Market Update: Stampede!

News & Current Events Public News & Current Events
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Mess with the bull and you get the horns...

https://gifer.com/embed/EDCL

That's the continued lesson this uber-distorted market is beating into investors: Don't doubt the rally; it will never end.

With hardly a down day in sight over the past several weeks, stocks continued higher this week and then positively exploded upwards upon the release of today’s “INCREDIBLE” (per Presidential tweet) May payroll report.

While the payroll numbers do indeed appear ‘incredible’ (meaning: ‘defying belief’) and seem destined for some pretty serious downward revisioning as economists parse through some very concerning assumptions and admitted errata by the BLS, the trading algorithms clearly didn’t care. The rosy headlines were a plenty good enough reason for them to ignite a stampede of the bulls and buy with abandon.

Today’s violent action, coming on top of a remarkable and ridiculous streak that has vaulted stocks to unprecedented levels of over-valuation, is a prime example of the dangers facing concerned investors thinking of shorting these maximum stupid markets.

We discussed this conundrum last week: those paying attention realize that there’s no way today’s prices can be sustained. But there’s a very real possibility that, if you stand in front of this mindless juggernaut mania by going short, it can destroy your position long before your thesis is proved right.

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.

And this week we’re fortunate to welcome a special expert guest, Wolf Richter from WolfStreet.com. Wolf joins the program to share his latest analysis on the Federal Reserve’s liquidity flows. For those who believe that the only thing that matters in today’s markets is continued central bank stimulus, few people follow the details of that more closely than Wolf, making this week’s update video a must-watch:

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.

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This is a companion discussion topic for the original entry at https://peakprosperity.com/stampede/

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We have clearly entered the Twilight Zone!

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Just thought I’d address this before the comments start coming in. Yes, given his covid-lockdown location at the time of recording we had trouble with his broadband connection, especially with the audio quality.
But we judged it was discernible enough to keep it in this video. Wolf has such important observations to share, we decided you’d prefer to strain a bit to listen versus missing out. Also, I summarize his main points at the 16-minute mark.

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I suspect that a lot of the people on the street think that they are protesting one man’s horrible death as a means to draw attention to, and end systemic racism. But I think deep down inside a lot of them have an innate sense that “something” is wrong and they want to do something about “it”.
“It” is the economic divide and it is increasing exponentially and ordinary folk are paying for it. Case, case, case, cluster, cluster, - boomtime (for the few).
 
 

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  1. Anyone wanting a summary: just skip to 16 min where Adam gives a quick, concise, and complete summary. Better than the interview itself! Adam’s ego needs no sop, but I remain a fanboy. I just wish you would put in the show notes the times you do a summary…
  2. I grimly note that for all the gloom and doom and all-time-high-lament, he refuses to short this market. Heh.
  3. I enjoyed the discussion of FOMO (fear of missing out) and TINA (there is no alternative). Amen.
  4. Very disappointed nobody is separating the “market” from “individual dividend paying stocks”. Buying individual, historically undervalued stocks along with using stop-losses is a FOMO & TINA way to get a share of the upside without any risk.
  5. Also disappointed nobody mentions that historic metrics may not work at all in this TINA market, especially the idea that unemployment is a reasonable metric in a post-scarcity world.
  6. Also disappointed nobody is pointing out how easy it is to have a decent quality of life while cutting our oil consumption. Most of GDP is just a fiction - it’s not real production that adds wealth, but merely obscene consumption that doesn’t add much to our life.
  7. Finally, this virus economy has brought our first BUI to the real-life phase. IMO this is the future, and it’s just bread and circus stuff. But I don’t see why the Fed and the rich can’t pay us all off for decades to come as long as production of real goods and services can continue. And people are hungry to work, so that shouldn’t be a problem. I think the market is reflecting something and nobody here is listening at all.
    Keep up the good work!
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Adam and Chris are always describing the markets as crazy, nuts or irrational and then try to rationalize them. The market is not irrational but the speculators and investors who drive the markets are. Of course they are not stupid but when it comes to entering an arena which is always uncertain, they tend to act on impulse while believing that they have very good rational reasons for what they are doing. The number of times I have seen a market head in one direction in the morning with a suitably rational explanation and then a complete reversal in the afternoon with an opposite rationalization to “explain” it are too common.
Essentially, in aggregate, millions of participants from all over the world are constantly looking around and over their shoulders to see what every one else is doing and then following suit. In other words, in uncertain conditions, they follow the herd. Most of the time it tends to be upward, when the mood is positive, and less often it is downward in short sharp bursts. Bull markets are always more long lasting than bear markets. People act on impulse and rationalize afterwards.
The number of times I have seen markets go down on good fundamental economic news and go up on bad news are so numerous yet investors continue to make bets on these rationalizations. There is a lot of wisdom in the idea of selling when the euphoria is peaking and buying when there “blood on the streets”. The latter was given as a good reason for being bullish now in a comment on a charting website yesterday but clearly the context was wrong because the markets are well off a bottom.
What is obvious to me is that speculators and central bankers are still in the grip of an astonishing optimistic frenzy. The trades by small speculators in call options trading less than 10 contracts have risen from a weekly average around 2 million to 12 million. That is also 4.5 million contracts greater than at the February top.

 
For the punters it is a greedy optimism. For the bankers it a desperately hopeful optimism. Christine Lagarde yesterday had none of the cockiness which was so evident in recent years in central bankers. I sense that they wish they could pull the plug but they are in so deep, they don’t know how to. However, they are pulling back.
The shorts have been killed in the last 6 weeks. Once they are out the way there will be no one left to buy the market ( the shorts have to buy to close a winning trade).
Yesterday had all the hallmarks of a blow-off top.

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The market is not irrational but the...investors who drive the markets are.
Market valuation was "irrational" a full decade ago (based upon many historical metrics). Yet the data shows stocks have over the last 10 years returned 150%. This is not an anomaly. A decade is a long time, long enough to judge who was "rational".
Yesterday had all the hallmarks of a blow-off top.
A decade ago I thought the market had many of these hallmarks! And I bought stocks. At what point does one change their hallmarks to match observed reality? 15 years? 20 years? 25 years? As for myself, I changed my hallmarks in 2009. I realized to my horror the Fed & Congress were now unleashed. I expect money from helicopters. The only real question: when will all the looting at the public trough run out of money? Myself, I don't think we are even close. What say you?
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Heck, i’ll buy a tulip at 500 if i can sell it for 600. There is just too much confidence that the market is safe and secure and a place to make money in all conditions. one day , they all wake up and realize they are just tulips. That day is the day I jump in… I am sure I can crash the market , just need to put my money in. and it will go to zero tomorrow. I am lucky that way.

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But is it irrational? Isn’t that the game bankers have been playing for over a hundred years now? Make new money out of nothing (with increasingly sophisticated ways to do that since 1913) and they get first crack at it in order to buy up things. Prices rise due to the new money. Wages are the last thing to go up. It’s a transfer of wealth from middle class to the rich.
If the central banks are printing up all this money to prevent a deflationary implosion of the system, which they don’t want to happen because without the system intact their looting mechanism would no longer work, then where else is the money going to go?
Precious metals? It already is, it’s being soaked up there with virtually no increase in metals prices due to the extreme fraud of fractional reserve metals funds (no gold actually backs the contracts – essentially limitless supply to keep price down and keep the canary in the coal mine singing). So institutional investors can no longer really go to PM’s anymore for the anti-money printing trade.
It makes perfect sense to me why the stock market is going up and I don’t see it ending until the system ends. The question is whether deflationary crashes will happen. Very hard to predict those.
My AAPL call was decaying over the last week since I was silly and didn’t wait for a pullback to buy in. Then yesterday I was saved by the fake jobs report. But instead of waiting to make a decent profit I sold it soon after it was in the green, so I made enough money to buy a new windshield wiper for my land cruiser.
Next week I’ll wait for another pullback to get back in.

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Mike said that “tangible assets are somewhat out of central bank control.” I’d like to hear more about that word “somewhat.”
And I am another big fan of Adam’s abilities to ask pertinent questions and summarize meaningfully…

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whats the endgame here? dow at 35k ? by november?
all the longs will be congratulating themselves, then one day in mid november markets crash 20% down … market closed then the next day 20% down … market closed… then real market valuations??? dow at 7000?? bernie madoff investors thought they had a good thing until one day they woke up to reality and their portfolio was worth nothing after all. That day , if it comes to the general public, and real free market forces are revealed, then you will see real rioting in the streets…

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Before the CovidCrash I was making 20-30% per week on calls. If you can do that for 6 months as the market goes up, only allocating 30% of your investing assets at a time to be safe, then even if there’s a crash 6 months from now and you lose all of your active positions, you are still way ahead. I’m kicking myself for figuring this out so late in the game. I’d be a multi-millionaire today if I started this a few years ago.

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Not every stock in the stock market today is a tulip. Some are not even very overvalued.
Below are 10 stocks that are not tulips at least based upon how much money they are making and sharing with their investors. Look, I agree the economy is crap and IMO these companies are mere conduits for cash direct from the Fed. But what do I know? I thought this a decade ago, too. But I just look at the data: below are their cash flow metrics: ROIC, FCFY, & Dividend Yields. These are definitely not pretty little “tulips”, but rather they are massive cash generating machines. Why not buy a little of each with stop losses just in case? The yields are very real; many trading commissions are zero today, so it’s no problem to use stop-losses, no real barrier to entry. Since they are all paying fat dividends, their interest rates match the rates of any savings account. Also, every one of these companies have thousands of employees working day and night to make real things people want, making these companies a political force screaming for the Fed to juice the market:
1 Philip Morris International PM 29% 7% 6.38%
2 AbbVie, Inc ABBV 25% 7% 5.09%
3 Charles Schwab SCHW 14% 7% 2.01%
4 Omnicom Group OMC 14% 6% 4.75%
5 Reliance Steel & Alum RS 14% 10% 2.58%
6 Worthington Industries WOR 8% 11% 3.21%
7 VSE Corp VSEC 7% 7% 1.38%
8 Eastman Chemical EMN 6% 7% 3.88%
9 Snap-On Inc SNA 13% 6% 3.33%
10 Cass Information Systems CASS 9% 1% 2.68%
These blue chips are rated A or B, and at cyclical lows. Sure, any and all could all lose 50% at any time, so sure never put too much in any one stock. But do you really think the government will let all of them fall for very long? I don’t. I believe Powell & Trump have their helicopter loaded with UBI cash, all gassed-up and ready to go. Hell Nancy signed off it it a decade ago and she is still around- trust me, she will do it again! She is afraid of running out of ice cream…

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The protests aren’t just about Mr Floyd. its primarily about wealth inequality. Sometimes people are struggling to articulate their anxiety and need a vehicle on to which they attach that anxiety. Mr Floyd is it. People are also anxious about the perpetual “growth” paradigm pushed by the fiat banking system, realizing it cannot continue when they are witnessing fires around the world, deforestation, droughts, mass extinctions, extreme temperature events and pandemics etc. I like Brent smiths words (lifestyle coach), when someone is complaining about something he always asks “what are you really complaining about?”
 
All roads lead back to the fiat money system:
Broken countries. Broken trade. Broken bond markets. Broken manufacturing. Broken businesses. Broken housing markets. Broken Labour markets. Broken people. Mal-investments. Wealth inequality. Big Government. Mass immigration. Overpopulation. Nature fighting back. Wars. Even climate change.
End the FED. End the ECB. End the BOJ. End the PBOC. End the BOE. End the SNB. End the RBA
Bring back The Classical Gold Standard.

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The S&P has been trading at a high volume during these past few months. I wish I had a chart to track the breakdown over time for all the buyers and their proportional volume levels. Robinhoodies, institutional, international, retail, etc. One or more these groups are going to eventually run out of cash or motivation. I guess we can simply keep track of margin levels?

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MKI,
Really like your comments. Especially about finding value stocks in the midst of all this craziness and using stop loss orders to protect against catastrophic losses. I have been buying and selling based upon careful research into fundamentals, but so far I have not used stop loss (or stop limit) orders as a part of that strategy. Your suggestion is a good one.
Like you, I try to balance the use of historical metrics with the realization that we are at a point of historical change (at least, I believe we are). The real problem we all face is that things may soon occur which have little or no historic analogue. A lot of times, I simply have to admit to myself that no matter how much study I put in, the results from here on out may be completely unpredictable.

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Thoughts on the Sprott Gold Fund for IRA? I would think Sprott Resource Holdings is legally firewall’d.

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Who is buying bankrupt Hertz stock? Its a firehose of money so it has to go somewhere. Not healthy though!

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Hi MKI,
You miss my point. Of course the prices in the market are irrational but the market itself is not. The market is merely responding to the offers and bids. The chart I put up is that of small traders and is a very strong indication that prices are reaching peak craziness. The “strong hands” will be selling into those call contracts. For the number of weekly trades to surpass those of the February top when we know that earnings will be decimated in the immediate future is exactly what you can expect in a dead cat bounce of pure hope.

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The Fed was pumping QE liquidity from August 2008. It made not a jot of difference - the market kept falling relentlessly until March 2009. It’s not a good idea to count on the Fed.
Here is a useful summary of why: https://www.elliottwave.com/free-reports/2020-foresight