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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.

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US Stocks Set for Huge Weekly Gains as First Week of Fourth Quarter Ends with September NFP at 263,000

Friday, October 7, 2022, 8:48 am ET

It looks like a pretty safe bet that US equity indices will post gains for the current week, though they will be only the second week in the past eight that have finished to the upside.

At this juncture, there's little doubt that the massive up-flows Monday and Tuesday of this week were just the start of another bear market rally, which means that to whatever levels stock are headed, they will be unable to hold onto those gains for long due to the alternating pressures of higher interest rates from the Fed and the threat of recession, which is already - according to standard measures - well underway.

On top of the inflation/recession duopoly are other issues clouding the investor outlook, prime among them upcoming midterm elections for every seat in the House of Representatives plus a number of key Senate seats up for grabs.

Democrats are desperate to hold onto their power position and a rising stock market would go a long way to support their efforts to convince American voters that they are managing the economy well. The view that the stock market is being rigged to higher levels by well-heeled Democrat supporters only goes as far as one's conspiracy theory quotient (CTQ) takes it. With no evidence of collusion between elected officials and traders (other than maybe Nancy Pelosi's brokerage account), this argument for higher stock prices is unfounded and tenuous, at best.

Other issues affecting stock prices tangentially or directly are the Ukraine conflict, oil price movement and the cost of gas at the pump and upcoming earnings reports. Recent news suggests the Ukraine situation to be at a standstill, while gas prices have been rising across the country, with California hitting an all-time statewide average high Wednesday at $6.49 a gallon, with some stations charging over $8.00 per gallon.

Oil took a great leap forward this week, as OPEC+ ministers approved a plan to cut production by as much as two million barrels per day. The news sent WTI crude sharply higher, from $79.49 last Friday, to $89.45 as of Thursday. Consumers being squeezed by higher gas prices is never good for the economy, but prices have been rising and should go even higher when the OPEC+ cuts begin in November.

As far as earnings are concerned, the effects of third quarter reporting won't be felt until next week, when some big names begin to roll out reports, including Delta Airlines (DAL), Blackrock (BLK), Alcoa (AA), Pepsi (PEP), Walgreens (WAB), and Domino's Pizza (DPZ). Capping off the week, four major banking firms report Friday, 10/14, before the opening bell. They are Wells Fargo (WFC), JP Morgan Chase (JPM), Citigroup (C), and Morgan Stanley (MS).

The following two weeks, beginning Monday, October 17, will see the heaviest flow of quarterly reports. How various companies affect sectors and the market as a whole remains to be seen, though indications - from lowered expectations to increasing stress on profit margins due to inflation - are only slightly positive at best.

As the current week comes to a close, the major indices, through Thursday, show massive gains. The Dow is up 1201.43 (+4.18%). NASDAQ is holding gains of 497.69 points (+4.71%), the S&P 500 is higher by 158.90 (+4.43%), and the NYSE Composite has gained 615.20 (+4.57%). Nothing outside of an outright crash can prevent stocks from posting a win for the week.

With markets set to open in under an hour, the September Non-farm payroll report showed that 263,000 new jobs were gained in the month and the unemployment rate edged down to 3.5 percent. On that note, US futures ripped to the downside, the numbers suggesting the labor market is still strong.

That also implies that the Fed may seriously keep under consideration another 75 basis point hike to the Federal Funds rate at the next FOMC meeting, November 1-2.

The strong week is getting a late shade it appears.

At the close, Thursday, October 6, 2022:
Dow: 29,926.94, -346.93 (-1.15%)
NASDAQ: 11,073.31, -75.33 (-0.68%)
S&P 500: 3,744.52, -38.76 (-1.02%)
NYSE: 14,087.38, -174.65 (-1.22%)


Investors Left the Casino, Leaving Only Gamblers, Most of Them Clueless

Thursday, October 6, 2022, 8:56 am ET

Stocks finished marginally lower Wednesday, though where the major indices ended the day had little to do with how stocks moved throughout the session.

After taking a severe drop right from the open - the Dow was down more than 400 points; S&P was off 66 - equities began to move higher synchronously, as they usually do, right around noon ET, and continued their ascent through the afternoon, turning briefly positive an hour before the close. Ending the day with small losses, what used to be fair markets no operate more like assembly line machines, due likely to computerized trading employing headline-seeking algorithms.

This is not how real, functioning markets should manifest themselves. Equity markets in particular have displayed the follow-the-leader momentum-chasing model for most of the past 20 years, all indices moving in tandem, like a herd of animals on the steppes, away from the wilderness.

These ongoing conditions require no analysis and cannot be subject to anything more than educated guesses. If the headlines shout "buy", all comply, the same if the news flow is negative, though increasingly, stocks have been defying even the logic of the computers, taking off in whichever direction, regardless of sentiment.

In an era not so long ago, prior to computerization and online brokerages, stocks would move almost glacially over days, trading largely on information flows and fundamentals of individual stocks, not all wildly in one direction or another, as is the case today.

It is a shame, really, that huge brokerage houses, hedge funds, players in the HFT space, and hidden proxies dominate trading in such a sham manner. Due to size, lack of regulation, and the many derivative hedges and trades, stocks have been reduced to little more than daily measurements of folly, greed, and speculation gone wild.

To believe that funds are safe in such a casino-like environment is tantamount to trusting politicians to tell the truth. People's life savings are today managed by inferior traders whose expertise lay more in a tactical approach to markets rather than an understanding of business and finance. Having some Harvard or Yale whiz-kid manage money that one is relying on for retirement or college or any other future is a fatal mistake, and almost everybody is doing it.

US markets have experienced three crashes in just the past 20 years, starting with the dot-com bust at the start of the century, followed by the sbu-prime wreckage of 2008-09, then the virus panic of 2020. In between were sharp rallies fueld by easy credit and stock buybacks, enriching mostly those who need it least, those already wealthy. The rest of the plebians made some paper profits but also took some serious losses. The era of passive portfolios, of everybody gaining or losing at once has diminished trust in Wall Street, as the top tier gets preferential treatment and the unwashed masses get crumbs.

If anything, Wall Street should have been reigned in a long time ago and the Federal Reserve should have been audited for their sinful doling out of currency created out of thin air and fleshed around to partners and cronies. It hasn't happened, nor is the Wall Street establishment likely to discover a moral compass, ever.

So, today, when stock futures indicate a lower or higher opening to the cash market, keep in mind that futures are misnomers, having little predictive value, as evidence just yesterday, for the 10,000th time. Stocks and entire indices rise and fall on the whims and wishes of heavy-handed insiders. While that may be the way it's always been, it certainly appears to be the regimen of the current crop of money-washers, tricksters, and insiders running the grift in these times.

The choice is either to play hardball or not play at all. Money out of the equity market and into alternate, hard, non-paper investments has always been the safer play.

Entering Thursday's session, initial unemployment claims came in hotter than expected, hitting 219,000 after showing only a revised 190,000 the prior week. Naturally, since bad news is somehow good for stocks, futures ripped from red into the green, making for an entirely different set-up than just moments before, another indication that these are not markets for investors, but only gamblers, of which 95% are losers.

At the Close, Wednesday, October 5, 2022:
Dow: 30,273.87, -42.43 (-0.14%)
NASDAQ: 11,148.64, -27.76 (-0.25%)
S&P 500: 3,783.28, -7.65 (-0.20%)
NYSE: 14,262.03, -57.47 (-0.40%)


Stocks, Treasuries, Precious Metals Race Higher Tuesday, Amplifying Gains, But a Reversal is Already Underway

Wednesday, October 5, 2022, 9:07 am ET

With another short-smashing session on Tuesday, US markets have regained a good deal of what was lost in September.

This two-day miracle is supposedly the result of a some indication that Fed Chairman Jerome Powell and his merry band of Federal Reserve presidents are going to slow the pace of interest rate increases in November or completely end them, as is the base case for the "pivot" crowd.

Along with the misconception that Powell wasn't dead serious about battling inflation just six weeks ago at the Jackson Hole confab, more than a few analysts are suggesting that the Fed is about to completely reverse course and start up another round of QE to bolster the economy. It's almost hilarious to listen to the financial quackery emanating from the types that have never experienced a bear market and somehow believe stocks - like real estate in 2007 - never go down, always go up, and the Fed will revert to the accomadative policy of the past 14 years that caused this mess in the first place.

On the other side of the predictive analysis crowd are the those who took Powell at his word and consider the past two days nothing more than speculative bear market bottom-fishing, conceding that the "bottom" may not actually have been put in place on the final day of September. Such a position is actually circulating widely, with Bank of America, Goldman Sachs analysts and others expressing that view. It's quite possible that most of Wall Street actually believes stocks will fall further and the current craziness is being backed by hollow rhetoric.

That's likely closer to the truth than anything being bandied about on the financial TV networks and should be a position strongly considered. When even the UN is demanding that central banks abandon their tightening regime, it's almost a certainty that the bullish crowd is dead wrong and the gains of the past two days are soon to be wiped from the ledgers.

The nearly six percent bounce on the S&P over the past two days have provided some relief for sure, though veterans of stock market trading believe it is going to be short-lived with third quarter earnings season about to get underway and important September readings on the labor market (Friday, 10/7, non-farm payrolls) and inflation (next week, PPI 10/12' CPI 10/13) on deck for next week.

While jobs are likely to show a modest gain, there's almost no indication that inflation has eased up from the 8.5% in July and 8.3% measure in August. Anything CPI reading over seven percent will likely lead the Fed to believe that they're on the right path but the job not yet done. Another 0.75% hike is likely still on the table and Wall Street bulls will hardly be pleased if the Fed even concedes a little and does 0.50%.

There's hardly anybody on the street who believes the bear market is actually over or that the Fed will realistically change course. Naturally, those spouting off about halting the rate hikes - as the Bank of England did just last week - are the same people who are using the political calendar as their advisor, noting that Democrats are in danger of losing control of the House of Representatives and thus, the narrative pack of lies they've been brandishing at the American public over the past two years and longer. Their cries reek of desperation.

With Wednesday's session about to kick off in the US, there are already widespread signs emerging that the past few days of ramping are about to suffer the inevitable consequence of profit-taking. The usual smackdown of gold and silver is already underway, with silver, which advanced beyond $21/ounce on Tuesday, is down to $20.30, and gold has shed $14.50, to $1,711.60, overnight. Asian stocks apparently didn't get the memo, as most of them posted hefty gains earlier (Hang Seng, +5.90%; Sensex, +2.25%, Nifty 50, +2.29%), but European exchanges are sustaining loss of around one percent, with Germany (DAX, -1.07%) and Spain (IBEX, -1.67%) leading the charge lower.

US futures are all solidly in the red and have been since overnight into early this morning. A strong shift to the downside is expected at the open, though, as everybody knows, that means nothing when the cash market gets rolling. There could certainly be another push to the upside as data is sparse this morning,

As a reminder, here are the Fibonacci ratios, Money Daily published on Monday:

S&P 500
August 16: 4,305.20
September 30: 3,585.62
Total decline: 719.58

Fibonacci ratios: 100%, 61.8%, 50%, 38.2%, 23.6%

Retraces:
23.6%... 169.82... 3,755.44
38.2%... 274.88... 3,860.50
50.0%... 359.79... 3,945.41
61.8%... 444.70... 4,030.32

Note that the S&P is smack in the middle between the 23.6 and 38.2% retraces. A 70-point rise would square up with the 38.2% figure, possibly triggering a selloff. As volatile as markets have been, it wouldn't be surprising to see stocks move in either direction today, tomorrow, the rest of this week and through earnings season up to the midterms. There's far too much uncertainty, speculation, and politics playing out to offer any directional perspective other than the medium to long term trend remains to the downside.

Not to be overlooked, treasuries are signaling even tighter conditions, with the curve flattening significantly over the past two days. One-month yields have popped 11 basis points, to 2.91% since Friday, while the six-month yield is flirting with 4.00% (3.98, +6 bp) and one-year is up 10 bps to 4.15%, while everything from two-years out fell off the wagon, the two-year down 12 bps (4.10%), the 10-year sliding from 3.83% Friday to 3.62% Tuesday and the 30-year nesting at 3.70%, down nine basis points.

These markets are so insane at present, a wait-and-see attitude may be the most reasonable strategy for the next four to six weeks.

BTW: Elon Musk agreed to buy Twitter at the original asking price and US debt topped $31 trillion overnight.

At the Close, Tuesday, October 4, 2022:
Dow: 30,316.32, +825.43 (+2.80%)
NASDAQ: 11,176.41, +360.97 (+3.34%)
S&P 500: 3,790.93, +112.50 (+3.06%)
NYSE: 14,319.49, +463.77 (+3.35%)


Psyched-Out Traders Get Early October Surprise With Massive Rally; Stocks, Bonds, Gold Up, Silver Goes Bonkers

Tuesday, October 4, 2022, 8:30 am ET

Fed up with selling everything as the third quarter came to a close, markets staged a dramatic turnaround on the first trading day of the fourth quarter, sending all asset classes soaring. With stocks roaring and treasury yields dropping like dead flies, the most dramatic gains were made by silver, which has been the most consistent under-performer of the past 12 years, but had signaled a breakout by virtue of being the single best asset of September, up 8.55% over the month - $17.88 on 8/31, $19.34 on 9/30.

Monday's gain was nothing short of spectacular, gaining $1.25 on the day, or 6.46%, to $20.59 by the close of trading in New York. Gold also made solid gains, moving higher by some $30, from $1,672.00 to $1,702.00. The rally hasn't ended in the precious metals space, much less anywhere else. As dawn begins to break over the US East coast, gold is above $1,716 and silver continuing to spike, over $21 the ounce overnight.

Stocks had one of the best days of the year, as each of the US indices posted gains of two percent or more. Futures are pointing to further advances in the Tuesday session while Asian and European stocks were sharply higher overnight.

As September set a dull shade over the markets, October, and a new quarter, begins with sprigs of hope. Skeptics, basing their opinions on past experience, will point out that while bear markets often end in V-shapes, they seldom do so at obvious points, indicating that Monday's rise is nothing more than a relief rally on short-term oversold conditions. They are probably right when it comes to stocks, and even treasuries, though gold and silver offer a different perspective, as hedges against crumbling valuations elsewhere.

Being that nothing has changed other than the dates on the calendar, Monday's sudden burst has all the trappings of the start of another bear market rally. There was one that started mid-March, another that began mid-June. This one seems to have been jump-started with the politics of midterm elections in focus.

It should be instructive to review Fibonacci ratios at this point, offering an indication of when and where to jump away from the current craze.

S&P 500
August 16: 4,305.20
September 30: 3,585.62
Total decline: 719.58

Fibonacci ratios: 100%, 61.8%, 50%, 38.2%, 23.6%

Retraces:
23.6%... 169.82... 3,755.44
38.2%... 274.88... 3,860.50
50.0%... 359.79... 3,945.41
61.8%... 444.70... 4,030.32

Safe to say, if the bear market rally which began October 3rd extends to its logical conclusion, any one of the Fibonacci retrace ratios (except 50%, which is fake), may be the point at which investors decide to change tactics, sell, and send the index lower. This particular pivot can occur at any time. The date - prior to or following the midterms - is immaterial. It's the raw ratio that matters most.

Just as the previous two rallies mentioned above failed and sent indices eventually to fresh lows, this one too is likely to suffer the same fate, the few caveats being a resounding win by Republicans in the elections, peace in Ukraine, ending of sanctions against Russia, a pause in the Fed's rate hiking November 2nd, or any other improbable scenarios.

Markets are due for some good news. Just how much they get over the coming month will help determine at which Fibonacci point they will digress. That said, anything approaching 4,000 on the S&P might be an opportune time to sell and move to safer positions. Maybe the market will turn prior to that, at 3,755 or around 3,860. With politicians and Wall Street joined at the hip, getting everybody's favorite plaything index above 4,000 can be assumed a priority. Just keep an eye on those levels. They're important to analysts for a reason. They keep showing up.

Let's not get carried away by what could be a one-hit wonder. Monday's news flow was pretty terrible. Credit Suisse looks to be on the verge of bankruptcy, and if that's the case, being a SIFI, or, at least, formerly being one, an unwinding of one financial institution could lead to counter-party contagion, similar to the mess of 2008 surrounding Lehman Brothers.

Credit Suisse is not alone. Many other banks are in deep water, as evidenced by their plunging stock prices. Year-to-date, Goldman Sachs (GS) is down 21.55%. Bank of America (BAC) has shed 32.68%, JP Morgan (JPM), -33.38%.

Globally, economies, central banks, and sovereign governments are under considerable stress. This is a worldwide crisis and it hasn't ended just because investors suddenly think stocks are bargains. Banks will fail. Probably some of the biggest will need bailing out or bailing in, snatching up some depositor funds in the process, so don't make the mistake of seeing an "all clear" flag based on very, very short-term results.

Getting back to silver and gold, bottoms may have been put in place, especially for silver, the first week of August. For gold, it may have been just last week. The COMEX has seen significant outflows of physical silver recently, and retail, due partially to the low price, but more significantly to technical shredding of short contracts on the aforementioned COMEX, has been aflame. With currencies outside the US$ in a tailspin, silver has held up well as an alternative, so too gold.

With the dollar index taking a hit after recent September highs, there's a good possibility that silver could approach $30 an ounce in short order. Gold may exceed $1800 by the end of October and may turn even higher as 2022 ends and 2023 begins. These are, and always have been, hedges against fiat currency regimes and varied monetary schemes. Precious metals are unlikely to fail as the global economic crisis deepens.

In related moves, oil and bitcoin both moved higher on Monday, though not by significant degree. WTI crude popped over $83 a barrel, while bitcoin merely bounced off $19,000 for the umpteenth time. It appears to be topping out at $20,000, though even a move to $22k would not still be significant. These are trades, as opposed to the longer-term implications of gold and silver, which will maintain value.

It's still very early in this most recent trading set-up. Despite Monday's outsized gains, there's no definitive directional trade implied. It's more noise than signal.

At the Close, Monday, October 3, 2022:
Dow: 29,490.89, +765.38 (+2.66%)
NASDAQ: 10,815.43, +239.82 (+2.27%)
S&P 500: 3,678.43, +92.81 (+2.59%)
NYSE: 13,855.72, +383.54 (+2.85%)


WEEKEND WRAP: WARNING! Don't Panic, It's Only Wealth Destruction, Currency Devaluation, and Inflation-Fighting

Sunday, October 2, 2022, 1:05 pm ET

As the third quarter came to a close on Friday, some serious trends have fallen into place as the spinning globe that is the Earth enters its final three-month movement around the sun for 2022.

This year has featured stock market declines worldwide, interest rate convulsions that have shocked veteran traders, bond market blow-ups, crushing currency swings, raging inflation, and the insanity of poor political decisions as the proximate cause of all of it, none of which appear to be ending any time soon.

There is little doubt that the economic world is under assault from the very structures invented to prevent disruptions and disorder, fueled by massive overspending by both fiscal and monetary regimes, now concerned that all of the bubbles are popping at once and the wealth effect so proudly hailed as civilizations' finest achievement has to be hauled down, throttled back, and realigned within the framework of a self-inflicted liquidity crunch.

In a universe ruled by gravity and mean reversion, what went up must now come down. There are no easy solutions and there is no escape. A conscious recognition that value is relative concept may be the only way to remain sane and avoid panic.

Stocks

The final week of the third quarter wasn't a very good one for equity investors. Neither were five of the preceding six, making for some trepidation and dismay when those quarterly statements are delivered this coming week. While the quarter as a whole was buoyed by the tail end of the bear market rally from mid-June through mid-August, the overall loss of 15 to 20% from mid-August forward was acute, painful, and apparently not quite completed.

From their mid-August peaks to the close of the quarter, the Dow dropped 15.89%, the S&P lost 16.72%, the NASDAQ fell 19.44%, and the NYSE Composite gave up 14.98%. By comparison, the losses for the entire quarter (table below) were relatively tame. That's why bear market rallies are so deceptive. They are figments of investor imagination.

Index/date 6/30/22 9/30/22 % + -
Dow 30,775.43 28,725.51 -6.66%
NASDAQ 11,028.74 10,575.62 -4.11%
S&P 500 3,785.38 3,585.62 -5.38%
NYSE 14,487.64 13,472.18 -7.01%

With all the major indices fully engulfed in bear market territory, the immediate and longer term questions are, respectively, when will it end, and when will markets come back. The answers, depending on which clueless fund manager or stock broker you ask will differ widely, but a safe bet is that another 35-50% is going to be wiped out over the coming 12-18 months and, maybe, sometime in late 2023 or early 2024, there will be bargain stocks for sale.

The Shiller PE stands at a still-hefty 26.84, while the median, from 1870 to the present, is 15.89, and the mean, 16.98. Reversion to the mean would require another loss of 36.74%. That kind of loss would put the S&P another 1290 points lower, or, around 2,200, and that's if everything goes OK and stocks don't overshoot to the downside, which they nearly always do. Rest assured, Dow 35,000 or S&P 3800 aren't going to be seen again for a long, long time, quite possibly 10-12 years or longer, if ever. It took the Dow Jones Industrial Average 25 years to recover the highs from 1929 (October 1954).

Those still in the camp believing that the Fed will pivot and resort to money printing (QE) or bailouts and back-stopping everything (already underway since March 2020), fail to measure the resolve of Fed Chairman Powell, who has emerged as a latter-day Paul Volker in his fight against inflation. He realizes that hyper-inflation is a prospect which no central bank desires, and only by raising rates higher for longer is going to slap down that particular monster. The choice between crashing the economy or sacrificing the currency is a no-brainer. Economies can adjust and resurrect themselves. Currencies die ugly deaths, as in Weimar Germany or Zimbabwe, or, more recently, Venezuela, and sooner or later, Japan and the European Union. It appears that Argentina is up next, though Turkey and other emerging nations (China, India) may also be well on their way to hyper-inflation hell.

On the opposite side of the coin are governments, especially the US, England, and various European countries, which are still beating on the stimulus drums in response to the dull-headed, sanction-imposed, economic wrecking ball that comes from fighting an invisible (and possibly invincible) enemy (Russia) by proxy, via a country (Ukraine) that has, throughout history, been invaded, conquered, sliced, diced, and disassembled over and over again. Poor policy decisions by some of the most delusional politicians to ever walk the earth have paved the road ahead with crumbling sand and no mortar.

The shocking returns of 2022 are nothing compared to what will befall most Western nations the coming quarter and into 2023 unless policies - which have done nothing but inflict damage on people and businesses - are changed. Politicians are apparently not about to bail, so, hope for the best, but, prepare for the worst.

In the very short term, a relief rally could commence at any time, though it won't last very long, just as the last one failed to sustain itself. Stocks crashed back below their lowest levels. Year-to-date: Dow -21.48%, NASDAQ -33.20%, S&P 500 -25.25%, NYSE Composite -21.79%.

There is some glimmer of hope, however. Some banks have begun offering savings account with an APR of 2.00-2.50%. Wiht inflation at eight or nine percent, that's slight solace, though certainly better than nothing. Interest rates offered on savings might go as high as four or five percent should the Fed continue its inflation fight accordingly.


Treasury Yield Curve Rates

Date 1 Mo 2 Mo 3 Mo 6 Mo 1 Yr
09/02/2022 2.49 2.79 2.94 3.33 3.47
09/09/2022 2.57 2.88 3.08 3.52 3.67
09/16/2022 2.68 3.01 3.20 3.77 3.96
09/23/2022 2.67 3.07 3.24 3.85 4.15
09/30/2022 2.79 3.20 3.33 3.92 4.05

Date 2 Yr 3 Yr 5 Yr 7 Yr 10 Yr 20 Yr 30 Yr
09/02/2022 3.40 3.44 3.30 3.29 3.20 3.61 3.35
09/09/2022 3.56 3.61 3.45 3.42 3.33 3.71 3.47
09/16/2022 3.85 3.81 3.62 3.56 3.45 3.79 3.52
09/23/2022 4.20 4.21 3.96 3.85 3.69 3.87 3.61
09/30/2022 4.22 4.25 4.06 3.97 3.83 4.08 3.79

The treasury tables speak for themselves. Rates were higher across the board except for the 1-year yield which dipped from 4.15% to 4.05% over the course of the week, though it is more than 1/2 percent higher than a month ago (3.47%).

Yields rose the most at the extremes - long and short-dated - with 1, 2, and 3-month bills rising 12, 13 and nine basis points, respectively. On the other end, yield on the 7-year note was higher by 12 basis points, the 10-year up 14 basis points, 20-year, up 21, and the 30-year up 18.

That adjustment flattened the curve overall at elevated levels, though it remained inverted from six months out to 30 years (3.92% to 3.79%) The spread on 2s-10s is 61 basis points, on 2s-30s, 57, leaving little room for error in any leveraged positions. The entire setup is not conducive to bank lending, which enjoys the benefit of borrowing short and lending long, with the spread from 1-month out to 30-years exactly one percentage point.

In real terms, banks and funds should still remain profitable unless they're leveraged (all of them) or speculating (most of them) in stocks or other securities. This is the kind of financial engineering that led to the mid-week crisis in England, where the Bank of England (BOE) made an emergency intervention, living up to its "buyer of last resort" status by buying all the gilts available in order to fend off an implosion of pension funds which had run dry of available collateral. Doug Noland has a useful overview of the carnage in his weekly column.

The immediate problem arises in the US and Europe, where pension funds, starved for yield, have engaged in risky practices similar to those in London. These issues have been building up for years, as pension funds have been unable to tap into fixed income markets to sustain long-term commitments. Ever since the Fed began lowering the federal funds rate in response to various stresses, beginning in 2000 with the dotcom crisis through the pandemic of 2020-21, pension funds have had a difficult time maintaining their targets (usually 7-8% annual return) with a federal funds rate at one percent or less, often zero as detailed by this chart.

This was especially acute from October 2008 to April 2017, and again from March 2020 until May 2022, when the FF rate was consistently less than one percent, most of the time at the zero bound. Over the past 14 years, fund managers have had to find ways to stay profitable and/or solvent with rates near zero for 11 of them. Naturally, they turned to leverage and the stock market, and now that stocks are decimated and inflation making life even more miserable, the hunt for yield involves a great deal of betting on leverage, similar to tactics employed by Long-Term Capital Management (LTCM), the hedge fund that blew up spectacularly in 1998, requiring a abilout from a consortium of banks.

To get a better picture of the crisis ahead, consider that back in 1998, LTCM lost more than $4.6 billion and was re-capitalized to the tune of $3.65 billion. Today, there are thousands of private pension funds, IRAs, and 401k plans under management, with assets and liabilities in the trillions. A pension blow-up in the US and Europe would be devastating, but, under current conditions, not only possible, but probable.

Baby boomers may be spared some of the attendant pain to come, as most are already in retirement, but Generation X (born roughly 1965-1980), now approaching the golden years, may not be as well-positioned as they think, the primary reason being the Fed's inflation crusade, which may turn out to be interminable, as opposed to rounds of QE and ZIRP (zero interest rate policy) that created all the false valuations that are suddenly evaporating.

The immediate and medium term future may turn out to be similar to the Great Depression mood, which is described by some who grew up during that period as, "we were all poor, so it seemed normal to us." Be reminded that the proximate causes of the Great Depression were engineered by bankers and politicians, very similar to the horde of mongrels running the show today. Stocks were the golden goose until October 1929, when they stopped laying eggs and instead supplied only misery. That similarity is universal. Credit market seizure exacerbates the issue.

Oil/Gas

WTI crude oil closed out the week ending September 23 at $79.43/barrel and this week (9/30) at $79.74, though not before falling below $77 and rising above $82. Volatility in the commodity space has become a semi-permanent feature, but prices remain under pressure, due to steady supply and slumping demand. If Europe and the US are already in recession, as seems to be the case, oil would not be expected to rise unless OPEC+ plans shutting off the flow, which they could do at their upcoming October 5 meeting in Vienna, Austria. Rumors have been circulating that the group may cut up to one million barrels a day, to combat falling prices.

That news seem to have little immediate impact on oil prices, but gas at the pump took the brunt of it, the US national average rising to $3.76, up 10 cents from a week ago. California has vaulted back above $6.00 a gallon, to $6.19, more than double the price in a few southern states, Texas ($3.04), Louisiana ($3.03) and Mississippi ($3.03). Washington, Oregon, and Nevada are the only states, besides California, over $5.00/gallon. Most of the states remain below $4.00.


Crypto

Last week at this time, bitcoin was holding sway around $18,946.50, and this Sunday is hovering over $19,141.20, so not much change, which can be viewed as a sign of strength or weakness, depending on one's convictions. As the world turns, bitcoin may be useful for international transactions or as a primary or secondary currency in emerging markets like Nigeria or El Salvador. Outside of that, it's just another risk asset which may go either way. It's relative stability in the face of market and currency turmoil must be heartening to true believers.

Precious Metals

Gold/Silver Ratio: 87.75

Gold price 09/02: $1,722.60
Gold price 09/09: $1,727.60
Gold price 09/16: $1,684.50
Gold price 09/23: $1,651.70
Gold price 09/30: $1,668.30

Silver price 09/02: $17.91
Silver price 09/09: $18.79
Silver price 09/16: $19.62
Silver price 09/23: $18.84
Silver price 09/30: $19.01

With the gold:silver ratio barely budging, these uncertain times continue to offer a golden opportunity to snatch up precious metals at bargain prices. Gold is down nearly $500 from its all-time high (2,063.20) from 2020, while silver is down a full $10 from its near-term price high of $29.14 in 2021 and off by two-thirds from 2010.

Nobody can be faulted by making an investment and adding to the stacks at this time. Current rumors of a silver shortage cannot be confirmed. Most online dealers have ample supply, even though demand has not waned.

Below are the most recent prices for common one ounce gold and silver items sold on eBay (numismatics excluded, free shipping included):

Item/Price Low High Average Median
1 oz silver coin: 29.99 42.00 35.94 34.94
1 oz silver bar: 29.99 41.00 33.92 34.24
1 oz gold coin: 1,760.57 1,880.49 1,828.24 1,812.24
1 oz gold bar: 1,757.02 1,816.12 1,779.74 1,777.07


The Single Ounce Silver Market Price Benchmark (SOSMPB) posted a small loss on the week, to $34.76, losing 42 cents from the September 25 price of $35.18.


WEEKEND WRAP

Stocks may be lower and the credit markets may be on the verge of seizing up in a liquidity event, but there's no reason to make panic moves like the Bank of England did this past week, launching into another round of QE before even embarking on their promised tightening. Actions such as those are why Great Briton has fallen from the greatest nation on Earth to near third-world status presently, their descent into becoming a nation of little consequence a long time coming.

No need for people to act as rashly as politicians and bankers. If you're still holding stocks which are down 20-30-40%, there will be times to shed them. Relief rallies always happen. The trick is not to be greedy, believing that stocks will continue to rise as they did in the most recent two-month rally. Selling at opportune times may be the difference between a comfy three-bedroom house and a cardboard box on the street.

Most people don't realize just how over-inflated stocks have been since the GFC of 2007-09. Prior to that event, the S&P was trading around 1500. Did anybody take note that the S&P tripled from 2007 to 2020? The wealth effect was, and still is, an illusion. Paper wealth is nothing in a currency debasement or a stock market crash or credit implosion. Cash, even with rabid inflation, is still better than watching one's perceived stash gradually vanish. As the saying among gold and silver holders goes, "if you don't hold it, you don't own it," and nobody really own all those digits on the browser pointed at your online broker.

You just think you do.

At the Close, Friday, September 30, 2022:
Dow: 28,725.51, -500.10 (-1.71%)
NASDAQ: 10,575.62, -161.89 (-1.51%)
S&P 500: 3,585.62, -54.85 (-1.51%)
NYSE: 13,472.18, -136.11 (-1.00%)

For the Week:
Dow: -864.90 (-2.92%)
NASDAQ: -292.31 (-2.69%)
S&P 500: -107.61 (-2.91%)
NYSE: -324.81 (-2.35%)


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