Janet Yellen was quoted as saying there are gigantic holes in the financial system and warns of another potential financial crisis. Now that’s funny. The woman, along with Bernanke, brought us 8 years of 0% interest rates, the printing of almost $5 trillion and in concert, had Europe and Japan print and actually go into negative rates enabling a massive, massive, massive, massive…did we say massive debt and leverage build-up around the globe…now warns us of trouble that would have been caused by her and her buddies. How precious!
The market experienced another strong reversal to the upside yesterday, the 2nd in 3 days. As we said yesterday, the importance can be significant for now. We say this because AGAIN, major indices held important, gargantuan, monolithic support levels that have held 3 times since late October. A hold does not mean we are off to the races but a hold can be built on. We outlined several reasons for the potential yesterday. 1) Those support levels being vital. 2) Huge bearish sentiment finally showed up. 3) Oil price crash a boon to the economy. 4) It’s December. 5) How far markets had dropped in just 3+ days. The DOW down 8%, S&P down 7.75%, NASDAQ down 8.1%, NDX down 8%, Russell 2000 down 8.4%, SOX down 10% and the TRANSPORTS down a whopping 12.5% in just over 3 days…not to mention misery around the globe. 6) The most important part of the equation, the Fed now moving to have the market’s back. We cannot continue to tell you how important this has been throughout the past decade.
And something we did not mention yesterday…trade. This morning, there was supposed good news on trade as China announced this, that and the other thing. Futures are up nicely on the news. So…another chance for a decent low. We are all for it sticking. Just know that if at any time the lows are taken out, we suspect all hell could break loose. But for now, looks like another low but don’t blink. Rallies and drops have lasted days, not weeks…and keep in mind, everything remains BELOW longer term moving averages/resistance. And lastly, don’t blink!
-The good news news is that for the 2nd time in 3 days, markets had a strong reversal to the upside after early nausea. For today, the goal line stand the market needed showed up. Hopefully, maybe, could be, we are seeing another low. On many occasions, these types of washouts at important support serve to put in near-term lows. After all (ready for these numbers), in just over three days, the recent drop had major indices tank 7.5%-12.5%. Again, those are the numbers for the major indices…not individual stocks, which always fare much worse than an index. Amazingly, from peak to trough, the TRANSPORTS dropped the worst, 12.5% in just over 3 days.-
-Normally, drops and bounces in markets like this last weeks, not days. But we get what we get and deal with it. Normally, we tell you to expect upside testing after another great defense/reversal day like today. But look what happened after Thursday’s reversal. We will just say today helps the cause in the near term…but there is nothing normal in the action we have recently seen. Just keep in mind, further upside would not change the big picture.-
-The one area that is finishing off the lows but is still nicely down is the financials. If they cannot rally, we promise you any rally will be anemic and short lived. The good news is that beta/tech had very good relative strength all day. But…don’t blink!-
Futures reversed overnight. Were down 200…now down just a wee bit…but was actually up nicely 30 minutes ago. Let’s not forget a few important factors.
MAJOR INDICES are now sitting at or near the lows that have now been hit three times. The last time was Thursday, where the market experienced a strong reversal. Friday was less than thrilling. Until the indices get taken out, they are not. DUH!
On the POTENTIAL…and only say POTENTIAL positive side:
Sentiment is extremely bearish. One of our main indicators is now sitting where it was at the June and August lows. Keep in mind, just because sentiment is bearish, it does not mean the market turns. Sentiment is a secondary indicator. price is primary.
We continue to believe THE FED AND BEN (JAY POWELL) BERNANKE WILL BE DONE WITH RATE HIKES NEXT WEEK. As you know, at least we think you know, markets have been on a magic carpet of easy money through the years where rates were kept at 0% for 8 years and $trillions were printed. We are amazed at so many that are pissed because the fed is at a measly 2%. On top of that, the more important 10 year is less than 2.9% To this day, Europe and Japan are still negative with rates and still printing money. WE DO NOT IGNORE THIS BECAUSE WE HAVE SEEN FIRST HAND WHAT EASY MONEY HAS DONE FOR MARKETS. The question will be whether we are finally to the point where markets ignore the fed. WE ALSO EXPECT FEDHEADS TO JAWBONE EASY MONEY IN THE WEEKS AHEAD. They already started last week.
OIL PRICES are a HUGE expense cut to the consumer and business. If prices just stay around here for the next year, the consumer keeps about $80 billion in their pocket. Of course, as we have stated, a crash in oil prices may be telegraphing big slowdowns…which we are starting to see right now.
It’s December. We know. We also said it was Thanksgiving week. Just realize this is the big money’s chance to make things right into the end of year. We will be watching extra closely in the days ahead. Seasonal strength is important but has not worked 100% of the time, especially in bearish markets.
As we rapidly approach the end of 2018, it is time to let you know what we are seeing as well as thinking on any number of subjects. As you know, we really do believe price talks, markets talk and we must listen. This report will cover some facts and some worries. We will have a market report later tonight. Think ugly but think Fed trying to continue to save the day.
We received this and verified. Below all time highs in cryptoland:
BITCOIN GOLD 98%
BICOIN CASH 98%
We only listed 10 names but the morons/crooks/charlatans brought out about 2,500 names including the POTCOIN from Dennis Rodman and a coin from Venezuela. Most are down in the 90s with many already turned to dust. This is one of our proudest calls as we yelled and screamed back when these coins were having their final ridiculous run that they will all “turn to dust” and dust they are going. We believe the only reason BITCOIN is not down further is because it is now held in a few big hands. If they sell, they kill each other. Thus you are seeing what we call the slow death. Remember this for the future as easy money creates manias and bubbles. There will be more and unfortunately, these bubbles are touted by a bunch of hypsters who are talking their book and ultimately their mistake. We are still amazed how many still are touting this crap…and how a certain media outlet that touted this crap at the highs, still brings them on.
Last week, APPLE (AAPL) posted a banner on top of its website advertising the new IPHONE XR for just $449 if you trade in an IPHONE 7 PLUS. The XR usually sells for $779. They also started offering a promotion boosting the trade-in value of other older IPHONES. Maybe price does matter as suppliers continue to cut their numbers and APPLE’s stock continues to swoon.
A recent survey found 44% of Facebook users between 18-29 say they’ve deleted the app from their phone in the last year. Sales and earnings have had a serious deceleration in recent quarters. Facebook and Apple HAD been big leaders in the market.
Corporate debt, enabled by the dolts at the fed is up approximately 86% since 07. About 25% of junk rated issuers are now rated at B-MINUS or lower, up from 17% four years ago and the highest level since 09. Remember what we have been saying for years. Easy money creates dislocations in price and yield…and almost always ends badly when things normalize.
For those continuing to say fundamentals are fine, Germany and Japan just announced contractions even though both are still printing money and have negative rates. There is no ammo left. On top of that, estimates for US GDP just dropped from 3% to 2.4% in just the past few weeks. We recently told you the norm going forward will be lowered expectations. Markets seem to know this.
The main cause of the recent protests in France is not only about a scheduled 25 cents/gallon increase in gas taxes but also the elimination of a wealth tax put upon the country by the last socialist who ran the show by the name of Hollande. Of course, Macron already has backtracked on the tax with our expectation that the wealth tax will come back. Not sure this will appease as Macron is polling just below root canal. But the real story is a $49/gallon tax. What? You haven’t heard of this. From Forbes: “If Paris streets burned over a proposed 25 cents/gallon climate change tax, imagine the global conflagration over a $49/gallon tax. That’s what a UN special climate report calls for in 12 years, with a carbon tax of $5,500 per tone- equal to $49/gallon of gasoline or diesel. Follow the money!
We believe we have heard several different stories coming out of the administration on the arrest of the CFO from Huawei. We repeat. Nothing happens by accident and to believe nobody knew about this in the administration? We continue to believe tariffs suck and this whole trade thing has been mishandled. It seems we are hearing different stories from different people. Yes…we know China is a bad player but what happened to the greatest negotiator of all time and the “Art of the Deal?” Companies cannot plan when they do not know costs/expenses or what they can charge. Trust is usually part of negotiations and not sure there is any from each side.
Let us repeat. Ben (Jay Powell) Bernanke said this in 2012. “Investors really do understand now that we will be there to prevent serious losses!” You are now seeing what he meant over the past two weeks. If they actually raise rates one more time next week, we expect more language to come out trying to do one thing…defend the markets. So far, markets have stuck a certain finger back at him and his now-dovish yapping, a complete 180 from just a few weeks ago. It is also no accident that a couple of other fedheads came out in the past couple of days, one saying we should be getting close to the end and the other amazingly saying the fed shouldn’t even raise rates next week..
The taxpayer’s interest tab in 2018…a measly $523 billion. That’s $523 billion not going towards roads, bridges, highways, the poor, the elderly, the indigent, children. Yet, there is still talk about the need for infrastructure money and money for a wall when all these people created all this. And don’t get us started on Obama’s $800 billion stimulus for “shovel-ready jobs. We know the only thing that got shoveled. But don’t worry. Many of the same people who brought us to $22 trillion of debt are still in power. They promise to fix the problems of this country.