November 25, 2020

Stocks have aggressively moved higher from the lows of March.
The crash in stocks was fierce, but the recovery has been even more fierce — up 66% now, from the March 23rd lows. 

And we are just beginning to see what asset prices look like when the visibility on a “return to normal” meets an unprecedented sea of global liquidity

Just how big is the sea (of liquidity)?  Remember, not only has the Fed and other global central banks flooded the world with trillions and trillions of new money, but the Fed removed the reserve requirement ratio for banks.  It's now zero.  At a zero reserve requirement ratio, the stock of money could increase infinitely.

Translation:  The value of money has been destroyed, which means the price of assets go up!

Cash is the worst place to be.  Be long asset prices.  
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Happy Thanksgiving!

November 24, 2020

Stocks are back at record highs. 

Real estate prices are at record highs.

Bond prices, are (still) near record highs. 

Copper, an industrial metal that tends to be an early signal of an economic turning point, is nearing a breakout to a seven-year high.

All of this, while oil, the most highly traded commodity in the world, remains more than 30% lower than the highs of just this year. 

But oil is on the move.  

The day before the election, oil made a low of $33.64 a barrel.  It's now up 34% from that level. 

And as you can see in the chart below, the yellow line is the highest price traded in the crude oil market in the past eight months.  That was broken today. 

What's most interesting, is that this move in oil comes as money is pouring into electric vehicle related stocks (the anti-oil trade). 

This demand for electric vehicle stocks is, of course, driven by the clean energy/Biden plan.   And with a presumed next President that has vowed to kill the fossil fuels industry in the U.S., most would expect oil prices to be heading toward zero. 

But as we discussed earlier this month, if Biden regulates the U.S. shale industry into extinction, OPEC will be back in charge.  And oil prices will go much higher, even in a world that’s transitioning to cleaner alternatives to oil. 

November 23, 2020

In the face of broadly rising asset prices today, gold was down 2%. 

As we discussed on Friday, this looks like the market is anticipating a lower probability of a big, multi-trillion-dollar stimulus package.  

Remember, last week the Treasury Secretary went to the Fed and requested the return of nearly half a trillion-dollars of unused funds from the original Cares Act.  The gameplan is to repurpose that money as targeted COVID relief for small businesses and federal unemployment checks.  

This can get money into the hands of people sooner.  The Democrat-led House would surely reject the smaller package.  But it may not require approval from Congress.  Congress has exclusive control of the purse.  But once they've appropriated funds (which they have through the Cares Act), "the President and executive branch enjoy considerable discretions as to how those funds are spent" (paper on Presidential Spending Discretion and Congressional Controls, here).

So, a more modest fiscal response is less inflationary, which leads to the dialing back on some inflation hedges. 

Of course, gold is the favored inflation hedge — and it has been sliding.     

Let's take a look at the chart …

Gold prices peaked on August 7th, and are down 11% since.  And today, we get a little technical break (down) in the chart. 

But this is likely just a shallow correction in a very strong bull market in gold. The longer-term inflationary damage is done, from the massive global monetary and fiscal response earlier this year.  That makes this dip in gold a buy

Remember, we looked at this chart back in early March.

For those that appreciate the value of technical analysis, the ABC pattern (from Elliott Wave theory) projects a move to $2,700.   

November 20, 2020

We've talked for months about the posturing between the Democrats and the Trump administration on a second relief package.

Pelosi thought she had enough leverage back in July, with the July 31 expiration of the federal unemployment subsidy looming, to force Trump and the Republican Senate into a huge second package — one that would address the Democrats wish list of state bailouts, (most importantly, at the time) voter reform/mail-in voting legislation and multi-trillion dollar funding for the New Green Deal.

Trump circumvented Pelosi's leverage, by extending the federal unemployment benefits through Executive Order.   

Pelosi and company then circumvented Trump by just mass mailing mail-in ballots. 

Now, as we've discussed post-election, the Democrats have tried to conjure up new leverage, pushing the "raging virus" narrative, and consequently going back into lockdowns in Democrat-led states.  That has been an effort to force the Republican-led Senate to relent on a massive second package (for state bailouts and the New Green Deal).  

Trump has sidestepped it again.  Yesterday, Mnuchin went to the Fed and requested the return of nearly half a trillion-dollars of unused funds from the original Cares Act.  This will likely be repurposed for actual relief/aid to businesses and people. With this, the Democrats would no longer be able to use a "lack of aid" as a call for Senate change, as it relates to the two Georgia Senate run-offs coming in January. 

This reduces the likelihood of a Senate flip.  And it reduces the likelihood of the implementation of the economically transformative energy overhaul.  With this, we end the week with the biggest clean energy ETF trading near record highs.   …​

November 19, 2020

As we’ve discussed in recent days, the markets continue to underprice the risk of more chaos surrounding the election. 

The VIX today continues to trade at the lowest post-Pandemic levels. 

And, as I said yesterday, with the timeline narrowing on December 8th deadline for resolving election disputes, we should expect the Trump legal team to become more and more vocal — taking their case to the American people.

They started that process today, with a noon press conference.  Not suprisingly the majority of the media did not cover it.  

For those that didn’t see it, you can see a replay on C-Span (click here) …​

They alleged a broadbase domestic and foreign conspiracy to fix the election.  Let me repeat this:  They alleged a broadbase domestic and foreign conspiracy to fix the election.

What about the evidence?  They claim to have signed affidavits from election workers from key counties and precincts.  They have expert analysis on statistical anomalies (with congruent patterns) in key swing states. Moreover, they connect the dots to a large scale corruption scheme with the voting systems and software. 

The validity of it all, of course, will be for a court to decide.  But, again, they will continue to take the case to the American people.  And we should expect the profile of this dispute to only increase.  And if the evidence grows, the mainstreet media will have a very hard time ignoring and discrediting it. 

Again, this comes as markets are broadly in a very complacent mode.  This should raise the specter of risk — if not put everyone on alert. 

November 18, 2020

We now have three vaccines that claim better than 90% efficacy.

For what is considered to be such an insidious disease, it's interesting that the scientists honed in on just the right protein and formulated a nearly flawless vaccine in nine months (or less).  And all three happened to complete studies just days after the election. 

For perspective, let's take a look at the CDC's chart on annual flu vaccine efficacy. 

So, we have a 90%+ efficacy COVID vaccine.  And the flu vaccine last year was just 29% effective.  I guess they were right. It's not the flu. 

As some areas of the country continue to ramp up stay-at-home orders, the Republicans have said they would favor a targeted $500 billion relief package.  But Pelosi, predictably, has no interest.  As we've discussed all along, the lockdowns are about applying pressure to the Senate to get funding for the Biden agenda — namely, a multi-trillion dollar spend to transform the American economy.

A reader asked early this week (my paraphrase), what's so wrong with giving in on an extra trillion dollars in stimulus, added to what is already a mountain of debt, deficit spending and Fed money printing?  You get money to people that need it.  Stocks go up.  You avert social unrest.  

My view:  That's exactly the mindset Pelosi has been angling for (i.e. holding the economy hostage for) since August.  It would unleash the money that would make irreversible change to the economy.  And that would not come through deliberate action by elected officials, it would come as a ransom payment to get suffering people relief. 

Now, stocks plunged into the close and continued to slide, post-close, in the futures market.  Importantly, the Dow put in this outside day — a technical reversal signal.  

These signals don't always work, but they have a good record of being present at historical tops and bottoms. 

In this case, as we discussed yesterday, the markets seem to be underpricing the risk of some chaos surrounding the election.  With that, the Trump legal team has been gathering evidence to present a fraud case.  That case will have to be made to the American people first, and the question is, will it be of scale and will there be irrefutable (large scale) evidence in the eyes of the American people?  We will see.  What's likely is that they will become more and more vocal, sooner rather than later.  And that alone should raise the specter of risk in markets. 

November 17, 2020

Stocks traded lower today, but remain near record highs.  The VIX, a reflection of the market's perception of risk, is near the lowest levels since the onset of the health and economic crisis.   

With an election that the media wants us to believe is 100% done and delivered, it seems like the market is underpricing the risk of more chaos. 

A place that might be sending a signal, is Bitcoin. 

Sure, we've talked about the pressure that new lockdowns will put on the Senate to relent on a massive stimulus relief package.  That would be very inflationary.  And with that, we would expect to see asset prices running wild.  Stocks might fit that description.  But commodities aren't running quite as hot.  And gold (the market's favored inflation hedge) has traded lower, not higher, in the past week. 

So, what is Bitcoin telling us?  Is it displacing the role of gold as the favored inflation hedge?  Probably not.  

What we do know about Bitcoin:  In its short history, it has a record of being a tool of corruption and money laundering. 
Does the rise in Bitcoin reflect corruption in the recent election? At the very least, it may reflect the rising perception of corruption (domestically and globally).        

November 16, 2020

Stocks get another lift today on a second consecutive 7am, Monday morning vaccine announcement.  

Last week, bond yields spiked to nearly 1% on the vaccine news.  Today the move in the bond market was much more subdued. But the yield on the 10-year Treasury, at 90 basis points, at a moment when lockdowns are ramping up again, is very firm, and looking a bit concerning. 

As we discussed last week, we may have seen the catalyst to mark the end of a bull market in a very, very long trend in bond prices (specifically U.S. Treasuries).

That catalyst to kill the bond bull market might have been last Monday's vaccine announcement.  With visibility toward a "return to normal" coupled with record high savings rates and trillions of dollars of new money sloshing around the world, rising Treasury yields (lower bond prices) could be the signal of some hot inflation coming down the pike. 

On the other hand, the catalyst to kill the bond bull market might have been the election, and the related deteriorating global confidence in the U.S. government. 

Investment in U.S. Treasuries have always represented the safest parking place for global capital, in the world.  But now we have a environment in the United States that certainly doesn't look as safe and stable as it once did.    

As I said last week, that's a formula global Treasury investors to make their way to the exits.  On that note, tomorrow we get the report on net foreign purchases/sales of U.S. Treasuries.  The expectation is for more outflows in the month of September.  That will add to the more than half a trillion dollars in foreign outflows from our government bond market since May. 

November 12, 2020

As we end the week, the pieces seem to be falling in place for another lockdown scenario.
As we’ve discussed since prior to the election, with the prospects of a split Congress we should expect Biden to hold the economy hostage, through tighter virus mitigation, to put pressure on the Republican-led Senate to agree on a big second stimulus package.  And expect it to come from Democrat-led cities and states. 
So, we’ve since heard from Biden’s coronavirus advisor, telegraphing such a move — a four-to-six week lockdown. Chicago issued stay-at-home orders yesterday.  Today, the NYC mayor said to prepare for school closures thorough the end of November.  This afternoon, Andrew Cuomo said the Governors of six Northeast states will hold an emergency summit meeting, amid spiking cases.  And California, Oregon, and Washington issued an advisory urging the public to avoid all non-essential out of state travel today.  
It’s coming. 
This comes as stocks finish the day up 1.5% and near record highs. 

November 12, 2020

This daily note, which I've been writing for almost five years, is about connecting dots.  

I talk a lot about markets, geopolitics, economics and even psychology.  I do so, because without the understanding of how all of these things work together, it's impossible to have an accurate view on markets or the world.

I don't wait for the nightly news on a big network to tell me what's happening on these fronts.  I don't rely on CNBC or the Wall Street Journal.  I like to hear or see it directly from primary sources (press conferences, speeches, data, actions).  That, in combination with the information in the prices of markets, I get the real news.  

With that, I've talked a lot about China over the past five years, the rise and the related threat.  I've talked a lot about Trump, and his role as a necessary disrupter in an economy that was teetering on the edge of depression, following eight years of economic malaise and Fed intervention.  I've talked a lot about the Fed, and its role in keeping the economic patient alive, following the Global Financial Crisis.  I've talked a lot about big tech, and the threat the "disruption" represents to the economy and society.  I've talked a lot about the massive globally coordinated investment to fight climate change — the climate actioners.  I've talked a lot about the virus, and the propaganda surrounding it (from the selective reporting metrics to the imagery of Chinese officials welding Wuhan residents into their apartments).  And I've talked a lot about the battles on Capitol Hill, and the election. 

These are all dots that have created a pretty clear "big picture" along the way. 

It was all about structural reform — the important change needed so that the global economy could sustainably emerge from the damage of the global financial crisis.  Trump took the lead (globally) when he came into office, making a lot of tough and unpopular moves in that direction.  And with that, it quickly became all about Trump.

Why did the big picture become all about Trump? 

As we've discussed, Trump has represented an existential threat 1) to the Chinese Communist Party, 2) to the global climate action plan, and 3) to the careers of entrenched politicians. 


Solving that problem became priority, above all else.  It dominated the Davos meetings in January this year.  They didn’t hide it.  It was about Trump (anti-Trump).  Not the global economy. Not even climate change. 

To what extent would they go to, to get rid of him?  Whatever it takes. 

Again, if you connect the dots, we see a pretty clear picture.  We have a virus that has derailed a strong economy — an economy that was positioned to produce the best growth we've seen since the late 90s boom — heading into an election year.  

And we get a virus, from China, a little more than a month after Trump forces the Chinese Communist Party into a "fair-trade" agreement that would be economically game-changing (negatively) for China.  The WHO (Foreign Policy Journal calls it “China’s Coronavirus Accomplice”) was "boots on the ground" in China, evaluating a virus for more than two months, and watching it spread across the world before they finally relented and called it a pandemic (which sets into motion domestic government responses).  

And then we have U.S. government and agency infighting and contradictory messaging over basic facts about the virus — all along the way.  And despite finding clear and effective treatment protocols in New York in early April (as data showed in the declining intubation data in New York hospitals), the virus timeline was drawn-out, and became an effective political tool to leverage, which ultimately translated into massively altered election protocols (via mail-in voting).  So, not only did the virus influence the election indirectly (via the economy), it influenced the election directly.

Now, with all of this in mind, we continue to connect the dots. 

So, coming into the election, I said "in the case of a Biden win, and split Congress, I suspect he may hold the economy hostage, through tighter virus mitigation, so that the Republican-led Senate will relent and do a second stimulus package (which will fund the clean energy plan).

Here we are.  Biden's coronavirus advisor talked yesterday about the strategy of a 4-6 week lockdown "to crush the virus."  Since the election, Massachusetts and New York have already ramped up restrictions.  And today, Chicago issued stay-at-home orders.  We should expect this to build, and very likely from Democrat-led cities and states.  The pressure will become intense, helped by the media, for the Republican-led Senate to fold to the demands of the Pelosi/Biden clean energy fund which is packaged as a "relief fund."  This isn’t a political view (save your emails).  This is a paying attention view.