffet and his holding company Berkshire Hathaway. Buffet has openly stated that he would never invest in gold or Bitcoin. After selling off his positions in the airlines at a sizable loss, Buffet's Berkshire Hathaway is sitting on some $150 billion in cash, loathing the concept that he finds nothing of compelling value to purchase presently.
Obviously, one of these investing titans is going to be proven wrong. It appears that at the present time, Jones may be holding the winning hand, or, in racing parlance, the live long shot.
At the Close, Tuesday, May 12, 2020:
Universal Basic Income (UBI) On the Table in Washington, DC; Gold, Silver Looking More Enticing
Tuesday, May 12, 2020, 8:24 am ET
Hop-scotching the financial and political universe:
While the news wants to focus on President Trump and the close proximity of coronavirus to President Trump and Vice President Pence, the figures coming back from states that have re-engaged their economies are intriguing, indicative of increased testing with precautions having been tossed to the roadside in many cases.
Possibly, some states jumped the gun in getting the people at least partially back to work and some stores may have opened prematurely, though it's too early to make a definitive judgement. In some cases, the general public wasn't ready to get back to and kind of routine, be it shopping and strolling, punching a clock or dinner at a restaurant. Elsewhere, people were eager to re-connect.
It's only natural and mathematically predictable that with increased virus testing, the numbers of infected will be rising and the media is poised to pounce all over states that were quick off the line. Thus far, there's no true trend detected. That will take a month or longer, as most states began partial re-openings May 1 and deaths from the virus take a month or longer from infection to expiration.
Look for the media to cherry-pick the state-by-state data and come up with the scariest "second wave" headlines possible within a few weeks, if not sooner. The mainstream is always over-eager when it comes to promoting the pornography of demise, aka, doom porn.
Bernie Sanders, Ed Markey, Kamala Harris put forward a bill Friday (May 8) that would provide $2000 a month to roughly 175 million American adults - and another $2000 for each family member under the age of 18 - for as long as the crisis exists.
In one form or another, the bill has support among Democrats while Republicans are holding their cards close to their chests, for now. With money out on the table, it's only a matter of time before congress approves a monthly stipend for Americans, especially if partial re-openings in states result in increased incidence of infection from COVID-19.
$2000 a month may seem a bit over the top, but there will be pressure on Republicans to not look like a modern-day Scrooge in the face of the pandemic. Millions are out of work, and the long lines at food banks will be a useful prop for Democrats to push their agenda. While the politicians work out their differences, expect to see some form of monthly universal basic income (UBI) agreed upon by the spendthrifts-at-large, likely in the range of $1200-1500 per adult per month, and $500 for dependent children.
The monthly tab for such a scheme would fall somewhere between $325 and $400 billion a month, and could last as long as six months (November elections), perhaps longer. A total of $2 trillion would be touted as "reasonable" considering the heft already thrown to Wall Street and small businesses. Besides, anything spent past September would be rolled into next year's budget. With the 2020 budget already $4 trillion in the red, anything under $5 trillion over budget in 2021 will be appealing to the vote-buyers in Washington.
It's coming. The political calculus favors the Democrat free-spending plan without much pushback from the opposition. Expect direct deposits or checks in the mail to begin arriving sometime in June at the earliest, July at the latest. The nation's political leaders just can't help themselves when it comes to over-spending and trying to appear meritorious and compassionate.
Scottsdale Mint continues to advise clients of shipment delays of 20+ days. Other dealers have similar warnings, some demanding minimum order sizes due to an ongoing supply shortage and massive uptick in demand.
Fearless Rick's Commentary
Everybody has some kind of normalcy bias that leads to hoping this corona-demic will subside sooner rather than later. We're all tired of it.
In February, I thought this would all be over in a month. Two weeks hence, I recalculated out to six weeks, which became two months, then three and now, careening into June, having tracked events since late January when the virus began ravaging China and then the world, the crisis appears to be an endless one.
Realistically, whether this event is staged or real doesn't matter. The media, governments, and medical community will lead the vast sheeple population into believing what they want and doing their bidding, right down to idiotic suggestions like baseball games with no fans in the stands (not profitable from an ownership perspective), wearing cloth masks (might as well just wear a Howdy Doody Halloween mask as it will have the same effect), keeping six feet apart from people you live with day-to-day, and other abstract restrictions and recommendations.
I'd like this all to be over and done with, but I know it won't be. I am trying hard to abandon my own normalcy bias and beginning to realize that this "new world dis-order" is going to be with us for a long time. The elites can't resolve anything themselves except to keep the stock market inflated, people distracted or starving or angry, and the planet teetering on self-destruction.
I'm resolved that it's all going to get worse. I'm focused on my garden, my personal well-being, stacking and prepping now for winter, which is inevitable.
A year from now, we'll all still be reading and fretting about the virus, lockdowns, death, etc. without an end date. Best to just carry on with life in as usual a manner as one can command. The government is only going to help for a while and in a limited capacity. Once the elections (which is all anybody in Washington DC cares about) are over and done, a cruel, harsh winter is the most likely outcome. Cold weather seems to bring out the worst in people, and if the federal and state governments don't have a handle on both the economy and the virus by then, they'll be facing an even angrier, colder, more determined populace seeking retribution for what they believe was avoidable.
Try to think at least six months ahead of the herd. That way, you'll be more likely to outrun the stampede.
At the Close, Monday, May 11, 2020:
WEEKEND WRAP: Fed Fiat Funny Money Has Managed to Short-Circuit the Crisis, for Now
Sunday, May 10, 2020, 1:44 pm ET
Against a backdrop of Great Depression-like numbers - 33 million Americans out of work and an "official" unemployment rate of 14.7% - equity investors enjoyed a remarkably positive week, with all major indices rising by at least 2.50%, with the NASDAQ leading the way with a six percent gain.
The NASDAQ's advance was not only remarkable, but it is also ludicrous. The tech-heavy index has advanced beyond both its 50 and 200-day moving averages and is within 720 points of its all-time high. Investors in the speculative sector of the market have either divorced themselves from reality or are seeing something the rest of the world is missing. Money has to go somewhere, even money from the Federal Reserve, released to companies across the investing spectrum, but most of it appears to be heading toward Silicon Valley.
No doubt, chasing momentum has amplified the absurd move to the NASDAQ, which is likely a dangerous precedent. Many of the companies moving higher sport P/E ratios well above the norm, even the norm in a major bull market, a position that was shattered eight weeks ago.
Some of the standouts in the nebulous NASDAQ unicorn universe include Alphabet, parent of Google (GOOG), bottomed out at 1056.62 on March 23, and closed Friday at 1388.37.
Netflix (NFLX) fell out at 298.84 on March 16, but has since rebounded to Friday's close of 435.55.
Amazon (AMZN) reached an all-time high of 2474.00 on April 16, after dropping to 1676.61 on March 12, an amazing gain of 47.6% in just over a month. Amazon may be a superb, dynamic company, but it's arguably extremely overvalued, with a P/E of 113.
Facebook (FB) finished at 146.01 on March 16 and closed at 212.35 on Friday.
Some investors have been getting fat while the larger economy has, for the most part, imploded.
As almost all states (47 of 50 as of Saturday, May 9) have at least partially reopened their businesses and relaxed stay-at-home and other restrictions on the populace, anecdotal reports show that business is still a long distance from anything approaching normal, i.e., prior to the COVID-19 pandemic.
Wall Street is pushing a narrative that the country and the economy is all well and good, the recovery - in terms of stock prices - well underway, even as cases of coronavirus are still prevalent and rising in some cases and deaths continue at a run rate of over 1,000 a day. How well that works out for investors won't likely be known for some time. For now, investors, and the companies getting the most attention, are sitting pretty.
Crude oil continued to be under pressure from both a supply glut and slack demand, hovering in the mid-20s throughout the week. The June contract on WTI crude rose from $19.78 last Friday (May 1) to $24.74 a barrel this Friday (May 8). The contract expires within two weeks and there hasn't really been much improvement on the supply side of the equation, though demand has improved as the United States and most other countries around the world have begun getting back to business.
The treasury curve steepened over the course of the week. The entire complex is covered by 129 basis points as of Friday, up from 117 the prior week. All of the yield gains were at the long end. As money rushed out of bonds and back into stocks on Friday, the 10-year note added six basis points, to 0.69. The 30-year bond yield gained from 1.31 to 1.39.
Precious metals continued to be among the most-desired asset class since the onset of the pandemic. Both gold and silver are selling at massive premiums (up to $200 for gold, 40-80% for silver) and dealers are still experiencing supply issues with many popular items out of stock, though available to order. Delivery times have come back a bit, with gold and silver in quantity available within two weeks of placing orders.
Here are representative recent prices (5/9-5/10) on eBay for standard gold and silver coins and bars (prices include shipping):
In cryptocurrency-land, the Bitcoin Halving approaches. Fr those unfamiliar with the concept, the "halving" is the predetermined moment when Bitcoin's block subsidy gets cut in half. The halving of Bitcoin's block subsidy occurs every 210,000 blocks (approximately every four years) and is a key feature of Bitcoin. It is because of the Halving that there is a capped supply of 21 million bitcoin that will ever exist. The halving is scheduled to take place Monday at approximately 6:49 pm ET.
Bitcoin surpassed the $10,000 mark in US dollars, but fell back to the $8850 range in anticipation of the event.
And, just to throw another spanner into the works, the government of Argentina failed to reach agreement with creditors by its self-imposed Friday deadline, essentially defaulting on $65 billion worth of bonds, though talks between the two sides are continuing. Argentina will formally default on May 22, as it missed a $503 million payment last month and the grace period is expiring.
Talks were extended through Monday in hopes that Argentina could avoid its ninth sovereign default.
At this juncture, everything is at risk. According to recent economic data, the global economy is flat on its back. Most developed countries are either in a recession or about to enter one. The response to the coronavirus has ramped up unemployment and knocked down GDP estimates.
Thanks to massive infusions of capital from the Fed and other central banks to both business and individuals, the crisis has been managed to a degree, but the future remains a guessing game. Whether or not QE to infinity will save the day - and the underlying currencies - is a real gamble.
At the close, Friday, May 8, 2020:
For the Week: