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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.
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.
Friday, November 4, 2022, 7:38 am ET
Other than a small gain Tuesday on the NYSE composite, the major US indices have been down all four sessions this week, though the worst of it was on Wednesday, the day the FOMC voted to raise the target federal funds rate by 75 basis points, to 3.75-4.00%.
Does this indicate that the entire market was suffering from some form of denial, thinking that the Fed would change course in its rate-hiking inflation battle? While that may be what some people would like the rest of the world to believe, it's probably invalid reasoning, just like thinking that your internet connection going down every time the software writer sharing your wi-fi logs on with his laptop is caused by computer functions unknown to him (happening currently at Money Daily; Occam's Razor applies).
There are valid reasons for stocks to decline. There's no valid reason for entire indices - everywhere from Lisbon to London - to decline at the same rate at the same time. Deeply interconnected markets are a danger to the entire function of what were formerly open and free. They are nothing of the sort these days.
Keeping score, here's where stocks stand going into Friday and the monthly non-farm payroll report mental gymnastics:
Dow: -660.55 (-3.62%)
Other notable developments include two-year treasury yields at their highest since 2007 (4.71%) and the 2s10s spread the most inverted since 1982 (57 basis points).
Beyond the obvious, the NASDAQ, which has seen the most wreckage this year, down 34.67% (-5,489.86 points, YTD), on Thursday nearly matched its lowest close of the year (10,321.39, October 14) which would be lower than the level of August 2020, more than 27 months ago. If the NASDAQ closes below 10,000, the psychological impact could be devastating, causing thousands of pom-pom waving stock cheerleaders to wear their "NASDAQ 10,000" hats backwards.
Other manifestations stemming from such an event may include CNBC's Jim Cramer admitting that Bear Stearns is not "fine", cats and dogs playing together, Joe Biden's lips moving and not telling a lie, Democrats losing elections and not contesting the result, Elon Musk buying Twitter and firing half the employees. Um, wait...
Not that anybody outside of deranged, misinformed short-sellers would celebrate another leg down in stocks. After all, the economy is doing great according to the White House, which recently boasted about Social Security recipients receiving the largest Cost of Living Adjustment (COLA) since 1981 and subsequently took down the post since the increase in Social Security payments is tied to the CPI, which is too high and making everybody poor.
October's NFP report, due out at 8:30 am Friday, is likely to be fairly robust despite Thursday's warning shot from Challenger, Gray & Christmas, showing October job cuts the highest since February 2021, up 13% over September, 48% over October 2021.
Analysts are looking for a number around +195,000, which would be smaller than September's 263,000 and the lowest monthly reading since December 2020. That's what the Fed is seeking. High employment spurs inflation, as more people have money to spend. According to the Fed's view, the beatings must continue until morale is broken and people can't pay for gas, food, or medical care.
So, that's what's up for Friday, closing out a week that will likely see the Dow end a four-week winning streak and all the major indices record yet another week of losses, something that's become routine in 2022.
Let's just leave it right there, because our resident software genius will soon awaken, turn on his laptop and immediately shut down Money Daily's internet access. (Yes, that is really happening.)
At the Close, Thursday, November 3, 2022:
Thursday, November 3, 2022, 7:15 am ET
The immediate aftermath of the Fed's FOMC policy decision Wednesday, to increase the target federal funds rate by 75 basis points to 3.75-4.00%, was not pretty, neither in a market sense nor in any physical context.
Upon the 2:00 pm ET release of the Fed's latest salvo against inflation and asset appreciation, somehow, word circulated quickly that the phraseology included in the Fed's statement was dovish, indicating a wavering of the steady hand, a slowing of the incessant rate increases, that the Fed had suddenly lost its nerve.
Whomever was circulating the false narrative certainly was doing it well as stocks leapt higher right as the announcement was made. In the minute after the release, the Dow shot up 292 points, the S&P put on 42 points, and the NASDAQ jumped 130. It was quite the show. The phrase most prominently referenced by the pivot promoters was this:
"In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."
How such an obvious Economics 101 line could be interpreted as sounding dovish defies explanation, the logical conclusion being that it wasn't dovish, it indicated little, and did not change the direction or intent of the Fed one bit. The big upside move in stocks was pure manipulation by internal forces, probably emanating from the biggest brokerages in an effort to make easy profit from unsuspecting trolls.
It worked nearly to perfection because just about a half hour later, stocks began to drift lower, then they began to sink, and, soon enough, as Chairman Powell was addressing the loony press, the markets became engulfed in a full-blown massacre of the doves who had bought into the fake, completely unsupported narrative.
During the press conference, Powell might have well been pounding on the podium with his shoe, insistent that the Fed would fight on to get inflation under control, just as he and his cohorts have been saying for months, even emphasizing their commitment when he made the famous speech at the Jackson Hole conference in late August.
At this juncture, anybody still looking for the Fed to back off, back down, cool down, or otherwise slow the pace and regularity of their rate increases needs to get a better grip on reality and tune up their senses. The theme has not changed. This was the fourth straight 75 basis point rate hike by the fully-committed FOMC as they rapidly approach the proposed terminal rate somewhere in the area of 4.75-5.00%. The only question remaining for the rest of the year is whether the Fed will raise the rate 50 or 75 basis points at its next and final 2022 meeting, December 13-14, not that it matters much, though if it's only 50, the shrieking from the doves will be a deafening "told you so" moment.
Ah, the future. So much to learn, so little time.
Such an abrupt end to what can only be described as a bear market rally that began in earnest on October 3rd, right after stocks closed out September at the lows of the year, contains a certain serendipity for true believers in the Fed, markets, and technical analysis. The world has been on the brink of crisis for over a year. The idea that the Dow is only down 12% year-to-date is testament to the inner machinations of the Wall Street money machine. Even so, touts are out there telling stories about how cheap stocks are, now that there's been a correction. Over in NASDAQ-land, where tech investors must be growing tired of wearing their virtual reality headsets watching Meta Platforms (META) de-platform into a pile of dust, losing a third of its value in just over a week, and down 75% on the year.
One wonders where this is all heading, to a dot-com 2.0 crash that's already underway, or to a complete market rout that's pressing on everybody's nerves, a meltdown of Democrats in the upcoming midterms, repudiation of leftist politics, the return of MAGA?
It's an insane set-up in which everything may change on the evening of Tuesday, November 8, or, just stay the same, with a few extra helpings of FUD thrown onto the buffet.
Keep your powder dry, your stop-losses tight, and untwist your knickers. It's go time.
At the Close, Wednesday, November 2, 2022:
Wednesday, November 2, 2022, 8:19 am ET
The wait is nearly over. At 2:00 pm ET, the world will know what it already strongly suspected, that the Federal Reserve is not going to waver in its pledge to end the scourge of inflation. It will raise the federal funds target rate by 75 basis points, from 3.00-3.25% to 3.75-4.00%.
The treasury market is already reflecting the move, with yields across the entire curve already above four percent, save the shortest maturity, the 1-month, at 3.72%, which itself is already tantalizingly close to lower end of the proposed range.
One-year yields exploded higher on Tuesday, closing out the day at 4.75%, the highest of all maturities and inverted against the 10-year note (4.07%) by 68 basis points and the 30-year (4.14%) by 61.
Bankrate has the 30-year fixed rate mortgage pegged at 7.22%, raising havoc in the housing market, as already overpriced home sellers now finding few buyers, the cost of a monthly mortgage payment pricing many straight out of the market.
Sooner or later, something - maybe everything - will break, according to the Fed's well-telegraphed plans. Housing, employment, consumer prices, the cost of home heating fuel, gas for transportation, and even the price of stocks has to come down in order to tame inflation, get it off it's current eight percent annual trajectory and back down to a more reasonable two percent.
Good luck to all.
On the earnings front, a notable report from drugstore chain CVS Health (CVS), showing third quarter total revenues increasing to $81.2 billion, up 10.0% compared to prior year, and adjusted earnings pegged at $2.09. The company also announced an agreement with various state attorneys general that would see the group pay around $5 billion over the next ten years, beginning in 2023, to resolve litigation linked to the country's opioid crisis. Among others, Walgreen's and Wal-Mart are also part of the $12 billion settlement.
Yum! Brands, Inc. (YUM) reported lackluster results for the third quarter Wednesday morning. Third quarter GAAP operating profit grew 4%. Third quarter core operating profit grew 8% including a 3-point headwind from Russia. Third quarter GAAP EPS was $1.14 and third quarter EPS excluding Special Items was $1.09. The street was looking for $1.14. Shares of the global food service company were up by less than one percent in pre-market trading.
Everything's hanging on a thread until the 2:00 pm ET FOMC announcement. International markets were pretty much flat, as are stock futures this morning.
Stocks have closed lower two straight days this week, like a batter at the plate fouling off a couple of fastballs. The next pitch is likely to be a curve, but another fastball could go whizzing over the outisde corner for strike three. Powell winds up, here's the pitch...
At the Close, Tuesday, November 1, 2022
Tuesday, November 1, 2022, 9:15 am ET
This is going to be a more or less "drive-by" posting, because nothing serious will happen in markets until Wednesday's FOMC policy decision.
The Fed is almost certain to raise the target federal funds rate by 75 basis points, from 3.00-3.25% to 3.75-4.00%. Until that's made official, markets will likely just churn, with today's opening looking like another moonshot.
October was a very positive one for stocks, with the Dow recording its best October ever, rising 14%, exceeding the prior record of 10.6%. The strong monthly gain also represented the Dow Jones' best overall month since 1976.
Awaiting the FOMC decision, there are plenty of companies reporting third quarter earnings. Before the open, here are some popular ones:
SoFi (SOFI) posted a third-quarter loss of $75.8 million, or 9 cents a share, compared with $30.0 million, or 5 cents a share, in the year-earlier period. Analysts expected a 10-cent loss per share, based on four estimates. SoFi also logged adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda) of $44.3 million, up sharply from $10.3 million a year prior. Based on those results, the stock is soaring in the pre-market, up as much as 16% (6.32 +0.88).
Here's another one that says the tech bubble still hasn't been deflated. Uber (UBER) badly missed EPS estimates, reporting losses of 61 cents per share versus $-0.17 expected. The unicorn ride-sharing beast did manage to beat on revenue, which came in at $8.34 billion versus an anticipated $8.13 billion. Yes, indeed, the old "we lose money on every sale but make it up in volume" explanation has the stock up more than 10% prior to the opening bell.
Need more proof that people are gullible and/or stupid? Look no further than Pfizer, whose CEO said this: "Our COVID-19 franchises will remain multi-billion-dollar revenue generators for the foreseeable future." Now, you can have your heart attack or cancer safe in the knowledge that you're protected from a disease that is almost a certain match for the flu and has a death rate of 0.001%.
Pfizer (PFE), manufacturer of the multi-side-effect non-vaccines that don't effectively protect victims from catching or spreading the non-deadly virus, had adjusted earnings for the three months ending in September of $1.78 per share, a 40.2% increase from the same period last year and well ahead of the Street consensus forecast of $1.39 per share. Group revenues, Pfizer said, fell 6% to $22.64 billion, a figure that also beat analysts' estimates of an $21.04 billion. Pre-market, shares were higher by 3.75%.
Just in case you were wondering if both oil companies and governments actually like higher fuel prices, British Petroleum (BP) profits more than doubled in the third quarter to $8.2 billion, driven by record high energy prices, even as it paid the British government's windfall profit tax (coming to America soon) and expanded its share buybacks by $2.5 billion. Shares of the energy giant, already up 45% on the year, are holding steady in pre-market trading.
Consumers pay more, companies and governments profit. Nice grift if you can get in on it.
Finally, Toyota Motor Corp (TM) posted a worse-than-expected 25% drop in quarterly profit and cut its annual output target, the company citing surging material costs and a persistent semiconductor shortage for the poor results and forecast. With production down, sales were stull up, the company reporting fiscal year 2023 second quarter operating profit of $4.1 billion and earnings per share of 23 cents. Analysts were looking for $5.2 billion and 35 cents respectively.
The stock is down 25% year-to-date but is trading half a percent higher in the pre-market.
Futures are ramping higher with the open about 1/2 hour ahead. Asian stocks posted healthy gains and European stocks are showing strength.
It's all just noise until the fat lady (FOMC) sings on Wednesday at 2:00 pm ET.
At the Close, Monday, October 31, 2022:
Sunday, October 30, 2022, 9:44 am ET
Third quarter earnings reports from some heavyweight tech and mainstream companies dominated the week with negatives piled on tech sector stocks such as Alphabet, parent of Google (GOOG), Microsoft (MSFT), Meta Platforms (META, which performed another face-plant for the quarter), and Amazon (AMZN), offset by generally positive results for the likes of Apple (AAPL), Caterpillar (CAT), Mastercard (MA), McDonald's (MCD), ExxonMobil (XOM) and Southwest Airlines (LUV).
Pulled down by the aforementioned tech giants, NASDAQ was the worst index performer of the week, though shares managed to finish ahead 2.24%. The Dow: (+1779.24) was the best of the majors, winning the week with a gain of +5.72%.
Focus will shift to the Fed and inflation in the coming week, as the second-to-last FOMC meeting of the year takes place Tuesday and Wednesday (11/1-11/2) with committee members largely expected to hike the target federal funds rate another 75 basis points, which would set the overnight lending rate at 3.75-4.00%. Though there are voices suggesting a 50 basis point advance, that view is in the minority. The Fed has not wavered in its fight against inflation. A 75 basis point hike would be their fourth in as many meetings.
This week marked the third largest point gain on the Dow in 2022, but, stocks are not even back to levels reached in late May. Closing above its 200-day moving average for the first time since Mid-August, the question becomes, "where to now, Dow?"
If a bottom has been put in at the September 30 lows and stocks advance from here, the catalysts will be described as anything from reduced inflation fears to calling off the recession (which the US may have gone into in January and escaped from in September) which has been loudly proclaimed to be on the menu for 2023.
More to the point may be geo-political backgrounds, especially surrounding midterm elections. Wall Street wise-guys may be pointing to a regime change in the US, as Democrats look more and more likely to be trounced by Republicans at the polls on November 8. All 435 House seats, 35 Senate seats and 36 governorships are being contested. Republicans could take control of both houses of congress, thus stalemating the brain-addled resident in the White House.
Wall Street loves government inaction because the politicians can and usually do introduce legislation that is harmful or otherwise not conducive to growth in the economy. They pass bills that cost companies and consumers money, raise taxes and impose regulations where none should exist. If corporate types are betting on a return to Republicans shooting down spending bills and Brandon vetoing anything that Republicans propose, it could make for a merry time in the canyons of lower Manhattan, and, they may have gotten a bonus gift when Elon Musk formally took Twitter private on Friday, boosting the hopes of free thinkers and free speakers, and, incidentally, of Republican candidates.
March 11: 32,944.19
May 20: 31,261.90
June 17: 29,888.78
October 14: 29,634.83
With the FOMC meeting concluding on Wednesday afternoon, market reaction will be instructive, though it appears, for now, that the mood has swung to the positive and the market may take on its traditional role of being a discounting mechanism. If an end to inflation and rate hikes can be viewed from a distance, projections to meet the terminal rate of 4.50-4.75% could be as early as December, but almost certainly by the first FOMC meeting of 2023, on January 31/February 1.
Despite rate discipline possibly pausing in the first quarter of next year, there still exists ominous warnings and indications that the US economy will contract, The treasury curve is telegraphing such an event, and more than a few prominent analysts have signaled early 2023 for a recession. In that case, the "no recession" during the first two quarters of 2022 will suffice as prelude, similar to the double-dip recessions of 1980 and 1981-82.
On the S&P, the 23.6% retrace seemed to be locked in as of last Friday, but the week-long rally erased that notion. With the index closing at 3,901.06, there will be screaming about the 50% retrace, though that is not actually a true Fibonacci level, but rather, a convenient marker. The 61.8% retrace seems much more likely.
Fibonacci ratios encompassing the most recent substantial movement for the S&P are as follows:
Earnings reports will take a back seat to the Fed show, but important Q3 reports are on tap during the week, including Uber (UBER), Pfizer (PFE), British Petroleum (BP), Advanced Micro Devices (AMD), PayPal (PYPL), Devon Energy (DVN), Airbnb (ABNB), Etsy (ETSY), Coinbase (COIN), Moderna (MRNA) and literally hundreds of others.
Treasury Yield Curve Rates
With massive selling on the short end of the curve (1-month bills +20 basis points), and buying of long-dated maturities, the yield curve extended its inversion regime further, from 3-months (4.18%) to 30 years (4.15%). It is worth noting that the curve has added another benchmark as of October 18 in the form of a 4-month bill. The one-year note took home the booby prize at 4.55%, presaging the FOMC meeting next week.
With the Fed a majority buyer in long-dated maturities, notes and bonds saw yields fall as the idea of a four percent return began to dawn on investors as not such a bad deal. WIth the entire curve elevated, the total spread was flattened, from one-month out to 30 years now a mere 40 basis points (3.75%-4.15%), the inverted structure like an inflated pancake.
10-year notes fell below the four percent threshold briefly during the week, managing to meet expectations by Friday with a 4.02% yield. The Fed appears to be perfectly comfortable with the current condition, though investors may find the market's recent volatility frustrating, but eventually, constructive. More violent moves are to be expected, with the 2s-10s sporting a 39 basis point inverted bulge and 2s-30s at 26 basis points.
If the aim is to make all rates equal, the job is nearly done.
WTI crude oil rose again, to $88.37 on Friday, 10/28, from $85.14 on the 21st. Price gains have been hard to come by and rather suspicious, even in the face of OPEC+ production cuts due to commence on November 1. Whether those moves cause consternation and higher prices heading into the holidays remains to be seen, and speculation that $100 oil is on the horizon is rampant, though likely misplaced. If anything, there is a demand fall which should keep a lid on prices near term and supply is not restrained to any great extent.
In the US, the national average for a gallon of regular 87 octane gas fell, from $3.79 last week to $3.74 currently. California ($5.49) is the only state averaging over $5.00/gallon. Washington has fallen to $4.84, Oregon to $4.93, and Nevada to $4.96. The cheapest gas can be found in Georgia and Texas, at $3.11 and $3.14, respectively, both down a few cents from the prior week. The Southeastern states continue to trend well under $4.00 per gallon. Every state east of Idaho, Utah, and Arizona are under $4.00/gallon, except Illinois ($4.12)
Sunday to Sunday, bitcoin moved from $19,156.50 last week to $20,767.70, today. While the gain was noticeable, it is still not convincing. Bitcoin bulls are pointing and yelling "breakout," but need to be reminded that bitcoin is supposed ot be a currency, not a penny stock.
Gold/Silver Ratio: 85.85
Two things have become readily apparent. First, the LBMA/COMEX daily fixes and futures trading are not efficient price discovery mechanisms; and, second, there is a shortage of silver.
Serving only the proponents of fiat currency, prices of gold and silver via the LBMA or COMEX have kept prices suppressed for decades, despite gold actually being near record highs. In US dollar terms, gold has gotten the cold shoulder, treated as just another currency when it is anything but. Gold and silver, actual money, are not part of the calculus that derives the soaring "dollar index" but have reacted as though they were the euro or British pound, two fiats headed straight into the abyss of history, along with, eventually, the dollar itself.
The death of debt-based, fractional reserve fiat currency is a mathematical and historical certainty. Gold and silver suppression create the mother of all false narratives, a panacea for the globalists, an impoverishment for most of the world. While it's currently the case that dollars are everybody's darling, the unmistakable fact that it has continued to decline in purchasing power has apparently escaped from reality.
The dollar regime may last another year or another millennium. Nobody knows for certain, but indications are surely favoring a distinctly different manner by which to measure wealth, though resistance, futile as it may be, remains entrenched and without recourse. Stackers of silver and hoarders of gold cannot be faulted for their savings habits. They are true believers in sound money, of which there is a growing shortage.
Speaking of shortages, silver appears to be heading for one. Recent developments include the COMEX vaults being drained at an alarming pace, premiums on popular one-ounce items, particularly American Silver Eagles (ASE) are at 100% or higher in some cases. Dealers are now offering buy-backs of Eagles well above spot, hedging their bets that prices will continue to rise as silver items fly off their shelves in unprecedented demand.
Here's just one example of a dealer offering to buy ASEs at $30.99. Other dealers are offering similar prices due to the US mint being sold out with production halted on ASEs and other coins. Of the few available coins, prices start at a ridiculous $79 for products that aren't even a full troy ounce in weight.
While the COMMEX and other vaults in London and New York are being drained of their supply of 1000-ounce bars, it's clear that the variance between spot and actual one-ounce finished products is enormous and unsustainable. While the bullion banks and their daddies, the central banks continue to deny price discovery at the macro level, dealers and ebay sellers are taking the silver market to new levels and hopefully, to a new market-based pricing regime.
Gold price 09/30: $1,668.30
Silver price 09/30: $19.01
Here are the most recent prices for common one ounce gold and silver items sold on eBay (numismatics excluded, free shipping included):
The Single Ounce Silver Market Price Benchmark (SOSMPB) ramped higher this week, to $37.59, a gain of $1.63 from the October 23 price of $35.96.
The week was another solid one for stocks, welcome relief for embattled and embittered investors, large and small, though fear that recent gains are nothing more than another bear market rally like the one from Mid-June to Mid-August are still circulating.
This one may be different, as mentioned in the stock section above, due to massive, structural changes in the political climate. Midterm elections are just more than a week off, with Republicans eyeing a takeover of the House majority and possibly adding a few seats in the Senate, breaking the deadlock.
Inflation is still with us, though there are some indications that it may have crested. Even if that is true, higher food prices seem to be quite hardened, where it hurts consumers the most. With their November meeting this week, the Fed is likely to push matters nearer to the limit as the effects of prior rate increases begin to be realized.
Emergent are savings accounts, with a few now paying interest rates of 2.5% or higher. Pay attention to this long-overdue trend.
At the Close, Friday, October 28, 2022:
For the Week:
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