Weekend Market Update; A change of direction in the major asset markets

Did the past week’s market action bring us some changes in direction?

Bonds, interest rates, and the dollar

  • We expected the Fed to finally address rising inflationary risks, and the FOMC and Powell responded on Wednesday. Though they did not alter their policy per se, they increased their GDP and inflation estimates, resulting in an acceleration of their timetable for increases to the Fed funds rate to 2023. This implies they are more amenable to tapering sooner than previously expected.
  • The Fed still wishes to see further economic growth and a sustained drop in unemployment data, so we still should have at least 6-9 months of unaltered QE purchases.
the 10-year UST (red/green candles) fell decisively below its 100-day sma. The USD (UUP red line) responded strongly to the FOMC’s vote and change in economic forecasts.
  • Markets reacted violently last week on extremely overstretched conditions. The US dollar took off immediately after basing off of its multi-year lows.
  • Bonds initially sold off after the FOMC, but soon regained their ground with the 10-year UST yield falling further below its 100-day SMA. With the USD rising, Treasuries look to be relatively compelling to the global investor.
  • The drop in yields on the 10-year UST was not shared by the other major nations, as their 10-year equivalent yields rose slightly on the week. A rising dollar helps with domestic bond yields.
  • The bond and currency markets are predicting a slowdown in federal deficit spending as the economy strengthens.
  • If an uptrend in bond prices were not imminent, yields would have risen after the FOMC meeting. This is further evidence that UST bond yields may have topped out for now. A retracement to the 200-day sma over the next couple months is in the cards.
the COT on the 10-year futures lends some firepower to the notion that a pick up in prices and a drop in yields is probable
  • I think the Fed will talk about tapering in the fall, begin the actual tapering in the first few months of 2022 with a drop in MBS purchases first, USTs afterwards to match the incremental increases in deficit spending next year. They should conclude the tapering by early 2023, and start hiking rates shortly thereafter.
  • The Fed is saying over half of the inflation increase is transitory, and although inflation will run elevated into 2022, the rate of change will fall as the year progresses.
  • Once the fiscal benefits are wrung dry, many non-skilled workers will realize they have little power to negotiate higher wages. The jobs data still looks soft when compared to other cycles, and this past week’s jobless claims came in above expectations.
  • The latest batch of fiscal spending is getting stuck in negotiations and it’s likely that Biden’s $6 trillion in spending plans will be cut back. As the economy strengthens faster than expected, the federal government may finally get religion and cut back spending plans.

Stocks

DJ Transports (red/green candles) falling quickly below the 50-day sma. A test of the 100-day is next. Do traders see a pullback in the government’s spendthrift ways? the USD (UUP red line) is looking nice here.
S&P 500 index. The index closed below the 50-day sma for the first time since early March. Will it follow the Trannies?
  • I am looking at the broad stock averages closely to see how they respond to the prospects of a decrease in fiscal spending and stimulus. If traders perceive a tighter pursestrings and a hawkish Fed, stocks could continue to move lower here. The Transports seem to be leading the way.
  • Deficit spending benefits the largest corporations and future profits could be affected on the margin as the prior fiscal/monetary stimulus has already been captured by these firms. Market analysts may have to address the possibility that earnings growth going out to 2023 may have to be reevaluated.
  • Though a stronger dollar supports dollar-based asset markets over the longer-term, a firmer greenback at high stock index levels could hurt stock prices as overseas profits could take a hit when repatriated into dollars.

Commodities

USDX chart and COT data; Since last Summer, speculation in the USD has been relatively muted. That may be about to change. Could there be renewed interest in the greenback as speculation over future fiscal and monetary policy initiatives runs wild? It’s primed here with plenty of potential firepower.
Five year weekly; Dow Jones Commodity Index (DJCI) vs. the US dollar (UUP). This trend cannot persist forever, and any reversions can be sudden and fierce. Don’t be a bag holder and move to the next trade.
  • If the dollar shows some follow through, we could see a further unwind in many of the commodity complexes. There is still some denial, given the Fed and CCP pronouncements this past week. The USDX, at 92.32, could move to 93-95 later this year, depending on how robust the domestic economic picture becomes. There is plenty of potential firepower in the USD futures market as speculation in the greenback has been muted since last Summer. If the dollar shows resilience, the large specs could climb aboard.
The Dow Jones Commodity Index (DJCI). It’s a long way down to the 50-week sma. Mathematically, it looks like a magnet (and a lock) over the next several months.
The DJCI firmly fell below its 50-day trendline. A test of the 100-day sma is coming soon.
  • I have to believe that the Fed’s view on inflation will eventually prove more correct than many think. Pressures on the supply-side should ease, the stimulus effects should diminish, and reality will set in on the lack of leverage the worker has over the employer.
  • I have been in Lowe’s and HD all week, and the talk of the average shopper on the ProDesk line was one of catastrophe, astonishment, and their belief that prices will keep going higher. When a 4 x 8 x 1/2 piece of plywood is selling for $85, it only takes common sense to figure out that these prices cannot persist. I don’t see a lot of lumber turning over in the HDs and Lowe’s I frequent.
  • Industrial commodity prices are also under pressure by China’s decision to cut purchases and release reserves despite rising consumption.
  • The CCP chose this auspicious time to prove to the world their power to move the markets by timing their announcement to coincide with the most speculatively overstretched commodity market in recent memory. The power of this hardline stance is enhanced by the FOMCs change of heart. I have to believe that the governments are determined here and official intervention will carry through.
  • While this official strategy can only last so long, I gauge the sentiment in the commodities sector as too wildly bullish, and though copper is a much needed metal in the ESG world, I see a retracement to 3.80 to 4.00 as a matter of eventuality.
  • I have to believe that there has been plenty of hoarding and though LME stocks may be drawn down, I have to conclude that merchants were hoarding in anticipation of higher prices.

As you can tell, I am clearly taking the contra on just about every stance held by the consensus. Whether my assessments pan out sooner rather than later is up for debate… and future observation. If the Fed decides to get serious, and if the Federal government spending slows for whatever reason, many supply/demand equations could return to equilibrium sooner than what many are thinking. That may still be a 6-12 month arrangement.

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23 thoughts on “Weekend Market Update; A change of direction in the major asset markets

  1. Morgan Stanley to block unvaccinated staff and clients from NY offices.

    https://nypost.com/2021/06/23/morgan-stanley-to-block-unvaccinated-staff-from-ny-offices/

    The excuse, of course, is to attempt to get things back to normal as quickly as possible with clients. But the management of these large firms are part of the secret societies and do the will of the synagogue of Satan.

    This is coming everywhere, and eventually we will not be able to enter the grocery stores without our vaccination verification.

    Just wait until winter when the people aren’t wearing their masks. The people will start getting the normal seasonal flu again and it’ll all be blamed on covid. The 90% of humanity that receives their news “programming” from their television and streaming services will go along with it as if it were all true.

    This will never end until we have the mark. And the people will rejoice. Most Christians will go along with it and say we need to be good neighbors.

    I have a lot of real estate investors who stop by my blog. If you are one of them with a lot of equity now, God bless…. We better start thinking about like-kind exchanges to more agreeable areas.

      1. Funny. They look like the same people who promote all of the deficit spending. These are the people who took the Economics classes in college that promoted government intervention in the marketplaces, for the benefit of humanity.

        They’re probably the ones who support open borders and socialized everything. They probably wave the pride flags, which is just another ruse by the elites to break up the family unit into smaller pieces, and thus push out the demand curve on housing.

        These dummies looking at this real estate will probably break up in the next couple years and each will buy their own house. The woman will feel empowered after she breaks free of her man. Her friends will say “you go girl.” Meanwhile, the NAR will promote pride and will be all for dysfunctional broken family units. It means more revenue to the Realtors.

        But, I digress….

  2. Central bank digital currencies get full BIS backing – Reuters

    https://www.reuters.com/business/central-bank-digital-currencies-get-full-bis-backing-2021-06-23/

    Crisis, reaction, and the solution. The BIS says the central banks need to begin developing digitized currencies, so big Tech doesn’t take over.

    So, dark intelligence develops Bitcoin, lets it run wild, lets it run basically unregulated, gets everybody on board with the blockchain concept, diverts the energies of the best minds into developing blockchain with the promise of riches, and then the elites step in with their digitized Central Bank digital currencies. Of course the central banks will do this out of necessity. They need to keep up .

    Everyday that I analyze this sector is another day that confirms the fact that Bitcoin was not developed by Satoshi Nakamoto. I would have to say that the genesis of Bitcoin came from Arlington, McLean, and Fort Meade.

    Welcome to your slavery.

  3. Just saw a stock that might be interesting… Global Self Storage, Inc. (SELF).

    Just priced a secondary offering way below market. Bought below before 8am and sold for a scalp after market open. Hope to buy back in. Good sector….

    1. SELF… No interest on the message boards. A definite looker. Taking contra.

    2. Don’t know how stable the dividend is, but at a current 5% dividend yield, as a REIT, it looks intriguing. Went back in right at the closing dip.

  4. Just calculated the current cap rate on one of my houses. I bought it at an 11% cap. At full market rent, it now has a 5.5% cap. Let’s go 3% cap! That was the cap at the height of the bubble.

    That means another 84% potential upside.

  5. I enjoy reading these articles about new social spending programs based on demographics and race.

    The $60 billion plan to give every American baby $1,000 at birth

    https://www.cnbc.com/2021/06/23/baby-bonds-the-60-billion-plan-to-give-every-american-baby-1000-.html

    This is excellent news for me and for those who own the income-generating assets, specifically housing assets. The top 1% devise these programs to a dumbed down slave class, so they can further consolidate the global wealth.

    These elites exploit the race card as it suits them.

    My properties in the affordable areas and those with large percentages of minorities have responded better than those in the more affluent ones.

    Sales in the lower priced tiers have fallen, because there is just not much left of this inventory. I can’t wait until housing price to income multiples reach 5+.

  6. Hello Chris,
    Is there a possibility that there could be a downdraft in commodity prices and also real estate for the next 4 years as the Covid Shots take effect? If people start dying off obviously there will be less demand for commodities and real estate. What are your thoughts on that possibility?
    I am already reading a lot of reports how these Covid Shots are having negative long term effects on those who got it. It is clear to me that these covid shots are dangerous. Even though the negative reports are only in the alternative media, there are so many more negative reports on the Covid Vax compared to flu shots or any other vaccine in the past. Thank heavens I do not pay attention to mainstream media, otherwise, I could have made a misinformed decision.

    1. I place this as a definite possibility. I mentioned this is one of the risks to not only housing, but to all the sectors. It is one of those amorphous and unquantifiable ones, and this one that is difficult to measure right now. With this said, I still wouldn’t make current investment decisions based on such a wild card, other than to say that we may need to begin thinking about relocating soon. This is why I say we should entertain like kind exchanges out of real estate.

      This brings up an interesting observation. We’re currently reviewing the actions of the Fed and the current stages of monetary policy by extrapolating current circumstances onto the next two or three years. If there is another “unforeseen crisis,” all of this changes once again.

      There’s still plenty of room on the Federal Reserve’s balance sheet to add to assets. If we are closing in on 40% of GDP, we can easily go to 100% and more. This is what I’ve been saying all along in light of Japan’s experiences, and Ben Bernanke also referred to Japan’s situation and said we could easily hit that level of 100%.

      We have another crisis and people begin dropping dead in the streets or becoming unable to work, they can easily push the rates below zero and in that regime of bond yields, asset prices can go through the roof.

      The strength and integrity of this monetary system is well-suited for manufacturing crises. The worse the world gets, the better the functions of this monetary system performs. This is what we’ve been saying all along on this blog; the central banks have it under control.

      1. I’m not seeing any signs in my area of people passing away because of the vaccines. I believe that is mostly alt media fear mongering, at least for this round. Maybe it’s different in other areas of the country. Next year could be a different story if the vaccines become a requirement as they are pushing the variant narratives now.

        Oil is up and your ENG tip is working out, maybe it will keep going up tomorrow. Like GBR, I think it was sympathy off of the TRCH frenzy. Regardless of traveling picking up, I thought the Saudi oil dump a little while back would still be an issue for that sector. Guess not!

        I noticed a huge dip in the charts across the board one day last week all at about the same time, like there was some sort of coordinated sell off without any mainstream news. As of today most of those stocks have recovered.

        One day it’s doom and gloom and then the next day it’s all happy recovery. Ultimately they can write the news, and put the prices where they want them. Kinda sad when popular media outlets make a statement about market conditions too early in the day and it does the exact opposite. Difficult to cut thru the fog and get decent information.

        1. The jury is still out with regards to long term disability and death due to vaccine. I think Dr. Malone on the dark horse podcast said we needed at least 3 years of data to know what the long term issues would be and see what autoimmune disorders show up. Some scientists are concerned about prion disease (mad cow/ CJD) because of the spike protein in the blood stream. All of these unknowns are such that if any percentage of these manifest themselves could crush the economy and certainly the medical system. The more concerning would be these diseases disabling young people and thereby removing a significant productive class from the economy.

          1. I am not making any investment decisions based on the covid jabs.

            It could be a massive alt-media fake out. Alt-media were taken over by establishment a long time ago; around the time of 9/11 the alternative media was killed by AJ types. Done on purpose to destroy nationalism and the Patriot movement. The Patriot movement was geared towards those with 10 iq points higher than normal. Now they are no different, perhaps lower than average.

            I am only making longer term decisions based on demographics and possible future military stuff. The clamp down on liberties in VA and MD was enough to get me to redirect and accelerate future plans. These blue states are terrible. The people here think they are open minded, but only if you agree with them. I intend to move where there are more of my people and less of the others.

            If the people in the US die, that just means more houses for the illegals who are already replacing them.

          2. I can say this much, I am certainly not going to take any of the vaccines. Anything that is as heavily promoted as the Hegelian answer for the establishment’s vaccines means it’s not being benefitting us.

            The establishment has purposefully suppressed all of the efficacious treatments to the exclusion of vaccinations.

            There are two different subspecies of humanity emerging, those who watch the news on their television and those who do not. I’m trying to understand why people are acting so irrational and ostensibly insane, and I have to conclude it’s because they’re being programmed from the MSM. Based on deductive analysis, taking these jabs would be insane, and even if the percentages of adverse effects are lower than expected by alt-media types, imagine the less obvious effects. If I had autoimmune problems there be no way on God’s green earth that I would ever take this stuff. HCQ and ivermectin gave shown to stop covid.

        2. It’s no longer a trend. It’s trendless. ENG rocked a couple days ago. I sold over up 10%. Rocking again as I speak.

          I just took my cash in kraken and purchased some bch.

          These are the types of markers that many can get beat up. Better to sit on cash and do other things.

        3. I just joined a FB group called Canadian Deaths and Adverse Reactions. Yes it is FB and the stories are anecdotal but there are so many episodes, with names, circumstances, dates of injections, when medical help was sought and what the response was. It seems that the medical community does not link the adverse effects right away to the vaccine. The patient is prescribed something and told to come back in a few days. And several died! Never made it back. The commonality seems that it starts with a headache that doesn’t go away, floaters in the eyes. Just this morning in the call-in portion of our local television show, the hosts asked ‘What do you think about travel restrictions?’ and a caller said he wasn’t ready as he got the first jab and has been very sick ever since and is afraid to get the 2nd jab. Personally, I know someone who got the jab and all of a sudden, eye problems and retina tore away. Another has blockage in the arteries but no other symptoms for heart attack and the doctor is stumped. Neither of these acquaintances is linking this to the vaccine. Coincidence?

          1. It’s terrible what’s going on. I still can’t believe that so many people are getting vaccinated. I do see a lot of instances where people got one dose and didn’t get the other, and I have to believe it’s what you talk about.

            I think the adverse reactions after the first dose are just so numerous and acute that many people are afraid to get any more. What I can’t believe is how the mainstream press and television proclaim about how the adverse reactions are normal and are a sign that the immune system is kicking in. I think there are a lot of people who believe this stuff. So far, I don’t think anyone in my family circles has gotten jabbed. They believe what I am saying.

            I personally believe that this could be the rollout of the Pale Horse. I think as the people die off here in the West, immigrants will flood in and take their places.

    2. This is just an observation. There is a gentleman who I talk with at the gym, and he received two doses of the vaccines. It’s as if he has been lobotomized. He seems to be more docile and something is different about him.

      At the time he got the vaccines, he was dragging his ass around in the gym and he looked like hell. At the time, I didn’t know he was just vaccinated. He revealed that to me after I asked him what was wrong. He was still grateful that he got vaccinated, because he told me he wanted to get things back to normal again. When I told him immediately after that that this would never be the case, he smirked and walked away. Talk about hardwired biases and reprogramming….

    1. I like copper and agree with the article and its premise. Just looking at the chart of copper’s continuous contract, I don’t like the last couple of red candles. I just need to respect the chart. Copper can indeed sell for much higher levels in the future, but I think it just got ahead of itself, and if the Biden regime cuts back on its ambitious timetable regarding all of this electrification stuff, we could see a reversal in the shorter term. Indeed, just this past week, copper just sliced right through the 50 and 100-day moving averages.

      But I can tell you this much, if copper goes to $10 a pound they will start finding alternatives like aluminum alloys, etc. It reminds me when they began to experiment with aluminum wire back in the 70s and 80s after the price of copper got out of control.

      I doubt there is anyone who is bearish on copper. It almost reminds me of the peak oil scam of the mid-aughts. I just think that most of the commodities have gotten way ahead of themselves and they have been trading like cryptocurrencies. I think there is going to be a lot of excess wrung out over the next couple years as the Fed and the other central banks around the world begin to tighten. These types of processes never correct themselves in the short-term. They tend to linger for the duration.

      I also believe that the FED needs to save face and realizes that inflationary pressures have run much hotter than they thought. I think over the next few months they will even accelerate the timetable more than they stated this past week. We may even see tapering begin by December-January. I think the FED may begin to experiment with raising rates sooner than many people are thinking. They just have to release the intentions over a period of time, lest they spook the markets.

      In addition, I believe the federal government realizes that they need to stop the additional spending as they’ve been getting criticized here. The negotiations between the Democrats and the Republicans are kind of designed to save face on both sides. The federal government knows it must rein in the massive spending they have promised, because prices and economic growth have advanced more than they initially thought a year ago.

      All in all, I’m concerned that the tightening is going to come faster and more furiously then the market is expecting.

      The FED won’t lose control on inflation, because the same owners of the FED also own the media and can program the plebes to believe inflation is falling.

      Keep in mind that QE is disinflationary by nature. Once this spending has fully circulated throughout the system, the resulting debt will remain and must be serviced. This will for provide a massive deflationary millstone around the neck of the economy. Given enough time, things will revert back to the QE normal.

  7. I guess you see it first hand as a property manager. The prices in building supply store chains are unbelievable. I hope you’re right.

    I agree that the dollar is the key.

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