The Market Perspective

Relief Rally

Tuesday Sept 27 2022

Stocks have declined nine of the last ten days. The new low list in the WSJ runs more columns than I bothered to count.  This looks like the start of a fourth wave up.

Wave 2 was sideways so this is liable to be a much stronger rebound to the upside. But this willl not change the overall direction of the mrkets.

As all asset classes have fallen together, will they now reverse and rise together into Mid October?  Let's especially watch bond prices and interest rates today.

Monday Update

Monday Sept 26 2022

Must read in today's WSJ

Front page - Stock Downturn Brings Pain to Buy the Dip Investors

 

Andy Kessler notes we have a nation of quitters, as does UK and China. There are grown young men still living at home.

We have noted the Transports lead. on page B 1 Transportation Stocks Flash Alert.

We have shown in previous posts how bear markets stair step to the downside.  then a rally takes place making manny believe the coast is clear, only to see new positioins melt, that is the case for BLE which we have been following

Last week we speculated that  1.5 might not hold and if it did not the next stop would be 8.50. that now looks to be the case. And so this Blackrock  fund

will have lost 43% of its value in just one year if it hits  8.5.

one of my friends had a saying, it is always blackest just before things go

pitch black

A longer look at the monthly chart suggest the next real support might be 8. and then all the way to 3, notice it is down 9.2% just this month.

Could Real Estate do the same?  Millions of retirees are invested in municipal bond funds like BLE and in REITs like ICF.

Kevin Hassett has already predicted a bear market at least equal to 2007-2009./below

can see that ICF did.

 

the chakin Money fund has not even turned negative yet but it has dropped 20 dollars.

Weekly Transports where is support?

It is at  11,000 and then  7,000. Notice money fow is about to turn negative.

 

 

 

CS Still Reeling from Archegos Collapses

Weekend Sept 24 2022

I have done a couple of presentations on the Archegos collapse. CS now trades at one fourth of its book value. The announcement that it would raise capital sent shares further down.

Weekly

The collapse occurred in March of 2021.  Morgan and Goldman sold their shares, CS and Nomura were not so quick, not realizing who their lending partners were or would do. The market is suggesting CS will not recover.

Deflating Various Asset Classes

Weekend Sept 24 2022

check out Deflation.com. As noted all asset classes declined this week.

https://deflation.com/

Our weekly column posted yesterday noted that the prices of near all investments declined this week. Let's take a look.

Stocks

Industrials took out the 200 week moving average and that is significant. the fall this year has erased all the gains from late 2020.

Transports

Transports have done  the same. And that constitutes another Dow Theory sell signal as the Transports and Industrials have both fallen to new lows.

In booth cases the 50 week MA is about to or has crossed teh  87 week MA, another sell signal.

Fed Ex

The FEd Ex CEO is on record predicting a world wide recession. If his company stock price is an indicator he is correct.

NYSE Advance Decline Line

the NYSE A/D line is the most reliable indicator. It topped along with the major indexes in late 2021. It set a new low this week falling beneath ALL its MAs.

Proxy Stocks

AMZN

the June low took out 45% of the December value.Now a another wave down has begun which will take prices much lower, look at how high MACD is. and just now turning down.

FB

Changing the name form FB to META did not stem the decline, now off 64%.

Bonds

  Ten Year Note Yield

 

This has more than doubled from  1.6 to 3.8% just this year. Mortgage rates are now over  6%. So no surprised luxury home sales are off 28 %. As noted in the WSJ already buyers have stopped paying over the ask price without an inspection.

2  Year Yield

Two year is yielding 4.2% while the ten year is at 3.69%, an inverted yield curve. This inversion has I believe preceedded all recessions going back to WW II. 

BLE closed end Municipal Bond Fund

Last Wednesday I wondered if this could return to its covid panic low, and it looks like it just might do that.

BLE closed at a new low Friday. that

That move takes  out the May low so no real support till 8.5. Notice PMO had a bump up and is now turning down.

This will be quite remarkable. It has already lost one third of its value. At 8.5 it will be worth 56%  of its last November high. I wonder how many retirees have all their money in such funds? Or in REITs?

Real Estate

That is a 27% hit from the November high. Note that stocks indexes and just about everything else peaked Nov-Jan 2022.

Gold

William DeVane is currently starring in cable tv ads for gold and silver.  the story is that gold is a defense against inflation deflation or any other flation politicians can dream up. But that is not the case.

Shares of gold mining companies are not doing any better.

ASA has dropped 43% just since May.

Crude Oil

A 450 drop since March. While this has lowered gasoline prices. like FED EX it is warning of a global slow down with less demand for petroleum products.

Gasoline

Lower gasoline prices won't stave off the unhappiness with a bearish stock market and what it is doing to  401Ks in the mid term elections.

Currencies

British Pound

 

 

A look at 60/40 Stocls/Bonds

Friday Seot 23 2022

I read a weekly newsletter update from a major US bank. There was no methodology whatsoever. They named various news events and then were preplexed at why the market was dropping. This update from EWI questions the orthodoxy of just splitting 60/40 stocks to bonds, esp when both prices are fallling.

 

Why You Should Be Leery of the 60 / 40 Portfolio
"The tidal wave of risk assumption … may be turning"

By Elliott Wave International

Many investors allocate a percentage of their portfolios to bonds to cushion against a drop in the stock market.

A popular allocation is a 60 / 40 mix of stocks and bonds.

However, this hasn't worked out recently. Here's a Yahoo! Finance headline (Sept. 6):

The 60/40 strategy is on pace for its worst year since 1936: BofA

The mix of 60% stocks and 40% bonds was down 19.4% from the start of the year through the end of August, according to Bank of America Global Research.

Specifically, the S&P 500 declined more than 16% through that period with long-term Treasuries sinking more than 20%. Investment grade corporate bonds were down 13%.

Investors who thought bonds would provide a degree of financial "safety" may not have been aware of Elliott Wave International's forecasts.

Indeed, back in March 2020, our Global Market Perspective, an Elliott Wave International monthly publication which provides analysis of 50-plus worldwide financial markets, showed this graph of yields on global bonds, 10-year U.S. Treasury notes and U.S. general obligation municipal bonds (commentary below the graph):

According to 150 years' worth of data... this is the first time that 10-year Treasury note yields have dropped below 1%. Grand Supercycle-degree tops set Grand Supercycle records. Investor ebullience is the only thing that allows for an embrace of no-yield debt. The tidal wave of risk assumption, however, may be turning.

In other words: Expect the downward trend in yields to turn upward.

Shortly after that March 2020 analysis in our Global Market Perspective published, yields began to climb (meaning bond prices began to sink).

In fact, on Sept. 13, yields on 2-year U.S. Treasuries jumped to their highest level since 2007. On the same day, the Dow Industrials registered a 3.94% decline.

Speaking of stocks, here too, our Global Market Perspective provided timely warnings. Our Dec. 2021 issue stated:

Junk [bond] yields should rise while stocks decline... The Wave Principle suggests that the era of space flight for financial assets is over. [emphasis added]

The Dow Industrials hit a top a month later.

Not every forecast based on the Wave Principle works out to a "T," however, the Elliott wave model is the best analytical method of which we know.

If you’d like to learn the details of the Wave Principle, the definitive text on the subject is Frost & Prechter’s Elliott Wave Principle: Key to Market Behavior. Here’s a quote from the book:

It is a thrilling experience to pinpoint a turn, and the Wave Principle is the only approach that can occasionally provide the opportunity to do so.

The ability to identify such junctures is remarkable enough, but the Wave Principle is the only method of analysis that also provides guidelines for forecasting. Many of these guidelines are specific and can occasionally yield stunningly precise results. If indeed markets are patterned, and if those patterns have a recognizable geometry, then regardless of the variations allowed, certain price and time relationships are likely to recur. In fact, experience shows that they do.

You may be interested in knowing that you can access the entire online version of this Wall Street classic for free once you become a member of Club EWI, the world’s largest Elliott wave educational community.

A Club EWI membership is free and opens the door to a wealth of Elliott wave resources on investing and trading.

Get started by following this link: Elliott Wave Principle: Key to Market Behavior – get instant and free access now.

This article was syndicated by Elliott Wave International and was originally published under the headline Why You Should Be Leery of the 60 / 40 Portfolio. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

 

Bond Prices Continuen to Tumble

Friday Sept 23 2022

I did correctly suggest we wait and see the market reaction to the FED increase Wed. Now we have it. Long bond prices dropped 2 full points yesterday. March 23 T Bonds are down another point today, that is a big move for bonds. Stocks as noted  have more or less fallen every day for over a week. More this weekend but we are setting up for an eventual low in  2024, a lot lower than we are now in stocks.

The Bear Arrives full Force

The Bear Arrives Full Force

 

FED Ex CEO predicts world-wide recession.

Maria Bartiromo Fox New Show this morning

A week ago FED Ex Delivery Service dropped over 20% in one day.  Other shippers’ stock prices fell as well. Now the reality is setting in as the CEO plainly states what is happening world-wide.

All the warnings issued in this space in the last year are now coming very true. But we are still in the early stages of the big bear market. Denial is a common mantra. Just yesterday a prominent financial write penned an op-ed for the Journal titled Don’t Give Up on the Stock Market.  Another columnist opined that since developing country stocks have fallen a great deal they are surely a buy.   All this is typical of the financial industry at this point in the break down.

This morning the DJIA is down 364 points in pre-market trading. That has it crossing the  30,000 level to 29,789.  There is nothing technically significant to 30,000 but expect the June low at  29,740 to fall as well.

While everyone has been worried about rising food prices, an alternate worry is the deflation of what were thought to be solid assets. Crude oil is down $2.70 do just above $80 That is a $50 dollar retreat from the March high of$130.  This signals a coming economic slow ddown. Worse, President Biden has drained 30% of the total Strategic Petroleum Reserve. That is more than all previous Presidents taking the SPR to its 1984 level.  We suggested this would be an ideal time for his pariah, Saudi Arabia, to stage another embargo, let’s hope that does not happen.

Other asset classes are falling as well. Sales of luxury homes have dropped 28% in the last year. No wonder as mortgage rates are now north of 6%.  Gold prices have fallen from $2,075 in March, peaking after all the stock indexes, to $1,654 today. down near $30 since yesterday.  December silver is down 54 cents this morning at $19, a long way from $27 March high.

Borrowers got way too used to all time low interest rates, probably the lowest in 2,000 years. The ten year Treasury note yield has soared from 1.6%  last January (a mere eight months ago) to 3.6% today. As Congress binges on spending trillions, the cost of re-financing this debt will soon eclipse a good deal of the budget.

Social  mood is increasingly negative. Violence is rising as well as protests against homeless tent towns.  The President delivered a  divisive speech as political rhetoric soars. 

As we have noted, most investors are used to a two-year bear market, 2000-2002, 2007-2009, which then recovers. I doubt this will be that kind of short-lived event. As suggested this looks more like a prolonged 1929-1939 or 1972-1982 event.  Take action while markets are still at lofty levels.

T Bonds Drop 2 Points

Thursday Sept 22 2022

Whump!  I speculated we might be at the final bottom after the rate hike yesterday, no way, see below the 30 year bond dropped a full two points, that is big esp after such a long drop from August. One might have thought the  75 bp was already priced in to the market, I guess not!

 

the stock market, after the  522 DJIA drop yesterday does not care much for this either

Notice once again that the NASD is falling far faster than the Industrials. It lead on the way up and is doing the opposite on the way down.

So the third wave downcontinues and will likely do so into the election, watch out Dems

FED Raises Fed Funds over 3%, Is this a Short Term Low in Bond Prices

Wed Sept 21 2022

 

Here is the inflation picture courtesy of yahoo.finance

As you can see this is way beyond the FED stated goal of  2% why is Jerome still in charge? 

DJIA reaction to rate hike today

this is a two day ten minute, each bar is ten minutes duration, chart. The FED announcement as you can see came at  2 00 PM CST. The market plunged and then rallied and then closed the dayddown  522 points.  Again this is a bear market, the trend is down.

What actually happened here my guess, is that there were lots of stop orders above and below the market to both buy and sell. The big oves up and down probably executed all those orders, wiping the slate clean as the saying goes, and now the down trend resumes.

 

Closed End Munis

I learned in the rate decreases of the  1980s that prices would accelerate right into the rate decrease and then fall back.

Now it works the opposite, prices fall right into the rate increase and then rally. I think we are finally at a short term low in long term bond prices. Tax free yields are good here 5-6% which taxable equivaent at the 20% tax rate is 6/.8 = 7.5%. this makes these bonds a great place to park money receiving the high tax free yield and probably a price increase.

four Month View Daily chart

 

Price just over shot the last two lows, again let's see tomorrow but I am guessing this is a buy, counter trend idea

Long term view, this could still fall apart but I don't think so

Prices have dropped  by  1/3, but this is not the covid low so this should find the same support we saw in  2018.

this is a zero coupon bond, it really accelerates as rates fall a bit

Like BLE, is this the low or will it fall to the covid low  of  202

 

Inverted Yield cure

Monday Sept 19, 2022

Yield on the 2 year T Note is at 3.9%. Yield on the 10 year is 3.6%.  An inverted yield curve occurs when short term rates exceed long term rates.

An inverted yield curve usually occurs prior to a recession. Stocks are down again in pre market trading the DJIA is off 270 points. The FED remains way behind the yield curve and willl need a substantial raise this Wednesday, Even at 75-100 bps it will be lagging the real rates.