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Money Daily has been providing business and financial market news, views, and coverage on a nearly continuous basis since 2006. Complete archives are available at moneydaily.blogspot.com.
So Much for That V-Shaped Recovery as Dow Sheds 1861 Points, NASDAQ Drops 527
Friday , June 12, 2020, 6:53 am ET
That rally - the one that started on right away on March 24 with a 2100-point gain, the day after the Dow bottomed out at 18,591.93 - is over. Smart traders made money. Anybody who was fretting about their retirement account and didn't exit, well, there's still time. The market giveth and taketh away. In this case, thanks to emergency measures by the Fed, the market gave almost everybody who didn't get out a gold opportunity to make for the hills.
If you're still in, you're either a day-trading maniac or just plain stuck on stupid. There are other asset classes. There's always cash. This second leg down is likely to be much more severe than the first because it will take months instead of days to wipe out trillions in invest dollars. Rest assured, at the end of the second leg, everybody's a loser.
Putting it all into perspective, after the major indices fell into bear market territory - defined as down more than 20% - the duration of the bear market was record for brevity: five weeks. Not that those five weeks in the doldrums will go down in the history books as a traditional bear market; they'll likely be remembered as the start of the Greatest Depression, spawn of the coronavirus, oil shock, and global plebeian protests because the stock market decline began again in earnest on Thursday, June 11.
The loss on the Dow was nearly seven percent, ranking it just outside the Top 20 in percentage terms, but number four in regards to points lost. It ranks behind three other losses, all from this year, which is about all one needs to know about stocks in the year 2020. The NASDAQ loss of 527.62 was also the fourth-highest, point-wise. Similarly, the three greatest point losses in NASDAQ history also occurred just this past March.
No, there will not be any v-shaped recovery as the market charts suggested. That was all a fantasy, spun out of whole cloth from the Federal Reserve. After all, how could stocks rally when unemployment was somewher in the neighborhood of 15%, people around the world were dying from a pandemic, whole nations and most states in the US were shut down for anywhere from a month to ten weeks, corporate earnings were in the toilet and second quarter results were still a month down the road?
The fairy tale rally never made any sense and never will except in regards to some very rich people making even more money without doing a damn thing. Rest assured, most of them were selling today or have either significantly trimmed their positions or added hedges, by which they'll enrich themselves even further on another downdraft.
There is likely to be a snapback on Friday. No telling which way it will eventually eventually turn, but recent market action offers a strong indication that a 1200-point swing to the upside on the Dow might be key to understanding the psychology of crazy. Anything less than that would leave the Dow just below its 200-day moving average.
Be mindful that despite the Dow's 9,000-point gain (yes, that's right, 9,000 points!) over the past 12 weeks, the current chart is one of a primary BULL market according to Dow Theory. The Industrials exceeded the December 2018 lows to the downside, and then erupted to the upside, cancelling out the bear reversal. Dow Transports confirmed the move, doing the same.
Nobody is betting on conformity with current market conditions. The Fed's emergency rescue facilities have only added to the overall distortion from QE, ZIRP, and other experiments in currency counterfeiting. Hanging one's hat on theories dating back to the early 20th century might engender more anguish than reward.
Some will call Thursday's pullback "healthy", but those are probably the perma-bulls in the room. Anybody who can say with a straight face that the US or global economy is healthy ought to be selling used cars rather than stocks.
WTI crude fell more than $3 on the day, from a range around $39 to $36. Gold and silver were unceremoniously smashed lower on futures markets, but, as has been a repeating theme, will likely bounce back quickly as premiums and shortages persist.
The long end of the treasury complex continued to rally, dropping yield in the 10-year note and 30-year bond from 0.91% and 1.68% last Friday to 0.66% and 1.41%, respectively.
At the Close, Thursday, June 11, 2020:
Thursday , June 11, 2020, 7:25 am ET
If Forex is in your wheelhouse, you've no doubt noticed the recent decline in the US dollar against other major currencies. The Dollar Index has been pretty shaky as of late, but the current trend in the aftermath of the worst of the coronavirus pandemic is lower, with no bottom in sight.
After sinking to 94.89 on the 3rd of March, the dollar leapt back to an interim high of 102.82 on March 20th. Wednesday's quote was 95.96, a decline of nearly seven precent, most of that happening within the last three weeks.
That's not surprising, given that American cities have been beset upon by hordes of protesters, complete with rioters, looters, cop killings, tear gassings, rubber bullet maimings, autonomous zones (Seattle's Capitol Hill is one, recently claimed and occupied by protesters as police vacated the 3rd Precinct) and general lawlessness, making dollar holdings somewhat of a risky bet in the near term and, as dollar dominance recedes, maybe for much longer.
At the conclusion of the Fed's Tuesday and Wednesday's FOMC policy meeting, Chairman Jerome Powell made a definitive statement on interest rates, saying that the overnight federal funds rate would remain at the zero-bound at least until 2022. That kind of central bank sentiment doesn't exactly inspire confidence in the world's reserve currency. It indicates nothing less than a failure of financial system underpinning, a condition that first appeared in 2007, was not adequately addressed and has now become a systemic crisis without hope of positive resolution.
While the Fed still has the monetary muscle to backstop financial assets it does so with counterfeit, a fictional fiat currency without backing that eventually will be worthless. History has shown this to always be the case. Fiat currencies die and a new financial system is erected. Normally, the new system is backed by gold or silver, or a combination of the two. This time is no different than any other. The Federal Reserve and other central banks can continue their charade for only so long. Eventually, income disparity results in runaway inflation and widespread poverty, prompting clamor from the masses, which we are witnessing on a global scale today as an epochal societal revolution.
Such incalculable convulsions encourage escape from the clutches of unfair finances promulgated by central banks. People seek refuge from currencies that are losing value rapidly. Housing, health care, and eventually, food become unaffordable to the vast swath of middle and lower classes. Alternatives are sought. Gold and silver are the most readily available to the public. Silver becomes particularly of interest due to its lower price points. The availability of metallic money becomes a point of contention as people with limited means crowd into the space, which is exactly what's happened since the onset of the coronavirus.
A 10 troy ounce gold bar at Apmex.com is offered for $18,255.90. At Scottsdale Mint, the popular one ounce silver bar dubbed "The One" starts at $25.05 and goes down in price to $23.42 depending on quantity and method of payment. Of course, given that one would be willing to pay a price that carries a premium of seven dollars over spot, one would be out of luck, as "The One" is currently out of stock.
These are just a few examples of what happens when a confluence of events (pandemic, endless fiat currency creation, summer-long protests, high unemployment, rampant inflation) strikes the minds of people with money and assets. They either go with the flow and stay in stocks or look to gold and/or silver for some safety. With bonds yielding little to nothing - sometimes less than that via negative rates - and default risk rising (hello, Argentina!), precious metals offer a reasonable alternative.
Futures and spot prices for the precious metals might as well be cast upon stones for what they fail to deliver in terms of price discovery. Being holdovers from the failing fiat regime, they are being left behind as physical holdings dominate the marketplace. Prices are exploding on eBay and at dealers, as shown in the examples above. Money Daily tracks prices on eBay for one ounce gold and silver coins and bars weekly in it's Weekend Wrap every Sunday.
Other ways to deploy currency are in art, collectibles (comic book prices are through the roof), vintage automobiles, commodity futures, real estate, ad other asset classes, but none of those share the characteristics of precious metals as real money, except possibly cryptocurrencies like Bitcoin.
Wall Street, the Federal Reserve, and the federal government are hanging onto their prized positions of monetary and political authority by their teeth. It's only a matter of time before all of it fails. The nationwide protests are proof that the federal government is losing control of the country in manifest ways. Unrelenting gains in precious metal prices - and the attendant, repeated attempts to contain those gains in the futures markets - is evidence of the Fed's desperation, just as Wall Street's recent snapback rally is a mirage based on easily available fiat currency and nothing else.
It's all tumbling down and there's nothing that can stop it. The demise of the dollar has been an ongoing orgy of dislocation for decades. Trillions of dollars added to the Fed's balance sheet, euros at the ECB, yen at the Bank of Japan, yuan at at PBOC are mere stop-gap measures which do not address the underlying solvency issues. If the stock market crash in March wasn't enough to scare people out of stocks and fiat, the coming wave will surely devastate those who failed to heed the warning. Via the Fed's emergency measures, Wall Street has given investors a golden opportunity to diversify out of stocks. Those who fail to take the opportunity will suffer a heavy economic blow.
At the Close, Wednesday, June 10, 2020:
Wednesday , June 10, 2020, 7:23 am ET
300 points on the Dow Industrials really isn't a big deal these days. The Fed can make that up in minutes if they so desire. The level of fakery and ridiculous valuations in US equity markets is off the charts. It's like the world is knocking down the downs of these corporations to own a minute fraction of their business, a model, in most cases, that benefits the executives first and shareholders later, if at all.
Take Boeing for instance. Who in their right mind wants to own any of that. A legacy of planes that fallout of the sky and crash, huge bonuses paid to executives asleep at the wheel, mammoth pension obligations that the company will never be able to satisfy are just a few of the salient features of this so-called Blue Chip.
Maybe that moniker should be revisited and the definition revised. Your money will be chipped away until you've lost half or more, and you'll be blue. That would pretty much describe many of the "glamor" stocks touted by the willfully ignorant brokers and boiler room grifters who peddle corporate trash.
Not to say that all corporations are evil or that all investments are bad. Bears are solidly in the minority when it comes to investing, picking stocks, passive indexing, riding momentum or whatever else passes the litmus test at the local retirement home. There are plenty of good investments and good times to make them. Right now, after seeing the fed-pumped run-up over the past 10 weeks, just doesn't feel like one of those times.
The next chapter will be written Wednesday afternoon when all eyes and ears turn to Jay Powell and the FOMC. Being that he's been able to ward off a full-blown depression - by Wall Street standards at least - one wonders if he sees the protesters in the streets day after day, night after night, and wonders whether he is part of the problem.
Probably not. Why worry his little head over something so trivial as two straight weeks of nationwide protests when there's money (currency) to be made, new worlds to conquer and all that noise?
Treasuries yields on the long end of the curve have been decidedly lower over the first two days of the week, the 30-year falling from 1.68% to 1.59% and the 10-year note dropping to 0.81% from Friday's close at 0.91%. With the short end stable, the curve is beginning to flatten out again, something the Fed can hardly avoid happening.
The chit-chat this week has been over something called "yield curve control (YCC)," by the Fed, a real effort that requires skill and diligence to keep bond yields where the central bank wants them. The policy has been in place in Japan for the past four years, with limited success, though the argument from commercial lenders might offer a different theme because they're largely crowded out of the market and have difficulty making profits.
While something of this nature might work all right in a homogenous zombie economy such as is Japan's, and the Fed seems willing to try just about anything to distort markets and conceal price discovery. An experimental yield curve control mechanism should be right up their alley and no doubt they're considering it. Whether the Fed makes their desire to be even more injurious and paralyzing to capital markets publicly known might be a question not raised in polite company. After all, with a word record stock bubble on their hands and the world's reserve currency to babysit, it's unlikely that the Fed would make all their plans public. Some things are better kept quiet, at least until the next crisis.
Argentina watch: It's been a couple of weeks since Argentina actually defaulted on some bonds, missing a $500 million interest payment last month amid a circus of negotiations and proposals that seem to be largely aimed at preventing the triggering of credit default swaps (CDS) and the messy counter-party finger-pointing that is associated with such events. Nobody likes losing money, but, as seems to be the case with the Argentines, there isn't much one can do when there's no good collateral or currency the bond holders are willing to accept, though both sides are trying.
Judging by reportage of the ongoing negotiations it appears that a deal is not about to be struck. Both creditors and the debtor, Argentina's government, seem reluctant to go too far out into the ether. When phrases like "restructuring talks are sparking hopes and tension", "amended proposal", "for a second time sweeten an original offer", "moving June 12 deadline", and "limited further upside" there should be cause for concern, especially when nearly every article on the subject of Argentina's debt "restructuring" ends on a positive note along the lines of "there will be an agreement sooner or later - the difference between the parties is just too small..." one can sense the tinge on panic.
There's supposed to be a final proposal presented either Thursday or Friday, which means probably Friday night some government clerk will slip a note under the hotel door of one of the three major creditors - BlackRock, Fidelity and Ashmore - with an outline of the proposed deal, giving them time to mull it over the weekend.
By Sunday night the world will either hear "we're close to a deal," or "talks will continue Monday" all along both sides well aware that any kind of deal over $65 billion in bonds at this juncture is more sizzle than steak. They're trying to kick the can further down the road, but they're getting dangerously close to the cliff at the end of it.
Finally, US government debt is about to exceed $26 trillion dollars. Trying to get a handle on that kind of number is difficult, but let's start with this: $26,000,000,000,000. Or, how about the burden to every American citizen of $78,600? Kind of makes that credit card debt seem insignificant, doesn't it?
With a run rate of over a million dollars per minute, US national debt, currently $25.92 trillion, increased by nearly $800 billion between April and May and continues at a pace of somewhere between $15 and $20 billion a week. It's possible that the debt will hit $26 trillion by the end of the month, depending on how it's calculated, and we may be able to celebrate the event with fireworks if it happens on or around July 4. If that's the case, remember to social distance and wear a mask.
At the Close, Tuesday, June 9, 2020:
Tuesday , June 9, 2020, 7:40 am ET
We live in Bizarro-world.
Protests stemming from the police killing of George Floyd continue to proliferate across the United States and around the world at the same time the COVID-19 coronavirus spreads against government efforts to control it. At the same time, stocks continue to erase the losses from the initial virus shock that occurred in March when stocks dove into bear market territory.
As for the shortest bear market in world history - five weeks - it's exceptionally amusing to see the money magicians at the Federal Reserve and other central banks around the world create trillions of dollars (and yen, and euros, and pounds, and yuan) out of thin air and see that money flow almost directly into stocks, as if there were no other asset class in the world. Obviously, there are other assets classes, but the stock market is the one which delivers the most bang for the buck, so much so that the NASDAQ made a new all-time high on Monday.
That's just not normal. Nothing about the Fed-induced stock rampage is normal. To make a point, one could attest to it being mostly fake. It's fake money, counterfeited by the Federal Reserve, funneled to primary dealers to ram into stocks whose earnings have been cratering for months, some for years.
Measured in earnings growth or other metrics, stocks have never been more expensive, making a case for the "greater fool" theory where one buys shares in an overvalued company at an inflated price based on the idea that somebody dumber than you will buy it at an even higher price. It's working. There are fools a'plenty making a mockery of fundamentals and due diligence cashing in at incredible rates of return.
Take for instance the NASDAQ, which closed at 6,904.59 on March 16, the bottom of the COVID-19 shock treatment. Monday's record close of 9,924.75 marks an incredible return of 43.74 percent in less than three months. Annualized, that's a return of more than 174 percent, a figure that would have everybody in the world retiring at 40 in the ultimate "buy the dip" scenario.
Obviously, that kind of return is unthinkable, or, at least it used to be, until we entered Bizarro-world where cats mate with mice, birds sing full operas and Tom Hanks becomes a top home run hitter in the major leagues... if there was such a thing as professional baseball, which there is not, nor is there likely to be this year.
In bizarro world, Hertz, which filed for bankruptcy a few weeks ago and traded for under a dollar last week, soar to over $5.50 on Monday. There's a 500% return right there, in just a few days. Thank you Jerome Powell, unrivaled leader of Bizarro-world.
Speaking of Mr. Powell, the FOMC begins a two-day meeting this week at the end of which they will announce their monetary policy. The ritualism of the Fed harkens back to tribal proceedings of the Aztecs, wherein the almighty witch doctor or shaman would enter the temple of the gods - with or without virgins - and emerge a day or two later with a proclamation for the masses. The wizened leader would announce that the rainy season was ending, or that pomegranates could cure mental illness.
The savages would praise the leader and spend the evening partying and dancing until they wore themselves out. It's an apt analogy for the ritual FOMC meetings which are held 10 times a year, or, for the anachronistically-unchallenged, SSDD.
Tuesday's meeting will extend to 2:00 pm ET on Wednesday, at which time the money masters will make their announcement that all is well, release a summary of economic projections, and hold a press conference at which Chairman Powell will amuse and bedazzle the attendant financial media slaves.
And Bizarro-world will continue.
At the Close, Monday, June 8, 2020:
Sunday, June 7, 2020, 10:52 am ET
The week was one of consistency on the major indices, with stocks closing higher every day except Thursday, though, of the big four, the Dow was higher every day of the week, culminating in Friday's blow-off rally following the release of May non-farm payroll data from the BLS.
There was a considerable amount of speculation regarding the veracity of the BLS figures, which showed a net gain in May of 2.5 million jobs, the unemployment rate falling to 13.3%, according to the official release.
Most of the nation at least partially shut down during the month, the data provided by the BLS, while good enough for Wall Street's stock enthusiasts, has to be considered at least partially flawed, given that continuing claims for unemployment insurance rose sharply in the most recent week, hitting nearly 21.5 million.
Given that the April non-farm payroll report was a blockbuster all-time record at -20,537,000, revised higher, to -20,687,000, adding in the +2,509,000 would yield 18,178,000 still unemployed at the end of May, a number that does not jibe with the 21,487,000 continuing unemployment claims reported by the US Labor Department.
Also taken into consideration for the discrepancies between the two reports are the differences in reporting schedules and the Labor Department's estimate of more than 42 million initial claims filed over the past 10 weeks. Simply put, a lot of people went back to work in May, but there are still somewhere between 18 and 25 million unemployed. By claiming a record job creation number in its May data, the BLS has likely overstated the case for people returning to work after a brief hiatus due to the lockdowns caused by extreme measures taken to combat COVID-19.
A jump of 2.5 million jobs for the month has to be taken somewhat tongue-in-cheek since these are not new jobs whatsoever. The economy didn't produce 2.5 million new jobs. A better explanation would be that during the month, more people went back to work than were laid off or fired, by about 2.5 million.
Therefore, while the BLS can be accused of massaging their data to produce a positive headline, their methodology and timing remain - as has been the case for a very long time - somewhat suspect. There's still a massive unemployment problem which was manifest by the enormous numbers of protesters that appeared in cities nationwide over the course of the week. Many of these mostly young people were out on the streets during daylight and into the evenings. It would be logical to conclude that the vast majority of them were not holding down full-time jobs.
The protests underscore two things, neither of which have anything remotely to do with the death of George Floyd or police brutality. First, the protests are more about income inequality than anything else. These young people from Generation Z and the last remnants of the Millennials are becoming more and more impatient with the structure of the economy, even though most of them don't recognize that as the overriding factor of their movement.
While the chants of "Black Lives Matter" and "No Justice, No Peace" make for sensationally simple-minded soundbites on the mainstream media's morning and nightly news broadcasts, the root of the frustration is an economy which provides fewer jobs than are needed for fewer hours per week, at low rates of pay while the purchasing power of the dollar continues to decline, especially in some very important areas, those being primarily, housing, education, and health care.
When economists decry that large government deficits will be bourn on the backs of future generations, what we are seeing today is the truth of that dictum as the youthful protesters on the street are the generation now paying for the deficits rung up from the 1970s and '80s. It's a continuing, systemic problem that isn't about to go away. People trying to enter the workforce and engage in meaningful careers are finding it harder and harder to make ends meet. Income has net kept pace with inflation over the past 40-50 years, dating back to when then-President Nixon took the country off permanently off the gold standard in August of 1971.
There are certainly many young people doing fine in their careers. Those with masters degrees or doctorates or well-honed skills make very good money, but at a considerable price. Their cost of eduction can be measured in their student loan debt. Since housing costs have risen to extreme levels with only a slight blip in 2008-09, the affordability of just plain living quarters tests their resolve. Those wishing to start families (a declining number) see health care costs spiraling out of control. And those are the lucky ones with good jobs and dual incomes.
The rest of their generation struggles with all of that at lower pay and onerous debt. Many Millennials and Generation Z youths live four and five to a single home or apartment. Most cannot save anything, much less even dream of owning their own homes. Pity those who have medical conditions. Most cannot afford $300-$600 a month premiums with $5-8,000 deductibles, so they go without. To a lesser degree, the same conditions affect the backend of the Baby Boomers and early Millennials who have lived their lives on the fringes of society.
It's a condition of perpetual decline when roughly half of adult Americans do not have any savings whatsoever, the result of massive, uncontrolled government deficits, fait currency backed by nothing, printed to the hilt causing the purchasing power of the almighty dollar to slide into obscurity. It's not going away. In fact, with the Federal Reserve now in the process of either buying up or backing every stock or bond issued, hoisting their balance sheet by more than three trillion dollars in just the past three months, the US economy has become one of very few haves and very many have-nots, manifesting itself as runaway inflation. Not confined to just the United States, the rest of the world is revolted and revolting. Under current fiscal and monetary policy, the entire planet is rapidly turning into an oversized Venezuela.
Dissatisfaction with the political process is the second tenet of the protesters root causes, dovetailing income inequality and unaffordable living conditions. Federal, state, and local governments are ill-equipped to handle even ordinary stresses. Now that unemployment is on the rise and inflation is taking hold, government resources are stretched beyond their means. When people needed food during the recent lockdowns, government made little effort to step in. Food banks, charities and private citizens stepped up to fill the void. Government is increasingly being viewed with a jaded eye, neither responsive to people's needs nor able to fulfill basic obligations. People are simply tired of paying taxes and getting little to nothing in return. Individual income tax revenues are falling off a cliff while government debt continues to rise at an accelerating pace. Nothing about the current social and political condition is sustainable over anything but the short term, which is why we are seeing one crisis after another, bailout after bailout, emergencies arising on a regular schedule.
The United States and the rest of the world cannot buy or borrow their way out of this situation with policies that only increase debt and the burden to society. President Trump and Wall Street can go giddy over the most recent jobs data, but the underlying problems continue to mount and they're not going away. For all the media hype and government high-fiving in the short term, there's a larger price to be paid down the road. After years of can-kicking of core fiscal and monetary issues, the road is coming to an end. Most people, politicians, and financial planners don't have sufficient knowledge or vision to see where this all leads, preference being given to the present.
The NASDAQ is less than one half of one percent away from breaking to a new all-time high (9838.37).
The S&P 500 is about six percent away from a record close (3393.52).
Stocks are likely to continue climbing to record highs, but a period of stagnation lies just ahead. The bear market which was cut short by the Fed's money-pumping mechanisms and the government's emergency spending bills was the shortest on record, lasting a mere five weeks. Another bear market will be coming, as this one was papered over with currency that has only declining value. Oil prices are back up and by Friday, interest rates on treasuries had exploded. The 10-year note yielded 0.66% on Monday. By Friday, they were at 0.91%. The 30-year yield went from 1.46% to 1.68% over the course of the week. Shorter-dated maturities remained low, steepening the curve.
The final question for economists is this: How can high unemployment and tighter currency (higher rates) co-exist. The answer is very simple. They can't. With business unwilling or unable to expand, few will be hiring. Unemployment will remain elevated until there's a clearing or restructure of debt and businesses see a rosier future.
The Federal Reserve and the federal government has a very big problem on their hands. The pandemic and street uprisings were just the opening chapters of a very long story.
Gold and silver saw gains early in the week, only to be hammered lower on the paper markets.
The latest prices on ebay for one troy once items (shipping - often free - included):
Premiums for silver are, on average, ten dollars or more over spot. Gold premiums are $80-100 over spot.
Greg Mannarino expounds upon the jobs number being cooked, market response and his positioning:
At the Close, Friday, June 5, 2020:
For the Week: