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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.
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Thursday, May 5, 2022, 6:00 am ET
As universally expected, the FOMC meeting concluded with a statement, raising the key federal funds rate by 50 basis points, from 0.25-0.50% to 0.75-1.00%.
While the statement was brief and served its purpose, it was Chairman Jerome Powell's press conference afterwards that sent stocks soaring, when he stated that rate hikes of 75 basis points were not being actively considered.
Any excuse for a rally is all Wall Street needs, and Powell's statement set it up perfectly. Since nothing the Fed does is by accident, the Chairman's statement was obviously pre-planned for a rally event. When the press conference began at 2:30 pm ET, stocks were essentially flatlining on the day. The Dow was right at unchanged, the S&P down a few points, but the NASDAQ, which has been the worst-hit during the recent downturn, was down about 135.
Stocks just ramped right up when Powell's lips began moving. He might as well have said, "I like pizza," because it didn't really matter. The set-up was obvious.
So, the illogic continues with the mantra of "priced-in" concerning any negative economic news, including 50 basis point rate hikes with more on the way. The "market" will price in everything from runaway inflation to nuclear war and head higher until the one-percenters have their profits, sold their shares short and make even more money on the way down.
The American public has been asleep for nearly 110 years of Federal Reserve fiat money games. Don't expect them to awaken any time soon.
At the Close, Wednesday, May 4, 2022:
Wednesday, May 4, 2022, 7:40 am ET
May the 4th be with you.
Not only is today a celebration of all things Star Wars related, it also marks the greatly-anticipated finish to the Federal Reserve's FOMC policy meeting, wherein the Fed should announce - at 2:00 pm ET - a 50 basis point (0.50%) raise to the federal funds rate, the price banks pay for overnight loans. The hike would boost the rate to .075 to 1.00%, from its current level of 0.25-0.50%.
The Fed has raised the rate once already this year, and, according to suggestions from speeches by various Fed presidents, voting members, and even the Chairman himself, Jerome Powell, will do so again in each meeting this year.
The continuous rate-hiking mechanism is purported to be a brake on inflation, which has been threatening growth in the US and global economy for the better part of the last 16 months. What the Fed hopes to accomplish is a slowing of the economy, though their timing appears suspect, given that GDP declined 1.4% in the first quarter.
Supposedly, a higher fed funds (discount) rate tightens business conditions and acts as a curb on reckless spending. What worries most true economists is that the rate increases are too late and too small. Back in 1980, then-Chairman Paul Volker raised the fed funds rate from 10.5% to 20% in March, then briefly lowered it in June. When inflation refused to fold, Volcker raised the rate back to 20% in December and kept it above 16% until May 1981.
Skeptics say the rate on the 10-year note - currently nudging up to 3.00% - needs to be higher than the stated inflation rate, which stands at 8.5%, according to the latest CPI reading. There's a suggestion that the Fed might want to hold their ground in June and possibly July, given that they will likely be essentially doubling the rate at the May meeting. Unlike the "Volker Shock" of 1980, the Fed faces a far different environment than in Volker's time.
With the fed funds rate having been at ultra-low levels, approaching zero, for much of the past 20 years, raising it too fast and too quickly would almost certainly cause a stock market crash and an economic recession likely to spread worldwide, so the Fed is taking baby steps, especially now that there is proof the economy is already slowing. Should the second quarter also contract, the current climate would qualify as a text-book recession, two consecutive quarters of contracting GDP, though that would not be officially recognized until late July.
Thus, the Fed is flying by the seat of its pants, trying to curb inflation which they - getting ample help from the federal government - themselves caused by ramping up the money supply during the early phases of the pandemic.
They also don't want to trigger a recession, despite having half of one in hand.
In poker, one either raises, checks, or folds with the cards they've been dealt. In the poker parlance of the Fed's self-dealt hand, they're going to raise while trying to fill an inside straight.
Other than the Fed's announcement and subsequent presser by the Chairman, there's not much else that qualifies as major market developments today. What the FOMC does, the public statement they release, and what Powell says at the press conference should offer clues to what lays ahead for all markets.
At the Close, Tuesday, May 3, 2022:
Tuesday, May 3, 2022, 9:26 am ET
On the first day of trading in May, stocks looked to continue the trends from April, with all the major indices suffering losses which extended into the afternoon hours.
With an hour an a quarter left in the session, the Dow was down 526 points. For all intents and purposes, it appeared that stocks were going to continue their nosedive into the financial abyss.
It was not to be. Stocks began to rally across the board, and, like Moses parting the Red Sea, a miracle happened. US stock averages all ended the day positive. The remarkable 600-point rally on the Dow spurred similar gains in the S&P and NASDAQ. Only the NYSE Composite finished in the red, though it was marginally so.
Credit for the great rally was alternately assigned to the Plunge Protection Team (PPT), the NY Fed's trading desk, or, which is a more reasonable and probable explanation, short-sellers covering their positions. The shorts made good money on the day, some certainly hanging on positions set days or weeks prior. Their game is the opposite of normal trading. In theory, they borrow a stock, sell it, then buy it back at a higher price, return the stock, pocketing the difference.
For example, if a friend of yours borrows 100 shares of your $100/share stock, he's obliged to you for $10,000. He sells the stock for $100, so, he's got your money, watches the stock decline to, say, $85, then buys it back, pays you $8,500, pocketing $1,500 for himself. Unfair? Maybe. But, suppose you actually own the 100 shares. Your don't have to borrow it, you just sell it. You have $10,000. Buy it back at 85, and you still have an extra $1,500, plus you still own the stock. Though it declined in price, you didn't lose a nickel. In fact, you made money while everybody else - bag-holders, at least for the time being - lost.
If you think the stock is going to eventually go even lower, you wait for some gains. Maybe it goes back to 95. You sell, making another $1,000, wait for it to decline again, buy it back. That's the mechanism which explains the patterns that have been evident lately. Sharp selling throughout the session, then massive buying, as traders and speculators snatch up profits. It's a dangerous game, but Wall Street sharpies don't care about the dangers. They are either using other people's money or have figured out that stocks are generally on the decline and are willing to take the risk. The practice is widespread.
There are other games being played in the options markets, with heavy hitters selling calls or buying puts. They know the game. Some can actually rig the game. Retail investors, 401k holders, and others with custodial or managed accounts are being taken to the cleaners. They don't get to play in the short-selling sandbox. They are the bag-holders, watching their assets rise and fall like the tides on the ocean.
The message the market is sending has been very clear for quite some time, at least since the start of 2022. Everybody is selling. Except when they're buying. And then they will sell the same stocks again when the consequent decline begins. It can happen over the course of a day, week, months. It all depends on how hard core the speculator is, or how confident he or she is that stocks will continue to gyrate lower.
Day-to-day movements are mostly market noise, but, taken together, over time, patterns emerge. This one has become almost too obvious to not be noticed.
Bottom line, institutions (brokerages owned by the major banks, hedge funds, etc.) are selling into every rally, buying some of the dips, and repeating the process. It is certainly all legal and on the up-and-up, but it is not fair to small investors who have neither the expertise, time, nor access to engage in such practices.
It will continue until the market finally capitulates and everybody finally just sells. At or near the bottom, the institutions will come in and buy everything at vastly reduced prices. That's how bear markets function. It will continue for more months than most investors can stand, or, as the ages-old adage suggests, "markets can remain irrational longer than you can remain solvent."
Meanwhile, Bitcoin continues to match the NASDAQ, nearly point for point, gold and silver have been battered down excessively. You can't own any asset that's not devaluing, especially in light of inflation, as the real value of your money loses purchasing power on a regular basis. All that's left is real estate, and when that finally crashes, everything else will go with it.
See you in the poor house, otherwise known as right where you live.
At the Close, Monday, May 2, 2022:
Sunday, May 1, 2022, 10:24 am ET
Nobody needs a financial analyst or smart-talking blog to tell them that owning stocks right now is a painful experience. What happens from here is another story.
A little background:
Since 2000, the United States has had three presidential elections the official results of which were questionable, at best: 2000 (Bush over Gore), 2004 (Bush over Kerry), and 2020 (Biden over Trump). The leadership of the country has been part of a massive wealth transfer from the middle class to the ultra-wealthy, leading to what is now the worst wealth disparity in the history of the country. That's it in a nutshell.
And, as comedian George Carlin pointed out prior to his death in 2008, they're coming for the rest of it. They want it all. All for them, none for you, which is just another way of putting WEF founder Klaus Schwab's infamous one-liner into perspective:
You will own nothing and you will be happy.
How bad has it been?
The Dow Industrials have finished higher for the week only four times this year and ended lower 13 times. That .235 average isn't even good ienough for a starting position in baseball. The Industrials are down 10.4% from the all-time high of January 4 (36,799.65).
Year-to-date, the S&P 500 is down 13.86%, the NASDAQ, 22.09%, and the NYSE Composite, 9.35%. These figures may not sound like much to some people. In fact, certain wise guys on the internet (Gregory Mannarino, in particular, who has been wrong all year) have been consoling their dwindling number of followers that stocks were only down 6, 8, 10 percent from all-time highs, while apparently failing to understand some basic principles of investing, not the least of which is that bear markets start the same day bull markets end, which, for all intents and purposes was January 4th of this year.
The problem with holding onto stocks when they're down 10 or 20 percent is that they could fall further. Is an investor better advised selling at that 10% down level or 20 percent down? The answer is obvious. Those who fled in January or in late March, on the bounce rally, can now sleep better at night. Not many have, however. There are millions of people with 401k plans, IRAs, or other retirement vehicles still holding their positions, most of which are still showing gains, but those wins are being slowly shredded.
While there may be another short-term bounce upcoming, it's not likely to be long-lived. The Fed is set to raise the federal funds rate 50 basis points on May 4, this Wednesday, which is not something the general market wants to see. Worse, the FOMC is going to hike that rate further in June and July and probably beyond that, despite first quarter GDP posting an initial estimate of -1.4%. Already a third of the way through the second quarter, the Fed may be raising rates straight into a recession, a massive blunder.
Stocks are going lower. That's pretty much established. Other than the Dow, all the major averages closed at their lowest points of the year on Friday. The Dow itself is only 345 points from its low for the year, 32,632.64 (March 8). That could happen any day, in the blink of an eye.
Some people will want to hear about the next support levels, and there are certainly some out there, but they're generally far lower. For the Dow, there's an area of support just below 30,000, around the top prior to the pandemic selloff. 29,400 might be a reasonable call. The NASDAQ shows an area of support between 11,300 and 11,900, but it's practically there already and the trend line is weak. Below 10,500 on the NASDAQ is nothing. It's a bottomless pit.
The S&P should, realistically, test down to an area between 3400 and 3600. On the NYSE Composite, there's a case to be made for a solid near-term (2-6 months out) between 12,500 and 14,000. Various chartists and technical analysts may come up with different levels, but, one can rest assured that when everybody is talking about support, the direction is clearly to the downside.
Beyond the near term next six months, or to the end of 2022, there needs to be a discussion about eventual bottoms, since the possibility for an extended recession or even a depression is relevant. Bear in mind that these are only projections that take into account more than two quarters of contracting GDP. There could be as many as six between the already accounted for first quarter of 2022 and the end of 2023. There is nothing to suggest otherwise. Since the late 1990s, the US economy has been gutted and conditions are such that rebuilding infrastructure and manufacturing capacity is a decades-long enterprise, unlikely to be entertained by the current political and business leaders.
There's a very good possibility that World War III will commence within months, if it hasn't already begun. The value of your Disney or Apple stock when half the country has been nuked is, for all intents and purposes, zero. The same goes for the US dollar. It recently posted its highest levels against other currencies in 20 years, but the turn came late last week and it should be heading lower over the next two to four years. In the long run, if fiat currencies even survive, they'll be practically worthless, along the lines of Zimbabwe or Weimar Germany, and that's if most of the planet isn't reduced to a smoldering rubble after multiple nuclear strikes. In that case, South America becomes appealing.
Without pulling any punches, here are the potential bottoms for the various indices through April 2024:
While those levels may look ominous today, they may likely be at the heart of discussions in the next 18 months to two years. The United States in on the verge of losing its reserve currency status due to obsequious financialization of evey asset class the last 22 years, off-shoring of all manufacturing, dead-headed political leadership, depopulation, open borders, a failed federal government $30 trillion in debt, and general conditions ripe for a major foreign war and an internal civil war. This is serious stuff which the mainstream media is going to try to hide from the general public despite obviously declining standards of civility, justice, and living.
Anybody with a positive view of the immediate future better take off the rose-colored glasses. The United States and all Western-style nations and economies are about to be served a meal of rancid turkey on moldy bread. Nothing is improving, nor is anything likely to get better without a massive overhaul of government and economics. we're talking massive change, the likes of which nobody alive has ever experienced.
Those unprepared for disaster will suffer and many will die. Cities, and some states are already stretched to levels of crime, poverty and unenforceable taxation beyond a local government's ability to contain. Semi-safe areas of refuge exist in rural hinterlands, though small towns are already being inundated with refugees from failed cites, a condition which is only likely to worsen.
Silver, reliance only on local and state governments, and survival (gardening, solar, self-defense) planning are currently best practices.
Treasury Yield Curve Rates:
Yields were relatively tame over the past week, but these numbers will largely become insignificant should the FOMC carry through with the expected 50 basis point hike on Wednesday, May 4.
WTI crude oil gained from a close of $102.07/barrel on Friday, April 22 to $104.13 on the 29th. This was not an appreciable gain, the rally lacking conviction.
Gas prices are on the rise again, currently at a national US average of $4.19/gallon, up from $4.11 a week ago. High prices at the pump are a major drain on the economy. As long as they remain at or near these levels, there's literally no chance for economic conditions in America to improve.
Saturday night, bitcoin dropped as low as $37.610, its lowest level since March 13. With the general tendency of every asset to reprice at lower levels, bitcoin is probably going to fall even further and eventually test the short-term bottom around $30,000. A drop below that level is a distinct possibility.
Torn between protection against depreciating fiat currency and the need for useful and usable cash, Bitcoin and the entire universe of cryptocurrencies are stuck in a painful place. As the economy worsens, expect bitcoin to decline, as it has been tracking the NASDAQ for at least the last six months. These conditions will result in lower adoption rates and an increase of conversion out of crypto and back into fiat.
Gold price 04/10: $1,950.40
Silver price 04/10: $24.91
Here are the latest prices for common one ounce gold and silver items sold on eBay (numismatics excluded, shipping - often free - included):
The Single Ounce Silver Market Price Benchmark (SOSMPB) dropped over the course of the week, to $39.67, a decline of 74 cents from the April 24 price of $40.41. The benchmark level had been above $40.00 for six of the prior seven weeks.
Silver continues to be the most undervalued asset on the planet, though current indications are that its price could fall even further. The good news is that 42 states in the US now do not assess sales tax on bullion purchases, with Tennessee the latest to join the club. Silver is real money.
That's WEEKEND WRAP.
Read it... and try not to weep.
At the Close, Friday, April 29, 2022:
For the Week:
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