The Market Perspective

Monday is Likely a Cycle Low

weekend Feb 28, 2021

RSI has double dipped to 30 and PMO

is at zero. This has been expected. Seasonal strength should carry into May with tomorrow Monday being a cycle low.

NASD

NASD actually closed positive Friday off prior lows. That should set the stage for a low.

XLK Technology ETF

The uptrend is still intact for XLK  and again it is a smidge higher than the prior low.

NYSE SUmmation Index

RSI at 30, PMO at  0, double bottom  possible.

Rising Rates

Friday Feb 26 2021

Interest Rates Spiral Higher

Stocks rose Wednesday after Powell’s reassurance there is nothing to worry about. But Thursday’s action erased those gains and stocks are down 355 DJIA points Friday Morning. Do markets see inflation in the Team Biden $4 trillion stimulus?

WSJ Editorial today

 

We estimate that between five and eight million fewer /Americans will be employed over the next six months if the $1.9 trillion Covid bill passes.

Stephen Moore, Committee to Unleash Prosperity

Moore was correct that the Original Cares Act would reduce employment by millions. And when jobs came back, millions went unfilled, so it is worth considering his forecast this time.   The bill is so generous that Moore estimates a family of four with two non working adults in say Kansas could earn the after tax equivalent of $135,000. Hey what’s on Netflix this afternoon?

We have repeatedly warned that the rush to higher rates would eventually mark the end of the bull market in stocks. It will also catch numerous retirees, cozy with their REITs and Closed End Municipal bond funds in a lurch.

There are probably few to no financial ‘advisers’ working today who were on the scene to witness the 12-14% interest rates of long dated mortgages and Treasury bonds.  So called advisors have been lulled by a decade of FED quantitative easing along with Bernanke’s throwing money from helicopters. There are few other than seniors like myself to warn of the danger to capital in an environment of rising rates. A problem in an accounting text I use has the prime rate at 8.5%, that would be normal. The potential for capital loss in all sorts of fixed income instruments has not been higher in decades.

Or as Will Rogers put it, I am not so concerned about the return On my money as the return OF my money.

The Blackrock Municipal Income Fund pays a 4.9% tax free yield. Its drop from $16.20 to $15.00 this month is a loss of 7.4% wiping out a more than a year of dividends.

The price of copper is so significant in financial circles it is referred to as Dr. Copper. Since October it has risen form $3.00 to $4.30. That is a whopping 43% increase in five months.   The Goldman Sachs Commodity Index is up 38% since November

Crude oil has soared from $37.50 in late October to $62.50 today. The price of unleaded gasoline futures has doubled from $1.00 to $12.00 in the same time period.

I suspect we are still early in the topping process for stocks. This correction could end quickly as early as next week or by mid March. Gamestop for example is up over 100% this week.

But longer term we are focused on the seasonal high due in May as a possible end to the stock party that began in 1982.

Rates Continue Higher

Thursday Feb 25, 2021

This looks like a third wave given its strength and parabolic look.This is not the time to add TBF notice RSI is 70+.

Tech stocks are in retreat. Our longer  term view is to expect a pullback for a week or two and then a final rally into June.

That should complete the wave patters. And by then the effects  of so much deficit spending should be clear in even higher rates and higher oil prices.

Stocks Stage Comeback, Attributed to Powell

Tuesday Feb 23 2021

It is early in the cycle of reversing interest rates higher.  And so Powell can get away with blather like this after assuring everyone rates would stay low. well unable to cut and paste, read article here.

https://finance.yahoo.com/news/powell-rising-bond-yields-signal-recovery-but-feds-job-not-done-182206332.html

He makes no mention  that the market may be reversing a trend dating back to  1982. . And he ties higher rates to optimism over the covid rollout, never in the decades of following the bond market have I ever heard it linked to a pandemic.

 

Bond prices fell but only because he was speaking as a third wave up in yields was ending.

Once long rates top  3-4%, this sort of talk will  draw criticism, he has no idea what he is doing

 

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Inflation Worries Topple Stocks

Monday Feb 22 2021

Here is a graph of one of many Nlackrock closed end municipal funds

Investors have been thrilled at their  6% annual dividend yields in municipal bonds. But this Blackrock fund fell 3.33%, a half year of dividends just today.

This is precisely what I have warned about as yields  begin climbing and bond prices falling.

Profit taking in the NDX

Okay this is a 30 minute chart but again it shows how mood turns on the proverbial dime.

Oil prices jumped 2.45 to the upside today, told you, hello inflation!

Summation index updates later this afternoon, tune in tomorrow morning for an update on that

I expect further sell off

check out energy trusts MVO, PBT both getting over bought place orders under market

Oil at $75 this summer -  Goldman

https://finance.yahoo.com/m/b9d70976-6814-3235-a5ec-4ac61169b93e/oil-at-75-a-barrel-by.html

 

Stocks Hesitate, Yields Rise

Monday February 22, 2021

A headline of the front page of today's WSJ

Bond Yield Surge buffets Stocks

Which is what we have been warning for weeks.  The 30 yer yield us up a smidge from Friday now  2.168%.

Andy Kessler has an interesting take on pump and dump ie Gamestock a lot like RCA in the  1920s.

Mary O Grady points out Gov Abbott's mistake of an embargo of natural gas to Mexico. She notes this will allow AMLO to oppose foreign investment and return to

the good ole days of featherbedding Pemex.

on page A 17 The Money Boom is Already Here, the authors note M2 money supply is already upt 12% this years, inflation is too much money chasing too few goods, so he stage is set for more inflation and higher rates, see the GSCI graph I posted this weekend.

The Covid Relief $1.9 T is not about Covid, see lead editorial, a grab bag of Dem earmarks. And there is Andy .PUPzzder's column on how the Obama stimulus lengthened unemployment for  43 consecutive months.

Here we go again, higher interest rates, more spending to no goood end, higher taxes and more regulations.

Yields Climb HIgher Still

Weekend Feb 21, 2021

How it all began, the bull market back in  1982 that is

The 1970s was a decade of hyper inflation. Yields bottomed about the year I was born, 1948, then as now around  2%. Yields finally peaked about  1981 around14%.

Volcker then FED Chair, let rates soar until it was just not profitable to borromoney That was the peak.

The DJIA had peaked at 1,044 in  1966 and again  1972, it then collapsed 50% to  577 buy Dec 1974.  It would not recover for a near decade. IN  1982 it was about  800.

But as yields began falling, investors discovered the stock market. The drop in rates finally 18 months ago to zero or negative rates in Europe, propelled stocks to  31,000, no one wanted a CD or T Bill.   We are now turning that around. Rates have bottomed and long dated rartes are soaring on a percentage of change basis.

Now here is the weekly chart for perspective.

Once this bond market turns to higher rates it has a habit  of not looking back.  2.4% is overhead resistance but the way Congress is spending money that may not mean much.  Looks like we are in a third wave up now.

NDX in Parabolic Rise

Eventually higher rates will draw money from stocks, the reverse of  1982, I have no idea when that top occurs but NDX does look parabolic.

this would certainly be a fitting end to a  1982 - 2021 bull market.

At this point there is not much else to be said, bank stocks are soaring which further confirms the market belief of higher rates ahead.

Team Biden and the FED are not worried about inflation,  typical.

Commodity Prices are soaring.

Buffett Indicator at Dot.com Extreme

Friday Feb 19, 2021

The Buffett Indicator is the Wilshire 5000 (all stocks) divided by the US  GDP.  It has returned and exceeded its dot.com high. This suggest the market is fully if not over valued.

We have shown numerous indicators of over valution but the market remains stubbornly high.

The Iceman Cometh

Thursday  Feb 18 2021

 

Let a Texan Freeze in the Dark

The Biden Administration’s plan to banish fossil fuels is a greater existential threat to Americans than climate change.

WSJ Editorial February 16, 2021

There are lots of reasons for the 40% loos of the grid that caused millions of homes to become powerless this past week and natural gas prices to spike to $600 per mbtus. Here are a few.

A sustained period of cold weather is nothing new in Nebraska, It is in south Texas.

Politicians have been pushing for more green energy. And have awarded considerable tax breaks for constructing wind and solar. And so that is where capital went. One cannot store wind or sunshine. One can store coal and natural gas in case of an emergency. But this was not done as the Electric Reliability Council of Texas ERCOT works for the lowest cost kilowatt. Half the wind towers froze and the differentials were not properly lubricated for the cold. Recall Obama promised to bankrupt anyone building a coal fired generation plant, now who is bankrupt?

Many wells and pipelines were also not prepared for such cold weather and were shut down.

As the industry built more wind and solar, no money was spent expanding coal or natural gas facilities to supply our now 30 million plus residents with back up power.

Germany soured on its green energy policies and began importing US produced LNG. China still relies on coal power.

After huge short-term spikes in gas prices, they are falling back to earth.

Joe Biden may say carbon pollutes but we have the cleanest air in decades. Methane emissions dropped 70% in our largest oil and gas producing regions between 2011 and 2018. And we are finally energy independent from the Middle East. alter of green energy?

If we do not have a grid that will support a few days of freezing weather, we certainly will not have a grid to support the additional demand of millions of electric cars by 2030. And planes will never fly on solar cells.   There was no way any of us could have re-charged an electric car this past week. But I was able to venture out in my 12 year old Toyota SUV.

Now we are being lectured by -

Bill Gates who lives in a 66,000 sf home (not a typo) valued at $147 M, what do you suppose his electric bill runs?

Climate Czar John Kerry who flew his wife’s private jet to Europe in 2019 to accept a climate award.

Ever worried about the ocean rising with all those melting icebergs, the Obamas bought a $11.75 M waterfront estate in Martha’s Vineyard. Kerry is his newest neighbor buying 8.5 waterfront acres, same neighborhood.

Barb Streisand suggests a return to outdoor clothes lines from her 3 acre Malibu 10,000 + sf three building estate.

But this is all my fault living in in my 2,300 sf home. All hail the bi-coastal elites.

Comodity Prices track Long Bond Yield

Wed Feb 17, 2021

The Goldman Sachs Commodity Index is in the top panel.   The large panel is the  30 year bond yield. At bottom is the correlation between the two. It is clearly positive and the two

closely track one another Spending trillions of dollars one does not have causes this, that and an end to the decline in interest rates from  1982.  Carl Swenlin at Decision Point writes this is not a long term reversal yet but I suspect it is.