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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, July 15, 2022, 9:00 am ET
It appears that stocks in the US are going nowhere fast, except maybe lower.
At the close Thursday, the Dow Jones Industrial Average was down 707 points for the week (2.26%) and is on a five-day losing streak. Over at the NASDAQ, a loss of 384 points equates to a loss this week of 3.30%. Last week the NASDAQ gained more than four percent, so a little more on the downside would be a wash.
Through Thursday, the S&P 500 is off by 109 points (2.80%) and has fallen back into "technical" bear territory, down 20.98% year-to-date, but intraday losses had the index down to 3,722, less than 100 points from the intraday low of 3,636 (June 17). The NYSE Composite is down 471 points on the week (3.22%).
Like the Dow, the S&P and NYSE Composite have been in the red five straight sessions. The NASDAQ was down three straight until making a 3.60 point gain on Thursday. Nobody is impressed.
A big options-expiration rally could lift the indices out of the current funk, though, other than pure speculative fantasy, there exists no good reason to buy stocks at these levels. All of the indices are still above the pre-pandemic highs, and well above the highs which preceded the GFC crash in 2008, and the dotcom malaise of 2000.
There are far too many potential flash points working against markets presently to adequately address all of them in this post. Suffice to point out a few of the (non) working elements keeping stocks under pressure.
Here's the short list:
There is more, but why flog a dead horse?
A tiny sliver of hope came in the form of June retail sales, showing a 1.0% gain. May retail sales were revised from a gain of 0.3% to a decline of 0.1%. If past is prologue, June's figure will likely be revised lower next month.
That one data point doesn't appear to have much in the way of market-moving momentum. Stock futures are hovering around fair value, setting up an indecisive open. European indices are mostly higher, but are near lows for the year. The Euro Stoxx 50 is down 21% year-to-date, along with Germany's DAX (-20.87%).
The good news is that the trading week will be over in a little more than seven hours.
At the Close, Thursday, July 14, 2022:
Thursday, July 14, 2022, 8:53 am ET
In case anybody missed the memo, the BLS (Bureau of Labor Statistics, the same outfit that provides the hugely bogus monthly Non-Farm Payroll reports) announced on Wednesday that the Consumer Price Index (CPI) rose by 9.1% over the past year and that consumer prices increased by 1.3% in just the past month (May-June).
Wall Street was apparently only mildly annoyed by the report. An hour after the release, stocks started the session by gapping lower, but spent the rest of the day meandering about, looking for bargains, actually sending the NASDAQ and S&P 500 into positive territory before finding the moral courage to let go of some of their tech shares and send the NASDAQ to a 17-point loss.
If it wasn't so pathetic and obviously manipulated it would be laughable, but, there is nothing very funny about paying $80-100 to fill up a gas tank or spending roughly the same amount on a week's worth of groceries for two people. Heck, if you only bought beef, you'd get about five to eight pounds of it for $100, depending on the cuts. Sorry, but five pounds of rib eye steaks isn't going to feed two people properly for a week. It probably wouldn't even supply one person with enough nutrients to make it to the weekend.
While stocks were bouncing up and down, the euro and yen were being thrown to the wolves as the US dollar continues to play hegemon against competing currencies. The economies of Japan and Europe are toast, and they're beginning to burn.
Over the past few days, the euro has approached parity with the US dollar. The euro at parity with the US$ means you can exchange dollars and euros one for one. Just a year ago, you needed $1.18 to get one euro. That's a drop of just over 15% in the value of the euro against the dollar. On top of all the taxes, fees, and regulations that the Eu drops on consumers, now their currency doesn't buy as much as it used to, and is probably going to buy even less as the year from hell, 2022, continues.
Trading euros for dollars on an even basis might be hailed as some kind of accomplishment or monetary magic at the Federal Reserve, but in Spain, Italy, France, Germany and all the other countries tied to the euro currency, it's death by thousands of little cuts. The euro, as a store of value, has none, and, very soon, it won't be useful as a means of payment. As it continues to decline, people will want something better, US dollars for instance. Maybe barter, avoiding the VAT and all the EU rules, will be a solution for some. No matter what, the euro's days are numbered, as is the system of floating fiat currencies, made a part of everyday life by central bankers in 1973 after Bretton Woods and convertibility of currencies into gold was discarded.
In Japan, the yen is in even worse shape. Just this morning the USD/JPY (dollar/yen) pair traded above 139. One US dollar equaled 139 yen. A year ago that number was 110. It's a loss of 21% for the yen. American products in Japan cost that much more. Making matters worse, the Bank of Japan (BOJ, Japan's central bank) owns more than half of all government bonds (JGBs) in addition to holding large positions in most of Japan's biggest companies.
The BOJ is the Japanese economy. There's nothing even close to competing with it. The central bank's balance sheet includes everything from stocks, ETFs, and bonds to mortgages to interest rate swaps, all in an effort to keep a 0.25 percent yield cap on its 10-year bonds.
The data underscores the cost the central bank is paying to keep global upward pressure on yields from pushing up Japan's borrowing costs.
At the end of June, the balance of JGBs held by the BOJ stood at 517.24 trillion yen ($5.33 trillion), up by 4.19 trillion yen from a month ago, central bank data showed. To put that into perspective, the US Federal Reserve's balance sheet is just under $9 trillion in an economy of just over $20 trillion (2021 GDP). Japan's 2021 GDP was just under $5 trillion. The size of the BOJ's balance sheet would be like the Federal Reserve's balance sheet being four times as large, or $36 trillion.
That's right. The balance sheet at the bank of Japan is now larger than the entire nation's annual GDP. After four decades of disinflation and outright deflation, they own it all. Their economy is on the verge of collapse, a currency worth nothing, and household wealth sucked away by the central bank.
At the same time - along with other major currencies, the Aussie and Canadian dollars and Britain's pound - two of the world's currencies are being dealt death blows by the US dollar, gold and silver have been declining. JUst four months ago, gold was over $2000 an ounce and silver was over $25. As of this morning, gold is $1711 and silver is $18.61 and heading lower.
The only logical explanation for the declines in gold and silver is that they are treated in the same manner as other currencies, i.e., as money. As such, they are being dealt the same bad hand as fiat currencies. The difference is that gold and silver are real money, separate and distinct from the euro, yen, pound, and even the dollar, because, with them, there is no counter-party risk. An ounce of gold or silver is an ounce of gold or silver. There's no debt attached, no strings. They stand alone. Nevertheless, these precious metals are being devalued by the greatest currency hegemony that's ever been witnessed.
It's not going to last. Fiat currencies will fail. The yen and euro will be the initial victims, followed by the pound and other national currencies. The dollar will rule the planet... except in some places. The BRICS (Brazil, Russia, India, China, and South Africa, and soon, Argentina, Iran, and possibly Indonesia) are working to establish a new reserve currency to compete with/against the US dollar. Other nations may begin to cooperate with the BRICS, dismissing the US dollar as the main trading and reserve currency. The planet is going to become very, very destabilized.
The world will become bi-polar, or multi-polar, in terms of currencies, politics, societal norms.
If none, or only some of this makes sense, it's because nobody - not even the perpetrators of dollar hegemony at the Fed and in the US government - knows exactly where this all is going, though they do purport to having a plan. Strength in the US dollar usually means goods and services from outside the US borders are cheaper, as is the case with crude oil, wherein WTI crude has presently fallen from a high of $123/barrel in March to under $94/barrel today. While most of the world concerns itself with inflation, the opposite problem will present itself in America in short order. Everything sourced from outside US borders is about to become cheaper, much cheaper. Over the next few years, as the various fiat currencies of the world fail, inflation in the US will vanish like a waif in the night, replaced by deflation on a massive scale. Businesses will be forced to lay off employees as their profit margins shrink to nothing, caught between rapid price changes and declining consumer demand.
Housing will go bust. Cars, already seeing signs of stress from rising repossessions, will be cheaper. Food costs will fall. At the same time, incomes, which never keep up with inflation, will decline or people will be laid off, just cast aside. Within 18 months, the dollar index, which is used as a proxy for the value of he US dollar against a basket of other currencies, will become irrelevant. Survival, as governments fail, will be of paramount concern to citizens.
We are headed straight into a near-global depression. Hopefully, war can be avoided. Don't count on it.
Editor's note: June US PPI (Producer Price Index) was just released at 8:30 am ET, showing final demand increased 1.1 percent in June, seasonally adjusted, the U.S. Bureau of Labor Statistics reporting. This rise followed advances of 0.9 percent in May and 0.4 percent in April. On an unadjusted basis, final demand prices moved up 11.3 percent for the 12 months ended in June (Y-O-Y), following the record 11.6 percent
Boom! European stock markets are collapsing. US stock futures are deep in the red. Thursday's cash session and days following could be watershed moments for the global economy.
At the Close, Wednesday, July 13, 2022:
Wednesday, July 13, 2022, 9:03 am ET
Stocks drifted through a rather dull session on Tuesday, trading with a slightly positive bent until markets began unraveling between 2:00 and 3:00 pm ET, when a large sell program kicked in and sent stocks screaming to the downside.
Reportedly triggered by a fake CPI report which showed headline inflation at 10.2% year-over-year. The fake report, which had been circulating since around noon ET, probably had little to do with the massive sell program. Simply put, there were few traders willing to hold positions prior to Wednesday's market-moving CPI report.
With a batch of analysts calling for June CPI to come in at 8.8% or higher following May's record 8.6%, it is worth noting that one of the major components - gas at the pump - has been steadily falling during June, though it may not be enough of a factor to influence the headline and month-over-month data. WTI crude oil was down sharply on Tuesday, after the American Petroleum Institute (API) reported a large build of 4.762 million barrels, sending the price down below $96/barrel.
With June's CPI data on deck, Asian stocks traded mostly higher, while European bourses sported fractional losses. US stock futures were holding up well in positive territory just prior to the 8:30 am release by the BLS.
When the figures were announced, shock waves spread quickly across all markets.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 1.3 percent in June on a seasonally adjusted basis after rising 1.0 percent in May, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 9.1 percent before seasonal adjustment.
June's figures came in much hotter than expected and set another record for the highest year-over-year inflation. Despite falling gas prices in June, the BLS showed gas up 11.2% over May and 59.9% higher from a year ago. Gas at the pump contributed nearly half of the overall price increases for the month.
Food was up 9.1% year-over-year, which is likely somewhat understated as anybody who shops at groceries or eats out regularly can attest. Other contributions to the pain included new vehicles (+11.4%) and shelter, which was up 5.6% from a year ago.
To get an idea of just how violently the market reacted to this number, Dow Jones futures were trending above +115 prior to the release, but fell to -324 on the news. US markets are setting up for a bloodbath on Wednesday, based almost entirely on the inflation data which infers that the Federal Reserve will have little choice but to raise the federal funds rate by at least 75 basis points. There will almost certainly be calls for the Fed to raise by at least a full percentage point when the FOMC meets on July 26-27, one day prior to the first estimate of second quarter GDP (which, incidentally, is looking like a negative number in the -1.2 to -2.1% range).
With a half hour to the US opening bell, European stocks and US futures are crashing.
Enjoy the show.
At the Close, Tuesday, July 12, 2022:
Tuesday, July 12, 2022, 8:45 am ET
While inflation has ravaged the purchasing power of the US dollar in the United States, against other currencies, it has been soaring, currently above 108, the highest its been since 2002, then falling from its record high of 118.95 in 2001. It has still room to run, by all indications, likely to exceed the 2001 record.
The dollar index, established in 1973 after the collapse of the London gold pool in 1968 and President Nixon's closing of the gold redemption window in August 1971, allowed currencies to float against each other, a maneuver that kept fiat currencies alive longer than they usually would have lasted.
What we are witnessing currently is unmistakably the beginning of the end of more than 50 years of fiat currency regimes, backed by nothing other than "good faith and credit" of various governments.
The US Dollar Index is calculated as a geometrical average based on its six constituent currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. It is a geometric average, rather than an arithmetical average, because each currency is multiplied by its respective percentage weight.
By far, the largest components, by weight, are the euro (57.6%), the yen (13.6%), British pound (11.9%) and the Canadian dollar (9.1%). The two other currencies are the Swedish Krona (4.2%) and the Swiss Franc (3.6%). It's a system that heavily favors the US and the Euro.
Since the onset of sanctions against Russia, the euro, in particular, has collapsed, though the yen, pound and Canadian dollar have also been damaged. The euro's slide began in December of 2020, when it stood at 1.22 to the dollar. Earlier this morning it nearly touched parity, trading at 1.0001. Since the start of sanctions in late February, the euro has been on a severe slide, falling from 1.1272 in less than five months.
On February 25, 2022, the USD/JPY stood at 115.5450. That's how many yen it took to buy one US dollar. Currently, that exchange rate is 136.6975, but, there's much further upside. When Japan's economy began a severe decline in 1982, actually a crash, the exchange rate was 267.6548, more than double what it is today.
Financial magic, the dollar-euro-yen carry trade and the likelihood of the US Federal Reserve or the Exchange Stabilization Fund buying yen has kept the yen from complete implosion, their interest rates remaining close to zero as the rest of the world is in the process of hiking key interest rates to combat inflation. Eventually, Japan's currency will be nearly worthless, followed in succession by the euro, pound, and CAN$.
A strong dollar ensures that imports from these countries will be less expensive for US consumers. Unfortunately, none of these countries produce much oil, or food, which has fueled inflation. Weakened currencies will help ease inflation in the US though the bigger problem comes from outside the dollar index, which is, ostensibly, the rest of the world, and, from the internal US economy, which is stretched and stressed to extremes.
Americans are being squeezed just as much as the rest of the world. It may be great to be able to buy Japanese electronics at extreme discounts, but if gas is $5 or $6 a gallon and a fast food cheeseburger and fries $3.50, more than 60% of the people in the US won't be able to afford a new computer, cell phone, or any other gadgets.
Domestic dollar debasement has been continuous since 1913, when the Federal Reserve System (a foreign bank) was founded and took control of the US money supply and it has accelerated since 1971 and even more so since 2020.
In 1971, a new car cost less than $2500. A burger and fries at McDonald's or another fast food joint would have set you back less than 50 cents. The burgers were bigger, too, and made with real meat.
Inflation will eventually ease in the United States. Not so much in the rest of the world, until everything becomes completely unaffordable. Then, recession. After that, depression, though it won't be global. Countries outside the US sphere of influence, led by the BRICS (Brazil, Russia, India, China, South Africa, and soon to join, Iran and Argentina), will probably have developed their own competing reserve currency by the middle of 2023, and will prosper... at the expense of Western nations.
The Fed isn't helping matters much. Raising interest rates to combat inflation will only do so much. Decreasing consumer demand will be a stronger influence on prices, but the Fed is stuck. The must raise rates somewhat to help slow inflation and they can't cut rates, lest they destroy the currency completely, though that's what they will do in 2023 and 2024.
Then, it's all over. The US dollar will have lost all of its luster and its value. It may fall against its "peers" though those currencies will already have been wrecked.
Americans have a number of good options to avoid the coming currency collapse, which will be semi-global. They can choose to live in states that don't regulate or tax their citizens to death. Those are mostly what are known as "red" states, run by Republican governors. Places like Florida, Texas, the Carolinas, Dakotas and Tennessee have seen a massive influx of people from places like California, Michigan, New York, New Jersey, and Illinois.
They might choose to leave altogether and settle in another country with fewer restrictions, laws, taxes. They can buy gold and silver as a hedge against currency debasement. While gold and silver have been in decline recently in US$ terms, they are soaring in other, devalued currencies.
A neat trick would be to buy gold and/or silver in the US and move it - and your family - to another country. Good luck with that. The financial repression imposed by the US won't allow it, likening it to money laundering or terrorism.
For now, divesting of stocks and buying land in the South or Midwest, gold, and silver is a logical choice that should play out well for those who are prepared or preparing because losses in the stock market are going to continue for quite a while. After all, recession deniers in media, government, and on Wall Street are already calling bottoms when none actually exist.
In the meantime, stocks look to fall again on Tuesday and especially on Wednesday, when June CPI figures are released prior to the market open. So far on Tuesday, Asian stocks were down across the board. Ditto early trading in Europe. US futures are falling fast, except for the NASDAQ, which was hit pretty hard on Monday.
Those sanctions are sure working out well for Russia.
At the Close, Monday, July 11, 2022:
Sunday, July 10, 2022, 8:57 am ET
"End of quote. Repeat the line."
If this week was supposed to spark a turnaround for stocks, the completely manufactured rally on the NASDAQ with tech stocks leading the assault higher isn't going to cut it, nor will it fool people reading their quarterly statements, which, incidentally, aren't going to inspire very much confidence in the general economy.
For a rally in stocks to be for real, the Dow Industrials and Transports would have done better than the squeamish 0.77% and 0.81% gains, respectively. These are the backbone of American stocks and they barely budged, hanging well below the 50 and 200-day moving averages and not far removed from the lows of the year.
The Dow Industrials ended the week down more than 14% for the year, the S&P down 18.70% and the NASDAQ, even with the week's 4.56% gain, is still down 26.51% year-to-date. There's a lot of heavy lifting that would need to be done. Sadly, while Wall Street analysts and "experts" are still predicting a recession, the US and Europe are already in one and it's going to get deeper unless Biden and his buddies tell Zelensky to surrender and the US and Europe stop shooting themselves in the foot with Russian sanctions.
All the inflation has been caused by government policies. The recession will be heralded as the inflation antidote with the Fed raising interest rates to the detriment of the middle and lower classes.
Looking ahead, earnings season begins, but doesn't really get rolling until Morgan Stanley (MS) begins a steady flow of bank reports, with Wells Fargo (WFC), Citi (C), US Bancorp (USB), PNC (PNC), Bank of NY Mellon (BK), Blackrock (BLK), and State Street (STT) report prior to Friday's opening bell. Other big shot banks, JP Morgan Chase (JPM), Bank of America (BAC), and Goldman Sachs (GS) report the following week.
Prior to the bank earnings, Pepsico (PEP) and Delta Airlines (DAL) report Tuesday and Wednesday mornings, respectively.
Response by the market to Friday's blockbuster June jobs number (372,000) was unenthusiastic, but the betting is that more attention will be paid to the inflation gauges, June CPI, Wednesday, 8:30 am ET, and PPI, Thursday, same time.
Treasury Yield Curve Rates
While stocks opened the third quarter with a winning week, fixed income was looking the other way as yields ramped across the entire treasury curve. Led by the 30 basis points lumped atop one-month bills, the curve flattened and inverted at key pivot points. The week ended with 2-year, 3-year, 5-year, and 7-year notes all yielding higher than the 10-year, itself up 21 basis points to 3.09%. At the long end, the 30-year bond rose 16 basis points to 3.27%, resulting in a flatter curve overall, with 2s-10s at -0.03 and 2s-30s a paltry 15 basis points.
The current curve structure suggests an unhealthy dose of stress for the general economy, but it is nothing compared to the seriousness of what the curve looked like just prior to the global pandemic in late February, 2020.
The tables below show just how severe the rush to mid-duration maturities was just prior to the onset of the panic with short-dated bills all yielding higher than 2s out to 10s. This was extreme inversion, with one-month bills yielding only 22 basis points less than 30-year bonds with a slumping underbelly in between.
Less than a month later...
The current curve structure is nowhere near to that kind of stress, but, given a minimum of a 1.25% rise in the federal funds rate through September, it's likely to look more similar, as one-month bills should be approaching 3.00%, while 30-year bonds settle out somewhere between 3.35% and 3.85%. Flat curves aren't good for banks or business. Until then, bond yields will continue to blow out and spreads shrink.
Per barrel prices for WTI crude took a tumble mid-week, bottoming out at $95.55 on Wednesday, July 8, but rebounded sharply to end the week at $104.80. The price has been in steady decline since June 8 ($122.11) as producers, refiners, and consumers continued to adjust to the new dynamics of a fractured global market. Flows have been jagged and inconsistent, rendering price predictions to nothing more than guessing or talking one's book.
On the one hand, US drilling has increased and demand has slowed, while on the other, crude oil is still restricted to Western nations, while China, India, and others reap the rewards of Russian crude at a discount (to say nothing of Joe Biden selling nearly a million barrels of the US strategic petroleum reserves (SPR) to China).
Market conditions aren't going to sort themselves out and neither are Western national leaders in any hurry to fix the mess they created. Germany is already rationing everything from natural gas to hot water, forcing the population to make sacrifices for the blundering political choices of their "leaders."
In the US, the average price for a gallon of regular at the pump is down for the fourth straight week, checking in at $4.685/gallon, according to gasbuddy.com. South Carolina wins the week for the lowest, $4.16, with none other than California (who else?) at the high end, $6.11, on average.
These levels cannot maintain for much longer before serious damage is done to consumers, businesses, and the general economy. Although there are a host of deniers - mostly, the talking heads on mainstream news and financial media networks - Europe, the US, Britain and Canada are already in recessions and high fuel and food prices are only making the situation worse. The longer fuel and food prices remain at extremely elevated levels the closer advanced economies come to a melting-down point.
If crude doesn't come down below $90/barrel and gas in the US below $4.00/gallon with similar declines in Europe by November, it's near-term curtains for the US and global economy, a condition that could readily morph straight into an outright depression lasting years, not months.
Bitcoin and other cryptos bounded higher this week. Bitcoin is currently at $21,234.50, but the gains may be short-lived. A host of issues, ranging from bankruptcies and stable-coin de-pegging, have cropped up in the crypto space, now best viewed as the dumping ground for excess fiat that needs to be vaporized. Wall Street schemers have completely overwhelmed the space as companies like Blackrock (BLK, 619.56, -32.05% ytd) and Fidelity (FNF, 37.12, -27.81% ytd) are fully engaged.
The consensus best bet is complete avoidance of anything related to NFTs, DeFi, alt-coins, hard wallets, crypto exchanges, etc. marketed like snake oil because eventually, it's all fairy dust. Even bitcoin itself, the original grand concept of a trustless, state-less, blockchained currency, has been corrupted by derivatives. It's conceivable that bitcoin could see significant gains, though it would have to break above $29,000 to achieve any degree of confidence. It's more likely to head lower as economic conditions in the real world continue to deteriorate.
Gold price 06/10: $1,875.20
Silver price 06/10: $21.92
Gold and silver took significant hits as the bear market in PMs continues. While current prices are certainly at tempting levels, longer-term investors may be holding their powder until a reversal is underway, and that may not happen for months. Even if prices improve, they're not likely to break out until the global financial system begins to suffer serious damage, as in the euro disintegrating (reaching near parity with the US$ this past week), or the yen, or the pound.
In simple terms, as long as the US dollar dominates FX relative to other fiat currencies, PMs are going to continue to drop in price. That's fine for as long as inflation remains elevated as gold and silver are about as good a hedge against declining purchasing power as can be found. Notably, gold and silver are near record highs against the euro and yen, bringing back memories of CNBC's Dennis Gartman "buying gold in yen terms."
One caveat for those taking the wait-and-see approach is the inevitable buying rush and shipping delays from online dealers, some of which already have imposed 3-4 week wait times. Back in 2020, when the virus panic sent prices into a short-term decline, orders were delayed by as much as 90 days in some cases, though all dealers honored the lower prices from the purchase date.
A bird in the hand, as they say...
Here are the latest 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) fell slightly, to $36.80, a decline of 39 cents from the July 3 price of $37.19.
At the Close, Friday, July 8, 2022:
For the Week:
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