Market Update: Did The Party Just End?

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For weeks now, we’ve been warning that the ongoing melt-up in the markets isn’t sustainable. The higher it shoots, the more painful the inevitable correction will be.

Well, yesterday (Thursday, June 11) was certainly painful:

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This came as a rude awakening to the many new retail investors who have been piling into stocks (and much riskier call options!) in the later days of this melt-up, which is a classic indicator of a mania close to it zenith.

Driven by FOMO (“fear of missing out”), inexperienced investors enter the market, buying assets they don’t understand, taking risks they don’t sufficiently appreciate. And of course, these are the folks who can least afford the ensuing losses when the mania implodes.

So, is the melt-up over? Or was yesterday just a short-lived speed bump for the market party bus?

As we do each week, we’ve once again asked the lead partners at New Harbor Financial, Peak Prosperity’s endorsed financial advisor, to share their latest insights into the road ahead for investors.

In this weeks video we discuss the many classic asset bubble-in-process-of-bursting indicators we’re seeing, the impact of Wednesday’s Federal Reserve announcement, whether yesterday’s drop was sufficient to break the manic market sentiment, and the immediate important decisions investors must make as a result today:

Anyone interested in scheduling a free consultation and portfolio review with Mike and John can do so by clicking here.

And if you’re one of the many readers brand new to Peak Prosperity over the past few months, we strongly urge you get your financial situation in order in parallel with your ongoing physical coronavirus preparations.

We recommend you do so in partnership with a professional financial advisor who understands the macro risks to the market that we discuss on this website. If you’ve already got one, great.

But if not, consider talking to the team at New Harbor. We’ve set up this ‘free consultation’ relationship with them to help folks exactly like you.

SCHEDULE YOUR FREE CONSULTATION

This is a companion discussion topic for the original entry at https://peakprosperity.com/market-update-did-the-party-just-end/

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We have a daily bearish reversal, and Friday’s candle print (a spinning top/inside day) was not bullish, so best guess, we keep moving lower.
No weekly or monthly bearish reversal yet.
The rest of my tea leaves (OBV, NYSE advance ratio) confirm the bearish reversal for SPX.
I also remember Armstrong talking about (some time ago) a “retest of the March lows” as a possible scenario.
The bounce on Friday after Thursday’s big drop was … lame.
Lastly: Wolf likes to remind us that - usually - nothing goes to heck in a straight line.
My two cents.

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I’m kicking myself for missing out on the 200% gain I would have gotten last week if I had held out selling my AAPL call. I sold on Monday, I believe it was, just as it got back into the green when the stock rose, since I was worried about a melt down which didn’t happen until Thursday. So I made about 5% instead of tripling my money if I had waited another couple days. I jumped back in with another call on Thursday, not at the bottom but near to it, ready for the next leg up. I shouldn’t be so scared to hold a decaying option in a generally rising market – just need to buy one far enough out to ride any dips. Here’s to $400 AAPL!! In the next couple months!!! (Disclaimer: I may be wrong). It was only a few months ago that I was predicting $1000 TSLA and what did we just hit?? LOL on a company that makes no profit.
We might have a crash, but only when the Fed wants one. The CoronaCrash was clearly allowed to happen by the PPT as a shorting opportunity for the banks, and to allow for / justify infinite money printing which won’t result in immediate inflation since it will be offset by the deflation from the cratering main Street. We knew it was going to happen since there were rumours everywhere a week before that all the bigwigs were pulling out of the market. As if there is any fundamentals to the market anymore, the only fundamental is that printed money will continue to inflate the markets higher and higher until either the currency crashes or gets reset. Along the way we will have ups and downs as risk-on and risk-off sentiment shifts back and forth. it’s as simple as that.

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...the only fundamental is that printed money will continue to inflate the markets higher and higher until either the currency crashes or gets reset. Along the way we will have ups and downs as risk-on and risk-off sentiment shifts back and forth. it's as simple as that.
I couldn't agree more. And I think we are a long way from a currency crash. So I'm in (with stop losses, of course). One of the constant concerns of the Malthus crowd is that we run out of energy/resources and will hit GDP. But I think the virus shutdown has really shown how much "fat" we have - if we simply work at home, drive less, and consume less, we seem to get by just fine. I think the real factor everyone misses today is that less and less labor is needed to produce our GDP. Every nation has to decide how to "share the wealth" and government propped stocks is just our new method. So I think the blue-chip stocks are the new savings account. Not very sexy, say 5-10% annually, but not guaranteed and can fluctuate. year to year. I think this is fairer than the old savings-account method, since you should have to put up with some fluctuation along with the economy if you want to take some of the profits. The old savings account/bonds were really a luxury we don't deserve.
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The Surprise index is interesting.
https://www.schwab.com/resource-center/insights/content/market-perspective

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I posted the remark below in this site a few years ago and once or twice since, and nobody has been able to refute it. Still hoping someone can.
I’d like to see a refutation of the argument below. A few years ago I had the opportunity to question one of the most successful economists in the world as measured by millions of textbooks sold worldwide, Campbell Macconnell [Dad of a friend, died ~ a year ago]. He said, yes, the following is possible:
 
"One question that has long perplexed me is about the macro-economic impact of money printing in its various forms. In short, much depends on whether money printing can counterbalance debt defaults and zombies, such that the main impact is lower productivity and growth (like Japan), and not the long delayed financial armageddon. Loans written off and marked to market, non-performing loans, bankruptcies, and the like, eliminate money, but that money can be replaced by money printing. Likewise for declining velocity of money (via Freidman’s MV = PT). Yes, with the moral hazards of cheap money, poor businesses ventures happen, but those ventures still employ people and move the economy, just inefficiently. And large efficiencies from technology countervail, so that GDP can still do OK. True, panic can undermine this long scenario, but panic gets simmered down sufficiently by central bank printing, in part because enough big and institutional investors understand the logic I explain here. This synopsis might explain why years of predicted financial doom (as opposed to normal periodic ~20% downs in markets) have not materialized since 2008, and may not materialize for a long time, if ever. Instead, it’s more like Japan—25 more years of tepid economy, but no thundering crash.”
 
Extrapolating from the above, Federal Reserve debt could go up 30x from now at near zero central bank rates, without bad consequences. Rising rates would likely do temporary damage after they have served the PR purpose of supporting the credibility of fiat currency systems, but then central banks bring rates back to near zero.

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Extrapolating from the above, Federal Reserve debt could go up 30x from now at near zero central bank rates, without bad consequences.
Of course. I'm not sure what there is to refute. The Fed can pump it up forever, we've already seen this in Japan, and it is not disputed, IF they never let too much money into circulation, and balance deflation with the debt. That is, hover between fire and ice. Good luck with that one over the decades in a voting Republic, though. It's only a matter of time. People get all wrapped up in monetary stuff, but wealth is all about IQ/culture/rule of law. No matter what financial system we give Greece or Detroit or Venezuela it is gonna implode. And no matter what system we give hardworking/law-abiding countries like Japan or Germany it's gonna work well with enough time. Those countries took over a bombed-out moonscape in the '50s and became the largest economies in the world with every different economic systems. Hell, the Swedes can even make socialism work! It's the people and culture. The rest is mere details.
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The market bottom is in, and 2021 could be a boom year for stocks, Wharton Professor Jeremy Siegel says. The market bottom is in, and 2021 could be a boom year for stocks, Wharton professor Jeremy Siegel said in a CNBC interview on Friday.May 8, 2020