Tag Archives: Stock Market

The Beginning of the End, by Sven Henrich

Never have central banks and the president labored so mightily to keep the stock market aloft. From Sven Henrich at northmantrader.com:

They sure are trying their best. To do what? To goose markets higher. It’s been quite the spectacle all year, but this Friday sure took the cake. The entire week had been a giant jerk fest of sudden rips and dips as headline chasing algos were ripping through support and resistance levels unleashed like fat kids at the candy shop. But this Friday was something else, almost designed to have markets overdose on an insulin spike.

Ever more hyped up on an impending China deal, every meeting, and movement of negotiators caused market spikes, a Trump tweet about “warm feelings”, a $82.7B repo operation by the Fed to keep things tidy, a sudden out of the blue $60B/month Treasury buying operation announced by the Fed, multiple Fed speakers to boot, what a scene.

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Will the Federal Reserve Make Trump a New Herbert Hoover? Is the US Economy Primed for a 1929-Style Shock? by F. William Engdahl

The US has so much debt that even a minor economic perturbation can cause an cataclysm. From F. William Engdahl at lewrockwell.com:

In recent months US President Trump has pointed repeatedly to his role in making the American economy the “best ever.” But behind the extreme highs of the stock market and the official government unemployment data, the US economy is primed for a 1929-style shock, a financial Tsunami that is more influenced by independent Fed actions than by anything that the White House has done since January 2017. At this point the parallels between one-time Republican President Herbert Hoover who presided over the great stock crash and economic depression that was created then by the Fed policies, and Trump in 2019 are looking ominously similar. It underscores that the real power lies with those who control our money, not elected politicians.

Despite proclamations to the contrary, the true state of the US economy is getting more precarious by the day. The Fed policies of Quantitative Easing and Zero Interest Rate Policy (ZIRP) implemented after the 2008 crash, contrary to claims, did little to directly rebuild the real US economy. Instead it funneled trillions to the very banks responsible for the 2007-8 real estate bubble. That “cheap money” in turn flowed to speculative high-return investment around the world. It created speculative bubbles in emerging market debt in countries like Turkey, Argentina, Brazil and even China. It created huge investment in high-risk debt, so called junk bonds, in the US corporate sector in areas like shale oil ventures or companies like Tesla. The Trump campaign promise of rebuilding America’s decaying infrastructure has gone nowhere and a divided Congress is not about to unite for the good of the nation at this point. The real indicator of the health of the real economy where real people struggle to make ends meet lies in the record levels of debt.

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Dear Trump Advisors: Prop the Market Up Now and Lose in 2020, or Let the Market Crash and Win in 2020

There’s often hell to pay for politicians who intervene in markets. From Charles Hugh Smith at oftwominds.com:

The Everything Bubble has topped out, and trying to push it higher for the next 14 months is a sure way to increase the damage next year.

One of the more reliable truisms is that Americans vote their pocketbook: if their wallets are being thinned (by recession, stock market declines, high inflation/stagnant wages, etc.), they throw the incumbent out, even if they loved him the previous year when their wallets were getting fatter. (Think Bush I, who maintained high approval ratings but ended up losing the 1992 election due to a dismal economic mood.)

As a result, politicians try to time the economy to align with elections. Get any economic pain over with early in the election cycle, then prime the fiscal pump in Year 3 to boost the economy in Year 4 (election year).

The global economy and the credit cycle aren’t always so pliable or predictable. Oil can soar due to geopolitical tensions, or a speculative financial bubble can burst (subprime mortgages in 2008, dot-coms in 2000), torpedoing the economy.

The intuitive strategy is to prop up the economy and stock market by any means available heading into the election cycle: if we can just keep this over-valued pig of a market aloft until November of next year, so the thinking goes, we’ll likely win the election (or at least we won’t lose because stocks and the economy tanked).

But this strategy is a loser when the credit cycle has run past its expiration date: most credit-based expansions last at most seven years, and here we are in Year Ten. Credit exhaustion is setting in, speculative bets are maxed out and the global economy is rolling over.

Trying to prop a speculative, over-valued market up for another 14 months is like shoveling sand against the tide. All that this will accomplish is the well-deserved market decline will be pushed forward so it will occur just before the election, destroying the incumbent’s chances to win re-election. In sum: gravity eventually wins and the pig falls to Earth.

At the end of the cycle, the counter-intuitive plan is the winning strategy: crash the market now so a recovery can be engineered going into the election season. The ideal moment to crush the stock market is now: push it over the cliff and let it wallow for a few months, then ride to the rescue with some hope-inspiring coups (a China Trade Deal, for example) that re-start “animal spirits” a few months before electioneering gets serious.

Trying to stop the financial tides at the end of the cycle is a guaranteed way to lose an election. Timing is everything in trading and politics, and the time to push the stock market over the cliff is now. Keeping this over-valued pig aloft much longer will guarantee there won’t be enough time to engineer a recovery before the election–even if the recovery is only of sentiment.

The Everything Bubble has topped out, and trying to push it higher for the next 14 months is a sure way to increase the damage next year. The winning move here is get the pain of a market crash over with now while there’s still time to let the conflagration burn all the dead wood and set up conditions for a reversal in sentiment from gloom-and-doom to hope for fatter wallets tomorrow.

Trump’s advisors would be wise to heed the lessons of history: when the economy and stock market tank in Year Four of the election cycle, the incumbent loses. If the pain is taken in Year Three and a “recovery” is cobbled together in Year Four, the incumbent usually wins re-election.

The Democratic candidate would be ideally served by the Everything Bubble hanging on by a thread into 2020 and then collapsing in a heap.

The winning strategy for Democrats is also counter-intuitive: the Democrats should be pulling out all the stops to prop up the Everything Bubble and keep the economy from succumbing to gravity for another few quarters, so the whole shebang will collapse under its own weight at the point where there is no time left for the incumbent to engineer a recovery.

How to become a billionaire in five easy steps, by Simon Black

Companies that lose a lot of money and have no visible prospect of profits are raising copious funds on Wall Street. From Simon Black at sovereignman.com:

Every morning here in Puerto Rico, I wake up around 6am as the sun rises over the ocean in front of my house. And I pretty much head straight to the gym.

Once there, one of my favorite medieval torture devices is a fairly new exercise bike called a Peloton.

In case you haven’t used one before, a Peloton is like any other stationary exercise bike. You pedal a lot, and it sucks.

The key difference is that Peloton bikes are connected to the Internet, and the company live streams classes directly to the integrated monitor on your bike.

So instead of going to a spinning class, you can simulate being in a class and having someone yell at you from thousands of miles away.

You might be thinking– can’t you get the same experience on a regular stationary bike while watching some YouTube videos?

Why yes, that would pretty much be the same experience.

But Peloton prides itself on building wellness, connectedness, and happiness– all the ‘ness’s’ that Millennials love. So it’s pretty popular.

And following in the footsteps of WeWork, Peloton formally filed paperwork yesterday to go public on the NASDAQ under ticker symbol PTON.

The company anticipates a share price that will value the company at roughly $8 billion.

Yet according to its filing, the company lost $195 million in the fiscal year ending June 30, 2019. That’s four times worse than the company’s $48 million loss in Fiscal Year 2018.

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Reality Dawning, by Sven Henrich

There are all sorts of indications that a recession is coming. From Sven Henrich at northmantrader.com:

Yesterday’s announcement by the Trump administration to delay some of the new tariffs on China it just announced a few weeks ago was initially greeted with relief by equity markets across the globe. This proved to be mistake as reality is dawning and global stock markets are selling off hard just a day later on ever weakening economic data in Europe and Asia and further yield curve inversions.

Call it a major hangover as the reversal in tariffs was not coming from a position of strength, it was coming as a result of global economic reality sinking in, a reality that is making its way rapidly to US shores as well. The collapse in global yields has been a theme since October of 2018 with the US 10 year dropping to 1.6% from its October 2018 high of 3.25%, but only now that the 2 year/10 year yield curve has inverted are the official recession alarm bells ringing. Why? Because every single recession in the past 45 years has seen a 2 year/10year yield curve inversion preceding it.

To believe no recession is coming is to argue that this inversion is defying history. And indeed let’s look at history, because it is now used to argue that this yield curve inversion leaves room for further market rallies to new highs. Does it?

If history is a guide, then the answer is yes but market relevant timing can vary quite a bit and depending on how the data is framed up you can get different conclusions.

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Could Stocks Rally Even as Parts of the Economy Are Recessionary? by Charles Hugh Smith

SLL’s bet is that the stock market swoon is predictive, but we’re willing to entertain other views. From Charles Hugh Smith at oftwominds.com:
It’s not yet clear that the stock market swoon is predictive or merely a panic attack triggered by a loss of meds.
We contrarians can’t help it: when the herd is bullish, we start looking for a reversal. When the herd turns bearish, we also start looking for a reversal.
So now that the herd is skittishly bearish, anticipating a recession, contrarians start wondering if a most hated rally is in the offing, one that would leave most punters off the bus.
The primary theme for 2019 in my view is everything accepted by the mainstream is not as it seems. Everything presented as monolithic and straightforward is fragmented, asymmetric and complex.
Take “recession.” The standard definition of recession is two consecutive quarters of negative GDP. But is this metric useful in such a fragmented, complex economy? What we’re seeing develop is certain sectors are already in recession, others are sliding while others are doing OK.
So the question of stocks rising or falling partly depends on which parts of the economy are most heavily weighted in the stock market. If the sectors most heavily represented by listed stocks are doing OK, then other chunks of the economy can be in freefall and stocks could still rise.

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The Ugly Truth, by Sven Henrich

The evidence piles up that the long-running bull market is over and things are going to get ugly. From Sven Henrich at northmantrader.com:

For years critics of central bank policy have been dismissed as negative nellies, but the ugly truth is staring us all in the face: Market advances remain a game of artificial liquidity and central bank jawboning and not organic growth and now the jig is up. As I’ve been saying for a long time: There is zero evidence that markets can make or sustain new highs without some sort of intervention on the side of central banks. None. Zero. Zilch.

And don’t think this is hyperbole on my part, I will present the evidence of course.

In March 2009 markets bottomed on the expansion of QE1 which was introduced following the initial QE1 announcement in November 2008. Every major correction since then has been met with major central bank intervention. QE2, Twist, QE3 and so on.

When market tumbled in 2015 and 2016 global central banks embarked on the largest combined intervention effort in history to the tune of over $5 trillion between 2016 and 2017 giving us a grand total of over $15 trillion in central bank balance sheet courtesy FOMC, ECB and BOJ:

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