Greetings from Dubrovnik, Croatia. We recommend it highly.
Nothing but worry. This latest counter-trend, bear market rally lasted 5 days and a strong open. This is quite amazing that since the start of the bear market, the longest rally in days was a whopping 11. It is quite normal to get bear market rallies that last many weeks but so far, not this one.
This latest classic bear market rally came on a classic bear market big gap to the upside on classic fake news. This time, it was the latest stress test for the banks that has no stress. We say that because guess who gives the stress test? Yes…those same geniuses at the federal reserve. Feel better now. The same people that told us that subprime lending was fine, the economy was strong and that housing never goes down are at it again. Yes, that was 07-08. You remember the hear no evil, see no evil, speak no evil central bankers back then that had no clue the financial institutions that they were supposed to oversee were leveraging 10, 20, 30-1, which was guaranteed for disaster. Of course, the federal reserve convinced DC for us marks to bail out all the crooks who became even bigger bazillionaires with the latest round of gargantuan easy money, money printing and rates stuck at 0%. These latest stress tests are a laugher as our central bankers are tied to the hips of the bankers.
A classic big open Tuesday after a 1600 point DOW snap-back led to a classic reversal. That was the end of the rally as institutions used it to say good night to more shares. We urged all to recognize that even though the DOW rallied 1600 points quickly, it was coming off a 3600 point drop in just 7 days. But yesterday made it even worse. On a day where the DOW was up 80:
Advance/declines on both the NYSE and NASDAQ were near 2-1+…a very negative divergence. The Russell 2000 was down the equivalent of 300+ DOW points. But the big matzoh ball was the new yearly lows. With the Dow up 80, new yearly lows expanded markedly. This has been the cue that the market was getting ready for another drop as the average stock has led all the way down. It was just this cue that had us worried starting from the top and on every counter trend rally. The average stock continues to be much, much worse than the indices as money parks into the biggest, most liquid names that have influence on the big indices.
And then there is this:
“WE UNDERSTAND BETTER HOW LITTLE WE KNOW ABOUT INFLATION!”
That came from Jay Powell as he was talking to someone even worse, Lagarde who runs the European Central Bank, who to this day, remains with negative rates. Just how do these people keep their jobs? But we digress.
We have warned you since Christmas 2018. We have warned you about a man whose only talent was to create another credit card with a higher credit limit to pay for his last credit card. We warned you that at the end of this easy money nightmare was going to be major bubbles popping. We warned you about the massive distortions in the system as one man and his whims printed unimaginable amounts of money without any oversight and any accountability. We warned way in advance to anyone that economics 101 says all this money printing will light the fuse on inflation. And now we find out this man is admitting “how little we know about inflation!” Just know…he lit the fuse. When it was lit, said it wasn’t there. When it worsened, said not to worry. When it become apparent to everyone, they still called it transitory. When it finally got out of hand, did he even start considering doing something about it and since, seems to be dragged kicking and screaming to get tough on what he created. He is still half of the yield on the 10 year…economic and financial malpractice.
But that is not enough. Every central banker that was part of the problem drives to the hoop every day as they do not shut up. Seems they are spending each day trying to save face but are only making things worse. One central banker said the market seems to be taking inflation and their response in stride and functioning well. In stride? Functioning well? Bubbles popped everywhere. Junk bonds crushed. Yields skyrocketing. NASDAQ stocks obliterated. In stride?
How about this line? “We have a path forward to bring inflation down!” They still think they are the God of the markets. To think these people can turn a $20 trillion economy with their moves is beyond the beyond. They don’t know it yet but they have no tools and no control. They are also saying we have to stop demand and see unemployment rise. Just for that statement, they should be fired. Imagine telling Americans some of you are going to lose your jobs because of what they are doing. They are going to bring down inflation by killing business. Yippee!
Credibility is a gargantuan intangible with markets. We believe they have none. We believe the big institutions are fed up, thus feeding more stock into the market. They have caught on to what we have been saying since Christmas 2018. You are seeing it in droves.
But we could not help but mention one other thing that we saw happen from afar this week. Did you see Macron from France, on a hot mic, tell the President that Saudi Arabia was at capacity on producing oil? This is stunning. This begs the question how is it possible we knew this but the President did not? How is it possible the President’s genius economic advisors were not advising him on this? Again, credibility. Again, confidence. Huge intangibles for the market. We don’t think the market has much confidence right now…and rightly so.
These same central bankers, one by one, are telling us consumers are fine, the economy is sound and the employment picture is strong. They say this as we watch savings rates plummeting, credit card usage skyrocketing and over $30 trillion of global wealth evaporated. Every consumer is paying up for everything while every borrower has higher costs to borrow. Yet they are nonplussed. Everything is fine.
We will give you some good news…fundamentally. Yields have indeed backed down and commodity prices have come down. Some commodity prices have tanked. Corn, wheat, copper, soybeans, lumber and many others are all in differing levels of big, gigantic tops. This is definitely going to help the inflation front but we also worry these moves are telegraphing a tanking economy.
We take no joy in any of this but we here deal in reality. We do not deal in opinion. Just the hard reality. Numbers do not lie. Sorry for the long-winded but we really worry about what we started telling you a while back. That being the next bear market was going to be a whopper because central bank-induced booms always turn to busts. We have already seen a ton of busts in a bunch of bubbles. (crypto anyone) We have to worry about what comes next. You do not know what we think if we go fully bust. Hoping for better days ahead. The June 16 lows had better hold.