EOD of Friday the market was 'saved' and it recovered above the line I have been posting about.
Over the weekend the Fed asserted the next raise maybe 1%. I believe this was done specifically to try to get the market to tank at this critical level. Why? Because the Fed DOESN'T want to keep hiking rates, but believes it does if we are seeing markets ignore their efforts and inflation comes in higher.
They want to craft a story that when the Fed raises rates, markets and inflation falls.
Today we will get our answer. Can the market close above the line yet again? If it does the bull is resuming! If we are below the line today, I wouldn't go all in short just yet. We need some follow through. Cash is best right now, good luck!
Today is quadruple witching, and this morning we are breaking the trend line I posted about. If we are going to reverse it will be by EOD today or Monday with an "event" announced over the weekend for a 'save' breaking the trendline.
By EOD Monday we will have a definitive direction of the market, 20% lower ahead or a rally for a bit, perhaps into the midterm elections?
Take bets, get rewarded big (long or short) or wait for the directional choice.
I wanted to pull in for a closer look at the support level, if broken, on a market CLOSE (not a open below and closes above, etc) we can expect a meaningful stock decline. Depending on when, the close must close below the green rising line, range of S&P 500 385 (tomorrow) -395 (oct 24th). A break above the line is a bullish indicator.
This trend line up has been in tact since March 2020. A close below we should expect the market to decline by a full 20% over the month(s) following.
On a positive note, the world is worse off, much much worse off than USA. For this reason, we may see INFLOWS of capital into USA and we may resume the bull for up to 9 months ahead. I am not convinced the market will fall 20% in the near term. This is a watch and wait to understand the direction.
The chart below is the S & P 500 support lines. Red lines are resistance, if the market breaks above it on a weekly closing basis, we have a bull case for the market. A break below green support lines, the bear will roar.
Below this summary I have the details. Given above we are about 2% striking distance downward to first support, but if broken, another down of 20% from current levels on the index. That level if ever broken is entering the realm of panic. On the upside if sold today, you would 'miss out' on 10% gain before the all clear to buy.
Details
As I write this, S & P is at 390, the first major support line is at 383ish. A break below will have a next support at 300-315 range (depending on time). That is material support and should have a multi year recovery. Breaking below that is dismally lower at 120 ish. ( depending on time).
On a positive note a break ABOVE 429 is very bullish, and on a closing basis a good risk to buy. Obviously anything above the all time high is pure bull run at 481.
Action
Take note of the levels above, they are critical for the health of your 401K.
NOTE: I Purchased RGLD today at 90, since the Dollar is strong, euro weak, gold is weak. For risk v reward we need stronger dollar, weaker euro, weaker gold price. All have moved to extremes already, I am trying to catch a falling knife. :)
Friday was brutal, I expect a generational paradigm shift has arrived in our global economics. The world Baby boomer generation is now more retired than not, and we are seeing shrinking populations for the rest of our lifetimes. (excluding India and a few other countries).
China has a material demographic issue both with aging population and retreating population totals. China officially expects to hit 800 Million people in 2082 from current 1.4 billion. Unofficial numbers advance this materially to as soon as 2050.
With the world population peaking sometime in the next 40 years after major population growth the past 100 years, our economic system isn't built for it. This will result in global currency wars (already in progress) and a world searching for something to invest for growth.
Right now the market topped, and I am now selling all my long assets tomorrow, with a few exceptions. Goldman Sachs agrees as it sells over 140 billion in the month ahead. If/when the SPY closes weekly ABOVE 410 in the 'next few months', I'll reverse my opinion. I expect since everyone is invested in index funds, and automatic trading may kick in to conserve assets. I'll also become a buyer if/when the market makes a substantial low, to play the long side for a time. I expect an intermediate low around the elections. Over the year ahead I do expect a real low to be 50% lower than here, if not 80%. But nothing runs in a straight line!
This is what I have been obsessing over since August 2006, the fourth turning that is upon us. I don't have any easy investments answers except 'risk off' is the motto.
Since 2007 western countries have experienced economic suppression. I can't say exactly what it is, but I think generally the global economy has been resting on the baby boomer generation for growth. And in 2007 the first baby boomers hit 61. This means the start of baby boomers retiring was well underway. Remember many baby boomers got pensions from private and public sectors and can retire as early as 55. In 2022 the oldest baby boomers are hitting 58, meaning, we are experiencing the last of the boomers retiring. The majority of boomers are retired as of 2022.
These people are retiring at the peak of their earnings, lowering tax collections while simultaneously requiring more public services.
Below is a great video talking about analysis of England's productivity. The personal financial growth from 1992 through 2007 if it continued through 2022, people working today would be 33% economically better off. People who entered the workforce from 1945 through 1992 are materially better off.
If you are after generation X, you are at a material disadvantage than rest of society. So when we look at the stock market, this is all a reflection of an economically sick society.
I recommend this video to get a sense of the economic disadvantage and how democracy is being undermined by the diminished economic opportunity.
Death of this bull market I think has been premature. I covered my shorts, and went long early last week (a tad bit early).
This final bull hurrah is the precursor to the final multi-year decline. What happened over the last few months is EVERYONE became bearish. As a contrarian that invoked my interest to look at the youtubers I follow for feedback. Two of them called for a reversal, and one of them is even calling for approaching and/or making new highs. I am unsure if we will get to new highs, but what I do know is for a multi-year low, everyone must be sucked into the market before the decline can start in earnest.
I will post the investment strategy I am looking to execute on for the next 5-10 years in anticipation that the world will see great growth, it just may not be in the USA.
China is NOT going to get out of this anytime soon, India is what I am looking to invest in.
In any case , I went long ARKK and TQQQ. I did take some off the table at the close today in anticipation nothing goes in a straight line.
Back in 2008 I posted about how the reserve currency of the world changes every ~100 years. The USD has passed 100 years since the Federal Reserve was created, but we still have until 1932~1944 for USD to hit 100 years as the official reserve currency. Looking ahead, The Fed, US Government and Russia/China know our 'kick the can' debt machine will run out of runway in the decade(s) ahead.
So if the world will eventually move off of the USD, what is the best options for the US to align as the new reserve currency? Gold is terrible as it puts control to who can dig gold up quickest, and it isn't easily useable in international exchange. China/Russia currency puts the world at the mercy of dictatorships.
In steps Crypto! The FED asked for feedback on crypto USD, signaling the future of the USD. Making USD into crypto alone doesn't change the world, as it could be viewed as similar as Tether. What will be a change is when ALL USD is only valid if on the USD blockchain. When that occurs, the government could in seconds stop all USD change with any nation, like Russia. Each movement of dollars could be tracked down to the penny of who sent money to who. That is a game changer.
Some have speculated the USD may ban Bitcoin, I don' think so. They can bury Bitcoin with regulation, taxation, or other measures. Bitcoin must survive as a 'plan b' for the USD world reserve currency (store of value, not actually a currency) for international banks to exchange reserves. This could become the alternative to USD for 'reserves' only, not for actual money per say.
Last night, 3/9, Biden issued an executive order on Cryptos. While itself doesn't say much, the timing is huge. Russia is trying to take over the Ukraine, the US is doing everything it can to financially punish Russia, and Biden just signaled to the world, the US is moving forward. Russia and China will be offering a backward look, gold and central control.
The world will need to choose in the years ahead. Go Crypto!
The Federal Reserve bank just froze bank reserves within Russia. This step has been taken before from what I read in WW2. We are dancing on the edge of something big in the USD financial system. Dare I say that the cascading consequences of asset devaluation in Russia, and counter party risk, plus assets unable to pay debts, we are lighting a fuse.
I know the US must take such steps to discourage Russia from aggression. Ukraine is paying the highest price right now, but the world may also suffer with economic consequences. I still think the market rebounds to form a mega right shoulder, but it wouldn't surprise me if the market throws in the towel from here.
Ray Dalio is a world leader in financial markets, as head fund manager of Bridgewater Associates, managing over 140 Billion dollars. I am very pleased to share a well done summary of how our current global finance fits in the the history over the last 500 years.
History doesn't repeat itself exactly, but patterns do exist. This is true simply because age old issues humanity faces are consistent across our entire history. The shape and situation varies, but human social and economic problems are never resolved.
I have been watching Emil Kalinowski for about the last year, he does a fantastic job as a youtuber talking about Macro economics and the banking system.
This excellent video really digs in about the FED QE effects, they do NOT print money, they only generates bank reserves. Most people believe FED QE promotes economic growth, in reality it is financial repression every time they do a QE. It does promote existing wealth, not new growth. Grab a cup of coffee, grab a seat in a quiet area, it is a dense listen.
The economy is on fire, with hiring at huge pay increases. That's good right?
Well, for the Federal Reserve Bank, the worst situation is run-away inflation. That is the only way for the US dollar to become no longer the store of value the world depends upon. There are soo many bonds out there, that if fear truly took hold, we would see rates catapult quickly as treasuries dump.
So the FED is forced to throw water on the economy. The top 0.05% of the wealthiest are looking further out than the vast majority of investors. IF (this is an IF) the FED must take aggressive action, the wealthiest will dump as it becomes more apparent the FED must take action.
The saying is Never fight the FED, well, this is the same for up and down for the market.
But I do think the market will move higher first. The purple outlines the 'head and shoulders' mega topping pattern we may be seeing unfold. We had many people in total fear, since the top, and huge fear with Russia. Russia will pass, America will open up from COVID, and I think we get a nice bounce into the summer, then fail hard core before the elections. The top is still likely in, simply because as the market tries to make new highs, there will be more dumping by the top 0.05%. Good luck!
It may seem like the market whips around with amazing volatility, but that is only if you are watching it daily. Pulling back, the topping pattern and decision to fail or recover takes months, if not years! We have been within a market 10% range for 10 months! I still have 99% conviction unless there is free money from the government issued to the people, we will see a deflationary decline. Why? Because the market advanced on an 6 trillion dollar spending spree, and removing that funding will over time deflate. Also because costs across the board are up, which means less can be bought by the average person. And finally, the FED is trying to choke the system by raising rates and reigning in free money.
The question is, can things turn around before we deflate? We need free money, when that happens, the bottom is near.
Looking at the charts, we are waiting for a break below SPY 417, until that happens, we are in a range, enjoy the ride. Target is SPY about 330. The charts say it should go to the lowest green line below, but I am now thinking that far down free money will resume first. Maybe with Fed Crypto Dollar. A break above the red line it is a bullish turn. Good luck!
Pulling back even further, the easy money policies under Trump fueled this entire rally! Biden has yet to pass ANY budget! Trump brought tax cuts, tax breaks to bring money back from overseas, government 1 trillion debt spending for 2019, then the 6 trillion spending bill in 2020, and in 2020 interest rates going to near zero. All the easy buttons are pressed! Biden needs the republican support to continue free money policies extending from Trumps policies, but I don't see that happening without a major financial crisis.
First, I am confident the market will be cut in half from the highs, it may take a year or two, but we will get there. Since there is no rush to get there, its important to look for bounces to unwind longs and/or go short.
The market created a failure last week, there is a new "lower lower" vs a "higher high", the market character has changed. We are now in a bear market for the next few years, like it or not. There are ways out, for example, if congress issues 8 or 16 trillion dollars in debt to match or exceed the money spend on 2020, the market will go to new highs. With Democrat's in office there is zero chance of deficit spending to this magnitude, that only happens under Republicans in office. This isn't a about which party is better, its simply a fact, look it up. (since Reagan, before it was the opposite) I'll write up more what's ahead, for now these are the areas to watch:
S&P 500 close below 417 and the market is going down hard. First support is 433, I think we may bounce off of it this week (today?). To learn more watch the first half of this video. High level picture of the market failure (top green line) and the target (bottom green line) and we may pierce that one.
I believe in about two weeks, the pandemic is over! COVID will be around decades. But the pandemic phase is ending, just in time for St Pattys! I’ll post graphs in a week or so to document the end of this scourge!
Since 2006 I have been concerned about the day the market makes a long term top, and we are finally here. For me its pretty odd, as I have no magical place to put investments. I do have some in Bitcoin, which should be cut down to $20K again, (an eventual upside I still think is 100K and higher), Gold miners should also be brutalized. I expect flight to Bonds to eventually happen causing rates to collapse and bond values to skyrocket. AFTER that happens, we could have a dollar crisis.
The problem is when is the top, has it passed? Is it this week? The motto is 'don't fight the Fed', and they are about to taper. That should help create resistance and may inadvertently trigger a market downturn, like the great depression.
We think there is inflation, and there is, from distribution and resource constraints. But that isn't monetary inflation, so with the FED initiating steps to curb inflation, it is a mis-read that its money inflation.
Don't believe me, lets take a look at the USD value index.
The US dollar is around 1996-2002 levels, hardly a crisis. (yet!)
The question is how to navigate the transition period ahead, as previously mentioned, we have historic margin in the market, with insider selling at record highs. That means the public is buying stocks with borrowed money while the corporate insiders are selling. Even Mr. Musk and his brother sold a bit of stock near the high.
Long term, I have huge faith in buying INDIA ETF's, I'll end up putting a chunk into India, I'll post the ETF's when I do. I also have some in JEPI, hoping it fare wells with market turmoil over time.
As a follow up to my last post, A Cancelled Christmas, I'd like to review how things have progressed in the last two weeks with a series of charts.
USA
NJ
NJ has reported about 180,000 cases since Jan 1st.
Florida
Florida has reported 320,000 new COVID cases since Jan 1st.
ICU availability in Florida
I couldn't find a chart of ICU stats that cover all of Florida. But I did find an interactive map, and I took a snapshot around "the villages", currently at 74% ICU bed usage. Remember, people go to the ICU after fighting COVID for days or weeks before it gets that bad. For example, two weeks ago there was 2,000 COVID patients in the hospital across Florida, today its over 8,000. That means in two weeks we should have 5,000 to 32,000 patients in the hospital, depending when the peak hits. If the peak is a week out, I would assume hospital capacity will be reached.
It shows 31 hospitals with average 9 available ICU beds = 279
Image below.
ICU availability in NJ
Using the same approach for NJ, I covered the NJ/Staten island area to avoid NYC hospitals. The ICU occupancy is 45%, with average 26 beds over 38 hospitals for total of 988 available ICU beds.
Image below.
Final thoughts
COVID is everywhere, I know over a dozen people right now that have COVID. The VAST majority its not a life threatening illness when vaccinated with a booster. My continual concern isn't about getting COVID and dying, its getting COVID at a time hospitals are stretched, and due to lack of capacity dying or having a more severe illness.
So in the spirit of a cancelled Christmas, its a Cancelled January! But I do expect we are about to see the peak and the final hurrah of this plague. I will eventually get COVID, my goals is to catch it as as the hospital capacity is opening up rather than filling up.
Going into this holiday season, I was concerned that COVID infections would rise, especially after Thanksgiving. Unfortunately, the infection rate is way worse than I expected. There is some evidence that Omicron is less deadly than other strains. However the exact figure of less deadly is not known, is it 10%, 50%, 75% less deadly? While 10% is good news, I am not confident enough to go back to normal.
The infection rate of Omicron is 400% (r0 = 10, 1 infects 10 people) more infectious than the original COVID strain (r0=2.5), so even if less deadly the number of cases at the same time should wipe out the benefit "per day of deaths". Its hard to appreciate the exponential growth impact. But graphs can show the effect of exponential growth, for example the graph in NJ below shows the rate of infection occurring:
12/23/2021
Notice the STEEP rise on the right, and how materially higher infection rate is growing RIGHT as we hit a cherished holiday. Next week will be an epic pandemic infection rate like never seen before in human history. Lets take an even CLOSER look.
December 13th there was 3,279 new cases reported, 10 days later we are reporting 11,906 cases. After the holidays what is your estimated number of new cases per day? 24,000? 50,000? If we are to believe r0=10, then we should easily hit 100K new cases a day in NJ alone.
The Challenge - Passing through the Eye of the storm
But right now, the challenge is what will be the effect on personal health if you get COVID when the hospitals are completely over-run? Will patient care result in better or worse outcomes than we been observing the last few weeks? In my opinion with hospitals over-run, we will run out of ventilators, drug shortages, and worse yet, tight on nurses/doctors to help the sick. (Talking to a nurse, she said one hospital in NJ, all their ventilators are taken by vaccinated people.)
This is my primary concern, to get COVID and the wrong time, and not get the care needed to ensure a positive outcome.
If we can make it to the spring, alive, and in good health, I believe we will be FINALLY can move on with COVID being an all consuming topic. For my family, that means a cancelled Christmas, and I hope to see you for many Christmases to come. If visiting people not from your immediate household, I recommend everyone wear genuine masks. (Prefer N95 provides self protection)
Take care and have a happy holiday season with your immediate family.
Today I have three great videos that summarizes the effect of Quantitative Easing.
First is from the YouTuber Bond King, what is QE, and what they are doing in the marketplace.
Many think QE is 'money printing', in effect like a banana republic just printing money and injecting it into the economy. The first question I have, how can the Federal Reserve "give" money it creates out of thin air into the monetary system? There is no method it can do so currently. (I suspect it will eventually with a crypto dollar issued by the Fed, but that's years off.)
What it is doing is "swapping assets", specifically swapping out US bonds with Federal Reserve Assets. The reasoning is to try to suppress interest rates and strengthen the dollar. Lets take a look at bond rates and dollar valuation since 2009 to see if this is indeed the result. US Bond Rates are down and dollar is up. This supports it isn't going Banana republic and printing money like Weimar republic. (If you believe different, please add in comments the rational and data to support!)
The Video that explains the mechanics of QE is below, interestingly this video says the fed gives an impression to suppress bond rates, but he doesn't say it is actually effective. After this video, below is another that shows the fed doesn't actually suppress bond rates, but gives an illusion it does.
If the fed is able to suppress bond rates, then market signals cannot be trusted. Historically the financial system uses bond rates to indicate risk on-risk off in investments. My personal belief is QE helps stabilize rates by reducing the potential volatility of bond selling, but the actual rates are in fact reflective of what the market is willing to support. It reduces volatility by putting the asset in control of the Federal reserve, out of the hands of institutions that could someday in the future engage in mass selling of federal bonds. By becoming the 'buyer of last resort' for federal bonds, they can prevent a meltdown of US bonds, and therefore a collapse of USD valuation in the future.
What this does do is help banks with confidence in lending, and this is a market psychology rather than 'free money'. Banks can at will create millions if not billions of dollars with no reserves, they are the TRUE creators of money/debt/credit out of 'thin air' And unless banks lend, there is no money growth.
The video that walks through how QE has NOT rigged the bond market rates.
Net result? Federal Reserve bank, even if it cant suppress rates, or print money, it presents itself like it can. It supports the market Psychology that it is somehow 'rigging the market'. That helps create debt/credit creation by banks which does in fact inject new money into the system. But it isn't banana republic money creation, people have collateral against this debt, and banks could liquidate customer assets as required.
But there is another angle, WHAT assets does the Federal Reserve buy? US Treasuries AND distressed assets. For the moment we will count US treasuries as reliable, but distressed assets? These are assets no one wants to buy, unless there is a deep discount. But the fed buys distressed assets without ANY discount. Further if these assets lose money or implode? It doesn't matter, the fed can print as much money as it wants to stabilize those assets. THIS is inflationary! Because if the federal reserve didn't buy these distressed assets there would be a deflationary price to dump them, and a likely cascade of deflation as it helps kick off a chain reaction of deflation. (margin calls, banks raising more capital to cover losses, etc) THIS is the leaking of money into the economy, through bad loans having no consequences. And when you remove consequences from actions, you are destroying the strength of capitalism.
To learn more, watch this:
Generally speaking majority of new debt is created by those who have collateral. Those people tend to have assets like houses, stocks, and yes bonds. They are the ones who don't take a huge hit on the failed assets, and are able to continue to benefit more of wealth growth. They can then add to their assets more loans to buy houses, stocks, and even bonds. The vast majority of money creation by the banks therefore is slanted to make the rich richer without the larger consequences of deflationary events. Its is ponzi like, as the system depends on growth to sustain asset appreciation of those who already have assets. Now is there any way to prove this is the result of QE? At the bottom is my final chart, you be the judge.
As long as the world demands dollars (USD is the world reserve, 'gold standard' holding), I don't know when this dance ends. I suspect US Treasuries hit on average about zero across 1, 5, 7, 10, 20, and 30 year holdings. For at that point asset investments may seek a new store of value. As this unfolds, together we will learn more about a breaking point.
