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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.

PRIOR COVERAGE:

8/21-8/27/2022
8/14-8/20/2022
8/7-8/13/2022
7/31-8/6/2022
7/24-7/30/2022
7/17-7/23/2022
7/10-7/16/2022
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3/20-3/26/2022
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1/2-1/8/2022
12/26/21-1/1/2022
12/19-12/25/2021
12/12-12/18/2021
12/5-12/11/2021
11/28-12/4/2021
11/21-11/27/2021
11/14-11/20/2021
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10/31-11/6/2021
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8/1-8/7/2021
7/25-7/31/2021
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6/27-7/3/2021
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1/31-2/6/2021
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August Non-Farm Payrolls Gain by 315,000; US Stocks Looking at 3rd Straight Losing Week

Friday, September 2, 2022, 8:40 am ET

Ahead of August non-farm payroll data, a week out from Jerome Powell's market-moving Jackson Hole speech, US stocks look to close out the week with at least some modicum of hope, because hope is all that equity investors have left.

Bulls hope that the market downturn - the very one that began in earnest in January - isn't severe and the the Federal Reserve will not go hog wild with rate increases through the remainder of the year and into 2023. With only three FOMC meetings left on the calendar (September, November, December), bullish investors are trying not to face reality, taking just about any economic news with an eye towards a better future.

While a better future may be in the stars, preceding it will be a rough present, piled upon the heady past of the first eight months of 2022. The global economy is struggling, at least in the West, and especially in those countries that continue to dance to the tune of US hegemony, shunning Russian oil and gas, the fuel that greases all economies.

Thus far, the bears have had their way, returning mid-August from a two-month slumber that saw stocks advance on the false hope of a Fed "pivot", believing that the Fed would sacrifice the economy and the US dollar in deference to the stock market, abruptly shedding their rate hike and QT plans in favor of more QE and lower interest rates.

Sadly for those misinformed bulls, that did not happen and was never seriously a consideration among any groups with a true ear for economics. It was ludicrous to think that the Fed would re-inflate the world's largest bubble right in the middle of deflating it. That's why hope is not a strategy and making judgements based upon solid facts and knowledge is.

With the jobs report out at 8:30 am ET, stocks futures are trending higher after the BLS said 315,000 jobs were created in August and the unemployment rate rose to 3.7 percent. This was up against expectations of 300,000 and following a blowout surprise of a revised 526,000 in July.

The change in total non-farm payroll employment for June was revised down by 105,000, from +398,000 to +293,000, and the change for July was revised down by 2,000, from +528,000 to +526,000.

This being the last trading session of the week, and in advance of a three-day weekend, the major indices are looking at a huge hill to climb to avoid a third straight weekly decline. As of Thursday's close, the Dow was off by 626.98 points for the week, the NASDAQ down 356.58, and the S&P lower by 90.81 points. The NYSE Composite index is down 406.31 for the week.

Overnight, trading was subdued in Asian markets. European stocks are mostly higher through the first half of their respective trading sessions, with Germany's DAX gaining by about one percent.

As is usually the case prior to a long weekend, stocks may put on some gains Friday, but it's doubtful they'll amount to anything more than a reflex reaction.

At the Close, Thursday, September 1, 2022:
Dow: 31,656.42, +145.99 (+0.46%)
NASDAQ: 11,785.13, -31.08 (-0.26%)
S&P 500: 3,966.85, +11.85 (+0.30%)
NYSE: 14,771.90, -29.35 (-0.20%)


Everything Is Going Down in a Hurry; Stocks, Bonds, Gold, Silver, Oil, Crypto All Being Sold

Thursday, September 1, 2022, 8:12 am ET

While stocks have been the main focus over the past week, since Jerome Powell's "some pain" speech at Jackson Hole last Friday, other markets have been acting erratically as well, all to the downside, which would fit the model of a full blown recession.

WTI crude oil peaked early Tuesday morning (3:40 am ET) at $97.47/barrel before embarking on a quick tour lower, registering at $87.43 this Thursday morning (6:50 am ET). The spike was caused initially by turbulence in Iraq as various militant factions made a mess of the US-armed "Green Zone", but the threat of crimped Iraqi supply was quickly dispelled when Alaa Al-Yassiri, director general of state-run oil marketing company SOMO, Iraq's oil exports will continue uninterrupted, with adequate capacity to increase exports.

As crude continues to flow relatively freely throughout the world, the plain observation is that there is no shortage and countries are poised to produce more if necessary. With summer coming to an early end in the US with the Labor Day weekend on tap and gas at the pump about to revert to lower-cost winter blends, it's clear that oil is priced well above any supply-demand calculation. $75-80 would likely be closer to the mark and lower prices could come rather quickly if the current state of affairs - rising interest rates during a recession - maintains.

Elsewhere, gold and silver have been taken out behind the woodshed and mercilessly beaten, much to the chagrin of precious metal purchasers who stocked up in March and April, when prices appeared to be headed to new highs. Gold peaked at $2039.05 on March 8, while silver topped out at $26.18 a day later, and have been declining since. It's worth noting that March 8 was the day of the great nickel debacle, forcing the London Metals Exchange to cancel trades and halt trading as the price exploded over $100,000 per ton.

A few hours before US equity markets open, gold is at $1,702.20, while silver that violated support to the downside, bid at $17.70, the lowest price since June 2020. The gold:silver ratio standing at 96.17 makes this an opportune time to trade gold for silver or simply buy silver bullion outright, though prices could - and likely will - fall even further. Bottom line support for silver is around $15/oz, with gold support somewhere in the range of $1250-1450. Various sources offer a difference of opinion on exact support lines, though it's plain to see that a bottom is gold would be well below recent prices. Indications are for a breakdown through $1700 in short order.

Treasury yields have all moved higher across the entire curve since mid-August. Yield on the benchmark 10-year note - which has become kind of a running joke during the inversion phase - rose from 2.60% on August 1 to a close of 3.15% on the 31st, a gain of 55 basis points. Taking the booby prize for the month was the 3-year note, rising from 2.82% on the 1st to 3.45% on yesterday's close a 63 basis point move.

With the Fed gearing up for what assuredly will be no less than a 75 basis point hike for the target federal funds rate at the September 20-21 FOMC meeting, expect the curve to invert even further and rates to spike higher, signaling nothing short of catastrophe in bond-land.

Crypto, the Ponzi that cannot expand, continues to flirt with new lows. Bitcoin is maintaining its roughly-$20,000 level, but has been and will continue to be under pressure. As the only crypto worth anything at all, bitcoin's value is likely to reach unanticipated low points as what looks to be a great liquidity crunch evolves over coming months.

Stocks are looking squarely at another losing week, a third striaght, as all the major indices fell below their respective 50-day moving averages this week, which is reversed, falling below the 200-day back in March (February for the NASDAQ).

For the record, in August, the S&P 500 fell 4.2%, the Dow was down 4.1%, and the NASDAQ sank 4.6%, though those percentages were all surpassed just in the final four trading days of the month. Essentially, stocks rose through the first half of the month, with August 16th marking the high point, and declined over the latter half. From the peaks, the S&P lost 8.14%, the Dow, -7.73, and the NASDAQ surrendered an even 10 percent.

As Thursday trading in US stock markets approaches, Asia was lower, with Europe well into the throes of a wicked, sustained breakdown. Germany's DAX is approaching the lows from June, currently down 20.78% year-to-date. Britain's FTSE has also been under extreme pressure, dropping roughly five percent since August 25.

Under the current conditions, with most Western nations' adult populations being led by incompetent, clownish politicians, one can only expect matters to proceed at a worse, quickened pace. These situations, of governments out of control and working against the best interests of their people, usually don't end well.

Arm yourself with knowledge and do not fall victim to rumor, falsity, and innuendo, which usually leads to rash, emotional decisions, almost always destructive in the short and long term. Western governments and their central bank cohorts are on a path to destruction. Individuals are under no authority to follow them blindly into an abyss of desperation.

At the Close, Wednesday, August 31, 2022:
Dow: 31,510.43, -280.44 (-0.88%)
NASDAQ: 11,816.20, -66.93 (-0.56%)
S&P 500: 3,955.00, -31.16 (-0.78%)
NYSE: 14,801.25, -130.18 (-0.87%)


Wrecking the Reserve Currency One Sanction at a Time; US Stocks Down 5% In Past Three Sessions

Wednesday, August 31, 2022, 7:43 am ET

Joe Biden (aka Brandon) is a bungler. Always has been, and now that he's taken on the role of president (only in the minds of non-thinkers), he's managed to accelerate the destruction of the world's largest economy, and, with it, the world's reserve currency, the US dollar.

A long time ago, back before August of 1971 when then-President Nixon closed the gold window, "temporarily" denying gold claims against the US dollar, the dollar had real value. Since then, "temporary" now defined as more than 50 years, not being redeemable for gold, the value of the dollar has fallen along with its purchasing power. Today's inflation rate of nine or 10 percent or more is just the natural consequence of wrecking the reserve currency by weaponizing it against "unfriendly" (Russia) nations.

Thus, Joe Biden and his handlers can't be blamed for everything that wrong with the US economy and the currency in general. He had plenty of help along the way. However, the sanctions imposed upon Russia in the run-up to the Ukraine conflict and ongoing developments have backfired in a myriad of manners, making the United States and its allies (the EU, British Commonwealth nations, Japan, and South Korea) the laughingstock of the rest of the world.

According to Matthew Piepenburg of goldswitzerland.com, US sanctions on Russia and the seizing (theft) of Russia's foreign reserve assets is on a par with Nixon's 1971 default. Considering the after-effects of the sanctions, he appears to be correct.

When Biden took a trip to Saudi Arabia recently to speak with their rulers about increasing oil production to help out the US, the Saud's were already well on their way to inking a deal with Russia for joint military cooperation, ostensibly ending nearly 50 years of petrol-dollar comfort.

What's worse, since the US and its allies imposed sanctions on purchasing Russian energy, both oil and natural gas prices have risen to extreme levels. But, the truth of the matter is that Russia has prospered, selling its energy products to the rest of the world (mainly, China, India, and Brazil) at a discount, while those countries have turned around, marked up the prices and sold the sanctioned oil and gas to Europe.

The big winner is China, the world's largest buyer of LNG (liquified natural gas), who has bought an oversupply from Russia and, in turn, sold the gas to Europe in the spot market, a practice that's been ongoing since the start of the sanctions.

Thus, European countries scrambling to get their energy supplies up to 80% capacity before winter are nearing that goal. Nobody is going to freeze in Europe this winter except for those unfortunate few who cannot afford the price of heating fuel. There will be plenty of supply, just at a much higher price. Ironically, Europe could have bought the same gas for much less had it not followed the US sanctions in lockstep.

Sooner or later, Europeans and maybe even Americans will awaken to the truth about the sanctions, Russia, Ukraine, and the rest of the lies peddled endlessly by the mainstream media and demand answers and action. Upcoming midterm elections in the US may be a good jumping off point for change, but, in the meantime and for another two years, Biden and his handlers will continue to bear down on the US economy with policies that are not only downright stupid, but some say actually criminal in intent, but that's a discussion for another day.

With the currency weaponized against all countries which will not play ball by US rules, the days of dollar dominance as the one reserve currency are dwindling. Many countries in Asia are doing bilateral trade deals, bypassing the dollar entirely. Russia, China, and India are the main players in bilateral trade, but, increasingly, Iran, Turkey, Saudi Arabia, Malaysia, Indonesia, and others have found it much easier to do business between themselves without the camel nose of the US dollar poking through under the tent.

The US dollar is being dumped at an alarming rate, which helps partially explain why interest rates are rising. Nobody wants US treasuries because they're increasingly not necessary for trade deals.

Truth, as harsh as it may sound, is that sanctions against Russia have done much more harm to the US, Europe, and the Commonwealth nations themselves. It's almost as though the "leaders of these nations purposely shot themselves in both feet with the same guns.

That's a sword that cuts both ways, however, as foreign money leaves the US, native investors are eyeing treasury yields above three percent as an alternative to a stock market that has been falling for eight months and appears to be headed even lower. Why risk investing in stocks which may lose value even as the dollar depreciates, when locking in a three percent yield on a any treasury with more than a three-month duration is available.

Even a three-month bill is looking like a steal, hitting a yield of 2.97% Monday and Tuesday. With the Fed poised for more rate hikes, bond prices will continue to fall and yields rise, making stocks less attractive and bonds a safety play.

Since the run-up to and including Fed Chair Jerome Powell's speech at Jackson Hole last week, stocks have gone pretty much straight down. The major indices began declining on August 16, but have accelerated lower since this past Friday, when Powell delivered his "some pain" keynote address at the Symposium.

Over the past three sessions (August 26, 29, and 30), the S&P has declined more than 200 points, the NASDAQ has fallen just over 750, and the Dow's dropped a stunning 1,545 points, all amounting to a roughly five percent drawdown, with more to come.

Anybody hoping for a rebound as August turns to September and congress comes back from its usual month-long hiatus, is probably in the same camp that thinks the Oakland A's will be playing the Washington Nationals in the World Series this fall (fact check: both have already been mathematically eliminated).

As markets head into hump day, there's ample evidence that US-dollar dominance is ending, and doing so at an accelerated pace, thanks to zero-turn policy gaffes, greed, graft, media obfuscation, and corruption at high levels in government and corporate America.

Enjoy the show. Popcorn is still relatively cheap (so is gold and silver).

At the Close, Tuesday, August 30, 2022:
Dow: 31,790.87, -308.12 (-0.96%)
NASDAQ: 11,883.14, -134.53 (-1.12%)
S&P 500: 3,986.16, -44.45 (-1.10%)
NYSE: 14,931.42, -187.42 (-1.24%)


Prospering During Hard Times: Making It Beyond Survival Requires Knowledge, Persistence, Flexibility, and Innovation

Tuesday, August 30, 2022, 8:24 am ET

Since the start of 2022, a good amount of wealth has been destroyed or, in reality, transferred, from one hand to another, so to speak.

Stock market losses are the most obvious signs of wealth transfer, from the hands of the many to the hands of the few, as mutual funds, 401k plans and retirement accounts have suffered losses amounting to more than $7 trillion as of May 12 of this year, according to this now-dated article. Back then, using the S&P 500 as a yardstick, the popular index stood at 3930.08, down from nearly 4800 at the start of the year, so, roughly speaking, about $800 billion is "lost" for every 100-point decline on the S&P.

With the index closing at 4030 on Monday, it's approaching that level once more, after falling to 3,666 on June 16 and rallying back to 4,305 on August 16. It was a wonderful two months for the bulls, though the fun times appear to be over, for now.

Every losing seller needed a buyer, so with fund managers ditching shares, the buyers were most likely the same ones that keep popping up as genius of money management, the likes of Ray Dalio, Bill Ackman and George Soros come to mind. These people deploy strategies to make money on both sides of a trade, short and long. That's where all that disappearing "wealth" has gone, into the hands of those who need it the least.

Obviously, investments in oil and energy have fared better than high tech growth stocks, but let's move beyond the plain and simple and try to understand how money changes hands and who does most of the collecting.

There are a number of objective elements to being on the winning side during hard times. A clear understanding of trends and the ability to spot them early on is a key to winning, or at least not losing as much as the masses. Those who saw the declines in January as more than a warning shot, headed for the hills, out of stocks and likely into cash positions. January was the worst month of 2022, as the S&P lost nearly 500 points, nearly 10%.

It was then that those of the "buy the dip" mentality that had been so successful since the Great Financial Crisis (GFC) of 2008-09, started to pile up losses, and many were undeterred as stocks rallied from January 27 through February 2nd, gaining 263 points over five days.

The perma-bulls were giddy. The skeptics took a "wait and see" approach and they were rewarded as the run-up to Russias invasion of Ukraine became a reality. Stocks declined even further than January's low.

Beyond trend-spotting, timing and flexibility are also strong contributing factors to success. Anybody caught in a managed fund, be it an IRA, 401k or other investment vehicle strangled by tax advantages and penalties was - and still is - out of luck. Most of these funds don't allow for quick movement in and out of positions, and early withdrawals are penalized, so going to cash positions are all but disallowed, though anybody who allocated more to a money market account, earning almost nothing but shielded from further stock declines, made a wise move.

Of course, hedge funds, high net worth individuals, and Wall Street brokerages have no such constraints. They're the ones making fast moves, often to the point of influencing the market themselves. Call that winning.

As the year has progressed, the trend has become clear. This is a bear market that still has a lot of appetite for bear meat. Every rally has met resistance and retreated and the last one, from mid-June to mid-August was perhaps the most telling. It took longer due to a misplaced assumption that the Fed was not serious enough about battling inflation - the so-called "pivot" mentality - which allowed stocks to perform as if an economic expansion was underway. Nothing could have been further from the truth, thus, those who went short or to cash in January and February and stayed there are still ahead, despite many bumps and bruises along the way. And, it appears they're going to be rewarded even more for their persistence, the third leg of the success triangle.

It boils down to knowledge, flexibility (innovation), and persistence. No successful investor or businessperson has ever changed one's mind because of temporary conditions. Once set upon a path, they do not deter from it, unless long-term conditions change, and, since the start of this year, those conditions - bearish for stocks amid a contracting economy - have not. There's a good case for the conditions to become entrenched through the remainder of 2022 (only four months left) and into at least the first half of 2023 and perhaps much longer.

If the US and Western nations are headed for recession (we are already in one) or worse, what's one to do? How does a person or business not just survive, but prosper during what looks to be even harder times ahead.

Well, if one is not convinced that most of the world is suffering from tighter economic conditions from inflation on one hand and rising interest rates on the other, there's no hope. Playing along as if nothing really has changed is probably the number one reason people lose money or become insolvent. The factors are already in play. While high fuel prices have moderated a little recently, there's no guarantee they'll remain at these levels, and, even if they do, food prices continue to rise and will continue to do so past the harvest season and into the winter.

What one saves at the gas pump will be lost at the heat exchange in November and beyond and food budgets may expand by another 10-20% over the next 18 months.

Seeing the trend for what it is, investments should be geared toward retaining wealth with some set aside for capitalizing on declining stocks via shorts or put options. Those with more guts than brains (sometimes a good thing) may want to profit from both market declines and the assured reliability of bear market rallies. It all depends on one's risk preferences.

Until conditions change materially and disinflation takes hold in producer and consumer goods and services (PPI, CPI), there should be no wavering from the preordained position. When prices for everyday goods and services begin to fall and stay down the US and vassal states of Europe will likely be well into the throes of a deep recession, possibly a depression. Then, subtle changes to trend will emerge, allowing for a change of strategy. Nobody can score at exactly the top or bottom of markets. Being close and being early usually go hand in hand.

Taking a look back at history, it's useful to see who made money during prior hard times, particularly during the great Depression. This list of nine individuals offers a snapshot of what it takes to shake off negativity, embrace risk and power forward toward a prosperous time.

Topping the list is Babe Ruth, who was an excellent pitcher before becoming the Sultan of Swat as major league baseball was evolving from singles and stolen bases small ball to high, deep long ball. The Bambino was swatting home runs well before the depression, leading the American League 12 times from 1918 through 1931 (tied with teammate Lou Gehrig).

Others on the list also benefitted from knowledge, persistence and innovation. John Dillinger robbed banks because he understood the lax security of the time. Michael J. Cullen, an executive for Kroger Grocery & Bakery Company, struck out on his own and created a chain of modern grocery stores which became the standard. Charles Darrow, sensing the mood of the times, patented the board game, Monopoly and became a millionaire.

Howard Hughes was busy making movies and money when, in 1932, at the height of the nation's economic woes, he formed the Hughes Aircraft Company and made even more money. J. Paul Getty bought underpriced oil stocks with a $500,000 inheritance in 1930 and became one of the wealthiest persons of his era.

No list would be complete without a mention of Joseph Kennedy, Sr., who sold the majority of his stocks prior to the 1929 crash and went on to make a fortune in real estate and liquor (Prohibition lasted from 1920 to 1933).

Arguably, these individuals saw the trends clearly, acted upon them and profited handsomely while the rest of the world was wondering how to get a square meal on the family table.

Everybody doesn't have to suffer. Only those unprepared or unwilling to face reality and act upon it will.

The rest of us will be just fine.

At the Close, Monday, August 29, 2022:
Dow: 32,098.99, -184.41 (-0.57%)
NASDAQ: 12,017.67, -124.04 (-1.02%)
S&P 500: 4,030.61, -27.05 (-0.67%)
NYSE: 15,118.85, -59.36 (-0.39%)


WEEKEND WRAP: Fed Chair Powell Puts His Foot Down on Policy; Wall Street Stunned as Bear Market Gains Steam

Sunday, August 28, 2022, 11:18 am ET

Friday's watershed equity liquidation sale displayed the extreme futility in fealty to Western central banking and fiat currency. At the mere mention of "some pain", stocks were sent spiraling into an abyss, opened even wider by the remnants of the June-August bear market rally.

If we are to believe that the assembled genius of Wall Street and the investing class did not know prior to Fed Chair Jerome Powell's clear message that the Federal Reserve was going to continue its fight against inflation by hiking rates as appropriate that such action would result in tighter economic conditions, then the blinkers need to come off, the shades pulled higher, the curtains drawn wide to expose the fallacies and corruption that has been allowed to run rampant for far too long.

Powell's terse, nine minute keynote speech at the Jackson Hole Economic Symposium laid bare the unguarded secrets of the economic malaise brought about by the same politicians and economists who caused the problem in the first place. Creating money out of thin air and funding government with lended unbacked currency produces bubbles and unicorns that will persist until spent and withdrawn. Powell's reaffirmation of a purposeful tightening regime solidified the case for recession, already well underway.

Powell's nine minutes of infamy:


STOCKS

Friday, August 26, 2022 may eventually be remembered as the day the bulls on Wall Street capitulated, finally abandoning the quest to bring stock markets back to all-time highs along with an approximation of an expanding economy. Fed Chairman Powell could not have stated the obverse more clearly in his Jackson Hole remarks, making no mistake that the US economy was in decline, thus turning the entire media narrative on its head.

The ensuing rush out of stocks was more alarming than it needed to be. Buying into false narratives is a fool's errand at best. At worst, it brings economic ruin when finally unmasked. A condition of falling asset prices is now the case, and in time will manifest itself in profit margin squeezes, reduced demand and eventually, lower producer and consumer prices. The process is likely to take longer than expected, as the Fed now seems prepared to keep raising interest rates and keep them high until prices abate, likely though most of 2023.

As the process unfolds and the economy unwinds, stocks known formerly as growth enterprises will suffer as a rising tide of investor disdain becomes fully materialized. Overvalued assets in stocks and real estate will be first to feel the pinch, but it will take much longer for a downsizing of the "wealth effect" and general price pressure to relieve the pain already spread widely among the middle and lower classes.

Consumers are tapping out in droves, running credit card bills to extremes even as the interest rates on them rise. Along with tight-fisted shoppers, the federal government will be over a refinancing barrel as it rolls over its massive debt load into higher-interest securities. While ordinary people and small businesses struggle through a tough period, government debt load and the deficit will skyrocket, creating the next problem: decreasing compliance and lower tax revenue for the feds, state and local governments. It's a crisis long overdue. The parasitical government behemoth must be brought to heel, taxing and regulating severely curbed. The American people cannot maintain in such a heavy-handed financial repression environment. The same is true in Europe, Japan, South Korea, and the nations of the British Commonwealth.

With the Dow suffering its worst loss (-1,008.38 points) since May 4 (-1,063.09) and the other indices suffering similar drops, there was no mistaking Powell's message on inflation. He might as well have been sporting a 1976 Jerry Ford "WIN" (Whip Inflation Now) button, so blunt was his message to market participants.

"Some pain" has already been experienced with the NASDAQ off 23.31% year-to-date, the S&P off 15.40%, and the Dow down 11.76%. Even more pain is on the way as the Fed is poised for another 75 basis point hike to the federal funds rate and possibly a pair of 50 basis point hikes in November and December. This is far from over.


TREASURY YIELD CURVE RATES

Date 1 Mo 2 Mo 3 Mo 6 Mo 1 Yr
07/29/2022 2.22 2.28 2.41 2.91 2.98
08/05/2022 2.21 2.39 2.58 3.10 3.29
08/12/2022 2.23 2.50 2.63 3.13 3.26
08/19/2022 2.23 2.60 2.74 3.16 3.26
08/26/2022 2.39 2.69 2.89 3.26 3.36

Date 2 Yr 3 Yr 5 Yr 7 Yr 10 Yr 20 Yr 30 Yr
07/29/2022 2.89 2.83 2.70 2.70 2.67 3.20 3.00
08/05/2022 3.24 3.18 2.97 2.91 2.83 3.27 3.06
08/12/2022 3.25 3.18 2.97 2.92 2.84 3.34 3.12
08/19/2022 3.25 3.28 3.11 3.06 2.98 3.44 3.22
08/26/2022 3.37 3.40 3.20 3.14 3.04 3.44 3.21

Reflecting what the bond market already knew, interest rates on short-dated bills ramped higher, with the 1-month bill up 16 basis points over the course of the week. Flight to safety was seen in the 10s, 20s and particularly the 30-year bond, which actually fell one basis point, from 3.22% to 3.21. The 30-year topped out at 3.32% Wednesday, the highest rate in two months (3.39%, June 21).

The bond market is clearly under stress, with rates inverted from six months out to 10 years (3.26% vs. 3.04%). Of interest is the 3-year note (think credit card funding), hitting a two-month peak by week's end, at 3.40% (3.60%, June 14). Make no mistake, rates are about to move higher, anticipating the 75 basis point hike at the September 20-21 FOMC meeting.

Marketeers have less than a month in which to adjust as the federal funds rate is likely to be boosted from its current 2.25-2.50% to 3.00-3.25% in short order.

As bond prices ramp higher, expect the most pain in the real estate market. By November, sales and prices will be slashed as the cost of a 30-year fixed mortgage accelerates beyond six percent, pricing out many would-be buyers.

The overall effects of the orchestrated interest rate hiking regime will be manifested in all markets, pinning value against price, as the potential for true price discovery emerges from deep shadows, cruelly hidden from view since the mid-1990s.

Not to be missed, Doug Noland's Credit Bubble Bulletin supplies incisive commentary.


OIL/GAS

There's no doubt that Powell's Jackson Hole speech was a seminal moment for all markets. It will take time for adjustment to be felt, especially in energy markets, which are vital to all economies. High oil prices will kill everything, as has been proven many times before. The current pricing - with due deference to Russia/Ukraine - cannot be maintained by producers so long as supply remains near constant.

Beyond the Russian sanctions, there are few restraints on oil supply. Russian crude is flowing into Western markets despite the best efforts of the US-led coalition of neocons and their vassal states in Europe to wreck the Russian economy. The deadlock is about to break as a growing consensus of politicians and business people begin to break away from the "evil Russia" narrative.

Russia's economy can prosper with oil prices between $40 and $50 per barrel. They are selling crude at significant discounts to partners in Asia, the Middle East, Asia and beyond. Some of this oil is making its way to Europe and the US. Supplies are plentiful and prices will follow as Western demand stagnates or weakens. As the Fed continues on its inflation-fighting journey, expect oil prices to revert to the mean or beyond. WTI crude, at $92.97, as of Friday's close, up from the prior week's closing price of $90.77, will not be maintained for long.

Once the summer driving season concludes after Labor Day (9/5), oil and gas prices could very well tumble to unanticipated levels. The current thinking of continued high oil and gas prices does not match up well against the Fed's dramatic policy shift. By October or November, WTI crude could be in the low 80s or lower and gas at the pump well below $3.00 a gallon in much of the US.

According to gasbuddy.com, the current national average price for a gallon of unleaded regular in the United States is $3.83, down slightly from last week's average of $3.87. Texas, Arkansas, Mississippi, Louisiana, and Georgia are all under $3.40. California remains the leader in price at at extreme $5.24, the only state above $5.00, with only a dozen states (West and Northeast) above $4.00.


CRYPTO

Done. Dead. Riddled with scandal and uncertainty, the crypto market has certainly seen better days. What was all the rage during the pandemic is quickly turning dreams of riches into so much fairy dust. Bitcoin, the only crypto worth even mentioning, declined from a recent peak of $24,461 on August 13 to its current $19,964.40 price, with further declines near certain.

The particularly spectacular crypto Ponzi has nearly run its course, though there are still companies looking to capitalize on its former fame, notably BlackRock (BLK, -25.81% YTD) and Coinbase (COIN, -73.42%), both publicly-traded companies in deep waters. Coinbase, in particular, is close to insolvency. A Chapter 11 filing could occur within just a few months if the outflows from crypto continue to accelerate, which seems a foregone conclusion.

BlackRock, otherwise known as the world's largest hedge fund, is over-leveraged in stocks and real estate. Dipping its clients' toes into the crypto market should be considered a criminal offense.


PRECIOUS METALS

Gold and silver continued to be under pressure as the LBMA and COMEX kept up their pricing schemes against real money. With Fed policy in the background, higher interest rates are likely to keep a damper on precious metal prices near term as investors seek yield at increasingly better rates.

There's a good possibility of a short-term break below current support at $1700 for gold and $18.50 for silver. Should these levels give way, gold could see a decline of a good $150-250, silver crashing back into the $15-16 range. Bottoms fall out of markets during crises and economic calamities. Precious metals, although they provide strength and stability for the long haul, are not immune to short-term trends.

From the glut of numismatic and regular bullion offerings at online dealers and especially on eBay recently, this could be the beginning of a mass exodus by speculators, annoyed over the failure for PMs to lift off amid uncertain times. Prices, seemingly relatively cheap at present, could be even more discounted as the inflation fight turns to recession and consumers and businesses begin to hoard cash, presenting yet another buying opportunity for the anti-fiat crowd.

Lower dealer premiums would be telling sign of dishoarding.

Gold/Silver Ratio: 93.2

Gold price 07/29: $1,782.70
Gold price 08/05: $1,792.40
Gold price 08/12: $1,818.90
Gold price 08/19: $1,760.30
Gold price 08/26: $1,750.80

Silver price 07/29: $20.34
Silver price 08/05: $19.86
Silver price 08/12: $20.84
Silver price 08/19: $18.96
Silver price 08/26: $18.78

Below are the latest 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: 28.10 40.66 35.37 38.00
1 oz silver bar: 28.65 39.99 33.28 33.69
1 oz gold coin: 1,833.65 1,907.04 1,870.89 1,880.40
1 oz gold bar: 1,815.77 1,854.59 1,830.93 1,828.16

The Single Ounce Silver Market Price Benchmark (SOSMPB) continued lower over the course of the week, to $35.09, a loss of $33 cents from the August 21 price of $35.42.


WEEKEND WRAP

It was a tumultuous week for markets, but especially in the stocks and bonds spaces, after Jerome Powell stomped down his foot on the media sensationalists and back-bench analysts calling for a "Fed pivot" over so many months.

Powell made an historic statement at Jackson Hole, signaling a Fed committed to higher rates over a longer period, a signal that took Wall Street somewhat unaware and one certain to manifest itself over all financial, business, and consumer markets.

Powell's choices have been quite clear for some time. He and his cohorts at the Fed could save the stock market by just nibbling away at inflation with incrementally higher rates, thus risking a full meltdown in the general economy due to incessant and growing inflationary forces, or, he could save the economy - and the dollar - by clamping down hard on runaway speculation and giddiness in still bubbling equity investments with ever more forceful interest rate hikes for longer.

He chose the latter.

The party is over on Wall Street and in DC. A stock market bust will shortly be seen as a long-overdue boon to Main Street and ordinary working folks. There's pain to come, but better times further down the road.

At the Close, Friday, August 26, 2022:
Dow: 32,283.40, -1,008.38 (-3.03%)
NASDAQ: 12,141.71, -497.56 (-3.94%)
S&P 500: 4,057.66, -141.46 (-3.37%)
NYSE: 15,178.21, -417.03 (-2.67%)

For the Week:
Dow: -1423.34 (-4.22%)
NASDAQ: -563.50 (-4.44%)
S&P 500: -170.82 (-4.04%)
NYSE: -410.11 (-2.63%)
TRAN: -391.52 (-3.65%)


Disclaimer: Information disseminated on this site should not be construed as investment advice. Downtown Magazine Inc., Money Daily and it's owners, affiliates and/or employees are not investment advisors and do not offer specific investment advice. All investments have risk. You should consult a professional investment advisor or stock broker or use your individual judgement when making investment decisions. By viewing this site, you hold harmless Downtown Magazine Inc., Money Daily, its owners, affiliates and employees against any and all liability. Copyright 2022, Downtown Magazine Inc., all rights reserved.

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