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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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Central Bank Monetary Policy Harmful to Humans; CPI Miracle Rally Rant; Banks Grow Loan Loss Provisions

Friday, October 14, 2022, 8:30 am ET

Thursday's face-ripping rally was all intervention, the same kind of intervention that's been painting the tape at the end of sessions, reversing severe drops at opening bells and generally keeping global stock markets from sinking into an abyss that opens wider every day.

It was a familiar combination of the NY Fed, Plunge Protection Team, Vanguard, Blackrock, et. al. coordinated buying. Call it what you like, but intervention (and market manipulation) is the best explanation for the sudden reveral after September CPI reading 8.2% year-on-year that sent market futures from red-hot positive to nearly limit down in a matter of minutes, but was outdone by a day-long rally in the cash market that left almost everybody scratching their heads.

Thursday's miracle rally came out of the blue and wrecked short sellers and put buyers, who were only acting in a rational manner. World decision-makers, now that the Fed and its minions have achieved "full spectrum dominance" over markets everywhere, couldn't have a market crash so close to the upcoming equally-rigged midterm elections. That was unacceptable and apparently not on their calendars.

The 1300-point move on the Dow was another piece of evidence that - like the media that supports these follies - nothing you see or hear is real. It's all contrived for the benefit of those clinging desperately to their holds on power over people, minds, markets, politics, your money, your job, your life.

For a smattering of what passes for financial journalism, here's a snippet from Barron's Ben Levisohn, failing badly at trying to explain the rally while avoiding the obvious (he has to keep his job). Here's a link, but Barron's, enabled by Yahoo!, is trying to run a paid-subscription service and many people will not be able to see the whole article.

Investors might also be betting that inflation has peaked, and, perhaps, expectations for Fed rate hikes. After the CPI print, expectations for peak fed-funds hit 4.9% or so, a massive capitulation by the market, which also seemed to abandon the notion that the Fed would cut rates sometime soon. It's possible, but I'm reluctant to buy it.

The most likely explanation is a technical one. The S&P 500, at its low, had retraced half the gain it had made from the Covid low in 2020 to its peak in January 2022. That's an important level for market technicians, and when it was hit, it appeared to set off a wave of profit-taking in put options that had become profitable, according to Bloomberg, which translated into actual buying, especially as those who were short the market got squeezed. And the rest, as they say, is history.

It's an unsatisfying reason, especially in the midst of a bear market, and everyone looking for a narrative that could help reverse the painful losses. But sometimes markets move more because of positioning and trading, not for any fundamental reason.

Sometimes, even a 3% gain is just noise.

What a load! Let's give Ben a little credit, though. The rally was almost all noise and no signal, which was interrupted by surreptitious bids throughout the day. Market viewers got fuzz, a test pattern, snow, and snowed.

This is the kind of thinking that can rationalize war crimes, racism, gun-whipping, wife-beating and other assorted human misgivings. "Oh, maybe it was something else, or, maybe it was just noise. I really have no damn clue." OK, get a real job. Ben knows nothing about economics, business, or politics. Ben is just another stooge, clown, lapdog, useless idiot. And that's how it goes. Bank stocks got pumped the most, and with good reason. A bunch of them report Friday morning (see below). Shares of Bank of America (BAC) traded 6.13% higher; Citigroup (C) added 5.22%, Goldman Sachs (GS) +3.95, Morgan Stanley +3.55, JP Morgan Chase was up 5.56%, and Wells Fargo (WFC) was up 4.62%

Just in case you've wondered, your retirement "savings" in the stock market have taken a 30-40% hit this year. Good luck with that future vineyard, beach home, or mountain retreat you've seen advertised on the boob tube. Klaus Schwab and the WEF promised, "you'll own nothing and you will be happy" when the reality is almost certain to be more like, "you'll own little and you will be miserable."

Millions and millions of people have been hornswaggled into believing that investing in stocks will fund their retirement when all the money dumped into Wall Street has loaded the bank accounts of the brokers, dealers, CEOs and other executives of the very companies the swindlers promote.

Bear in mind that "retirement" is a fairly new construct for the middle class. Relaxing by the pool or at the country home used to be the province of the rich, but that was before financializaton, Zero Interest Rate Policy, QE, bailouts, bail-ins, IRAs, tax deferred funds, the internet, and a horde of wide-eyed Ivy League dingbat economists and stock-pumpers so thick you couldn't spit between them descended on Wall Street with aims of taking all your money, a little bit at a time or sometimes - like now - all at once.

"It's a big club, and you ain't in it" -- George Carlin

Money Daily publisher and Downtown Magazine CEO, Fearless Rick, in his days as a horse-racing enthusiast, was fond of walking up to clueless plungers at race tracks right before a race, saying, "Pay attention. I'm about to perform magic. I'm going to turn your money into my money," stressing out those who failed to understand the rigors of pari-mutual wagering. It's the same with stocks and investments. People on the inside routinely skin the rubes and followers, without remorse, every day.

People, not so long ago, used to have brains. They used to be able to think for themselves. Not any more. Today, since most people haven't a snowball's chance in hell of understanding money, stocks, bonds, or - God help us - economics, they're more than willing to take any excess cash and hand it over to people who claim to know it all and have their best interest at heart. It's a lovely scam.

The notion that recent rallies and many more sure to follow are based on something other than coordinated buying by heavy-handed market players who will never be brought to heel for their immoral actions belongs in the realm of other dreamy concepts like green energy, fair elections, honest journalism, or the US congress (we can hardly contain our laughter).

People have had plenty of time to wake up and smell the rancid coffee served up daily out of DC and Wall Street. The youth can hardly be blamed; they've been brainwashed and brow-beaten by an inept school system and higher academics who preach anti-capitalism, gender replacement, and diversity as strength, among other spurious yarns. Baby Boomers still in the stock market have only themselves to blame for trusting their peers and their supposed superiors. Didn't they go to high school? Most of them went to college and learned nothing, a scathing indictment on the entire eduction "system."

In general, Americans are overall a good people, just as most of the rest of the world's inhabitants. How millions and billions of people have been put to the grindstone by a small group of sociopathic politicians and scurrilous bankers is a topic too deep and dirty for today's screed. Get out of the market. Get your money out of banks, go back to work and stop trying to make a buck without working for it, that is, unless you have too much already and plan on throwing it away.

"I spent a lot of money on booze, birds, and fast cars. The rest I just squandered." -- George Best

Now that stocks and individual portfolios are down 20-30-40% or more, it's just barely understandable that people don't want to take the 10% hit for early withdrawal and pay taxes on the proceeds from their 401k plans or the like. After all, they had a lot more just a few months ago and probably think stocks will come roaring back, like they did just yesterday. Come on. Really?

These are the same people who didn't see the signs after 2008, after the Covid crash and subsequent rally, run entirely on fumes, stock buybacks, government funding, day-trading momentum-chasing, and excess capital jabbed into the economy like a vaccine against poverty. These are the same people who didn't take the hint in January, March, or May and the same type of people who lost everything in 1929. Stupid people with money is, always and everywhere, a product of greed and sloth, doomed to end in desperation.

Getting back to the unfolding story of the new depression, the one we're already well along into, a quick update on where stocks stand before the final trading session of the week.

The major indices are all green through Thursday's close, almost. The Dow is up 741 points, the NASDAQ is the laggard, down 3.02, while the S&P is up 30, and the NYSE Composite has added 90 points thus far.

A number of banking interests reported third quarter earnings Friday morning prior to the open.

First up was JPMorgan Chase (JPM), reporting a 17% drop in third-quarter profit for the quarter ended Sept. 30 at $9.74 billion, or $3.12 per share, compared with $11.69 billion, or $3.74 per share, a year earlier. Analysts had trimmed expectations down to $2.88 per share, giving the bank an easy beat. The bank set aside $808 million in reserves to cover loan losses.

PNC Financial Services Group, Inc. (PNC) reported EPS of $3.78, against expectations of $3.69 and better than the same period a year ago ($3.30). Net income of $1.6 billion increased $144 million, or 10%.

Total revenue of $5.5 billion increased $433 million, or 8%, primarily due to higher net interest income. Provision for credit losses was $241 million.

Wells Fargo & Company (NYSE: WFC) reported total revenue $19.5 billion, up from $18.8 billion a year ago, but earnings were lower on net income of $3.5 billion, down from $5.1 billion in the third quarter of 2021.

Diluted earnings per common share were $0.85, versus $1.17 a year ago, due somewhat to rising provision for credit losses of $784 million. Analysts were seeking $1.07 per share.

Morgan Stanley (MS) reported net revenues of $13.0 billion for the third quarter ended September 30, 2022 compared with $14.8 billion a year ago. Net income applicable to Morgan Stanley was $2.6 billion, or $1.47 per diluted share, compared with net income of $3.7 billion, or $1.98 per diluted share, for the same period a year ago. Provision for credit losses was $35 million, up from $24 million in the same period a year ago.

Citigroup (C) reported net income for the third quarter 2022 of $3.5 billion, or $1.63 per diluted share, on revenues of $18.5 billion. This compares to net income of $4.6 billion, or $2.15 per diluted share, on revenues of $17.4 billion for the third quarter 2021. Expectations were lowered for this dung-bag of a bank to $1.42, ensuring an EPS "beat." Credit loss provisions were $370 million, as compared to a credit reserve release of $1.1 billion in the year-ago quarter.

Bank of America (BAC) reports Monday, and Goldman Sachs (GS), Tuesday.

The common theme for the quarter was higherloan loss provisions as credit card defaults and auto repossessions are on the rise with inflation squeezing the budgets of middle class families. In coming quarters, provisions will be set aside for mortgages, on both residential and commercial real estate, especially the latter, with occupancy rates down across the board in big and medium-sized cities. Also noticeable was lower revenue and EPS as compared to the year earlier quarter for most. Big banks are living on borrowed time. As the markets prepare for the opening bell, Asian stocks were higher overnight, European share holding onto small gains, but US stock futures were up until Citigroup's earnings release, at which time they fell into the red.

Finally, the latest video release from Mike Maloney is a solid one, as the author of "Hidden Secrets of Money" explores the roots of central bank policies that set the world ablaze and pokes fun at Nobel Emeritus in Economics, Ben Bernanke (A ZeroHedge commentator said it was like giving the Peace Prize to Hitler). Non-spoiler alert: Watch until the end. The last two minutes are special.

At the Close, Thursday, October 13, 2022:
Dow: 30,038.72, +827.87 (+2.83%)
NASDAQ: 10,649.15, +232.05 (+2.23%)
S&P 500: 3,669.91, +92.88 (+2.60%)
NYSE: 13,888.97, +342.17 (+2.53%)


Gold, Silver Still on Sale as Honest Money; September CPI Up 0.4% MOM, 8.2% YOY; Stock Futures Nosedive

Thursday, October 13, 2022, 9:22 am ET

Following Wednesday's September PPI reading of 8.5% year-over-year, Thursday morning's September CPI release was about as highly-anticipated as any economic data of the past few years. Being the final CPI reading prior to the midterm elections of November 8, the data will have ramifications beyond economics into the political realm.

No doubt, everybody has felt the pain of inflation, either at the grocery check-out or while pumping gas at over $4.00 a gallon this past summer. The price of fuel at the pump jumped in March on the heels of Russia's Special Military Operation in Ukraine and ratcheted higher through Spring and into Summer, reaching a high of $5.02 per gallon as the US national average.

Prices have come down significantly, but only fell below $4.00 nationally in August, and remain stubbornly high. In recent weeks, after falling as low as $3.68, gas is on the rise again, the national average standing at $3.92 presently.

Not just in food and fuel, prices for everything from rents to insurance to utilities and taxes are also rising, a sign that the after-effects of the Fed's massive COVID relief and the federal government's stimulus checks have not yet been wrung out of the market and inflation may in fact be expanding into more consumer goods and services.

According to the BLS:

CONSUMER PRICE INDEX - SEPTEMBER 2022

The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4 percent in September on a seasonally adjusted basis after rising 0.1 percent in August, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 8.2 percent before seasonal adjustment.

Increases in the shelter, food, and medical care indexes were the largest of many contributors to the monthly seasonally adjusted all items increase. These increases were partly offset by a 4.9-percent decline in the gasoline index. The food index continued to rise, increasing 0.8 percent over the month as the food at home index rose 0.7 percent. The energy index fell 2.1 percent over the month as the gasoline index declined, but the natural gas and electricity indexes increased.

The index for all items less food and energy rose 0.6 percent in September, as it did in August. The indexes for shelter, medical care, motor vehicle insurance, new vehicles, household furnishings and operations, and education were among those that increased over the month. There were some indexes that declined in September, including those for used cars and trucks, apparel, and communication.

The all items index increased 8.2 percent for the 12 months ending September, a slightly smaller figure than the 8.3-percent increase for the period ending August. The all items less food and energy index rose 6.6 percent over the last 12 months. The energy index increased 19.8 percent for the 12 months ending September, a smaller increase than the 23.8-percent increase for the period ending August. The food index increased 11.2 percent over the last year.

The release came at 8:30 am ET and caused an absolute panic in stock futures. Prior to the release, Dow futures were up more than 300 points, but within minutes fell to -300, a 600-point move to the downside, unlike anything seen since maybe 9-11 or the GFC of 2008. Just a few minutes before 9:00 am ET, Dow futures had fallen to more than -400. S&P, NASDAQ, and Russell 2000 futures experienced similar moves to the downside.

What the combined PPI and CPI September readings are showing is that inflation remains high and doesn't appear to be easing at the consumer level. With CPI at 8.5% in July, 8.3% in August, and now, 8.2% in September, the Fed's FOMC will almost assuredly raise the federal funds rate 75 basis points, if not a full one percent. About the only good thing anyone can say about the CPI is that seniors on Social Security are going to get a raise of about 8.35%, since the COLA is calculated based on the average of 3rd quarter CPI (July, August, September).

Stocks in Europe took the news just as hard as US futures, with gains erased on all the major indices. The pan-European Stoxx 50 fell 1.45%, now down 24 percent on the year.

US stocks are set to fall off the wagon at the opening bell. Whether they make new intraday lows is hardly the question. The real query is just how far will they decline today and beyond. News that is negative for stocks seems to keep appearing now on a regular basis. Investors are taking a magnificent wallop here.


There's been a great deal of speculation about silver recently, with some analysts claiming the London vaults are being drained by rampant, growing demand for physical silver. Whether that analysis is correct or not, here are some tips on silver:

There is plenty of silver, in 10 oz increments and up, for $24.50 and up at dealers. Depends on where you buy and what perceived quality you desire. Most people like fancy engravings, numbers, etc. In the end a 10 oz .999 bar is still a 10 oz .999 whatever its inscriptions. Beyond that, you're into numismatics, and the prices there have skyrocketed.

One model with silver best used is buy low, buy regularly, never (well, not never, but not until it gets moving to where it belongs) sell.

One of the problems with silver or gold is that you pay in fiat, and nobody is sure what that's worth.

Look at it this way: For $100 you can have a pretty nice dinner for two at a decent restaurant or four ounces of silver. The restaurant meal will exit your body within a day; the silver will last a lifetime. It's value vs. price.

Silver and gold are investments in time and peace of mind. They're core money, which is why gold is a tier one asset for central banks. It is highly valued around the world. Silver is a little more risky. Central banks don't hold ANY (as far as they're telling us), but, that shouldn't be an issue, since central banks are the primary cause of almost all economic pain and suffering.

Silver and gold are insurance against the follies and eventual collapse of central banks and their fiat currencies.

Everybody should own some. A 5-25% allocation is suitable for any portfolio, dependent on one's risk profile and faith in the current system.

Both are bargains, but especially silver. Get some NOW.


Earlier this morning, drugstore chain Walgreens Boots Alliance (WBA) posted a loss for the fourth quarter, partly due to higher operational costs and an impairment charge related to its Boots UK business.

The net loss attributable to Walgreens was $415 million, or 48 cents per share, in the quarter ended Aug. 31, compared with a profit of $627 million, or 72 cents per share, a year earlier.

That is a pretty big hole they've dug. Investors are taking a longer view, boosting the share price by about 1.65%. WBA is down nearly 40% for the year.

Elsewhere, Delta Airlines (DAL) beat earnings expectations, sending the stock soaring in the pre-market.

BlackRock (BLK), one of the most-hated companies in America, reported per share earnings of $9.55 per share, well above estimates, but down nearly 16% from a year ago.

Net income attributable to BlackRock (on a GAAP basis) was $1.41 billion, down 16.4% from the prior-year quarter. Revenues (on a GAAP basis) were $4.31 billion, falling 14.6% year over year. The decline largely stemmed from a decrease in almost all components of revenues, except for technology services revenues.

At the Close, Wednesday, October 12, 2022:
Dow: 29,210.85, -28.34 (-0.10%)
NASDAQ: 10,417.10, -9.09 (-0.09%)
S&P 500: 3,577.03, -11.81 (-0.33%)
NYSE: 13,546.80, -61.29 (-0.45%)


PPI Declines Slightly to 8.5% YOY; PepsiCo (PEP) Blasts Off Earnings Season on Positive Note, Beating Eastimates

Wednesday, October 12, 2022, 9:20 am ET

Everybody knew this was going to be a testy week for stocks, but the main indices somewhat held their own the first two days, despite the S&P dipping to a fresh low at 3,568.45 with less than an hour before the close on Tuesday and the NASDAQ hitting another new closing low at 10,426.19. A little more than 11 months ago, the NASDAQ had made a record high of 16,057.44 (November 16). That's a decline of more than a third (35.07%).

Now it get more interesting.

On back-to-back days, market participants are going to have to swallow hard and digest the implications of September PPI and CPI, the first coming over the wires at 8:30 am ET, showing that inflation continues to be alive and well in the producer space.

From the BLS:

The Producer Price Index for final demand increased 0.4 percent in September, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices declined 0.2 percent in August and 0.4 percent in July. On an unadjusted basis, the index for final demand advanced 8.5 percent for the 12 months ended in September.

In September, two-thirds of the increase in the index for final demand can be traced to a 0.4-percent rise in prices for final demand services. The index for final demand goods also advanced 0.4 percent.

Prior months were something of a moving target, though suggestive of a general slowing of inflation in goods, while services prices were rising. September's reading kind of evened things out, with general inflation month-over-month tepid and the year-over-year percentage continuing to fall, from 11.3% in June, 9.7% in July, 8.7% in August, and today's 8.5% showing.

The results were not good enough for Wall Street, as stock futures fell. In the immediate aftermath of the report, Dow futures declined from above +200 to around +85, the general outlook that while the PPI numbers show a slight easing of core producer inflation on an annual basis, it's not enough to cause the Fed to pivot, though it may nudge them towards a 50 basis point hike rather than what would be a fourth consecutive 75 bp hike. It's small peanuts, but probably good enough to keep markets from melting down, at least for Wednesday. Thursday's CPI report is more critical, but may be another softball. These are the final inflation readings before the midterm elections, and aren't bad news for Democrats, who can chirp about getting inflation "under control."

In the background, corporate earnings reports are beginning to emerge, the latest from consumer snack and beverage giant, PepsiCo (PEP).

From thestreet.com:

PepsiCo (PEP) posted stronger-than-expected third quarter earnings Wednesday, while boosting its full-year profit forecast, as impressive gains from Frito-Lay continued to power the beverage giant's bottom line.
PepsiCo said core earnings for the three months ending in September were pegged at $1.97 per share, up 10.05% from the same period last year and 13 cents ahead of the Street consensus forecast.

Overall group revenues, PepsiCo said, rose 8.3% to $21.97 billion, again topping analysts forecasts of a $20.8 billion tally.

North American revenues at Frito Lay, its snacks division, came in at $5.563 billion, up nearly 20% from last year, while beverages revenues were up 3.6% at $6.635 billion.

The company also boosted its earnings projections for its next fiscal year from $6.63 to $6.67 per share. Stock price was nearly three percent higher in the pre-market, indicating an opening price around 167, up more than four points from Tuesday's close.

All of this makes for an exciting opening bell, with the Bank of England fighting for Britain's very soul as their bond market continues to suffer with millions of pensioners on tethers. Another compelling storyline is that of the Federal Reserve sending $3.1 billion across dollar swap lines to the Swiss National Bank (SNB), suggesting that Credit Suisse has not quite solved its myriad issues.

Just as a reminder: real money (gold and silver) have been punched lower this week. Silver is on sale for around $19.20 on the COMEX, with gold in the range of $1672 per ounce. As the dollar rises against almost every other currency, it's amazing to see gold and silver treated as just another competitor, when they have been, for thousands of years, the true measure of wealth.

Whether they will again achieve that lofty status remains to be seen, but history offers good odds that they will.

Happy Hump Day!

At the Close, Tuesday, October 11, 2022:
Dow: 29,239.19, +36.31 (+0.12%)
NASDAQ: 10,426.19, -115.91 (-1.10%)
S&P 500: 3,588.84, -23.55 (-0.65%)
NYSE: 13,608.09, -85.48 (-0.62%)


Today (or any day) Could Be the Day; NASDAQ Plunges to Lows Last Seen in 2020; Day of Reckoning Should Be Soon

Tuesday, October 11, 2022, 9:30 am ET

October 29, 1929 is known as Black Tuesday, the day the Dow Jones Industrial Average fell 13 percent, a day after Black Monday, when the same index fell 12 percent.

While it is October, and Tuesday, today could see a repeat of the same kind of panic selling of the 1929 kind. At this point, any day could be the one wherein a massive nosedive could unravel the underpinnings of the world's economies.

The world of finance and economics is considered much more sophisticated than it was nearly 100 years ago, but there are today more complexities and elements of the global financial system that make it nearly unfathomable in detail. A break could occur anywhere: an individual stock, a sector, the bond market, in commodities, oil, gold, or any of the myriad dark pools and derivatives that Warren Buffet called "financial weapons of mass destruction" in 2002.

A panic could be triggered by outside events, like the military situation in Ukraine, people freezing to death from lack of heating fuel, a nuclear event, or any natural or human-created catastrophe, though, as history suggests, those are less likely catalysts.

Stocks haven't been particularly kind to investors this year. All of the major indices are down more than 20 percent. The NASDAQ is down the most, plunging to fresh lows just yesterday (10/10), now at a level last seen on July 29, 2020 (10,542.94). All of the gains from the past 26 months on the NASDAQ have been wiped out, eviscerated, vanished.

Over at the City of London, where royalty cavorts with the wealth-creators, a bond crisis which reached emergency intervention levels less than two weeks ago is again screaming panic with Gilt yields exploding higher.

In Europe, protests over everything from vaccine passports to fuel prices to sanctions to food shortages have erupted in France, Germany, Italy and Eastern Europe, though television and internet accounts are scarce thanks to the mainstream media having become nothing more than a propaganda tools for elitist interest.

Those of us in the United States with IQs over 100 and eyes and ears open know what's going on in the world, to varying degrees. Food prices are through the roof. Gas prices are rising again. The person occupying the White House is sketchy, his 50+ years in government now being exposed as one of corruption and graft. Barely coherent, the 79-year-old resident is supposed to be running the government when he can hardly control his own bowel movements.

Congress is either inept, purposefully duplicitous, compromised or a combination of all three. No matter the cause, they've failed to do anything that affected the American people in a positive way in decades. Systems are breaking down. Food and fuel facilities are suspiciously blowing up or burning down. People are angry, confused, disoriented, distressed, dispirited, depressed. Violent crime has run amok. Schools teach white hatred. And, if you disagree with the accepted narrative, you're labeled a domestic terrorist, white supremacist, or unpatriotic insurrectionist, when all you really desire is to be left alone and life to revert to something prior to 2020.

Everything is going sideways and nobody lifts a finger to get it back to upright. Like a patient having a tooth extracted in a dentist office, many people are thinking, "just get it over with, pull it," in terms of the economy, the stock market, the incredibly stupid government policies. Those types would rather have a sudden crash than the long, drawn-out, slow motion train wreck that's been substituted for reality the past two-and-a-half years.

Today could be the day. Or tomorrow, or next Thursday, but, whenever the "Black Someday" happens, it appears to be on deck for an appearance. People have had enough, though apparently not enough to foment a real uprising.

In many ways, a stock market crash might be the best thing to happen. Maybe in the aftermath people could discern the truth about the causes and dither over solutions. Nobody wants to live like this and nobody deserves to have forces beyond their control dominate their lives.

A day of reckoning is upon us. It won't be long now.

Maybe even today.

At the Close, Monday, October 10, 2022:
Dow: 29,202.88, -93.91 (-0.32%)
NASDAQ: 10,542.10, -110.30 (-1.04%)
S&P 500: 3,612.39, -27.27 (-0.75%)
NYSE: 13,693.57, -104.69 (-0.76%)


WEEKEND WRAP: Wild Swings in Stocks Give Rise to Higher Bond Yields, Gold, Silver, Stoking Inflation Even As Recession Deepens

Sunday, October 9, 2022, 9:23 am ET

Prices keep rising, and now that the US government has soiled relationships with oil-producing nations - notably Russia and Saudi Arabia - Americans are bracing for another round of higher prices at the pump, as oil spiked to six-week highs this week with indications that it will go even higher and gas prices jumped across the country.

Inflation isn't going away any time soon and American households are nearing a breaking point, with many unable to keep pace with higher prices for food, fuel, and shelter. Despite wages rising, they have not nearly done so at the pace of consumer staples. After two years of pandemic-induced madness, the US public is ill-prepared for a winter of discontent, highlighted by home heating costs which are likely to be double what they were a year ago.

Against such a backdrop, there's ample rationale for the stock pullback seen in the final two days of the week just past.

Stocks

The back-to-back monster rallies on Monday and Tuesday were sketchy, to say the least. Bouncing off lows not seen since November 2020, the two-day, 1590-point rise on the Dow was largely overdone, prompted by a return to calls that the Fed would "pivot" from its inflation-fighting, interest rate hiking regime back to a more accommodative posture. Such thinking having already been rebuked by markets after Fed Chairman Powell's terse "some pain" speech at Jackson Hole in August, the 48-hour relief rally had its legs taken out on Wednesday and Thursday and was slammed to the floor after the September non-farm payroll report showed employment still strong.

With the combined two-day rally pushing the major indices up by 5.5 to 6.5 percent, the reversal was swift, leaving stocks with much smaller weekly gains overall, only the second winning week in the past eight, struggling intraday to stay on top of the bottoms made the last week of September.

Reconfirming the bearish trend, stocks appear ready for new, deeper lows, though the cohorts of "bottom fishing" and BTFD are still poking through the dumpster fire equity market rubble.

Entering next week, third quarter earnings will begin to take preference in trader sentiment. Delta Airlines (DAL), Blackrock (BLK), Alcoa (AA), Pepsi (PEP), Walgreens (WAB), and Domino's Pizza (DPZ) all report during the coming week. Capping it off, four major banking firms report Friday, 10/14, prior to the opening bell. They are Wells Fargo (WFC), JP Morgan Chase (JPM), Citigroup (C), and Morgan Stanley (MS).

Fibonacci ratios encompassing the most recent substantial movement for the S&P are as follows:

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

The S&P close from Tuesday (3,790.93) was a close enough overshoot of the 23.6% retrace target to suggest that the market may have used up all its kinetic energy in just two sessions. The NASDAQ ending the week with less than a one percent gain is also telling.


Treasury Yield Curve Rates

Date 1 Mo 2 Mo 3 Mo 6 Mo 1 Yr
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
10/07/2022 3.03 3.34 3.45 4.09 4.24

Date 2 Yr 3 Yr 5 Yr 7 Yr 10 Yr 20 Yr 30 Yr
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
10/07/2022 4.30 4.33 4.14 4.03 3.89 4.13 3.86

Yields for the week were higher across the board, the least of which were reflected in the 20-year (+5 basis points, 4.13%), 7-year note (+6 bp, 4.03%), and the 10-year note (+6 bp, 3.89%).

The largest moves were in the short-dated maturities. One-month yeilds rose 24 basis points, to 3.03%. Thursday's bump to 3.05% was the first time one-month bills yielded more than three percent since January 17, 2008 (3.07%), just prior to the Bear Stearns blowup and the Great Financial Crisis (CFC) punctuated by the the failure of Lehman Brothers. If that's not an ominous sign for the rest of the month and coming years, nothing is, and, rates are likely to be pushed even higher when the Fed hits the gas again on November 2nd with another likely 75 basis point advance.

The 2-month yield rose 14 basis points, to 3.34%; the 3-month, up 12, to 3.45%; 6-month, +17, 4.09%; and the 1-year up a whopping 19 basis points, ending the week at 4.24%

The curve remains inverted from six months out to 30 years (4.09-3.86%). 2s-10s are inverted by 41 basis points (4.30-3.89%).

All of this points to more pain for consumers, bearing the brunt of higher interest rates on everything from auto loans, to HELOCs and mortgages, to credit cards, which are increasingly being used for everyday purchases, mainly food and gas. It's not pretty.


Oil/Gas

WTI crude oil closed out the week ending September 23 at $79.43/barrel and September 30 at $79.74, but the first week of October tells a different tale, with the price hitting $93.20 at the close on Friday, October 7.

After brainless Joe Brandon destroyed the US relationship with Saudi Arabia that had existed since then-Secretary of State Henry Kissinger established the "petrodollar" and petrodollar recycling with the 1974 deal between the US and Saudi Arabia to funnel Saudi petrodollars into U.S. Treasuries, Saudi support for the US and its various escapades has been eviscerated.

The Saudis recently inked a deal with Russia to provide military assistance and arms, and last week, OPEC+ decided to cut production quotas by two million barrels a day in the face of weakening demand in the US and Europe. Under the Brandon administration, a steady flow of cheap crude from the mid-East is all but over, and the White House resident has done absolutely nothing to encourage stateside production. This amounts to a total policy failure, close to a treasonous act. Sadly, neither the congress, the media, or the American public has taken the resident to task, though cries from the belly of the citizenry are growing louder by the day.

Chief among the complaints is the price of gasoline at the pump, which is now rising again, the national average up again this week to $3.93, a 15 cent hike from just a week ago, and 22 cents higher over the past month. Prices remain lowest in the Southeast, ranging between Texas, at $3.23, to Tennessee, at $3.40. California leads the idiot parade at $6.33 a gallon, with Washington, Oregon, and Nevada all over $5.00.

The price hikes come at a most inopportune time, as the United States has been in a recession (despite claims to the contrary) since January and heating fuel demand is rising with winter approaching.

November is the scheduled timeline for the OPEC+ production cuts, which actually are unlikely to be met. The group is already 3.5 million barrels a day below production quotas, making the reality of these slashes just more than paper chasing. With demand cratering, there's a good chance oil prices will back off, or at least not reach the $120-135 that some analysts are predicting.

Crypto

Bunk. On a week-to-week basis, bitcoin nearly flat-lined, up marginally from $19,141.20 last Sunday morning to 19,479.50 today.

Crypto, amid other real-world challenges, is about as consequential as snow in a Minnesota winter.


Precious Metals

It's becoming clear that gold and silver are stabilizing in their respective price ranges. Whether or not the current range will precipitate a breakout or another decline to fresh 2020 lows is a proposition filled with cross-currents, clouding the situation.

Even though prices for both gold and silver have advanced over the past two weeks, there is simply not enough data to predict any kind of direction. Still, with oil, which is used in the production of most plastics, poised to go higher, it might be virtuous to stick to metals, which are both more durable, and, at present, well-priced.

Gold/Silver Ratio: 87.75

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
Gold price 10/07: $1,701.80

Silver price 09/09: $18.79
Silver price 09/16: $19.62
Silver price 09/23: $18.84
Silver price 09/30: $19.01
Silver price 10/07: $20.16

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: 31.01 46.20 37.39 36.03
1 oz silver bar: 30.00 43.99 35.14 35.00
1 oz gold coin: 1,808.24 1,939.72 1,870.63 1,849.50
1 oz gold bar: 1,794.45 1,827.45 1,803.52 1,800.19

The Single Ounce Silver Market Price Benchmark (SOSMPB) posted a solid advance for the week, to $35.89, gaining $1.13 from the October 2nd price of $34.76.


WEEKEND WRAP

Volatility remains high in all markets, especially equities, as price swings of massive size have become quite common. Markets are likely to get another few jolts in coming weeks, with readings for September PPI and CPI are released prior to market openings on Wednesday, 10/12, and Thursday, 10/13, respectively.

Expectations for CPI are not encouraging, centering around 8.2% for the month, which would likely give the Fed another arrow in its rate hiking quiver. Additionally, third quarter earnings will probably have a bigger impact than normal, as a variety of companies and sectors fall under inflation/recession pressure. Profit margins have been squeezed throughout the year, a continuing trend that seems likely to worsen before significant improvement can be made, the time frame being anywhere from six months to three years out.

Myriad changes have taken place in the political, social, and economic spheres, mostly to the negative. Rather than planning to prosper, the operative condition has become one of survival.

Be prepared for anything. That's a tough, if not impossible, suggestion.

At the Close, Friday, October 7, 2022:
Dow: 29,296.79, -630.15 (-2.11%)
NASDAQ: 10,652.40, -420.91 (-3.80%)
S&P 500: 3,639.66, -104.86 (-2.80%)
NYSE: 13,798.26, -289.12 (-2.05%)

For the Week:
Dow: +571.28 (+1.99%)
NASDAQ: +76.79 (+0.73%)
S&P 500: +104.86 (+2.80%)
NYSE: +326.08 (+2.42%)


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