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Friday, July 9, 2021, 8:58 am ET
With Thursday's downdraft in stocks, the S&P 500 and NASDAQ both retreated from all-time highs while the NYSE and Dow also traded to the lows of the week.
Friday's trading is likely to be a mixed bag and probably not as volatile as Tuesday or Thursday's sessions, but the major indices have some work to do if stocks are to avoid a second straight losing week. The NYSE Composite and the Dow have the most work to do, with losses over the prior four days totaling 315 (-1.98%) and 364 (-1.02%) points, respectively.
Choppiness in the equity space has investors gravitating to the bond market where 10-year and 30-year yields have dropped to their lowest levels since February. The spread between 2s and 30s was 207 basis points a month ago. Today that spread has narrowed to 172, indicative of an overall tighter economic condition. That's not to suggest a major downturn in stocks, though further flattening is a concern worth noting.
Yield on the 30-year bond ell below two percent on Wednesday and receded further on Thursday, holding at 1.91% overnight. That's not a worrisome level yet. The 30-year yield fell as low as 1.17% in April, 2020, as virus fright was sweeping through financial markets. Oddly enough, during that period, both stocks and bonds were rallying, though bonds would eventually give way to brighter prospects in the runaway market that developed during last spring and summer.
Conditions exist for stocks to go any way they please. The Dow and NYSE Composite both broke through their 50-day moving averages on Thursday, with the Comp closing below it for the first time since June 18. The Dow managed to bounce well off its lows into the close. The blue chips were down more than 500 points early in Thursday's session, only to cut the losses in half by the closing bell. Similar activity was seen on the other indices, but the S&P and NASDAQ have much room to fall before threatening their 50-day moving averages. The S&P has a 100-point cushion, while the high-flying NASDAQ would need a drop of more than 600 points to threaten that line.
Traders are not making much of recent trendlessness. After all, the major indices are within single percentage points of all-time highs. Knowing that bull markets always end at highs by definition, there's some concern, but it hasn't yet shown up in a pronounced way. Recent trading patterns suggest consolidation and profit-taking the key movers as we head into second quarter earnings season, which figures to be solid.
Bank stocks continued lower after Wells Fargo (WFC) announced that it was closing out all personal lines of credit within 60 days and would discontinue offering the product immediately. The lines of credit were a convenient way for individuals to consolidate credit card and other short-term debt or to free up cash for emergencies or general funding.
The fourth-largest bank in the country, Wells Fargo (WFC) ended the day down 1.08 points (-2.49%) with other banks taking similar haircuts, including Bank of America (BAC, 38.78, -0.97, -2.44%), JPMorgan Chase (JPM, 150.94, -2.65, -1.73%), Citigroup (C, 66.73, -1.20, -1.77%) and Goldman Sachs (GS, 358.94, -8.73, -2.37%). Bank stocks have been trending lower over the past three weeks as lending in residential mortgages and commercial loans have been flat or declining.
The major banking institutions are in no immediate danger or need of help. The major complaint is that they have too much cash in deposits, though that could be changing soon. Total consumer credit rose by 10%, or $35 billion, in May, the Federal Reserve announced on Thursday, the biggest monthly increase since March of 2016. With stimulus checks having been nearly fully dispensed, and enhanced unemployment benefits, mortgage forbearance and rent moratoriums ending in September, a coming credit crunch is on the radar of everybody from professional fund managers to amateur day-traders.
Cross-currents continue to swirl in the financial world and are about to get even more compelling as earnings roll out while congress debates the infrastructure bill and raising or suspending the debt ceiling later this month.
With the opening bell upcoming within the hour, futures look to reverse yesterday's losses.
At the Close, Thursday, July 8, 2021:
Thursday, July 8, 2021, 9:17 am ET
If you have a credit card - and chances are good that you have more than one - you are probably familiar with the term, "credit limit." It's the largely arbitrary amount you are allowed to borrow on your card. Some people have limits in the thousands of dollars, others in tens of thousands, and, those with extraordinary incomes and/or assets have limits in the millions (think black cards).
In the case of the US government, however, there is no limit, or at least there isn't presently. Congress and President Trump authorized a suspension of the debt limit or "ceiling" back in 2019, but that's about to expire. On July 31, congress has to either raise or suspend the debt ceiling or risk defaulting on its current obligations, now approaching $28.5 trillion.
Back on June 23rd, Treasury Secretary Janet Yellen urged congress to address the debt ceiling issue ASAP. So far, nothing's been accomplished, primarily because both houses have been on extended "Juneteeth" and Independence Day holidays, since June 28, holding a few "pro forma" sessions in the interim.
Legislators are due back on the 12th - next Monday - and are likely to stage what's become commonplace, a general display of concern and outrage, a bunch of speeches, and, an eventual last minute deal. Congress has, over the past 30 years, raised the debt ceiling two dozen times. It's become nearly an annual ritual.
Complicating matters is the pending infrastructure legislation. The fate of the bill is still up in the air and it could be tied to the debt ceiling debate or a reconciliation measure.
The path forward is not a simple one, and it may already have begun to rattle investors with an eye on the US Debt Clock.
A looming battle over the ability of the government to pay its bills is worthy of a market selloff. How severe it may be depends on the level of rhetoric and seriousness displayed by congress. While the debate is mostly for show with the real negotiations usually confined behind closed doors, there always exists the real chance that the posers and shills in congress will eventually blow up the whole system by leaving town on August 9th for a three-week vacation without reaching a compromise or consensus. That would put the onus on Yellen and the Treasury to employ "extraordinary measures" to keep the
Soberly considering the current state of affairs in Washington, it's entirely possible for this congress and the executive branch to completely screw up and throw the global financial world into a real state of panic. If the government ever did default on its massive debt, the outcomes are not pretty, including depression, war, both, or worse.
At this stage of the game, nobody should take anything for granted, especially the idea that congress and the executive has matters under control. Potential for a blown up US financial system might be the cause of recent market flutterings. Despite recent all-time highs on the indices, Thursday morning futures are under extreme pressure and most European indices are currently sporting two percent losses, making the upcoming opening bell in New York a potential horror show.
Forget about inflation worries and unemployment (initial claims were 373,000 last week). The debt ceiling is the real deal.
At the Close, Wednesday, July 7, 2021:
Wednesday, July 7, 2021, 9:00 am ET
"The markets can remain irrational longer than you can remain solvent."
Following the three-day holiday, stock players got back on the job Tuesday, only to come into their offices holding sell orders from clients and upper executives.
The selloff was not broadcast anywhere and not apparent until it actually happened. Stock futures were trading around the unchanged line prior to the opening bell, but the trading was swift, generally over by 11:30 am ET.
Most-actives on the day were Apple (AAPL, up 1.4&%), followed by Clover Health (CLOV, slammed 14.6%), Ford (F, -2.88%), ContextLogic (WISH, +2.06%) and General Electric (GE, -3.29%). Of the five, only Apple traded at a price higher than $15. The next four might as well have been meme stocks, darlings of hedge funds and redditers worldwide.
Dotting the leaderboard were some well-known names like Bank of America, Virgin Galactic, Carnival Cruise Lines, Microsoft, Intel. All bank stocks were down. Down the list from Bank of America's 2.66% decline were Wells Fargo (WFC, -3.51%) and Citigroup (C, -3.12%), sticking out like sore thumbs because, as everybody's been told, they all passed the Fed's stress tests, are flush with cash and have options on where to park excess reserves for the short term, i.e., reverse repos.
Tuesday's trading looks a little fishy after the stellar jobs report Friday and Independence Day holiday without much in the way of political mayhem. Was a memo sent around suggesting that fundamentals may matter in the second half of the year?
That would be a dubious claim, but far stranger things have happened, especially since the end of Summer 2019. Even with the shortest bear market ever commencing on or about February 24 and ending June 1, 2020 (97 days), stocks have been a reliable wealth-building asset class, arguably the best, despite protestations and claims to the contrary from Bitcoiners, copper-fitters and lumberjacks.
Since September 9, 2019 to Tuesday's close, the Dow is up 27%, the S&P gained 44%, the NASDAQ, 79%. The wins are even more extreme if measured from the bottom in March, 2020. Apparently, those tech stocks which were supposed to be out of favor performed pretty well. A 79% gain is darned good no matter the time frame.
Tuesday's brief plunge - all the major indices were running hot in the afternoon - was probably nothing more than the usual profit taking at the start of the 3rd quarter, taking out the window dressers from the prior week. It could have been an early-bird special concerning bank stocks, which have performed miserably since early June and are trending lower again in the pre-market. Even Goldman Sachs is lower over the last month.
Bank stocks heading South in a market that has fared well portends ill overall. This is a trend worth watching. Everything else may be just decoration on a cake that could be about to crumble. If, despite having too much money, the banks are going broke, what does that say about the rest of the economy?
Is it crumb cake or angel food?
There are any number of narratives for the second half of the year floating about, including, in no particular order: a second half market correction, continued non-transitory inflation, deflation, recovery, new normal, no normal, abnormal, abysmal, abrupt, gradual, and, new all-time highs.
Predictions run the gamut, but more than half are residing somewhere between correction and crisis.
Rational pessimism? Where's that Greenspan fellow when you are in need of wise words for mangled markets?
At the Close, Tuesday, July 6, 2021:
Tuesday, July 6, 2021, 8:15 am ET
Over the Independence Day weekend and into the faux Monday holiday, much of the world's interest was focused on the OPEC+ meeting which concluded Sunday, as Monday's meeting was abruptly cancelled. No new date was given for the next meeting.
The insider scuttlebutt is that the UEA was holding up an agreement and conclusion to the Summer meeting, but a final day of negotiating was eventually deemed unnecessary by all parties, at the urging of the Saudis. Essentially, the UAE was balking over its current "baseline" production quota of 3.2 million barrels per day, wanting it raised to 3.8 MBD by April, 2022.
Instead of dealing directly with the issue in an open meeting, interested parties agreed behind closed doors to continue with current production levels until August at the earliest, indicating there will be no relief to the global supply shortage in the face of reopening economies and summer driving season.
Consumers will be squeezed at every interaction with the oil complex, especially at the gas pump. Upon word of the meeting cancellation, Brent crude futures rose $77.78 a barrel, trading around their highest since autumn 2018. West Texas Intermediate rose 2.3% to $76.92 a barrel, a seven-year high.
With the Saudis firmly in control of pricing, expect oil and its derivatives and distillates to remain at elevated levels through the summer, possibly cooling off after Labor Day. Analysts are eyeing WTI crude at more than $90 per barrel before there's any action by the cartel. High oil and gas prices will curb economic growth and crimp economic activity overall, besides being wildly inflationary, exacerbating the current condition of rising prices and supply shortages.
As the grease to the world's financial system, the price of oil can be a determinant to economic success or failure. With the US economy - and most other developed economies - relying on consumer spending for 70% of its GDP, spending more on gas and less on other goods and services is likely to dash plans for a smooth recovery and possibly cycle economies back into recessions.
The only people welcoming the inaction by OPEC+ are oil producing counties and companies. Every other aspect of the consumer-driven economy has been thrown under the bus. However, oil is only one element in the complex economic landscape. The actions of central banks, and, especially, the US Federal Reserve, will no doubt contribute to drive the direction of global finance.
To that end, at its most recent policy meeting in June, the Federal Reserve increased interest paid on reverse repurchase (RRP) agreements from zero to 5 basis points. While highly complex to anyone with less than an advanced mathematics degree, RRP is a tool the Fed uses to increase or drain liquidity in the financial system. It's like deep underground plumbing, unseen, but essential.
By offering even a small incentive in the form of 5 basis points (0.05 of one percent), the implications for banks and money market funds, flush with cash, are magnificent. The RRP market, which trades on a daily, overnight basis, has burgeoned from its usual $250-350 billion to nearly $1 trillion since the announcement June 16 and is likely to grow larger in coming days and weeks.
The reason is simply that where there used to be no return for parking cash overnight in the RRP, that 5 basis points adds up rather quickly. Of course, the percentages are annualized, so the return on $1 billion dollars of $5 million isn't paid out daily, but over the course of a year. Still, it's a tidy sum of $13,698.63 every day, and there are plenty of participants with a billion or more in spare cash that will take advantage of the risk-free return.
That policy directive, should it play out as planned by the Fed, acts as a kind of stealth QE, goosing liquidity, sending more capital into the market. Thus, when stocks go up along with everything else under the sun and there's no stimulus advanced by the government to offset higher prices, you can once again thank the Fed for making the world a safer and more prosperous place for billionaires, bankers, but not butchers.
If stocks aren't exactly your bag, there's always cryptocurrencies, which are being dragged through mud, oil, grit, and all manner of debris by the financial media and regulatory agencies. Bitcoin, the obvious leader, continues to gravitate around $33,000-$34,000, as it has for the past month. The chart doesn't appear all that encouraging for those looking for price appreciation versus the US dollar. In fact, there could be another downdraft in pricing in Bitcoin's immediate future.
As for all other coins, so-called altcoins, tokens, even chief rival Ethereum, they're dead money, all copies of the original proof-of-work product, and will die slow deaths. Most of the thousands of cryptos, based on nothing but hope and math, are gradually being viewed as bad investments, if they even were investments in the first place.
With the treasury complex flattening out and yields on 10-year and 30-year maturities recently smoothing lower, there's neither reason for panic nor picnic. As a signaling mechanism, the yield curve is saying, "meh," in a big way. The economy will just grind along if it's assessment is correct.
Finally, gold and silver have been gradually up-pricing since some of the Basel III rules went into effect for European and US banks in the last week of June into July. It's too early to call it a trend, but beginning July 1, gold and silver have advanced, as predicted by a number of analysts in the precious metals space, especially Head of Research, Alasdair Macleod at goldmoney.com. The jury is still out on precious metals vis-a-vis Basel III rules. Banks have six months in which to comply, and British banks don't have to implement the new rules until January 1, 2022, so patience, a virtue of all bugs, stackers, hoarders, and collectors, is warranted.
Concluding a bang-up first half, the start of the economic second half of the year appears to be more of the same. Stocks, sure. Everything else, maybe. Inflation, transitory, dependent entirely on one's time reference.
Encapsulated world economic condition: Full Retard Zionist Freakshow Clown World.
That is all. Happy trails.
Sunday, July 4, 2021, 10:02 am ET
Being that today is July 4, Independence Day, in the United States of America, and Monday is also a national holiday, Money Daily saw fit to publish the usual WEEKEND WRAP in two parts.
Today, just data. Tomorrow, commentary.
Happy Independence Day!
10-year note yield: 1.44%
30-year bond yield: 2.05%
Bitcoin price as of Sunday, July 4, 9:00 am ET: $35,269.73
WTI Crude oil: $75.19 (7/2)
US National Average Gallon Gas (unleaded, 10% ethanol): $3.15 (6/27)
Gold: $1,787.70 (7/2)
Silver: $26.59 (7/2)
Here are the most recent prices for common one ounce gold and silver items sold on eBay (numismatics excluded, shipping - often free - included):
Item: Low / High / Average / Median
eBay gold and silver prices via survey, dating back to April 26, 2020.
Single Ounce Silver Market Price Benchmark: $41.95, up $1.06 from prior week ($40.89)
At the Close, Friday, July 2, 2021:
For the Week:
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