The Market Perspective

Wave Four in Bonds Not Finished Yet

Thursday June 17, 2021

We got it right that stocks were topping now, DJIA down  330 points today. But the money leaving stocks is going into bonds, big time even at these low yields.

I have not shifted funds to TBF yet, looks like TLT wants to go higher.

 

This move suggests prices will move to the  150 area. We will wait longer to enter TBF.

 

FED to Raise Rates in 2023, Really?

Thursday June 17, 2021

The headline in front page WSJ today declares the FED with Karnak like vision, announces it will raise rates in  2023. A look a the charts suggests

the FED is two or three years past reality. It appears bond price completed an ABC correction to the upside to finish a Wave 4.

Here is the TLT to TBF ration chart.

 

The trend rises when bond prices are rising. When interest rates are rising the TBF to TLT chart is rising. We have been patiently waiting for Wave 4 to top.

 

TBF

Indeed TBF is bottoming an issuing a buy signal, the PMO has not quite turned up on the daily chart. it is about to on the 4 hour chart.

Re capping, interest rates delined for  93 years from  19681 to  March 202. Rates have completed four waves up. Short ter long dated bond prices should fall to new lows this summer.

This is the start of a very long term rise in rates from near zero rates world wide. Dan Henninger notes today in his WSJ column that Macron is happy  to see the US back in  The Club.

Dan thinks that means the perpetual Euro welfare state club. Here Fed revenue is 24% of GDP, in Europe it runs more like 40%. When one diverts 40% of the entire economy to government welfare programs  the economy necessarily slows. This is why there is no French laptop computer, the French just do not see the return in making such inventions given the tax structure of France.

Finally DJIA turning down

Wed June 16 2021

DJIA is breaking below its trendline

This is a closer look but quite line with what we have been predicting, a high in Mid July. 31000-32000 looks like a reasonable near term target.

Bonds

It is possible that TBF completed its five waves up and an  A B C correction the last couple of days.

here is the mirror opposite in TLT

After May Go Awary

Wednesday June 16, 2021

that is an old axiom about Wall Street. Seasonally the market tens to top after April 15, later this year as tax day was extended, and makes rally in August followed by a low in October-November.

As noted in  a Tom McClellan peice posted a a few days ago, the FED is not involved in QE 4, pumping money into the system and supporting stock prices.

We may have a 10% correction here. Bonds are still not doing much, I would prefer to wait for a top there and begin a position in TBF.

 

Crude oil continues to creep up.

Tuesday June 15, 2021

Lumber

Various blogs are claiming the inflation fear is subsiding as lumber has come back to earth. But wait, did wave one peak in Feb, Two bottom in March, three top in May and now four

is back near the top of wave one?  Could a new wave five follow to new high prices?  That would explain the advance of bond prices in this time frame. It would also set up a potential decline in bond prices adn rise in interest rates which  is what we expect to happen.  That event is likelly to begin in July.

Lumber versus 30 year bond price

Best guess is that bond prices will advance into July with falling commodity prices.

Stephen Moore predicted that if the Biden plan went into effect, 5-8 million would be out of work. Bingo, the WSJ editorial page confirms just that this morning.

Read a scary parallel between the US and Chile here.

https://www.bizpacreview.com/2021/03/23/stephen-moore-the-fall-of-chile-is-a-warning-to-america-1048876/

Again the DJIA is drifting away from the SPX and NASD, the FED meets today so the press is absorbed but

 

it may be that the stock market looks ahead and despite coming out of covid, Lordstown went bust and Nikola shares have collapsed, the same mania for the dot.com stocks now dissipates on SPAC, bitcoin, electric vehicles, and meme stocks.   We are now smack dab in the time frame where we thought stocks would top. 

 

J P Morgan Stockpiling Cash For Higher Interest Rates

Monday June 14 2021

Just a matter of time

till interest rates rise, I am thinking July which is just a couple of weeks off

our great opportunity is near by

Then and Now

Weekend June 13, 2021

 

DJIA topping in early Year 2000

DJIA now topping May 10

NASD topping Year  2000 -  se the doublt top at 5,000

NASD Now - doube top already at 14,200 and we may get a third version

Berkshire Hathaway - five waves up appear complete

Bonds Have not Topped Yet

Weekend June 12, 2021

Bond prices are still advancing in spite of the inflation news. But perhaps the high inflation numbers reflect more of what has happened in the last year rather than what is happening now.

Lumber

Lumber prices have already lost about  one third of their value.

Goldman Sachs Commodity ETF

Looks like we have five waves up and not much progress to the upside this past week.

Material ETF

Where we are now market wise looks like the peak of the dot.com ,mania in early year 2000.

Similarities include

lots of investing in firms not making money, then dot.coms, now Gamestock,  SPACS, AMC

all time low junk bond yields

big demand for junk bonds, see our comments on recent convertible bond sales

high price earnings ratios

high margin debt

lots of new inexperienced investors

hot IPO markt

high tech mania

then

the DJIA peaked in early January

the NASD then as now peaked after a huge parabolic run from 3,000 to  5m000

Switch to weekly

Indu

NASD

No doubt the big injections of FED money are keeping stocks and bonds alive and well, how long that continues we cannot know but again we have 8-9x tmes the new highs versus new llows, now as then

 

CPI Leaps to 5% Increase

Friday June 11 2021

Inflation Jumps to 13 Year High

The US Economic re-bound is driving the biggest surges in inflation in 13 years, consumer prices rising 45 % from a year ago.

WSJ Headline Today

And thirteen years ago was 20008 when oil prices soared to $140 by June and then collapsed to $35 by Christmas. Indeed, WTIC finally closed above $70 this week. Several factors support the run-up in price.

• People are travelling again in the post covid world so demand for all types of fossil fuels are up
• Refiners like Valero are concluding they should produce less gasoline and more environment friendly green diesel from vegetable oil
• Team Biden killed the Keystone Pipeline which would have provided more oil to U S Refineries
• Supplies of oil and gasoline are shrinking as a result of all the above

Remember that crude oil is both an economic and a financial good. So the price of oil can rise on both demand and sheer speculation via options, futures, and energy shares. Which takes us to a report in Tuesday’s WSJ.

A call option is a bet that prices will rise. There are more than 60,000 call options for December 2022 with a strike price of $100. That would account for 60 million barrels of oil. There are16 million of the same price for December 2021.   The higher the price of oil rises towards $100, the more these options will be worth, assuming it happens before the two December expirations.

Oil last traded over $100 in spring 2014. With no lack of supply, prices cratered to $30 by 2016, bankrupting frackers and energy service companies. Some traders are extending the risk frontier by selling puts under $60 to finance the purchase of the $100 calls. Should the market reverse, they will be in big trouble.

Team Biden has increased the cost of the upcoming vacation season as unleaded gasoline futures have risen from $1.00 to $2.20. This suits the climate change crowd by making it more expensive to drive your car.

Decades ago Milton Friedman popularized the notion that the money supply drove inflation. The more the money supply expanded, too many dollars were chasing too few goods. The money supply has expanded 31% since 2019 and federal spending has increased 50%.  That is surely inflationary as Congress does not have 50% more money to spend, it is borrowed. And now Democrats want to spend a few trillion more.

As noted last week, oddly interest rates are still falling, bond prices advancing. Don’t expect that to last much longer. Once rates turn higher the FED will get a lesson that the market is in charge, not a bunch of DC appointees.

The rest of the year should be quite interesting.

Bond Prices Srtill Climbing

Thursday June 10, 2021

the last gap was filled but bond prices are still climbing, no change yet. See our previous post.